Taxpayers, Economy Will See a Brighter 2018, Thanks to New Tax Law

President Donald Trump’s end-of-the-year signing of the Tax Cuts and Jobs Act not only fulfilled one of his key campaign promises, but also capped off more than 30 years of hard work and determination by lawmakers and taxpayer advocacy groups to deliver a simpler, pro-growth tax code to taxpayers and businesses. The impact of the legislation was immediate, with some 40 companies already handing out bonuses of up to $2,000 and offering increases in 401(k) matches.

It is not surprising that, freed from the shackles of a burdensome and outdated tax code, businesses are already responding. After all, businesses were held back for decades by a corporate tax rate of 39 percent (combined state and federal) that far exceeded the average of the 22 percent average rate of our global competitors. In fact, while the United States stood frozen with its 1986 tax code in place, other nations boldly moved to lower their tax rates in order to attract and retain businesses and jobs.

The new, lower corporate tax rate of 21 percent will finally allow American companies to compete on a level global playing field as will the shift to a territorial tax system. Prior to the new tax law, the United States was the only Group of 7 nation to employ a worldwide system under which U.S.-based companies are taxed on all business income, including income earned overseas.

A territorial system taxes only where the income is generated, removing the threat of double taxation and bringing back U.S. dollars that are trapped overseas. The United States will now be able to boast of a pro-growth tax environment with American businesses no longer seeking to move to friendlier foreign jurisdictions in search of a better tax deal.

Small businesses have long been the economic backbone of our nation, and they too have struggled under a tax code that discourages entrepreneurship and investment. Lawmakers, who recognized this despite claims from naysayers that the new tax law solely benefits big corporations, worked to ensure that the final legislation gave a boost to small businesses from coast to coast.

Those provisions include a 20 percent deduction of qualified business income from particular pass-through businesses (including S corporations and limited liability corporations), full and immediate expensing of capital investments for five years and bumping up the Section 179 expensing cap to $1 million from the previous $500,000. Freed up from the 1980s tax code, small business owners can expand, and would-be entrepreneurs will now be able to follow their dreams of starting their own business.

Individuals and families will also benefit from the new law, belying the characterization that it is a handout only for the wealthy. The top marginal rate is reduced to 37 percent from 39.6 percent; the standard deductions for single filers, heads of household and joint filers are all increased under the legislation; and the child tax credit is expanded as well. These are among the many provisions designed to lend a hand to the nation’s struggling middle class.

Part of that helping hand is the tax law’s repeal of the Obamacare individual mandate so that taxpayers no longer have to worry about onerous penalties should they choose to forgo buying insurance.

There is good news for the bottom line for the economy and taxpayers. According to the Tax Foundation’s analysis, “the plan would significantly lower marginal tax rates and the cost of capital, which would lead to a 1.7 percent increase in GDP over the long term, 1.5 percent higher wages, and an additional 339,000 full-time equivalent jobs.” That’s a win-win by any objective estimation.

It was 31 years in the making, but in the end, the new tax system will spur economic growth, allow Americans to keep more of their hard-earned money and enable businesses small and large to expand, hire and increase wages. There is certainly more work ahead, but Congress should be commended for putting tax relief for Americans under the Christmas tree. And 2018 is looking bright indeed.

David Williams is the president of the Taxpayers Protection Alliance.

Morning Consult welcomes op-ed submissions on policy, politics and business strategy in our coverage areas. Updated submission guidelines can be found here.

Morning Consult