Economics professor turned Rep. Dave Brat, R-Virginia, says the framework of the Trump tax reform plan provides tremendous progress on all the key issues, sets the table for tremendous economic growth, and may even provide a path to resolving the standoff over immigration policy.
Brat is a member of the House Budget Committee. He says the panel is just about ready to clear the road for Congress to take up formal legislation based on Trump’s priorities.
“It’s par of the whole budget negotiation process. We just wanted to know, roughly speaking, what’s in this tax package. Is the S corporation going to be taken care of? Is it rate reductions? Is it enough to get economic growth? They came out with a good plan that satisfied all those major categories and bullets,” said Brat.
On the business side, Brat is very excited that the corporate income tax rate would fall from 35 percent to 20 percent, a move he says would make us far more competitive with other nations and entice Americans firms to scrap their headquarters in other nations and bring their trillions in capital equipment back home.
For small businesses, the key issue is the S corporation, which files under individual tax rates.
“The highest personal income tax is 39 percent. That’ll go down to 25. That again is a significant pro-growth piece for the small businessperson that generates 70 percent of all the jobs,” said Brat.
On individual tax rates, Brat says Trump is bring virtually everyone’s rates lower. He says one point of confusion is that the lowest bracket, which is now 10 percent bumps up to 12 percent.
“The Democrats are jumping all over that. ‘You’re taxing the poor more.’ But as (House Speaker) Paul Ryan has said umpteen times now, it’s actually 10 percent to zero. (Democrats) are skipping the biggest detail, and that’s a $26,000 deduction for a couple. The bottom income earners are going to pay zero income tax,” said Brat.
However, adding more Americans to the number who pay no income taxes creates other concerns.
“People who are fiscal hawks are worried we’re creating too many people who don’t have skin in the game. There’s a balancing act there, but roughly speaking Trump is trying to do a middle class tax package,” said Brat.
He says even in a zero sum game the package is good for the middle class, but he says if the incentives in the legislation jumpstart the economy as expected, the benefits will be abundantly obvious.
“People are going to lose some of their deduction, but you’re going to get much lower rates. So even if you break even – and I don’t think you will, I think you’ll be better off just on that – but what people can’t forget about is it’s pro-growth.
“If your stock market and retirement account isn’t growing, if the economy isn’t growing and your wage rate isn’t growing over time, you’re losing the power of compounding and everything,” said Brat.
He says tax cuts are a proven positive jolt to the economy.
“If we get people entering the labor force instead of leaving, I think we can get back to the good old days. JFK got four to five percent growth. He was pro-tax cuts, pro-supply side, pro-business. Reagan did the same thing,” said Brat.
“If this thing gets the optimism flowing. Kids will be pro-business, people will get back in the workforce and then you’ve got a virtuous circle instead of the opposite,” said Brat.
But even with Republicans controlling Congress and the White House, getting big legislation done is proving elusive. Brat says that job gets even more complicated once the lobbyists flood Congress trying to keep their favored nuggets of the tax code in place.
“Now we’re going to go head-to-head with the swamp and K Street will come in and try to get every special deal and deduction, etc. All of those will come at the expense of the American people, so we’re going to keep our eyes open as well,” said Brat.
The House Freedom Caucus, of which Brat is a member, is already enthusiastically on board with the Trump framework, but Brat says the special interest push is getting ugly,
“Karl Rove wrote a cynical, biting piece against the Freedom Caucus. He said, ‘Just pass it. You don’t need to see what’s in it,'” said Brat.
“Are you kidding me? So when K Street and the cronies say that, they probably know more about what’s in it than I do and that makes your radar go up all the more. When they’re saying to just pass it without seeing it, it’s like, ‘OK, somebody you’re protecting has a hidden nugget in there and my job is to look out for my constituents,” said Brat.
However, if the fundamentals of the tax plan stay in place with minimal tinkering from the special interests, Brat thinks the economic growth can actually take a lot of the vitriol out of the immigration debate, specifically how to treat those who came here illegally as children.
In addition to demanding that any enshrinement of the Deferred Action for Childhood Arrivals, or DACA, program be conditional on aggressive use of E-Verify to ensure legal hiring and an end to chain migration, Brat says robust growth changes the equation a great deal.
“Immigration and all the controversy has to do with economics. You’ve got to fix the labor market, the welfare system. We’ve got to get these kids jobs. Then you won’t have this contentious issue surrounding DACA. Everybody wants to help kids but we want to do it legally. First, you’ve got to get your own house in order,” said Brat.
Brat urges Trump to force very tough concessions from Democrats before doing what they want on DACA.
“The Left has to meet us halfway. They should meet us more than halfway. We won the House, the Senate, and the White House. President Trump wants to make a deal. He has all the levers. We should compromise with them and work with them but let’s get the story straight. That’s the basic framework, I think, going forward,” said Brat.
