by Terry Muns
As summer approaches, the already-slow legislative production in Congress is grinding to a halt. Fewer and fewer members are willing to take a potentially controversial vote that could give opponents an opening for attack.
But there’s one legislative proposal that should cut through this gridlock and unite Republicans and Democrats: making the recently passed individual and small business tax cuts permanent.
As a result of budget gimmicks, these aspects of the tax cuts—which have the most impact on ordinary Americans—are set to expire in 2025 absent congressional action. Leading Republicans have recently proposed “tax cuts 2.0” to make these cuts—and the positive effects that go along with them—permanent.
Given their impact on middle-class Americans, this proposal should generate bipartisan support. The tax cuts significantly reduce the individual income tax burden on the middle class. (Contrary to most media reports, the wealthy will actually see their share of the tax burden rise.)
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The tax cuts doubled the standard deduction and reduced rates across the board. For instance, the 15 percent tax rate, which used to take effect at just $19,050 of household income, has been eliminated entirely in favor of a vastly expanded 12 percent rate. The typical family of four earning $75,000 a year will take home an extra $2,000 or so as a result.
While Democratic House Minority Leader Nancy Pelosi decries these tax savings as “crumbs,” they will provide significant relief for the four-fifths of Americans who live paycheck-to-paycheck.
Small businesses are also receiving long-overdue relief from the tax cuts. Under the old tax code, they faced federal marginal tax rates of 40 percent. The tax cuts create a new 20 percent small business tax deduction, which effectively lowers the top marginal rate to 30 percent—a 25 percent cut.
With the ability to protect one-fifth of their earnings from taxes, small businesses have the funds they need to survive and thrive. Hundreds of small businesses across the country have used their savings to expand, hire, and raise wages.
In my home state of Missouri, Mid-AM Metal Forming in Rogersville, Iron Horse Energy Services in Eolia, and Dynamic Fasteners in Raytown are just some of the examples of businesses giving their employees significant tax cut-induced raises. Such investments would be even more pronounced if small businesses had the certainty that their tax savings would be permanent.
Small businesses and ordinary Americans have also received a secondary benefit from the tax cuts in the form of a more robust economy. The tax cuts mean that billions of dollars that otherwise would have been extracted from communities by the IRS remain at home where they can be invested and spent, creating jobs and opportunity.
As a result of this tax cut-induced economic growth, the nonpartisan Congressional Budget Office recently raised its economic growth forecast to 3.3 percent. This is more than double the Obama-era average. The Congressional Budget Office also predicts the tax cuts will create more than 1 million new jobs and significantly spur wage growth in the coming years.
These economic benefits are already occurring. The recently released April jobs report shows that the national unemployment rate has fallen to 3.9 percent—one of the few times in modern history it has been below 4 percent. And wages are growing at their fastest pace in a decade.
Who wouldn’t want to double down on these positive effects by making tax cuts for individuals and small businesses permanent? Congress should come together over the bipartisan cause of higher pay, more jobs, and economic growth.
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Terry M. Muns is the managing director at the MLG Capital Group, LLC in Springfield, Missouri.