On today’s episode of The Daily Signal Podcast, we feature an interview with Julio Gonzalez, chairman of Engineered Tax Services, and Stephen Moore, a distinguished visiting fellow at The Heritage Foundation and author of “Trumponomics: Inside the America First Plan to Revive Our Economy.” Gonzalez and Moore discuss the benefits of President Donald Trump’s tax cuts for the middle class and small businesses. The full audio is available by clicking the link below along with a lightly edited transcript.
Rob Bluey: Both you have been strong advocates for the Tax Cuts and Jobs Act. You are out there on the front lines, defending tax reform. Tell us how you first connected and what that experience was like as this law was coming into fruition.
Julio Gonzalez: I was asked by the administration to be on the private counsel, to help with Congress and Senate and work through the tax reform, so I got to know [Speaker Paul] Ryan and [Rep. Kevin] Brady pretty closely, and just try to really look at the plan and look at the unintended consequences to see what could be in there, what could fail.
Because when you change thousands of pages of tax code, obviously, you can have unintended consequences, like we did in the ’80s tax reform. So really, I was there to help give guidance.
Stephen Moore: Yeah, first of all, thanks for your help on the tax bill. It was hugely important. I think this was an incredibly productive bill. I think that the economic ramifications have been almost universally positive.
We have the lowest unemployment rate now in 50 years for blacks, Hispanics, women, people who are disabled, people without high school, college degree. The economy has grown like 3% now for the first time in 20 years.
So, you look at just the actual results and they’re uniformly positive.
One of the things that I know Donald Trump is most proud of is that the wage gains that have happened as a consequence … the biggest wage gains, have been to the people at the lower-income rungs of the economic scale.
And so, we’ve actually reduced income inequality because we’ve created a very tight labor force and … low-income workers now have an opportunity to ask for higher wages.
Virginia Allen: Steve, thank you so much for sharing that. We’re going to talk a little more about that in a few moments.
Julio, there were times when it seemed like tax reform was just never going to happen. How did you go about keeping that pressure on Congress and, specifically, on Paul Ryan and Kevin Brady?
Gonzalez: Well, it really came down to the last day, didn’t it? Rubio wanted his child tax credits, right? And we had to go find some other money. We had to go score some other money to get that.
And I think collectively, people came together. They didn’t want to have the issue they had with health care, which was not getting it done. They needed a victory.
I think at the end, they were able to sort out the issues. There wasn’t as much resistance as there was with the health care. And ultimately, with some late-minute math, we got it done.
Moore: One of the real heroes of that—because I remember very vividly those last couple of weeks. We didn’t know whether we had the 50 votes in the Senate to pass that and you guys may remember that we came up one vote short on Obamacare repeal. We were terrified that might happen again.
One of the real heroes was Ron Johnson, the Wisconsin senator, who came to us about three weeks before the big vote and said, “Hey, I can’t support this bill.” And we’re like, “Wait, what?” And he said, “The tax cuts for small businesses are not large enough.”
We started to look at the evidence and it turned out Ron Johnson was right. There was a big reduction in the corporate rate, which was the heart and soul of the plan.
But small businesses, which Trump had said all along he wanted to make sure small businesses got a cut, too, because they’re 27 million small businesses.
Thank God Ron Johnson intervened and we actually got that small business tax rate down, too.
By the way, that’s one of the fallacies of the left. They keep saying this was just a big tax cut for corporations. We did make our corporate tax system more competitive globally, and that’s been a big benefit. But the biggest tax cut actually went to the small- and medium-sized business.
Bluey: Steve, I’m glad you brought that up because that’s where I’d like to take the conversation next.
Of course, you had this bill passed with Democrats across the board in opposition. You continue to hear about them calling for its repeal now. You have democrats now calling for its appeal.
At the same time, you have presidential candidates who are running for office trying to paint a completely different picture than the one you’re talking about.
Do you think, given the benefits that we have seen in small businesses and the middle class, that Democrats will ultimately pay a price politically for their opposition?
Gonzalez: I think so because when you’re in business, the government’s your partner. And that partnership was really adversarial for a decade.
We couldn’t grow our businesses because we gave over 50% of our profits back to the government. And if you can’t grow, you can’t grow your employment, you can’t grow your revenues when that partnership is so abusive.
So, we finally have a tax code now that allows small businesses to grow because we’re able to retain some of our earnings and put that back into the companies that invest in our companies. I don’t see how anyone could see it really any other way.
