David M. Snick at the WSJ suggests we should apply the Warren Miller standard, go big or go home, to GOP tax proposals. In David’s word, proposals should be audacious. We are not convinced but here is our plan to meet that standard:
The Graetz Plan to reduce payroll and income taxes while adding VAT plus
Eliminate tariffs, death tax, corporate tax and gas tax and replace with carbon tax.
David is afraid that the current political situation will lead to
Fearing this outcome, Republican leaders are being tempted to play small ball. They might suggest modestly lowering the corporate tax rate. They might propose allowing full expensing of business investment, to be scaled back after several years. To help the middle class? They’ll throw in a modest hike to the standard deduction. Anything to get something done.
Not as audacious as our proposal and not our favorite choices but we would be delighted. David thinks it is small ball. What does he suggest?
Republicans shouldn’t play small ball. Their goal should be a tax-reform plan that will create robust economic growth, which in turn will help heal a bitterly divided nation.
Yup, we are on board for robust economic growth. The key to robust economic growth is productivity. So what does David suggest?
At minimum, the standard deduction should be tripled. But reformers also need to think creatively. Tax reform, entitlement reform and health-care reform cannot be considered in isolation. Working families need relief across the board.
So his only two suggestions are: be audacious and triple the standard deduction? We guess. And even David recognizes that increasing the standard deduction will have little impact on because, as he says:
People who earn less than $50,000 a year pay an average effective income-tax rate of 4.3%.
So a thousand dollars in deductions nets them $43. Increasing the standard deduction does nothing for growth and little for low income folks. As David says and everyone recognizes, payroll tax is a bigger deal than income tax for folks in the lower quintiles of income. See the Graetz Plan for one possible idea.
Then David invokes Reagan to suggest we favor Main Street over Wall Street. We don’t know what David means by that as applied to tax policy. We do know that Reagan understood that incentives matter and fought against those that denigrated his program as “trickle down economics“. Sending a check to folks is the opposite of supporting robust economic growth. Better incentives are the way to do that. Substantially reducing or eliminating the corporate tax is the best way to support robust economic growth. We are not sure if it qualifies as audacious.