Pass tax reform so we can tackle entitlements cliff

Pass tax reform so we can tackle entitlements cliff
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A handful of fiscally conservative senators are hesitant to support tax reform. They’re worried that tax cuts will increase the deficit.

These concerns are valid. Deficits might rise in the short term. Exactly how much is up for debate, because many economists believe that the corporate income tax reform and other business-related provisions will spur economic growth, making up for much of the government’s revenue losses resulting from changes on the individual tax side. 


By strengthening the economy, tax reform could actually help fiscal conservatives rein in long-term federal spending — and does it ever need to be reigned in.


This year, Social Security, Medicare and Medicaid cost the government nearly $2 trillion. These programs are on a collision course with fiscal reality.

The Social Security and Medicare trustees warn us that we are facing an entitlements cliff. The Medicare Trust Fund will be insolvent by 2029, and the Social Security Trust Fund will run out of money by 2034. If that occurs, Social Security will only be able to pay about 75 cents for every dollar it owes our seniors.

Politicians have resisted reforming these programs, in part because they’re popular, especially Social Security and Medicare, and they provide real benefits to real people.

By updating our antiquated tax code, the Senate bill will get the economy moving again — an absolute necessity if lawmakers want to address our national debt and entitlements cliff. 

The Senate bill would boost wages and businesses investment by cutting the corporate tax rate from 35 to 20 percent. That’s because workers shoulder about 70 percent of the corporate tax burden, according to the Congressional Budget Office.

In addition, both the House and Senate bills would allow companies to write off expenditures in the year they’re incurred, rather than depreciating them over several years. That long-sought change will encourage companies to invest in new equipment and technology immediately — increasing worker productivity and creating jobs. 

The tax overhaul would also encourage multinational companies to bring cash parked overseas back to the United States — and keep more of their future earnings here. 

Taken together, tax reform will enable companies to invest more, whether in additional jobs, new facilities, higher wages, or research and development. 

These changes could boost GDP to 4 percent or higher — which is where it was during the last six Reagan years and the last four Clinton years.

That added economic growth opened the door for entitlement reform. For example, Congress passed welfare reform in 1996 that dramatically reduced the number of Americans on welfare. 

That’s important because President Trump has said he wants to tackle welfare reform soon. Doing so is a much easier task if a booming economy has employers scurrying for workers.

The last time we saw federal budget surpluses was in the later Clinton years. At the time, then-Sen. Phil Gramm (R-Texas) tried to reform the Medicare system. (I participated in those efforts with the senator.) 

The economy was going strong and Gramm argued that strong economic growth was a precondition for him moving forward on entitlement reform.

Gramm’s point is as valid today as it was then: If Republicans want to address entitlement reform they must first pass tax reform that jumpstarts Obama’s slow-growth economy. 

Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews.