For years, Republicans and Democrats alike have called for middle-class tax cuts. Last week, the Senate passed legislation that will finally deliver it.
This tax reform plan helps middle-class families directly in three main ways. It lowers tax rates, doubles the child tax credit to $2,000, and doubles the standard deduction to $24,000 per family.
This means a larger “zero income tax bracket,” which will take about 3 million more lower-income Americans off the tax rolls altogether.
The independent Tax Foundation estimates these reforms will benefit families across middle-class income brackets in 2018. For example, a single parent with two children earning $52,000 a year will see a 36 percent reduction in their taxes. A family with two kids earning $85,000 a year will see a 20 percent reduction in their taxes. And a family with two kids earning $165,000 a year will see an eight percent reduction in their taxes. This is because the biggest proportion of tax benefit goes to middle-class families at the lower end of the economic ladder.
The Tax Foundation also estimates that the tax cuts in this proposal will save an Ohio family making $65,000 a year $2,375 a year on their taxes by the time the plan is fully phased in. That extra $2,375 helps working families make a car payment, pay for health care, or save for retirement.
Opponents of this tax reform have claimed that repealing the Affordable Care Act’s individual mandate will somehow hurt the poor, but the opposite is true. The individual mandate is a regressive tax that hurts lower-to-middle-class Americans who choose not to purchase an Affordable Care Act-approved health care plan. In fact, about 83 percent of Ohioans who paid the mandate tax in 2015 were in families making $50,000 or less. Every American will continue to have the ability to sign up for health care and receive subsidies under our bill; they just won’t be taxed and penalized if they choose not to.
This bill also takes important steps toward reforming our business tax code and leveling the playing field internationally to make American workers and companies more competitive.
A recent Ernst & Young study said that since 2004, there would be 4,700 more American companies today if we would have had a 20 percent corporate tax rate, as we have in this bill.
In addition, there are between $2.5 trillion and $3 trillion of earnings trapped overseas because of our outdated tax code. Our bill encourages companies to bring that money back here and to invest in America. The result of these changes, the Tax Foundation says, will be nearly one million new jobs for the U.S. and more than 35,000 new jobs in Ohio.
Recently, more than 100 leading economists wrote an open letter to Congress in support of this bill, stating: “Economic growth will accelerate if the Tax Cuts and Jobs Act passes, leading to more jobs, higher wages, and a better standard of living for the American people.”
I believe claims this bill will increase the deficit are wrong. The antiquated budget process we are forced to use assumes that the economy will grow at a paltry 1.9 percent over the next 10 years. That’s much lower than the national average over the past 30 years, and much lower than the last two quarters of more than three percent growth.
These distinguished economists who wrote the open letter agree with my optimism. They estimate that tax reform can generate an additional 0.4 percent growth annually and $1 trillion in new revenue, which is consistent with data from the Congressional Budget Office showing that every tenth of a percent of economic growth will generate an additional $273 billion in revenue over 10 years. The pro-growth reforms in this bill will result in more investments and job creation in America, and ultimately, lower deficits.
Lastly, I’d like to address the suggestion that our plan will result in cuts to Medicare through a budget sequester. This bill does not touch Medicare. On a bipartisan basis, Congress has waived these sequesters 16 times since 2010 to pave the way for middle-class tax cuts, and I fully expect that to happen again.
I’ve had roundtable discussions with small business leaders in Cleveland and around the state and they agree this reform will create jobs and boost the economy.
I think most Ohioans agree that middle-class tax cuts are a good idea, that our nation’s businesses should be given the chance to compete, and that we should encourage investment in America — not overseas.
This bill is a commitment to create a better economy and a better future.