This story appears in the December 29, 2016 issue of Forbes. Subscribe
CRUCIAL TO Donald Trump's success as President is a vigorous economic revival, and key to that is a big tax cut. Both the tax plan Trump issued during his campaign and the one put out by House Republicans are pro-growth. But pressure is growing to scale down the scope of a tax bill, such as delaying reductions for individuals. Timidity here would be a big mistake.
The incoming administration should expand its tax package when it formally takes office. As Ronald Reagan did with his tax reform in 1986, it should reduce the brackets to two: in this case, 25% and 10%; it should also cut the levies on capital gains from 23.8% (this includes a 3.8% ObamaCare add-on) to 15% or less. Revenues would go up, as they always do when this tax is reduced. Do the same with dividends. Combined with slashing the tax on profits for corporations and so-called passthroughs to 15%, these measures would help stimulate the creation of new businesses, not to mention energizing consumers and investors. Progress is impossible without investment, and that can't happen without capital creation.
Substantially expanding exemptions for adults and children would neuter the inevitable Democratic charge of favoring the rich. Boosting the earned-income tax credit, which gives rebates to low-income earners, even if they owe no income tax, would also minimize political fallout. In fact, it would be politically wise to pretend that the Democrats made this happen.
The left will also cry these tax cuts "aren't paid for" and will balloon the budget deficit. So nice that the Democrats are suddenly concerned about Uncle Sam's red ink. The key is whether the economy booms as it did in the 1980s--back then, even though the national debt more than doubled by expanding $1.7 trillion, the net wealth of the nation soared $17 trillion.
The economy blossomed, and U.S. high tech became the envy of the world. Remember, Washington is supposed to be run by we the people, not the other way around.
By going bold the Trump White House would be better able to mobilize public support and would have more maneuvering room when negotiating with Congress.
(See Steve Forbes’ new book, Reviving America: How Repealing Obamacare, Replacing the Tax Code and Reforming the Fed Will Restore Hope and Prosperity.)
