On Thursday, the Senate will hold a key budget vote that could determine the fate of the Trump tax cut. Cutting anti-growth taxes is a core tenet of the Republican Party’s economic message, so this shouldn’t be taking so long and shouldn’t be so hard to get done. Unlike ObamaCare repeal votes, tax cuts are very popular with voters. A recent Tarrance poll finds that a majority of Americans believe that a tax cut would be good for the economy. Republicans are winning the case with voters that a big tax cut for businesses and families means jobs and growth.
But voters are skeptical that the GOP can deliver. When Americans are asked which party is better able to deliver a tax cut, 36 percent say Republicans and 38 percent say Democrats. That’s a stunning result, given that Democrats don’t even want to cut taxes at all. If Republicans lay an egg on the party’s signature economic issue, the political ramifications could be a GOP wipeout in 2018.
Some in Congress are spooked by the multitrillion-dollar revenue losses that the Congressional Budget Office and left wing forecasters are falsely predicting. These fantastical projections assume no positive impact whatsoever from chopping America’s highest in the world tax rate to below the international average. They assume that bringing $2 trillion of repatriated capital from overseas back to the United States won’t mean more domestic investment and jobs.
We can have a lively debate about how big the benefit from the Trump tax cut will be, but all reasonable people should be able to agree that impact surely is not zero. If you tax something less — in this case work, investment and small business creation — you will get more of it. The CBO ignores this truism, which is like arguing that if you put something in the freezer, it won’t get colder.
Moreover, the deficit hawks don’t seem to understand that faster growth is a precondition to deficit reduction. As long as the economy stays at the CBO forecast of below 2 percent growth for the next decade, the debt will rise by another $10 trillion and soon thereafter will double to 150 percent of gross domestic product, which is Greece and Detroit territory.
There is no politically feasible combination of spending cuts and tax increases that will prevent that debt spiral. Austerity won’t balance the budget. But a plan that gets growth on a sustainable 3 percent to 4 percent growth trajectory can cut the debt as a share of GDP almost in half by 2030 because the GDP will be at least $4 trillion larger, which is like adding another Michigan, Ohio and Pennsylvania to the U.S. economic output.
Sen. Rand Paul (R-Ky.) has a legitimate complaint that because of minor glitches in the tax plan, some middle class families with children in certain states might face higher taxes. This is easily fixable, so any GOP plan should ensure that every working class family pays less, not more taxes, under the final bill.
The four of us helped advise Trump on his tax plan in various capacities during the campaign and while he has been president. The plan on the table is far from perfect. We were disappointed that the Trump promise of a 15 percent business tax rate has suddenly jumped to 20 percent. Let’s hope GOP negotiators don’t raise the rate further or the positive economic effects of the plan will be dissipated.
But the plan that the Senate will vote on will increase jobs, wages and economic growth. It is the most pro-growth tax plan since the Reagan years. How can any Republican in good conscience vote against that? For that matter, how can Democrats vote against American business and prosperity?
The party of John F. Kennedy, the president who authored one of the biggest tax rate cuts in American history, has turned its back on pro-worker and pro-business tax relief and appears ready to vote as a bloc against reform. Voters in North Dakota, Montana, West Virginia and Indiana — states among others where voters overwhelmingly support the tax relief — should pay close attention to how their senators vote.
For the Senate Republicans, this is a gut check moment to pass once in a generation pro-growth tax reform. If the budget resolution passes with all Republican votes, expect President Trump to sign into law a tax cut gift to the American people by Christmas Eve. Moreover, expect the economy to shift into an even faster gear in 2018.
Steve Forbes is publisher of Forbes Magazine. Larry Kudlow is an economic commentator with CNBC. Arthur Laffer is president of Laffer Associates. Stephen Moore is a senior fellow at the Heritage Foundation. The four are the founders of the Committee to Unleash Prosperity.