Moore: Yeah. The highest tax rate on small businesses before the Trump tax cut on the federal level was 40%, just under 40%. And we cut it to 30%. By the way, smaller businesses also saw reduction in their rate.
Republicans have done a poor job of explaining this and selling this message. Obviously, Republicans couldn’t sell water in a desert.
So it’s such a positive message on the economy. And yet, they’re having a hard time explaining to people, connecting the dots with this growth spurt and the huge increase in employment and the big reduction in the unemployment rate.
We have 7 million unfilled jobs today in America, 7 million. That’s more than the entire state of Indiana, in terms of population. It is a direct consequence of the tax cuts and the deregulation.
By the way, you said something, Julio, that’s really important. You said that adversarial relationship between government and business was holding back business investment. I 100% agree with that.
The Obama people were adversarial, they regarded business as the enemy. Remember it was Barack Obama who said, “You didn’t build that.” And that this kind of contempt that I think the previous administration had for business.
Donald Trump is unapologetically pro-business and I like that because you can’t have jobs without businesses.
Allen: Speaking about job creation, how much do you all credit President Trump’s tax cuts for the uptick in new jobs?
Moore: Huge, although, it’s part of a whole program. I see it as three things that Trump has done concretely that have changed the economic environment.
One is the tax cut. The second is the deregulation, which might actually be even bigger. And the third is the pro-American energy policy, allowing America to produce more oil and gas and coal and those resources that have made us the No. 1 energy powerhouse in the world.
… You could see the shot up in small business confidence right after Trump was elected, before he actually did anything. I think, for the first time, businesses … got to see your point about adversarial, that [they] finally had an ally in the White House, not somebody who was trying to come after successful businesses with a billy club. I don’t know if you would agree with that outlook.
Gonzalez: The confidence has been strong. Peer-to-peer, CEO-to-CEO relationships, everyone.
The confidence has just been so strong that not only is it deregulation, lower-income tax rates, immediate expensing, those are all big things, but it’s that confidence that Steve’s saying that allows us to go out there and grow our companies and invest knowing that we have a very robust economy growing under these tax benefits.
Bluey: Julio, you are somebody who’s a tax policy expert. You’ve been working behind the scenes but you’re also very active on social media. Why is it important to you to be out there in the public forum making the case?
Gonzalez: I think Steve just said it. We, the Republicans, do a poor job of promoting all these great things that we’ve done. And we allow the liberals to talk about certain pieces of this tax cut.
Let’s give an example. They don’t like that we took away the SALT, the state and local tax deductions, right? We capped it at $10,000. And they hit on that all the time.
But if they even knew the tax code prior to that, anyone that was paying over $10,000 in state and local taxes didn’t get the benefit because they were phased out by AMT.
So you got all these people in an uproar but they probably never even looked at their tax return. They probably thought they wrote it off.
I guarantee you, they probably didn’t write it off so now they’re getting a $10,000 benefit.
But here you have all these states saying, “Oh, this is horrible. This is crazy.” They didn’t get it anyway.
Moore: That’s such a great point because what we did, you’re right. People don’t really understand because people don’t pay that close attention to tax law.
Almost 90% of taxpayers don’t have to itemize their deduction any longer because we doubled the standard deduction. So those kinds of write-offs that Washington loves, because they love a complicated system, those all went away.
Ninety percent of Americans are actually better off because of what we did with changing the deductions. … The irony of this issue, by the way, is the people who actually do get hit hard by getting rid of the state and local tax deduction are the people in the top 1% of income.
Here you have the liberals, you got the irony here. Liberals are actually trying to bring back a tax shelter for the millionaires and billionaires.
And I say, “No, we’re not going to bring back tax shelters.” We want low rates and a broad base, they want to bring back all the deductions and loopholes and have high rates. I think most Americans understand which system works better.
Allen: As you all have advocated tax cuts, are there any personal stories throughout America, that really help to tell the story of—
Moore: I have one.
Allen: … their positive impacts? Please.
Moore: The last chapter of my book, “Trumponomics” is called “A Light Switch Is Flicked From Off to On.” And that came from a gentleman I met in Cleveland, Ohio.
Wherever I go, because I travel all the time, I ask businessmen, small or large, “How’s business? How are things going?”
This was about a year after the election and we had just passed the tax cut. This guy Joey who runs an auto mechanic shop, I said, “How’s business going, Joey?” And he has about 20 employees.
He said, “Steve, it’s almost like a light switch was flicked from off to on the day after the election.”
And he said, “Ever since then, I’ve had more business than I can handle.” That’s sort of the unleashing of the animal spirits of the economy.
