Why the Delay on a Tax Cut?

President Trump released a proposal for “2017 Tax Reform for Economic Growth and American Jobs,” in May that he labeled the “biggest individual and business tax cut in American history.”

While the economy reflects high hopes for major tax reform, the GOP’s failure to pass a much-promised Obamacare repeal and replacement bill has resulted in the entire Republican legislative agenda threatening to grind to halt.

Neither the Congress, led by Paul Ryan, not the Senate, led by Mitch McConnell has accomplished much during its first session under Trump and both the President and those who voted him into office are losing patience.

President Trump’s proposal promises to reduce the tax burden on American workers and generate new economic growth. The president has been working with lawmakers to develop comprehensive, pro-growth legislation. Just the hope for true reform has been reflected in vibrant economic growth.

Elements of the plan, such as simplifying the tax code, reducing the business tax to 15%, and eliminating the death tax represent the cornerstone of Republican fiscal policy. Elizabeth McKee of Americans for Tax Reform says those policies and others will end the pattern of stagnation that has been plaguing US economic productivity, make the United States a competitive business environment, and create new federal revenues generated by economic growth.

The Congressional Budget Office (CBO) reports that increasing economic productivity by just 1% over the next decade will strengthen the economy and create $3.15 trillion in additional federal revenue.

Along with President Trump proposal comes the question, who will take the lead on the Hill to direct a meaningful tax bill through the ranks of a divided Republican Party?

All tax and spending legislation must begin in the House of Representatives which leaves that job to Speaker Paul Ryan. The Speaker has been out of favor with rank and file conservatives for a while due to his failed attempts to repeal Obamacare. He did, however, deliver enough votes for the repeal bill to pass in the House.

Trump’s real speed bump rests in Senate Majority Leader Mitch McConnell and the president has been increasingly vocal about it. McConnell’s days may be numbered after his failure to get the GOP replacement bills passed followed by increasing from Trump and the public.

Many pundits see few scenarios where McConnell can hold onto his job without making significant progress on tax reform before the end of the summer.

To complicate matters further, time may be running out for Republicans to do anything about taxes before the 2018 mid-term elections. Former House Speaker Newt Gingrich and billionaire Steve Forbes and many other conservatives are pushing for tax cuts retroactive to the start of 2017. Their argument is that people would see their paychecks grow as soon as January giving the economy a tax cut boost as soon as possible.

The GOP successfully executed that tactic in 2001 when the Bush tax cuts were passed and taxpayers received rebate checks. As a result, Republicans gained seats in the 2002 midterms and President George W. Bush won re-election in 2004.

Good news for the President and the country is that even if McConnell and Ryan can’t deliver without further delay, taxpayers might still see a tangible benefit from lower rates before the midterm elections.

If Trump signs a tax package into law in late fall that takes effect at the start of 2018, taxpayers next year would begin to see a smaller amount of taxes withheld from their paychecks resulting in an increase in their take-home pay.

Gary Cohn, Director of the White House National Economic Council cites a desire for taxpayers to see bigger paychecks in 2018 as a reason why the administration and congressional GOP leadership have set a goal of enacting tax legislation this year.

“The way the American public will know that we’re successful is when they get their first check in 2018, they can have more disposable income in their check,” he said.

Given McConnell unwillingness or inability to propel the President’s initiatives forward, others are less hopeful.

Time is running out to accomplish what Gingrich and Forbes are calling for. A retroactive tax cut could indeed be the kind of fix that would eliminate a potential beating Republicans might otherwise take at the polls in the 2018 midterms.

That scenario won’t happen just in the Oval Office. Ryan and McConnell must deliver or face the wrath of voters in less than two years.

~ American Liberty Report


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