It has been more than 30 years since there was a major change in federal tax policy. Thankfully, the Senate passed a tax reform bill last week that will simplify our tax code, cut taxes in all brackets and help grow the economy.
During the past 70 years, the American economy has grown at around 3 percent or more a year, on average. But in the past 10 years, economic growth has collectively averaged only 2 percent, and last year, our GDP was just 1.5 percent for the year. We must get our economy moving again, because a healthy economy will increase jobs, productivity and wages for Oklahomans.
The Senate tax bill provides middle-class relief. It lowers individual rates and doubles the standard deduction. For an individual, the standard deduction goes from $6,350 to $12,000; and for a married couple, it goes from $12,700 to $24,000. The Child Tax Credit doubles from the current $1,000 to $2,000, and the first $24,000 of income for a family is tax free.
The average federal tax reduction for households of income between $30,000 and $40,000 is about $4,000 less. Our bill also doubles school supply deduction for teacher expenses, from $250 to $500.
This Senate tax bill makes no changes to Medicaid or Medicare, but it does give relief from the Obamacare individual mandate tax, which hits middle-class families the hardest. In Oklahoma, about 80 percent of the mandate taxes have been paid by people who make less than $50,000 a year. Even though this tax is repealed, the Obamacare subsidies to purchase insurance remain.
Our bill gives a lower rate for small businesses so they can hire more people, buy new equipment, and compete with major corporations. Companies need a reason to keep their business in America, rather than move it overseas where taxes are lower. To do this, our bill lowers the corporate tax rate from 35 percent, one of the highest in the world, to 20 percent. This would make us competitive internationally.
The Joint Committee on Tax estimates that if the economy grows an additional .2 percent a year more than last year, the cuts in tax rates will pay for themselves; but that really is only a tiny amount of economic growth. The U.S. economy, this year, is already on target to grow more than twice that rate, even before the tax plan has passed.
I have long warned about our growing federal deficit, which can only be addressed by cuts to wasteful spending, government reform and a growing economy. I am confident the economic growth from this tax reform bill will not only pay for itself, but help pay down the federal debt over time. More than 130 economists have projected that the Senate tax plan will result in strong economic growth, and I agree with their assessment.
Eight years ago, Democrats in Congress passed a massive government debt-funded stimulus bill to jump-start the economy, but years later, the economy remains stuck. We need a different path to economic growth. In the days ahead, Congress will come together to merge the House and Senate tax bills, then put it on the president’s desk before Christmas. I am confident it will help Oklahoma’s economy.