Tax Reform is Seeing Success, Let’s Take a Look Back in History to Other Tax Reforms
WASHINGTON D.C. -The Senate voted on Thursday in favor of a budget resolution by a slim vote of 51 to 49. This is a significant step for the tax reform that paves the way for the bill to passed, resulting in major tax cuts. As the bill nears closer to being passed, a look back on the history of tax cuts, specifically Reagan’s major tax cut, will give us an idea of how this major tax cut will affect Americans today.
The latest budget bill would cut taxes of $1.5 trillion dollars over the next decade and allow extra spending in areas like defense. The Senate has also worked with the White House to craft an amendment that would make the House pass the Senate’s budget resolution without voting on it. This will further propel the bill to pass smoothly through congress. So far economists have remained skeptical of this proposal, along with some republicans who are keen on avoiding a large increase on borrowing. Trump is expected to face tough negotiations even within his own party.
President Trump took to twitter Friday morning saying this pass clears the way for “large scale Tax Cuts (and Reform), which will be the biggest in the history of our country.” President Trump put his hopes on tax cuts and spending hikes to create a substantial boost to the economy that would result in tax revenues and limit extra borrowing.
Throughout history, major tax cuts have been beneficial and detrimental to the economy. One of the major tax cuts, and last time the tax code was rewritten, was with President Reagan’s tax cut in the 1980’s. The proposed plan of Reagan’s tax cut would result in a 25% tax cut to all income classes as well as government programs and result in a claimed $750 billion cut within 5 years. However, major cuts only happened to the wealthiest households. Many had their taxes cut from 70% to 50%. The major part to Reagan’s plan was the idea of trickle down economics, this involved cutting the taxes for the wealthy in hopes that they would invest in economy. It had many pros and cons, one of which, helped with inflation that haunted the 1970’s that made the cost of goods and services rise. It also helped to create lower taxes for many Americans which provide a little additional personal income that could be used to support the GDP.
However, the few who benefitted from this tax cut, specifically the wealthy, put little money into the economy. Resulting in the average working household receiving little to no benefit. One of the major concerning involving Trump’s bill is the tax cuts only benefiting the top 1% of households and resulting in the increase of taxes for middle class families making $300,000 or less per year.
Also, it created even larger deficits, something that many fiscal republicans are concerned with in the current tax reform. Reagan’s tax cut has claimed to have increased the nation debt by 186%. Much like the current bill, Reagan’s tax cut increased the defense budget that lead to to only temporary jobs. During Reagan’s defense spending, there were more than 50 defense contractors operating in the US. By 2004, there were only 5. Much like Trump’s bill, Reagan’s tax cuts on paper seem effective but aren't always successful in real life.
If the bill does pass, then many hurdles to enact the bill will need to be sorted out. One of the most prominent is the large slash of corporate rates from 35% to 20%. Brian Davidson at Fathom Consulting stated, “Overhauling the tax code and cutting taxes significantly, as planned by the president, is a very complex process and it will be no easy task for the administration to please all sides and get enough support for the final tax bill to be passed. We believe that large corporate tax cuts will eventually be enacted, but this is more likely to happen in the first or second quarter next year, and not later this year as the administration hopes.”
