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Op-ed Placement

To Speed Job Growth, Cut Taxes Now

BY Larry Kudlow and Stephen Moore
01/26/2017
Originally Published in Wall Street Journal by Larry Kudlow and Stephen Moore on 1/26/17.

Like Reagan, Trump should act quickly—and with a bill that can achieve bipartisan support.

Congressional Republicans say they plan to wait to take up tax cuts until later in the year, after they’ve dealt with ObamaCare, passed a 2017 budget resolution, confirmed President Trump’s first Supreme Court nominee and tackled other initiatives.

This would be a big mistake. When Mr. Trump addresses Congress in a joint session Feb. 28, he should urge lawmakers to pass a jobs bill, including a tax cut, during his first 100 days in office. The centerpiece of the plan should be a reduction in the tax rates on corporations and, importantly, on America’s 26 million small businesses. Broader reforms, including tax-rate cuts for families, should come in a second round of legislation later this year.

The tax plan Mr. Trump campaigned on—which the two of us helped write last year—is indispensable to economic revival. Our archaic and uncompetitive business tax system may be the single biggest obstacle to restoring economic growth and living standards. From 1950 to 2000, total business fixed investment averaged 5.3% annual growth. Since 2000, that figure has been only 1.7%. If new business incentives are put in place, long-run investment growth will be restored; real economic growth, languishing below 2% in the new millennium, will break through 3%; and wages will grow. Most of that benefit would come from lowering America’s 35% corporate rate, the highest in the industrial world.

Time is Mr. Trump’s enemy. Any delay in passing the tax bill risks putting a damper on investment decisions and slowing the path to real economic recovery. The longer the delay, the lower the odds of getting a tax cut passed at all this year.

Two historical parallels are instructive. During Ronald Reagan’s first year in office, he took on tax cuts first, and only after signing them into law moved to address the budget. If he had done the reverse, he never would have won the big tax-rate reductions so vital to boom of the 1980s and ’90s. Moreover, the delay in the full tax-rate reductions until 1983 worsened the recession and postponed the recovery

Similarly, though in the wrong direction, Barack Obama signed his enormous $787 billion “stimulus” bill four weeks after taking office.

Mr. Trump needs to act with comparable urgency. A properly constructed tax plan can pass the House and Senate with bipartisan majorities. It should include three initiatives, all of which Mr. Trump has already endorsed:

• A reduction in the tax rate, retroactive to Jan. 1, 2017, for all businesses to between 15% and 20%, with immediate expensing for capital spending. Overnight, America would go from having the highest corporate tax in the industrial world to among the lowest—and that would be a magnet for jobs. It is critical that the tax relief include small businesses, which are a major locomotive for hiring and growth.

• A 10% tax on the repatriation of foreign profits brought back to the U.S. This could attract up to $2 trillion to these shores, raising $200 billion for the federal Treasury while creating new jobs.

• An infrastructure fund through which all money raised from repatriation could be dedicated to rebuilding America’s roads, highways, airports, pipelines, modernizing the electric grid, etc. This should include reforms in labor rules and environmental policies to reduce the cost of these capital projects. We’re skeptical that more spending on public works will create many jobs, and “shovel-ready projects” didn’t work out for Mr. Obama. But efficiently modernizing the nation’s public and private infrastructure can enhance growth.

As the president sells this plan, he should aim not for 51 Senate votes but 60 or 70. It would be hard for either party to oppose a jobs bill that combines business tax cuts, a priority for Republicans, with infrastructure spending, beloved by Democrats and unions. This could be the biggest bipartisan economic bill since Madonna was rolling out hits.

Budget hawks will doubtless complain that the plan inflates the deficit. Not necessarily. We believe, and the Tax Foundation agrees, that the business tax cut would generate so much capital investment that it would largely pay for itself over time. The new infrastructure spending would be paid for with the revenues from repatriation.

Some congressional Republicans oppose this strategy because it leaves cutting personal income taxes for another day. They worry that if the business tax cuts come first, the individual tax cuts will be forgotten.

That’s a risk. But we have worked on tax reform since the early Reagan years, and overhauling the income tax will be a heavy lift. There are great benefits to be had from cutting income taxes and limiting deductions and loopholes—draining the swamp. But the lobbying from K Street special interests will be fierce. So will be opposition from the class-warfare Democrats. Unlike when Reagan was president, Democrats today want to raise top marginal tax rates, to 50% or more, not cut them.

Trying to rewrite the entire tax code without any Democratic support is a fool’s errand. The smart play is for Mr. Trump to save that fight for another day and deliver a big jobs plan to voters quickly. A victory soon would help workers and the stock market, boost the president’s job approval, and set the stage for broader tax reform down the road.

Mr. Kudlow is a CNBC senior commentator. Mr. Moore is an economic consultant with FreedomWorks. They both served as economic advisers to the Trump campaign.