Republicans are just days away from delivering on their promise to give American families a “giant tax cut for Christmas,” President Trump said in a December 13 speech billed as his “closing argument” in favor of tax reform.
In making his pitch, Trump said that he had received assurances from the IRS that it could adjust its withholding tables by February in response to a tax bill signed into law before the end of the year. This would provide taxpayers with “lower taxes and bigger paychecks” almost immediately, Trump asserted. The IRS later confirmed that it was planning to issue initial guidance on the subject in January with the goal of it taking effect as early as February.
Trump declined to get into specifics on the agreement in principle that Congress has negotiated to reconcile differences between the House-passed bill and the Senate measure, but insisted that it would boost jobs and wages and provide “massive tax relief for American families and for American companies.”
As an example, Trump said that the child tax credit agreed to by both sides would be “even larger than expected.” The House-passed version of the bill raised the child tax credit from $1,000 to a $2,000 maximum, while the Senate-passed version capped the credit at $1,600. Several Republican Senate members had pushed for a more robust child tax credit expansion. (Side-by-side comparison of the GOP tax plans.)
Earlier, in remarks given just prior to a lunch with 10 Republican members of the conference committee overseeing the legislative accord, Trump said that he would be “thrilled” with a 21 percent corporate income tax rate in place of the anticipated 20 percent rate, though he stressed that no rate levels had been finalized. He noted that both are significantly lower than the 35 percent rate in place now.
Trump said the tax cuts would “breathe new life into the American economy” helping to “tear down restraints on discovery, innovation, and creation,” echoing a sentiment expressed by the White House’s top economist earlier in the day.
In an on-stage interview hosted at the Brookings Institution by the Hamilton Project, Council of Economic Advisers Chair Kevin Hassett predicted that tax reform would spur innovation, most notably from the tax cuts significantly reducing the cost of capital.
Hassett explained that more robust capital spending would likely lead to higher rates of return on research and experimentation, which would fuel investment in those areas. He said it would also likely help address the issue of “disappearing entrepreneurs,” as entrepreneurs would have a greater incentive to take an innovative concept and turn it into a business. He added that, because entrepreneurial businesses are risky ventures, “[lower] marginal tax rates might help with that.”
For economically struggling communities, dramatically lowering the corporate tax rate would create “a kind of enterprise zone on steroids,” Hassett said. A lower corporate rate would encourage firms to invest in the United States, and with the economy now near full employment, they’ll want to locate in communities that have lots of available workers, he said.
As for evaluating the tax bill’s effectiveness at achieving the desired boost to economic growth, Hassett said to watch for capital spending as a share of GDP to go up. Criticism of the tax cuts would be “completely fair” if capital spending goes down in a year’s time, he said.
He added that even if many companies increase stock buybacks and provide investors with more dividends, those investors will “recycle the money and put it, perhaps, into more entrepreneurial ventures.”
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