It has taken three decades, but the Congress is finally close to passing comprehensive and badly needed tax reform. The House of Representatives passed its version last week, while the Senate is expected to vote soon on its plan.
The Senate vote is going to be tight. Republicans have just a two vote advantage and Wisconsin Republican Senator Ron Johnson stands now as a “no” vote. Also, the addition to the bill of the repeal of the individual mandate for health insurance makes several other Republicans squeamish.
If the Senate passes a bill, a conference committee will work out the differences.
The version that has cleared the House includes a number of key provisions essential to tax reform.
The first is simplification. The tax code is notoriously long and complicated. It’s absurd that average Americans have to pay someone to figure out how much they owe the government. The House bill will make it possible for most people to fill out a form the size of a postcard.
The standard deduction increases to $12,200 for single filers, $18,300 for heads of households and $24,000 for joint filers. A small percentage of taxpayers who itemize may end up with higher taxes, but many more will benefit from the significant increase in the standard deduction.
Congressman Evan Jenkins (R, WV-3), who voted for the tax bill, released figures from the U.S. Chamber of Commerce showing that only about 29,000 taxpayers in the 3rd District itemize their taxes. According to the Chamber, “As a result of the near doubling of the standard deduction and other simplifications, many taxpayers will have simpler returns.”
But importantly, all of the rest of the taxpayers in the district who take the standard deduction will benefit.
The House plan also benefits small businesses, which make up the largest proportion of West Virginia’s economy. The bill includes a new, lower nine percent rate on the first $75,000 of income for business owners earning less than $150,000. Larger small businesses will see their rate drop to 25 percent.
The United States has one of the highest corporate tax rates among industrialized countries, at 35 percent. Both the House and Senate bills would lower that to 20 percent. Proponents believe this new rate will spur economic growth, which has been lagging since the great recession, and discourage companies from moving their headquarters overseas to avoid the high rates.
Opponents worry, among other things, about expanding the debt. It’s true that static scoring predicts a loss of nearly $1.5 trillion in tax revenue to the government over ten years. However, those predictions don’t consider the myriad benefits of wealth creation stemming from lower taxes.
Overall, the tax plans check two important boxes—taxes will be simpler to file and most Americans will get to keep more of their own hard-earned money.