Yes, history proves that tax relief generates more jobs and larger paychecks.
By MIKE BOST
In 1986, Americans flocked to theaters to see the year’s No. 1 movie, “Top Gun.” A lot has changed since Maverick and Ice Man prepared to do battle with Soviet MiGs, as Kenny Loggins’ “Danger Zone” blared in the background. However, one thing that hadn’t changed for the better in over three decades was the federal tax code.
The visionary competitive tax code President Reagan signed into law in 1986 had become a cumbersome, complex, and outdated relic. Last year, Congress made pro-growth tax reform our top priority. I’m proud to report that the Tax Cuts and Jobs Act signed into law in December by President Trump creates an environment to grow our economy and empower both job creators and working families alike.
History proves that tax relief generates economic growth, more jobs and larger paychecks. Tax reform under the Reagan administration in 1986 led to a significant boost in America’s economic activity. American GDP growth averaged about 3.9 percent and reached as high as 4.2 percent. By comparison, that economy was substantially better than the 2009-2016 period when average GDP growth was an anemic 1.5 percent.
Inspired by President Reagan’s 1986 tax reform, the Tax Cuts and Jobs Act brings the 35 percent corporate tax rate — previously the highest in the industrialized world — down to 21 percent. It also allows businesses to immediately write off the full cost of new equipment to improve operations and enhance the skills of their workers – unleashing growth of jobs, productivity, and paychecks. Important to our Main Street entrepreneurs, tax reform protects the ability of small businesses to write off interest on loans, which helps small businesses start or expand, hire workers, and increase paychecks.
The ink is barely dry on the tax reform law, but positive results are already coming in. Over one hundred companies — including major airline, media and financial employers — have publicly announced that they are directing part of their tax cut savings to significant pay increases for their employees, to the combined tune of over $1 billion.
And retirement accounts have been significantly boosted by the tax cut-generated stock market surge. In January, the Dow Jones eclipsed 25,000, less than a year after it topped 20,000 — one of the fastest increases in history. For the over half of Americans with underfunded retirement accounts, this is welcome news.
Tax reform benefits businesses of all sizes. Having been a small-business owner myself, I can tell you that small businesses are the backbone of Southern Illinois’ economy. But the exemptions, exclusions, deductions, and credits in our code make Swiss cheese of our tax system and put our nation’s small-to-medium businesses at a disadvantage. We knew we needed to help small businesses grow, hire, and invest in our communities. Among other historic provisions, this law offers a first-ever small business tax deduction of 20 percent to support our Main Street job creators and the millions of Americans they employ.
The way this historic new deduction works is simple. For pass-through business income of up to $315,000, the business owner can deduct 20 percent from their taxes. So, at this income level, that means $63,000 is protected from taxes and can instead be used for the needs of the business and its workers.
For business owners with income above this level, the 20 percent deduction is available if they meet straightforward criteria based on either wages paid or capital invested in the business. In combination with the lower tax rates for individuals delivered by the new law, this deduction reduces the effective tax rate for small businesses to no more than 29.6 percent – 10 percentage points lower than the old tax code.
Whether a small business is just starting up with a handful of workers or if they’re an established company with many more, the ability of businesses to keep more income to use as they see fit is crucial to success and growth.
In addition to higher employee wages due to economic growth, working families and individual taxpayers haven’t even begun to feel the direct effects of tax cuts on their paychecks from reduced federal withholding that will take effect in February. The Department of the Treasury updated withholding tables to indicate that 90 percent of wage earners will experience an increase in their take home pay. You’ll be able to keep more of what you earn in the first place.
How is this possible? Tax reform doubles the standard deduction from $6,500 to $13,000 for individuals and $12,000 to $24,000 for married couples while also lowering rates across the board to 0 percent, 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent. The bottom line is that you work hard for your paycheck and you should — and will — be able to keep more of it.
Loopholes and complexities have also made it difficult for folks to get by, let alone get ahead. That’s why we eliminated many complicated itemized deductions but retained tax incentives for home mortgage interest, tax incentives for work, higher education and retirement security. It also continues the deduction for charitable contributions so people can donate to their local church, charity, or community organization.
The numbers can be dry, but our goals for tax reform were straightforward: a stronger economy with more jobs, fairer taxes, and bigger paychecks for hard-working Southern Illinoisans. The Tax Cuts and Jobs Act has had very encouraging early results and I’m confident that this economic momentum will continue.
Rep. Mike Bost has represented the 12 counties of Illinois’ 12th District in the U.S. House of Representatives since 2015. He serves as chairman of Disability Assistance and Memorial Affairs under House Committee on Veterans’ Affairs. He is a Republican from Murphysboro.