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Trying to advocate his tax-reform proposal, President Trump insisted: “It’s not good for me. Believe me.”

He shouldn’t have said that.

His statement offered an easy target for the plan’s opponents, who promptly howled that his nine-page framework is a handout to the rich. “Trump’s tax plan benefits wealthy, including Trump,” cried a New York Times headline.

The president missed the point. His plan is good for him. But it’s good for the rest of America, too.

Trump’s framework will improve life for everyone: It offers direct benefits to the middle-class, encourages economic activity, and reduces the time citizens will spend paying taxes. It looks for long-run solutions and recognizes that the economy is a dynamic market in which tax cuts have ripple effects.

Perhaps the most significant and controversial aspect of Trump’s plan is its recognition that boons for business help people of all income levels. The plan caps the small-business income tax at 25 percent, allows businesses to write off capital investments as expenses, and cuts the corporate tax rate to 20 percent from 35 percent (the highest in the developed world).

Cutting business taxes helps ordinary people.

Businesses aren’t faceless abstractions: they’re owned by people, who hire people, who produce goods and services that help people of all classes. When businesses face taxes, they pass on the costs. More than 75 percent of corporate taxes fall on workers in the form of lower wages, according to the Heritage Foundation.

Cutting the corporate tax rate creates the right incentives: It encourages businesses to come to America (or stay here) and it reduces incentives for tax evasion. In the long run, the benefits of these policies reach middle- and lower-classes through higher wages, increased employment, and better products.

An analysis by the Tax Foundation found that the stand-alone effect of cutting the corporate rate to 20 percent could lead to 3.4 percent growth in GDP, $3 trillion in additional capital, and a 2.9 percent rise in wages over ten years.

Trump’s framework offers more direct benefits to the middle class, too. It doubles the standard deduction and promises to increase the child tax credit. It vows that congressional committees will work on “additional measures” to relieve the middle-class tax burden, and it claims to create incentives for work, higher education, and retirement security.

Eliminating the death tax on property and lowering income taxes across the board means the Trump plan will benefit the wealthy as well (although elimination of the death tax will help others, such as farmers, too). A Tax Policy Center report released Friday predicted that the wealthiest 1 percent would face the biggest tax reduction of 5.7 percent, while everyone else would get no more than a 1.4 percent. Plus, it claimed, the top 1 percent of income earners would pay an even lower percentage of all income tax than it does now.

But these are no grounds for criticism.

“It is impossible to cut income taxes and not reduce taxes on the upper half of the income distribution,” said Hillsdale College Professor of Economics Gary Wolfram, noting that the top 50 percent of income earners pay 98 percent of all income taxes.

More important, lightening the tax burden on the wealthy is only a problem for those with a zero-sum mentality who believe taxes are a way to divvy up a pie. That’s not an accurate view of the economy. Lower taxes for the wealthy doesn’t hurt the middle class. To the contrary, it promotes upward mobility and stimulates growth as the wealthy invest and spend their income.

By reducing taxes on the wealthy, Trump’s tax plan can spark innovation that will raise standards of living for the poor, Wolfram said: “Our concern should not be how rich are the rich, but how rich are the poor.”

And by simplifying the tax code, slashing its seven brackets to three (with room for a fourth) and cutting out itemized deductions, Trump’s plan will give people time back — a monetary gain in itself for a nation estimated to spend billions of hours filing taxes. The plan also takes out state and local deductions, which encourage states to increase taxes and redistribute wealth from low- to high-tax states, Wolfram pointed out.

As Congress fine-tunes the plan, it’ll be time to critique specific policies and implications — like an increased budget deficit of $2 trillion over 10 years, as some estimate. But as a framework, Trump’s proposal is a good one, incentivizing work and economic activity and reducing undue burdens on American citizens.

“This isn’t about me,” Trump should have said. “This plan will benefit me because it benefits everyone in America.”

Then, we’d believe him.

 

Nicole Ault is a junior studying economics.

  • prettyinpink

    Good job. I see a bright future for you.

  • Tommy Moore

    Maybe need a little econ history, this has been tried before (at least twice) and been an abject failure both times.

    Tax REFORM is not synonymous with Tax CUT regardless of the penchant of politicians to equate the two.

    Well written article, but ignores history and makes a TON of assumptions based on a ‘framework’ that doesn’t offer details and hasn’t been properly scored yet.

    I am curious as to thoughts on the initial scoring that shows this would harm the majority of middle class households by 2027 while continuing to benefit the majority of the wealthy, short term gains that are followed by long term losses is not a recipe for economic success.