Ronald Reagan signed the historic Kemp-Roth tax cut into law on Aug. 21, 1981. Reagan’s tax cuts should be seen in the context of Abraham Lincoln’s Emancipation Proclamation. Excessive taxes make taxpayers slaves of the government that imposes them, while tax relief frees people to maximize their creativity and productivity, which the 1981 tax cuts clearly demonstrated.
The intensity of average Americans — and tax reduction advocates — for tax reform should drive the Republican congressional majorities to take out their tax ax and move quickly to pass ideal tax reform legislation this fall, regardless of what lame-duck President Obama has to say about it. Mr. Obama’s veto of it will only demonstrate to the American people once again why a new Republican president is so badly needed to restore America.
Tax reform must involve major tax rate reductions to restore long overdue, traditional American economic growth of at least 4 percent. Republican tax reform should adopt the same low flat rate for everyone, for all income, while allowing an unlimited tax deduction for savings and investment (the equivalent of an unlimited IRA), and full expensing (immediate deduction) for business investment, replacing arbitrary depreciation tables. That would convert our current income tax to a consumption tax, which would maximize savings, investment, new jobs and rising wages for all income levels.
A federal corporate income tax rate of zero percent would bring home billions of offshore dollars and make America a magnet for international investment and jobs. Republicans should terminate all crony-capitalist, special-interest credits and deductions as well, such as Mr. Obama’s corporate-welfare tax expenditures for costly, inefficient “green” energy. Congressional Republicans must challenge the entire climate change establishment, and end the tax subsidies for so-called “renewables” that are increasing the average family’s cost of gasoline, electricity, home heating, and the goods and services they buy.
With such proposed reform, there would be no opportunity for “progressive” demagogues such as Hillary Clinton, Elizabeth Warren and Bernie Sanders to make wild claims about billionaires paying lower tax rates than their secretaries. How can they expect to lead our country out of its economic malaise when they have no concept of how dynamic incentives really work?
Let’s have a reality check on how America is currently being destroyed by “progressive” tax rates and policies: The top 1 percent already pay 40 percent of all federal income taxes, about twice their share of national income. The top 20 percent carry virtually the whole load of federal income taxes, paying 93 percent. The middle 20 percent pay less than 5 percent of federal income taxes, while earning three times as much of the national income. The bottom 40 percent get paid out of federal income taxes.
Even if we count payroll taxes and all other federal taxes, the top 1 percent still pays 24 percent of the total, which is still more than their share of income. The top 20 percent pay 70 percent of all federal taxes. The middle 20 percent pay 8.9 percent of all federal taxes, still much less than their share of income.
If we follow the sophomoric, flower-child notions of progressives, and raise taxes still more on the nation’s savers, investors and successful small businesses, that would mean even less invested in the new jobs needed to increase demand for labor, and to raise wages. That would harm not the rich, who would just increase investment in more tax-friendly foreign jurisdictions, but the middle class and working people. This is why middle-class wages and incomes for the entire bottom 80 percent of earners have been declining while Mr. Obama has been president, increasing income inequality.
Immediate action by both houses of Congress on powerful, pro-growth tax reform, with President Obama vetoing it, would frame the tax and economic growth issues for all voters to see prior to 2016.
• Lew Uhler is founder and chairman of the National Tax Limitation Committee and the National Tax Limitation Foundation. Peter Ferrara is a senior fellow for the Heartland Institute, and senior policy adviser for budget and entitlement reform policy for the National Tax Limitation Foundation.