Whew! Conference report on tax reform is (mostly) as good or better the originals

The bill’s biggest achievement is reforming at long last the self-destructive U.S. corporate tax code. The top U.S. rate of 35%—highest in the developed world—will fall to 21% on Jan. 1. Cash currently held overseas will be taxed at a 15.5% one-time “deemed” repatriation rate, and America will move to a territorial system that allows money to be taxed where it is earned. The bill includes rules to prevent companies from concealing taxable income, especially on intangible assets such as intellectual property. And it sweeps away billions of dollars worth of industry-specific loopholes that misallocate capital. All of this will go a long way to restoring American competitiveness that has eroded over several administrations. Even Barack Obama acknowledged this problem, though he declined to do anything lest some large business end up with a tax cut.

The same economists who presided over the weakest recovery since World War II now say none of this is needed with the economy finally growing at 3%. But the faster growth never materialized when they were in power, and this expansion has been notable for slow business investment and weak productivity growth. This GOP tax reform—including five years of 100% immediate business expensing—is aimed directly at that weakness to keep the expansion going even as the Federal Reserve raises interest rates. This isn’t a demand-side “sugar high.” These business tax changes are supply-side reforms that will increase the economy’s productive capacity. Reducing the cost of capital should raise business investment and invite a capital inflow to the U.S. More investment means more hiring and more productive workers, which is what increases wages. Especially with a tight labor market, the share of income that goes to workers should increase. After eight years of trying to redistribute income through higher taxes and more subsidies, why not try a return to growth economics? . . . Yet Republicans deserve credit for at least trimming the top rate on individuals to 37% from 39.6%. The conferees dumped the House’s bubble bracket that slammed some folks with a 45.6% top rate. The 2.6-point top rate cut won’t increase the incentives to work by all that much, though the move is significant as a matter of principle that tax reform means lower rates for everyone. And lowering the top rate took political courage amid tendentious attacks from left and right. A lower top rate also offers relief to productive earners in high-tax states who will lose most of the state-and-local tax deduction. That subsidy for progressive politicians in Sacramento and Albany will be capped at a $10,000 write-off for property, income and sales tax. A full repeal would have been better policy, but the accommodation brings along Republican Members in New York and California.