NCPA - National Center for Policy Analysis

Tax Reform Needed to Spur Growth

September 30, 2014

While the government today hailed 4.6 percent growth in the second quarter of 2014, James Capretta of the American Enterprise Institute reminds readers that such growth comes after a first quarter GDP decline of 2.1 percent. In total, GDP growth in the first six months of 2014 has been just 1.25 percent.

The United States must regain strong economic growth, says Capretta; without it, families across the country -- especially low-income households -- will suffer. How to encourage growth? Tax reform. For example:

  • A plan from Senators Mike Lee (R-Utah) and Marco Rubio (R-Fla.) would broaden the tax base by closing loopholes and ending certain tax deductions. With those eliminated, the lawmakers would reduce rates on all taxpayers.
  • The Lee-Rubio plan would impose a 35 percent rate on high income earners and a 15 percent rate on the rest. It would also lower the corporate tax rate to a level between 20 and 30 percent.
  • The plan would also increase the child tax credit, which today is $1,000, by $2,500 per child.

Capretta notes that not all reformers agree that the Lee-Rubio plan is the right approach, with some insisting that lowering rates for all taxpayers would be better than increasing the tax credit, a benefit that accrues only to families with children.

Capretta himself suggests that lowering the payroll tax, which all employed Americans must pay, would also encourage hiring and spur work activity.

Source: James C. Capretta, "Tax reform for both capital and labor," American Enterprise Institute, September 29, 2014.  


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