Tax bill is the rising tide that will lift all Americans’ boats

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As The Wall Street Journal editorial stated Tuesday of the Tax Cuts and Jobs Act: “On the merits, the bill is the most pro-growth tax policy since the Reagan reforms of 1981 and 1986.”  That’s high praise, indeed, and all Americans should hope that the WSJ’s optimism proves true.  

Republicans, of course, are already confident that the tax bill will prove itself to be strongly pro-growth: We know that the Tax Cuts and Jobs Act is the logical continuation of the economic ideas made popular in the late 1970s by Jack Kemp, and then embraced, too, by Ronald Reagan. That is, lower tax rates lead to greater growth — including more government revenues.  

So now, by their actions this week, today’s Republicans pay tribute to their great GOP predecessors, even as they have written their own chapter in an epic history. 

{mosads}We can salute, just for starters, House Speaker Paul Ryan (R-Wis.), House Ways and Means Committee Chairman Kevin Brady (R-Texas), House Majority Leader Mitch McConnell (R-Ky.), Senate Finance Committee Chairman Orrin Hatch (R-Utah) and President Donald Trump. 


In this highly charged environment, hundreds of lawmakers stayed true to their course; happily, in the wake of their victory, the economic indicators are all rewardingly positive. 

Yet, it should not be forgotten that the idea of using lower tax rates to stimulate growth is not just a Republican idea— it’s an American idea, having been utilized in the past by leaders of both parties.   

Back in 1962, President John F. Kennedy, elected on a pledge to “get the country moving again,” argued for a bold agenda of tax-rate reduction.

He made his argument in a way that appealed to both Democrats and Republicans: “It is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.” In other words, lower tax rates, appealing to Republicans, would be joined by higher revenues, appealing to Democrats.  

In 1964, the year after Kennedy’s death, an overwhelmingly Democratic Congress enacted the JFK tax-rate cuts. The result, of course, was an economic boom that did, in fact, couple lower tax rates with higher revenues.

We might also recall that even in the the 1980s, scores of Democrats in Congress voted “aye” on the Reagan tax plans of 1981 and 1986.

To be sure, many Democrats fiercely opposed both bills, and yet it’s worth recalling that in those days, Democrats controlled the House by comfortable margins, and so if they had all been united in their opposition, neither Reagan tax plan would have ever been enacted. Those pro-growth Democrats, too, deserve their share of the credit for those economic successes. 

So today, in a more polarized time, it’s worth recalling this history, with an eye toward perhaps someday rediscovering that lost bipartisan spirit. After all, it’s bipartisanship that instantiates a policy win into permanence. 

Turning now to more recent history, it’s within the last decade that a new tax-related problem had emerged: a counterproductively high corporate tax rate. The corporate rate hadn’t always been a problem. Back in 1986, the Reagan tax bill had reduced the corporate rate to 34 percent, which at the time compared favorably with our economic competitors, most of whom had their rates in the 40s or even higher.  

Yet, over the last 30 years, the situation changed dramatically. Those same economic competitors got the Kennedy-Reagan vision, and so they started cutting their corporate rates in a bid to make their nations more growth-friendly.   

The results of this rate-cutting have been dramatic. Ireland was once a poor country, and yet thanks in large part to a three-fourths reduction in its corporate rate — all the way down to 12.5 percent — it’s now a booming “Celtic Tiger.”

Indeed, the overall average of our leading competitors, the member nations of the Organization for Economic Cooperation and Development, is currently around 22 percent.   

In the meantime, back in the 90s, the U.S. had actually raised its corporate rate by a point, so that the rate stood at 35 percent — a major competitive disadvantage. The result was slower growth in the U.S. and, most egregiously, a spate of “tax inversions,” as American companies were, with the flick of a tax-accountant’s pen, no longer American companies.  

The Reforming America’s Taxes Equitably (RATE) Coalition was formed in 2011 to address this crisis. RATE’s mission could be simply stated: Get the U.S. corporate rate down to a globally competitive level. It’s worth noting that RATE was, and is, a bipartisan organization; the two co-chairs of the coalition for the entirety of its existence have been this author, a Republican, and Elaine Kamarck, a Democrat.   

Ultimately, RATE grew to include almost three dozen corporations and trade associations, employing more than 30 million Americans. We might add that RATE members are predominantly domestically focused in terms of sales and jobs.

Their effective tax rate has been around 32 percent — a genuine hindrance to full competitiveness. It’s precisely because RATE members have wanted to remain in the U.S. that they formed RATE, to help get that corporate rate down.  

So now, after more than six years of effort, we have the satisfaction of seeing our goal achieved. At 21 percent, our corporate rate is, indeed, internationally competitive.

Interestingly, in the wake of the recent vote, many companies — including at least two RATE members, AT&T and Boeing — have already announced substantial new benefits for their employees and stakeholders, as part of their overall commitment to investing more in America. We expect many more companies to join them as the economy, now spurred by the tax cut, expands in the years to come. 

As John F. Kennedy said as he pushed for his tax cut in 1963, “A rising tide lifts all boats.”  JFK was right then, and his wisdom is ongoing today. So despite the many differences between the two parties, the pursuit of that rising tide could yet be a goal that unites all of us.   

James P. Pinkerton served as a domestic policy aide in the administrations of Presidents Ronald Reagan and George H.W. Bush. Since 2011, he has been the co-chair of the RATE Coalition.

Tags Donald Trump Economic history of the United States economy Kevin Brady Mitch McConnell Orrin Hatch Paul Ryan Political debates about the United States federal budget Tax Tax cut Tax policy and economic inequality in the United States

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