In The News

Late last month, barely reported by the media amid all the general political static, something really amazing happened.  House Ways and Means Chairman Kevin Brady released a truly great tax reform plan. Meanwhile, last week:

Trump visited with House Republicans in what leaders billed as a chance for rank-and-file members to get to know him better before the upcoming congressional recess. Trump was greeted by applause from more than 200 House GOP members at the standing-room-only gathering, according to GOP aides, and was introduced at the event by TV personality Larry Kudlow.

It is significant that Trump selected the iconic supply side Reagan insider Kudlow for his warm up act.  It is significant that good, good, good vibrations were noted by Speaker Ryan (R-WI): “I thought he did a great job engaging with our members, and I think our members appreciated it.” The lines of communication appear open.

Speaker Ryan’s hand-picked chairman of the House Ways and Means Committee, Rep. Kevin Brady (R-TX), managed to achieve the impossible as head of Ryan’s House task force on tax reform.  Recent well-intended efforts at tax reform left many pessimistic. Nothing of the magnitude of the last big prosperity-with-equity tax reform, in 1986, seemed possible. Brady showed them how.

Brady rendered a big, high potency, high integrity tax reform plan that is shrewdly designed to vault America back into the lead of world economic competitiveness. It is structured to supercharge economic growth, increasing growth over baseline by 9.1% over ten years. It would lower rates, broaden the tax base and provide tax cuts to taxpayers across-the-board. It would dramatically simplify tax preparation for about 95% of Americans. And it would do all that without being a deficit monger.

Brady’s successful quest for the Holy Grail of tax reform makes him something like the Indiana Jones of the Congress of the United States. If Trump picks it up, the Ryan/Brady reform plan could dramatically change the chemistry of the 2016 presidential race.

Trump has been handed a sophisticated plan that would not be vulnerable to attacks by Hillary Clinton as a budget buster. The Ryan/Brady reform plan has been vetted by the independent, center-right Tax Foundation. It is a credible proposal to fulfill, in part, Trump’s core value proposition: to make America great again.

Without resorting to threats of potentially destructive tariffs it would profoundly advantage America’s trade posture. The Ryan/Brady reform plan would obviate the need for American corporations to flee punitive taxation through inversions. Conversely, foreign corporations would be fighting to headquarter themselves in the United States. Its structure would reduce, maybe even abolish, the self-inflicted disadvantages our legacy tax structure has on our export industries.

Trump would bring his powerful negotiating skills to the World Trade Organization to make sure the reconfigured tax structure receives fair treatment. It’s just the sort of credible prosperity plan that Larry Kudlow, who Trump trusts, could wield in the course of the campaign and as a future Trump cabinet official.

So what’s in the Ryan/Brady reform plan?  According to the Tax Foundation it “would lead to 9.1% higher GDP over the long term, 7.7% higher wages, and an additional 1.7 million full-time equivalent jobs.” The plan “Consolidates the current seven tax brackets into three, with rates of 12%, 25%, and 33%.” More fully it:

• Increases the standard deduction from $6,300 to $12,000 for singles, from $12,600 to $24,000 for married couples filing jointly, and from $9,300 to $18,000 for heads of household.
• Eliminates the personal exemption and creates a $500 non-refundable credit for dependents who are not children.
• Increases the Child Tax Credit to $1,500 per child, limits the refundability of the credit to $1,000, and raises the phaseout threshold for the Child Tax Credit for married households from $110,000 to $150,000.
• Eliminates all itemized deductions besides the mortgage interest deduction and the charitable contribution deduction.
• Eliminates the individual alternative minimum tax.
• Reduces the corporate income tax rate from 35% to 20%.
• Eliminates the corporate alternative minimum tax.
• Taxes income derived from pass-through businesses at a maximum rate of 25%.
• Allows the cost of capital investment to be fully and immediately deductible.
• Eliminates the deductibility of net interest expenses on future loans.
• Restricts the deduction for net operating losses to 90% of net taxable income and allows net operating losses to be carried forward indefinitely, and increased by a factor reflecting inflation and the real return to capital. Does not allow net operating losses to be carried back.
• Eliminates the domestic production activities deduction (section 199) and all other business credits, except for the research and development credit.
• Creates a fully territorial tax system, exempting from U.S. tax 100% of dividends from foreign subsidiaries.
• Enacts a deemed repatriation of currently deferred foreign profits, at a tax rate of 8.75% for cash and cash-equivalent profits and 3.5% on other profits.
• Modifies all business income taxes to be border-adjustable, disallowing the deduction for purchases from nonresidents and exempting export profits and foreign-derived profits from taxation.

The result?

On a static basis, the House Republican tax plan would increase the after-tax incomes of taxpayers in every income group. … On a dynamic basis, all taxpayers would see an increase in after-tax income of at least 8.4 percent. …

The House Republican tax plan would reform both the individual income tax and convert the corporate income tax into a destination-based cash flow tax. This plan would significantly reduce the cost of capital and reduce the marginal tax rate on labor. These changes in the incentives to work and invest would greatly increase the U.S. economy’s size in the long run, boost wages, and result in more full-time equivalent jobs. On a static basis, the plan would reduce federal revenue by $2.4 trillion, most of the revenue loss being from one-time transitional costs. However, due to the larger economy and the significantly broader tax base, the plan would reduce revenue by $191 billion over the next decade.

In short, the Ryan/Brady reform plan would “greatly increase the U.S. economy’s size in the long run, boost wages, and result in more full-time equivalent jobs” with a trivial increase to the deficit and with a high degree of economic justice.

As noted by Bloomberg News and The Washington Post, the supply siders, led by Kudlow, have given Trump the most enthusiastic embrace of anyone in the Republican Party establishment. The Ryan/Brady reform plan accomplishes at least two big things: growing America’s economy by an extra 9.1% over ten years while restoring America’s trade advantages in a powerful and constructive way. Politically it credibly addresses the key voter concern to restore America’s equitable prosperity and could build a strong bridge between the House and the White House.

More than an excellent tax reform will be needed to truly make America great again. Restoring integrity to the dollar also is crucial. Trump has glowingly praised the gold standard:

‘We used to have a very, very solid country because it was based on a gold standard,’ he told WMUR television in New Hampshire in March last year. …

Trump to GQ: ‘Bringing back the gold standard would be very hard to do, but boy, would it be wonderful. We’d have a standard on which to base our money.’

And America surely could count on a Trump presidency to cut back the massive regulatory thicket, perhaps reaching into Brady’s “smart regulation” legacy plan to apply a meaningful cost-benefit analysis in the adoption–and repeal–of regulations.

While the media was mostly looking elsewhere, Chairman Kevin “Indiana Jones” Brady, with the support and inspiration of Speaker Ryan, offered a splendid down payment on truly making America rich, and great, again. Once the GOP convention hoopla dies down, let Donald Trump invite Chairman Brady to Trump Towers to open up and help him inspect this splendid gift from the House of Representatives.

This plan is a gift to the Republican aspirant to the White House. It is a gift to American taxpayers and workers. Thank you Speaker Ryan. Thank you Chairman Brady. Let’s make America great again!