On Tuesday, September 19, 2017, Senate Budget Committee members Pat Toomey (R-PA) and Bob Corker (R-TN) announced that they had reached agreement on a budget resolution to cut $1.5 trillion in spending over the next decade. This could pave the way for tax reform to reduce taxes by the same amount – $1.5 trillion.
The budget resolution would, if passed by both the Senate and the House of Representatives, mean that tax reform need not be “deficit neutral,” and therefore would be able to pass the Senate with 51% of the vote, rather than requiring a filibuster-proof “yea” vote of 60%.
In our opinion, a tax cut of $1.5 trillion, while lower than some have proposed as necessary, is a significant amount of money – certainly enough to have a beneficial impact on the U.S. economy.
It is true that the budget resolution is an only outline, and lacking in specificity. Nevertheless, we believe that the benefit of opening the door for tax reform to pass with a simple majority vote outweighs the lack of specifics. Accordingly, we would urge the Senate to pass the budget resolution with all speed, and the House to do likewise.
A recent NBC / Wall Street Journal poll indicates that Americans are divided as to how they view tax reform and tax cuts; however, there is a majority consensus that tax rates should be cut for small businesses (57%). In addition, 54% of respondents believe that a reduction in the corporate tax rate would create jobs.
We would strongly urge Republicans and Democrats to start there – with these majority positions – and work together for a tax reform bill that will produce more jobs for American citizens.
For an example of successful bipartisan tax reform, we can look to North Carolina, which passed state-wide tax reform in 2013, reducing the tiers of personal income tax rates to a single flat 5.499% (the lowest bracket had previously been 6%). The corporate income tax rate was reduced from 6.9% to 6.0% in 2015, dropping to 5.0% in 2015, with additional reductions to be dependent upon hitting specific targets for state tax revenue. Since these targets have been met, the corporate income tax has fallen to 3.0% for 2017. The reductions were funded by expansion of the tax base, closing loopholes, cuts to spending and reductions to the cost of entitlement programs, and the elimination of the state’s earned-income tax credits.
The result has been ~350,000 jobs added, and a near-50% drop in unemployment over the past four years. North Carolina has transformed itself from one of the slowest-growing economies in the nation to one of the fastest-growing, with surveys now pointing to North Carolina as one of the best places to operate a business.
It is important to note that North Carolina’s tax reform required bipartisan engagement, and a commitment by all involved to the good of the state, its citizens and its economy. According to U.S. Senator Thom Tillis (R-NC), all options were left on the table until their potential effects had been thoroughly assessed. Concerned businesses were reassured with the assistance of tax professionals to demonstrate the benefits of the proposed reforms.
We believe that both Houses of Congress should pass the current resolution, and that President Trump, Senators, and House Representatives, Republicans and Democrats alike, should commit to making the case for tax reform – particularly for popular measures such as cutting tax rates for small businesses – to their constituents, once the resolution has passed but prior to development of a detailed plan for tax reform. The President should use his “bully pulpit;” Senators and House Representatives can hold “town-hall” type meetings in their home states to communicate the need for tax reform, and to better understand and assuage their constituents’ concerns.
Tax reform is of vital import to the long-term health of our economy; to ensure its passage, we urge our elected public servants to recognize this need, and to work together, diligently and seriously, for the good of the nation.
Tax reform has the potential to affect many taxpayers, both individual and corporate. Call us today – we can help you position yourself to take advantage of tax breaks likely to affect you, your business, and your family, while protecting yourself under the current tax code.
Stay tuned to our blog for updates and commentary, as events unfold.