There’s an old saying that time is money; that’s the concept behind “Tax Freedom Day” which signals the portion of the year Americans work just to cover their federal and state tax bills. This year, Tax Freedom Day falls on Tuesday, April 16, the day right after taxes are due.
Without the Tax Cuts and Jobs Act of 2017, Tax Freedom Day would have been later. (It fell on April 21 last year, so it moved five days up this year.) This is a win for all the American families who get to keep more of their hard-earned dollars and work more for their own prosperity and less to fund the government.
We can build on the Tax Cuts and Jobs Act’s (TCJA) success and keep tax rates low in two ways: First, Congress should make the individual income tax cuts in the law permanent. Second, and more important, Congress should work to restrain spending.
The TCJA made several significant cuts to individual income taxes. Most notably: It doubled the standard deduction. It lowered rates for all tax brackets. It increased the Child Tax Credit from $1,000 to $2,000 per child. But none of these changes are permanent. They will “sunset,” meaning they are only in effect until 2025.
The law also reduced the corporate tax rate from 35 to 21 percent. This huge tax cut for businesses has helped the U.S. labor market add hundreds of thousands of jobs, even pulling many long-term unemployed and discouraged workers back into the labor force. The TCJA made the corporate tax rate permanent for two reasons: For one thing, businesses need certainty in order to plan for the future. For another, political pressures being what they are, there’s greater hope that a future Congress will extend the individual income tax cuts than to do the same for corporations.
Now’s the time: The 116th Congress can at any time pass legislation that makes the individual income tax reforms as permanent as the corporate tax cut.
But perhaps even more important to ensuring future low tax rates, Congress should address spending. High spending levels today represent tax bills to be paid, if not in the present, then in the future. The Tax Foundation also calculates the day when Americans would be free from funding the government were federal borrowing also included. This year, it’s May 8.
It seems members of both parties are concerned about the debt and deficits only when the opposite party is acting to increase them. Democrats have used several talking points to smear the Tax Cuts and Jobs Act (including misleading people to believe their taxes increased, when in reality they decreased). But one notable criticism of the tax reform law was that it would add to national deficits.
Thankfully, so far, the Tax Cuts and Jobs Act has not resulted in lower government revenues. While revenues are lower than what they would be otherwise, there has not been a drop in revenues from 2017 to 2018, and revenues are set to continue to increase strongly in 2019 and beyond.
President Trump recently released his budget, which ambitiously aims to balance the budget in 15 years. The president’s budget is always more a political document than an actionable policy, but the spending cuts recommended in this plan are worth considering.
Cutting taxes is an easier political exercise than cutting spending; there will always be a constituency or special interest opposed to reduced expenditures. But the huge constituency of American taxpayers will ultimately be best served by a government that spends less and borrows less.
Otherwise, the tax cuts in the TCJA will certainly be temporary and Tax Freedom Day will move in the wrong direction, meaning Americans will have less of the year left to work for ourselves. Let’s avoid this fate and instead focus on responsible spending reforms now.
READ MORE ABOUT THE TAX CUTS AND JOBS ACT: