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The Tax Bill From The Senate Republicans Is Bad Economics & A Broken Promise

Ask yourself a simple question.  If you wanted to buy a suit at Macy’s but knew the suit would not go on sale for two days, would you buy the suit now or wait two days?

Of course, the vast majority of people would delay their economic activity, i.e. the purchase, to realize the savings. The same applies to very large economic decisions as well.

That’s why over 30 years ago, Arthur Laffer said: “Never delay a tax cut. You simply delay economic recovery.”

The tax bill presented by Senate Republicans proposes to delay corporate tax reform by one year.  The result of that will be to delay much needed reforms and therefore much desired economic activity.

The House’s corporate tax bill does many major things right.  They include:

  • Significantly lowering corporate tax rates
  • Moves us towards a territorial tax system instead of our antiquated worldwide tax system
  • Offers immediate and significant tax relief for repatriating overseas profits, and
  • Provides immediate and increased expensing for business purchases.

Those four provisions alone should be enacted tomorrow on their own merit.  Alone they could provide a substantial boost to the American economy. As Martin Feldstein wrote in the Wall Street Journal:

“What will truly matter for the economy is corporate tax reform, which will lead to a major increase in capital spending by companies. That in turn will raise productivity and real wages.”

Also, keep in mind that, as Stephen Moore pointed out:

One reason that economist Larry Kudlow and I and others assured Trump that 3 to 4 percent growth was achievable was that Trump could capitalize on the underperformance of the Obama years.

Under Obama, business investment fell almost two-thirds below the long-term trend line—thanks to higher taxes on investment. Now, partly in anticipation of the tax cut, business spending keeps climbing.”

The House corporate tax reforms would capitalize on that dynamic.

So why would Republicans in the Senate want to wait instead of fulfilling expectations?

The answer is for politics not economics.

What they don’t understand, of course, is that they would reap the benefits politically of a stronger economy, which is why all of this should have been done last February.

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