WASHINGTON, December 17, 2017: Despite what the mainstream media (MSM) and the just resist Democrats may be saying, the about to be approved tax reform bill will cause economic growth to soar. Come election time in November, Republicans, who Democrats say own this tax bill, will point to an extremely robust economy and simply say,
“Imagine, my opponent voted against this economic prosperity.”
The Dems, the mainstream media and those economists who prioritize curing perceived social injustices above setting policy that is best for the majority, say the tax cut is a sham. It is really a tax cut for the largest corporations and the wealthy with the middle class receiving little, if any, benefit.
And some middle-income earners may see their taxes rise. They say they are not sure how much growth we will actually see.
Except for the growth part, is Tax Reform opposition is somewhat right?
Economic growth will literally take off, especially since the entrance ramp has been built. By eliminated burdensome regulations, instilling confidence in all sectors of the economy and by increasing Americans’ wealth, growth has already started to increase. In the second and third quarters of this year, growth exceeded 3%. During current quarter, growth will likely exceed 4%.
In 2018, growth could exceed 4.5%. And it could be higher in future years. After the similar Kennedy/Johnson tax cut in 1964, growth averaged about 6.5% for four years. After the similar Reagan tax cut in 1982, growth hit 7.5% in 1984.
In order to achieve high growth, the economy needs new labor and new capital. The new labor comes from underemployed recent college graduates. They have the critical thinking skills for higher level jobs but have settled for less because of the slow-growth economy of the past 10 years.
New labor will also come from the able-bodied adult Americans who grew so frustrated with the slow-growth economy that they simply stopped looking for work. There could be as many as 6 million discouraged workers who would re-enter the workforce.
The need for new capital generated by Tax Reform is very important.
Some will argue that the US had tax rates as high as 90% in the 1950’s and the economy grew, so high tax rates do not slow growth. The problem is that in the 1950’s the US had a labor-intensive manufacturing base. Everything was essentially made by hand and there was little need for capital.
Today, we have a capital-intensive economy in both the manufacturing and the service sectors. The US economy needs capital to achieve non-inflationary growth. The lower tax rates create new capital.
The new capital comes primarily from three sources:
- After-tax corporate profits not paid to the shareholders,
- After-tax gains on the sale of an asset and
- Americans who pay their taxes, spend to support their lifestyle and then save the balance.
Whether the corporation directly invests the extra after-tax profit or, through dividends, gives it to the stockholders, there is new capital creation. That’s also true if the corporation buys back some of its stock or buys another company. Still, the extra profit will create new capital.
On the personal side, most of the new capital comes from the highest income earners. They pay their taxes, spend to support their lifestyle and wisely invest the balance.
If their tax rates are lowered, the spending on the lifestyle would likely stay the same, but they have more to wisely invest, creating new capital.
By reducing tax rates for all Americans, the economy has what it needs to grow. The middle class will likely spend most of their tax cut to improve their lifestyle which stimulates the economy. Higher income earners will have more capital to invest in growing businesses; Americans will find new and better opportunities in a growing economy.
That will elevate the under-employed and bring back the discouraged workers
Tax Reform means better opportunities that are the real benefit to the middles class.
The MSM and the Dems would phrase the above explanation as the tax cut benefits big corporations and wealthy Americans. Since much new capital needed comes from large corporations and wealthy Americans, it sounds like they are right.
Apparently, no Democrat in Congress has voiced support for the tax bill. It appears the Republicans have enough votes in both the House of Representatives and the Senate to pass the bill. If that is the case, Democrats who could be in a vulnerable position may want to think carefully about their vote.
Otherwise, their opponent in the primary or the general election will simply have to say:
“Imagine, my opponent voted against economic prosperity.”