The GOP has a tax cut plan that will promote growth and raise wages. | Plus: Taxes and big government, Black Lives Matter and crime, more abortion in Illinois.

September 30, 2017
Republicans have a tax cut plan. Among the provisions that will promote economic growth and raise wages are cutting corporate rates and moving to a territorial tax system. Reforming the tax code is an opportunity to end a handout for high-tax states. Violent crime had been falling for decades; now it's up in the two years since the Black Lives Matter movement emerged. Illinois will now pay for abortions and it should expect to get more abortions.
Cutting corporate taxes isn't a handout to business; it's a way of raising wages. Republicans have plan to cut the corporate tax rate from 35 percent to 20 percent. Adam Michel explains how this cut will raise worker's wages: "In an open economy where capital can move abroad and the prices of goods are set competitively in the world market, the corporate tax has only one place to shift: to workers. When capital moves abroad, the domestic capital-to-labor ratio declines, slowing productivity and lowering wages. The global after-tax return to capital is largely unchanged, but because workers are generally not internationally mobile, wages remain depressed in the country with the higher corporate tax and lower levels of investment. "Businesses invest so that their employees can be more productive. More productive employees earn higher wages and produce more output, and businesses can hire additional workers as profit, investment, and demand increase. Because labor supply is constrained by relatively fixed variables like population size, an increase in capital investments allows wages to be bid up as labor becomes relatively scarce compared to the expanded capital stock. This is the basic logic of why higher capital-to-labor ratios (that is, more capital per worker) benefit workers. More concretely, the data suggest that an 8 percent increase in capital per worker would increase wages by 13 percent to 20 percent. "Due to this dynamic, in the open-economy model where capital can escape high tax rates, labor bears the full burden of the corporate tax." [Internal citations omitted.] [The Heritage Foundation]   The Republican plan makes the United States more competitive for investment. The plan eliminates the taxation of foreign earnings. That taxation, as Brian Riedl explains, puts American companies at a big disadvantage: "America is one of the last countries that hits multinational companies with significant double taxation. "Here is how: Imagine companies from America, France, and Germany each open a plant in England. All three companies must pay the British 19 percent corporate tax rate. But Washington slams the American company with an additional 16 percent tax so that it can be assessed the full 35 percent rate (most competitors add at most a token domestic surtax). This puts American companies abroad at an enormous disadvantage. Avoiding this second tax requires either leaving the money abroad (trillions of American dollars are currently parked overseas), or simply moving the company's headquarters abroad (this is happening at record rates — try naming a major American-owned beer company). "Is it any wonder why it feels like America's leading exports are jobs and investment? "Since 2000, 33 of the 35 OECD countries have cut their corporate tax rates from an average of 32 percent to 24 percent. The only exceptions have been Chile (which already had a low rate), and the United States that stubbornly clings to its exorbitant 39 percent combined rate." [The Hill]   The current tax code promotes bigger government. Eliminating the deductibility of state and local taxes is a possible offset to lowering tax rates. Jared Walczak explains how the deduction encourages bigger government at the state level: "Just as the state and local tax deduction disproportionately favors wealthier taxpayers, it also benefits states which combine high incomes and high-tax environments. Reliance on the deduction varies widely: the average value of the state and local deduction as a percentage of AGI in the ten states with the highest reliance on the deductions is 6.09 percent, whereas it is only 3.81 percent in the bottom ten states. In New York, the deduction is worth 9.1 percent of AGI; the median across all states is just under 4.5 percent. More staggering, though, is the fact that just six states—California, New York, New Jersey, Illinois, Texas, and Pennsylvania—claim more than half of the value of all state and local tax deductions nationwide, with California alone responsible for 19.6 percent of the national tax expenditure cost. "To some degree, this is a function of population. Any tax provision, no matter how neutral its application, will flow more to states with higher populations. The state and local tax deduction, however, expressly favors higher-income earners and state and local governments which impose above-average tax burdens. The deduction's effect is for lower- and middle-income taxpayers to subsidize more generous spending in wealthier states like California, New York, and New Jersey, reducing the felt cost of higher taxes in those states. As the Urban-Brookings Tax Policy Center has observed, state and local governments 'are able to raise revenues from deductible state and local taxes that exceed the net cost to taxpayers of paying those taxes, in effect allowing those jurisdictions to export a portion of their tax burden to the rest of the nation.'" [Internal citations omitted.] [Tax Foundation]   Black Lives Matter is making black lives worse. Heather MacDonald: "Who is killing these black victims? Not whites, and not the police, but other blacks. In 2016, the police fatally shot 233 blacks, the vast majority armed and dangerous, according to the Washington Post. The Post categorized only 16 black male victims of police shootings as 'unarmed.' That classification masks assaults against officers and violent resistance to arrest. Contrary to the Black Lives Matter narrative, the police have much more to fear from black males than black males have to fear from the police. In 2015, a police officer was 18.5 times more likely to be killed by a black male than an unarmed black male was to be killed by a police officer. Black males have made up 42 percent of all cop-killers over the last decade, though they are only 6 percent of the population. That 18.5 ratio undoubtedly worsened in 2016, in light of the 53 percent increase in gun murders of officers—committed vastly and disproportionately by black males. Among all homicide suspects whose race was known, white killers of blacks numbered only 243.  "Violent crime has now risen by a significant amount for two consecutive years. The total number of violent crimes rose 4.1 percent in 2016, and estimated homicides rose 8.6 percent. In 2015, violent crime rose by nearly 4 percent and estimated homicides by nearly 11 percent. The last time violence rose two years in a row was 2005–06.  The reason for the current increase is what I have called the Ferguson Effect. Cops are backing off of proactive policing in high-crime minority neighborhoods, and criminals are becoming emboldened. Having been told incessantly by politicians, the media, and Black Lives Matter activists that they are bigoted for getting out of their cars and questioning someone loitering on a known drug corner at 2 am, many officers are instead just driving by. Such stops are discretionary; cops don't have to make them. And when political elites demonize the police for just such proactive policing, we shouldn't be surprised when cops get the message and do less of it. Seventy-two percent of the nation's officers say that they and their colleagues are now less willing to stop and question suspicious persons, according to a Pew Research poll released in January. The reason is the persistent anti-cop climate." [City Journal] Illinois will now pay for abortions; expect more abortions. Michael New: "[T]here is a very broad consensus that funding abortion through Medicaid results in more abortions. Even groups that support legal abortion — including the Guttmacher Institute and the Center for Reproductive Rights — have published analyses showing taxpayer funding for abortion increases abortion rates. My 2016 analysis found that the Hyde Amendment protections in Illinois, which were just undone by [Illinois] Governor Rauner, have prevented 144,721 abortions since 1976 and protected 3,800 unborn children in Illinois every year." [National Review]
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