I have spent years advocating for tax reform, along with House Speaker Paul Ryan and other conservatives, and I am thrilled it is now within our grasp.
Since leaving the White House this summer, life has been slightly less intense for me. Yet I remain engaged with our agenda and communicate regularly with President Trump and leadership in the House and Senate. I will assist in any way possible to get the Republican tax plan passed because it is good for America.
The plan will overhaul an overly complex tax code, provide low- and middle-income Americans with deserved tax relief, and shatter the business and corporate tax rates in ways that could push domestic GDP growth to 3.5% and higher. This is why I predict the tax reform bill will not only pass the House and Senate and arrive ready for President Donald Trump’s signature by year’s end, but that it will also have an historic impact that will rival that of the Ronald Reagan-era tax reform of some 31 years ago.
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We have finally reached a point, with majorities in both the Senate and the House of Representatives and a White House willing to take bold steps, where we can create this heightened economic growth for all Americans.
The key to this plan’s success is the 20% business tax rate (cut from the current rate of 35%), which has the potential to bring back more businesses to the U.S. It will reduce the incentive for companies to open plants overseas and the need to keep their money elsewhere. This rise in domestic activity will then create higher wages for U.S. workers.
The 20% corporate tax rate does not appear to be negotiable for President Trump. I’ve heard talk of 22% or 23%, but that’s not something that will be easy to do.
The plan also reduces the tax liability for the folks who are struggling to make ends meet. For instance, the plan increases the standard deduction for individuals to $12,200 from $6,350, and for married couples to $24,400 from $12,700. Also in the plan is a temporary $300 personal credit, along with a $300 non-child dependent personal credit, and the current child tax credit will go up to $1,600. All of this will put more money in the pockets of working people.
The bill will also reduce the current marginal income tax brackets from seven to four, and add a one-time deemed repatriation tax of 12% to encourage companies with off-shore profits to bring that money back to the United States. Some estimates have Fortune 500 companies accumulating as much as $3 trillion in profits overseas. This move will make the U.S. competitive with the rest of the world again.
In addition, while eliminating some deductions, it maintains two that are crucial for the middle class: deductions on mortgage interest and property taxes.
These two deductions are among the most popular with taxpayers. I understand critics who don’t want to see either deduction tampered with. Under the plan, a married couple could deduct interest on mortgages of up to $500,000, down from $1 million, and deductions of state and local property tax would be capped at $10,000. I would not be surprised to see some compromise on these provisions. Home ownership is a chief component of the American economy. We have to get that right.
Another issue that could be up for discussion is the carried interest tax break, which benefits hedge fund investors and venture capitalists. Currently, it remains untouched. President Trump suggested eliminating this break during the campaign, which allows income to private equity, venture capital, real estate, and hedge fund general partners to be taxed at 20%—instead of the much higher tax brackets paid by other high-wage earners. There has also been discussion of bifurcating hedge funds and venture capital—preserving a lower tax rate for VCs, who are seen as fueling job growth, while raising it for hedge funds.
Regardless of what happens on these issues, this reform measure targets the real problem in our economy today: Despite lower unemployment and a higher employment participation rate, wage growth is stubbornly sluggish. This bill incentivizes wage increases by boosting economic activity and lowering the tax burden on businesses.
Skeptics might argue that those savings will likely go to shareholders, but the vast majority of employees in America do not work for publicly traded companies. Additionally, as the job market tightens, competition among all businesses to recruit the best employees will put upward pressure on wages as well as providing better benefits. That cannot help but improve the lifestyles for working Americans.
The deduction for state and local income taxes is eliminated. That has attracted some attention, too. Perhaps this will lay bare the need for tax reform at the state level. Let’s face it: There will continue to be little incentive for the taxpayers to pressure state governments to address the high taxes in many of these states if the tax liability can simply be passed off to the federal government via deductions.
Take the Wisconsin and Illinois border as a case in point. When I was growing up in Wisconsin, Illinois was an attractive state for entrepreneurs and businesses. Wisconsin used to routinely lose in that border competition. Now, as a result of pro-growth efforts by governors Tommy Thompson and Scott Walker, Wisconsin has seen jobs and workers migrate back to the state thanks to lower taxes, better-quality jobs, and a lower cost of living. State governments are finding that if they fail to make their state more competitive by increasing earning potential and lowering taxes, they will continue to witness a drain in quality businesses and workers, and ultimately their economies will suffer.
This is a microcosm of what we are witnessing on the global stage. If we do not lower our taxes, businesses will continue to look for homes in more tax-friendly countries such as Mexico, China, Ireland, and Vietnam.
Generating further growth and higher-quality jobs is the best way to address the deficit as well. This, in part, means making it easier for people to start businesses and hire more workers at higher wages. That will ultimately bring in additional revenue and pave the way to paying down government debt. We cannot tax ourselves out of debt.
The beauty of this tax plan truly is its simplicity. It will lower rates for corporations and small businesses, lower taxes for middle- and lower-income earners, put more wages in the pockets of Americans, and help bring trillions of dollars that corporations are hoarding overseas back to the U.S. The end result: more jobs created at home.
Having been involved in the discussion about tax cuts and tax reform my entire political career, I consider this tax bill to be of massive importance. It is a remarkable achievement, even if some aspects of the proposal may need refinement. It’s good for corporations, entrepreneurs, and wage earners alike.
I pledge to do whatever I can to help the president get this passed—ensuring that an even stronger America can be passed down to our children and grandchildren.
Reince Priebus is the former White House chief of staff, the longest-serving chairman of the Republican National Committee in recent history, and a member of the Washington Speakers Bureau.