Right On: Cut taxes to boost wages and grow the economy

October 11, 2017 Utah Channel 3

OPINION — The best way to boost wages is to grow the economy. The best way to grow the economy is to cut taxes.

Those truths have been proven time and again by Presidents Coolidge, Kennedy, Reagan and Clinton.

To stimulate the economy, Kennedy proposed major tax cuts, declaring, “A rising tide lifts all boats.” To many Democrats’ chagrin, he also said:

“The paradoxical truth is that taxes are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.”

In his recent book, “Prisoners of Hope,” Randall Woods called the Kennedy tax cut an economic “stroke of genius” that made Lyndon Johnson’s Great Society possible. Gross national product and disposable personal income both rose dramatically, while the number of families in poverty and people out of work dropped.

Facing the same problem, Obama chose instead to raise 13 taxes. Guess what happened? The conservative New York Post notes he’s the first president since Herbert Hoover who did not have a single year of 3 percent growth.

The left has plenty of folks ready to excuse Obama’s poor performance, claiming our economy is no longer capable of growing faster than 2 percent per year. The liberal Committee for a Responsible Federal Budget says that subpar growth of 1.8 percent is “a reasonable assumption.”

They sound a lot like the liberal New York Times in 1982. It reported that despite Reagan’s tax cuts, “professional economists have lowered their projections for economic growth to 1.5 to 2 percent.” Real GDP growth was 4.6 percent in 1983, 7.3 percent in 1984 and 4.2 percent in 1985.

In 1997, liberal economist Paul Krugman argued that “the United States cannot look forward to growth at a rate of much more than 2 percent over the next few years.” His article appeared just before President Clinton signed the Taxpayer Relief Act of 1997 which lowered capital gains taxes, called a “tax cut for the rich.” The economy averaged 4 percent growth for the next four years.

Can we do it again? Should we give tax cuts a try or should we accept Obama’s low growth as the new normal?

Republicans in Congress and the administration have history on their side. I’ll make an argument for two of their proposed changes: lowering corporate taxes and eliminating the estate tax.

Jobs and wage growth depend on worker productivity, plain and simple. In turn, productivity depends on installing new equipment and tools that allow workers to do more in less time. Computers and automated machine tools are examples.

America’s corporate tax rate today is 35 percent, second highest in the world when state and local taxes are included. And unlike most countries, we tax foreign profits a second time when they’re repatriated. CNBC reports that U.S. companies are “hoarding” $2.5 trillion in cash overseas to avoid U.S. corporate taxes.

Three features of the Republican plan will stimulate domestic business investment: lowering the corporate tax rate to 20 percent, immediate 100 percent write off of business investment and dramatically reducing taxes on overseas earnings repatriated to this country.

The combination will make corporate investment in American plants, equipment and workers much more attractive. Corporate earnings and stock prices will get a boost while workers will share in the gains.

Depending on whom you believe, between 20 percent and 75 percent of corporate taxes are reflected in lower wages. With a corporate tax cut, wages will rise.

As corporate profits and stock prices rise, underfunded, at-risk retirement plans at private companies and at state and local governments will benefit. Individual 401(k) accounts and IRAs will grow.

Republicans also want to eliminate the estate tax. Liberals see it as a tax cut for the rich.

In 2001, Nobel Prize-winning economist Milton Friedman wrote an open letter opposing the estate tax. That letter now bears the signatures of 723 prominent economists, including four other Nobel Prize winners. The letter points out the tax’s unfortunate incentives:

“Spend your money on riotous living – no tax; leave your money to your children – the tax collector gets paid first. That is the message sent by the estate tax. It is a bad message and the estate tax is a bad tax.”

Economists argue that taxing estates punishes saving and reduces the capital available to grow the economy long term.

As in the past, these Republican tax cuts are portrayed as tax cuts for the rich despite their widespread benefits for most Americans.

Yet despite what we hear from the likes of Bernie Sanders, the rich are already paying more than their fair share.

U.S. households with the highest 10 percent of incomes pay 45 percent of their income as taxes, highest in the world. Compare that to taxpayers in countries like France, Japan, Sweden or Denmark, all of whom pay less than 28 percent. Surprised?

According to the Organization for Economic Cooperation and Development in Paris, the U.S. “has the most progressive tax system and collects the largest share of taxes from the richest 10 percent of (its) population” in the developed world. Its figures include income, Social Security and Medicare taxes.

Naysayers explained why our economy was stuck in low-growth ruts in 1962, in 1982 and in 1997 and why only the rich benefit from tax cuts. They were wrong every time and they’re wrong now.

Let’s give tax cuts a chance. Make America grow again!

Howard Sierer is an opinion columnist for St. George News. The opinions stated in this article are his own and may not be representative of St. George News.

Email: hsierer@stgeorgeutah.com

Twitter: @STGnews