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Republican Study Committee Budget Has the Right Tax Policy to Beat Inflation and Restore Prosperity

Ryan Ellis

The Republican Study Committee this week will unveil their annual alternative budget. Most of the attention is rightly focused on the spending side of the ledger, which is good since we have an over-spending problem driving America's debts and deficits in the 21st century.

But it's the tax side that has us excited, having taken a sneak peak. The tax reform package the RSC budget proposes is good for economic growth, job creation, family budgets, and fighting inflation on the supply side. It has three main buckets:

  • Avoid all the tax increases on families and small businesses scheduled to occur with the expiration of the Tax Cuts and Jobs Act of 2017. If this sunset is not repealed, tax rates will go up across the board. The standard deduction will be cut in half, forcing millions of families back to the old "shoebox on the refrigerator" tax accounting nightmares of old. The per-child tax credit will be cut from $2000 to $1000 per child. Small and family owned businesses will see an effective tax rate hike of up to 25%.

  • Move to full business cash flow accounting on a permanent basis. If a business incurs an expense, like buying a new computer or spending money on research, they should be able to deduct that expense the very same year--no complex depreciation or amortization tables to worry about. The single exception under the RSC plan is that buildings would remain subject to depreciation, but at a shortened life of 20 years, with an annual inflation adjustment for the deduction (very close to full expensing of structures).

  • Greatly reduce taxes on savings and investment. The RSC budget does this in a number of ways--it kills the death tax, indexes capital gains to inflation, creates Universal Savings Accounts (USAs), and expands the "zero bracket" for capital gains deeper into the middle class than today.

If Congress were to adopt this modest but powerful tax reform plan--which builds upon and completes the work started by Congressional Republicans in 2017 with the passage of the TCJA--it would mean faster economic growth, higher productivity, more business fixed investment, more jobs, higher income, and less inflation. What's more, taxes would come in at amounts consistent with the 50 year-average as a percentage of the economy. Under the Democratic plans for higher taxes, federal revenues would soon get back to levels rarely seen in U.S. history.

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