By Lawrence Kudlow and Stephen Moore
The political class in Washington had sneered at Jeb Bush's pledge to put America back on the 4% economic growth path, but on Wednesday he went a long way to showing how to achieve that goal.
The former Florida governor became the latest GOP presidential contender to detail his tax reform vision, and this overhaul would be a big improvement over the monstrosity of a tax code we have now.
Almost everyone in America outside the Obama administration and the 2016 field of Democratic presidential candidates understands the federal IRS tax code is like a gift to our economic competitors.
The system — especially our highest-in-the-world corporate tax — exports jobs to rivals such as China and Mexico while reducing work and investment.
Bush's plan starts by slashing tax rates. He'd return to the top personal income tax rate of 28% that America had when Ronald Reagan left office. That top rate, by the way, was a true bipartisan reform designed in part by congressional Democrats like Bill Bradley and Dick Gephardt.
The rate has since migrated up to 42%, with many Democrats longing to tax the rich well above 50%.
Middle-class tax rates would fall to 10% for families with incomes up to $89,000 and to 25% for incomes up to $163,800. For singles, the thresholds are lower. But the thresholds are not high enough to ensure no one in the middle class gets pushed into higher tax brackets.
Corporate, capital gains and dividend taxes would all fall to 20% while the estate tax is eliminated. Bush also would provide immediate expensing of plant and equipment for businesses, which the Tax Foundation says is the most pro-growth tax fix to create jobs and higher incomes.
A new tax of 8.75% payable over 10 years would be created on overseas profits. This would reduce the tax incentive to keep foreign profits stored abroad and bring these funds back to America to be reinvested or distributed to shareholders.
Donald Trump has tapped into voter fear that America is losing jobs to foreign rivals. But if the goal is to bring jobs home, the best way to do so is to slash regulations and tax rates and keep the dollar strong — not to create trade barriers.
"I'm against all of this talk about building walls to shut down trade," Bush said in a meeting with us this week.
Bush would also cap deductions at 3% of a tax filer's adjusted gross income.
No longer would Warren Buffett be permitted to take billions in tax write-offs.
The Bush plan exempts charitable deductions from this cap, which is probably a mistake, except for money given to churches. Yale and Harvard don't need larger tax-free endowments.
The plan expands the standard deduction so the number of filers having to itemize deductions would fall from 47 million to 13 million. No longer would the vast majority of Americans have to keep shoeboxes of receipts.
Bush eliminates the state and local tax deduction — which only encourages spending and borrowing at the local level — and the deduction for debt expensing.
And he argues persuasively that the write-offs for debt only encourage overleveraging and favors debt over equity financing of business startups and expansions.
This sounds reasonable, but some highly indebted industries, such as utilities, will scream bloody murder.
This is a Reaganite plan with lower tax rates across the board. The economic lesson of the last 40 years is that high tax rates distort economic decisions and are barriers to growth.
On the Republican side of the aisle, all the presidential candidates seem to acknowledge that truism except front-runner Trump. He said last week he wants the rich to pay more taxes — although at other times he has said rates are too high.
No sooner was the Bush plan released than the media, unions and liberal think tanks shouted "tax cuts for the rich."
But since nearly half the tax deductions benefit the richest 3% of taxpayers, closing loopholes forces the wealthy to pay their fair share. Historically, when tax rates have fallen, the share of taxes paid by the rich has risen. Jeb Bush gets that.
That said, tax-rate reductions combined with expensing for business capital investment will generate about one percentage point more growth per year, meaning about $200 billion more output, according to the nonpartisan Tax Foundation.
This tax cut plan could translate into several million new jobs and tens of billions of added tax revenues for the feds, the states and cities.
But as with so much of the Bush agenda and his campaign style, this plan lacks the kind of boldness and pizzazz that voters seem to be demanding. Why not a flat tax, like Rand Paul or Ben Carson have suggested?
Instead of tinkering with the tax code, they want to blow it up and start with a blank slate.
And there's nothing in this plan about reining in the modern-day Spanish Inquisition called the IRS. "Bush hit a double" with this plan, says Grover Norquist of Americans for Tax Reform. That's about right.
At the Committee to Unleash Prosperity, we're not endorsing any particular candidate or tax plan, and we'd like to see every presidential candidate endorsing pro-growth reform with lower rates and a broader base.
The Jeb Bush plan makes it all the clearer that we are headed toward a tax showdown in 2016 between the GOP and Hillary Clinton or whomever winds up winning the Democratic nomination.
Republicans now generally believe the tax code should be designed to maximize growth and opportunity, while the Democrats want taxes to redistribute wealth from rich to poor.
Bush told us in our meeting in New York on Monday that he believes "nearly every problem we face as a nation, including rebuilding our national security, is made easier with faster growth."
The lack of growth under Obama has hurt Americans at the bottom of the ladder the most, and a 4% growth path is the best way to help the poorest among us.
Moore and Kudlow are co-founders with Arthur Laffer and Steve Forbes of the Committee to Unleash Prosperity.
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