Tax Day is right up there with “Root Canal Day” in terms of days that no one wants to celebrate.
But this year we’re turning a page: It’s the last year most people will have to suffer under the burden of our old, outdated tax code, which was greatly revised when Congress passed the landmark Tax Cuts and Jobs Act.
This gigantic tax reform package—the first significant tax reform in over 35 years—is a huge victory for American families, and an engine of growth for the American economy. It lowers individual taxes, corporate taxes, and taxes on small businesses. Ninety percent of businesses are small businesses. They are truly the backbone of America’s economy.
Finally, as you sort endless sheaves of paper for this year’s tax return, have faith—the Tax Cuts and Jobs Act makes filing taxes simpler and easier. Make sure to keep your tax return from this year. Compare it to your tax return next year. I know it’s still a long time off, but I bet you’ll be very pleasantly surprised.
Relief for Businesses
Before passing tax reform, American business growth was stifled by our 35 percent corporate tax rate, which was the highest corporate tax rate in the developed world. It was hard for American companies to do business abroad, and it was hard for them to do business in America, knowing that so much of their profits—money that would be better reinvested into their employees and into business growth—was going to be frittered away on this hugely burdensome tax rate.
Under the new tax plan, the corporate rate has been slashed to 21 percent. That’s far from being the lowest tax rate in the world, but it’s still a huge improvement for American businesses.
One element of the tax reform package has not gotten enough media attention. Under the new tax code, America is moving from a “worldwide” tax system to a “territorial” tax system.
This is an important change, with vast implications for the economy. In a “worldwide” tax system, businesses must pay the U.S. corporate tax rate regardless of where their products are sold.
Say a business sells goods in a country with a 20 percent tax rate. The business would first have to pay that country’s taxes (20 percent), then pay the difference (another 15 percent) when it brings the money back to America.
This complex, counterintuitive system of taxation greatly hurt business growth. Not only did it keep businesses from competing on a level playing field with foreign competitors, it encouraged businesses to keep their profits outside of America.
When money is “parked” internationally, that money is not going into workers’ pockets. It is not going to bridges or roads or airports in the United States. It is not helping companies grow and expand and develop new products.
The new tax code is a “territorial” tax system, in which companies pay taxes based on where their product is sold. This is fairer, simpler, and helps keep U.S. businesses competitive abroad. Most of the world uses a territorial tax system. Changing to a territorial system was long overdue.
Under the new tax plan, businesses will pay a one-time “repatriation” tax when they bring in their money from overseas, and after that, the territorial system will incentivize businesses to continue growing, expanding, and driving American economic growth.
Helps American Families
But the new tax code is more than just good for businesses—it’s great for families, too.
The Tax Cuts and Jobs Act allows Americans to keep more of their hard-earned money, regardless of income level. It increases the child tax credit from $1,000 to $2,000. Raising kids is expensive—and doubling the child tax credit will help families defray some of those costs.
A gripe of many taxpayers has been the standard deduction. It’s always been a bit of an arithmetical guessing game: Is it better to itemize deductions, or to take the standard deduction?
A whole cottage industry has sprung up around the loopholes in the tax codes—special carve-outs that allowed people “in the know” to reduce their tax burden, often all the way to zero. Meanwhile, people who don’t know these tips and tricks were stuck paying rates that were much too high.
The new tax code closes a whole lot of loopholes, which makes it simpler and easier to file taxes. And instead of the endless debate over whether to itemize or not, it doubles the standard deduction, making the standard deduction—without itemization—a far more attractive choice for a vast majority of Americans. This will reduce paperwork, reduce time spent filing taxes, and reduce the need to bring in expensive “outside professionals” to help you with your taxes.
Consider the recent research from the Mercatus Center, which found that Americans spend $378 billion a year on tax preparation. That’s enough to send every U.S. household to Disney World for a week.
The tax code needed simplification. We’ve delivered.
Tangible Benefits
The Tax Cuts and Jobs Act is already paying off: Over 400 companies have expanded employee benefits, over 4 million Americans (and counting) have received bonuses, and over 80 million Americans have lower utility bills. Most importantly, 90 percent of American workers are getting bigger paychecks.
Tax reform has been a congressional priority for decades. It should be a bipartisan issue. I don’t know why anyone in Congress would want their constituents to pay more. I don’t know why anyone would prefer a more complicated tax code instead of a simpler one. I don’t know why anyone would want businesses and families and individuals nationwide to suffer. But by voting against tax reform, Democrats showed that was exactly what they stand for: less money for families, and more money into Washington, D.C.
I was proud to stand with my Republican colleagues, to make tax reform a reality, and to vote for taking money out of Washington, and putting it back where it belongs—your bank account.