But I get that all of the time. All of the time, people say, “Boy, there’s this new confidence and the tax cut helped my business. I can invest more. I can hire an additional worker. I can purchase another truck,” and all of these things.
Because, don’t forget, one of the things, Julio, we did in that bill was we allowed businesses to immediately expense their capital purchases.
So if they wanted to purchase a new computer or build a new plant or a new truck or something, they could write it off and we’ve seen a big explosion of capital investment as a result.
Gonzalez: It’s wonderful. I’ll give you an example in Ohio, as well.
I had a client in Toledo, Ohio. Which, Toledo had basically become a ghost town under the last administration. This company, at one time, was at 100 employees. They built posts for construction sites. They were down to 18 people and as of two weeks ago, they’re almost back to 100 people.
Gonzalez: Toledo is not such a ghost town anymore. They’re back, they’re vibrant. People are being employed back in Toledo again.
Another example where people are getting jobs back that they didn’t have and it’s so wonderful to see up there.
Allen: That’s amazing.
Bluey: Steve, you along with Art Laffer and Jonathan Williams author a great book each year called “Rich States, Poor States.” What kind of an impact do tax policies have on states?
We heard some personal stories here about Ohio, but can you share with us about what it’s meant for other states in terms of maybe job creation or where business or people are moving?
Moore: Two quick points. One is, our research and data are pretty unequivocal on this, that the states with low taxes, especially the nine states that have no income tax—states like your home state of Florida, like Texas, like Tennessee, New Hampshire, Washington state—they are just clobbering the states with high taxes.
I talk a lot about the four states of the Apocalypse and those are New York, Connecticut, and New Jersey, and Illinois. They’re a financial disaster. And by the way, they have the highest taxes and yet they have the biggest fiscal holes.
So I think what the states teach us is that you can’t tax your way to prosperity. And that sound tax reform with low taxes and broad baits is the way to prosperity. But you live in one of those states with no income tax, it’s a huge advantage.
Gonzalez: Huge advantage.
Just to build on that, and you could add California to that category as well, New York, California, Illinois, this year alone has added 84 taxes to their state tax system. Taxing soda, taxing additional on golf courses, outdoor dining—
Moore: Not golf courses.
Gonzalez: Yeah, outdoor dining, right? Look, I google tax every day. Go figure, right?
Every day, these states are doing a new tax because they’re 2, 3, 4 billion behind in collections already for this year. Because everyone’s mass exodus, why would you pay those taxes? …
Moore: Well, Julio, thanks a lot because I am from Illinois. I hail from the Chicago area and it’s a total disaster. Everywhere I go, whether I go to Florida or Texas or Utah or Arizona, all I see are those Illinois license plates of people who have left.
Illinois now … under their new governor, Pritzker, they want to get rid of their flat-rate income tax, which would be a complete disaster.
They want to raise their highest income tax rate to 8% to 9%. They don’t understand basic math. The 8% or 9% of zero is zero. You’re just going to get all these rich people … to move out, there’s not going to be any income at all from those people.
Bluey: But Steve, as you said, the data shows. So when are the political leaders in these states going to wake up and recognize that there is a mass exodus? Leaving California, leaving Illinois, leaving other states like that?
Moore: I don’t know. I’ve been talking about this for 15 or 20 years. Connecticut or New Jersey and Illinois are just losing their greatest assets, which is their people and their businesses.
There was a famous story about a billionaire who finally left Connecticut and moved, I think, to Florida. Just by him leaving, he put a $50 million hole in the state budget.
Moore: They’re like, “Come back, come back.” And he’s like, “Cut your taxes and I’ll come back.”
Allen: Here in Washington, D.C., and across the presidential campaign trail, proposals like the Green New Deal and the $15 minimum wage are getting a lot of buzz. What would they actually mean for Americans?
Gonzalez: I think that those kind of things mean that we’re going to have to cut our employees.
We’ve got to be competitive. We’ve got to be able to bring people in at a wage where we can go out and promote and sell.
As you force the system on companies, it doesn’t work. We’ll lose jobs.
Moore: I agree with that.
Look, I want the highest wages for American workers we can possibly get. Donald Trump does, too. He’d always say, “How is this going to affect middle-class workers?”
He understands that he’s the blue-collar president. He’s the one who cares about those factory workers and the steel workers and the auto workers.
I think one of the lessons we’ve learned from Trump is, the best way to raise wages is not through government minimum wages.
Target just raised their wage rate to what, $11, $12, $13 an hour? Walgreens has raised their wage rates. FedEx is offering bonuses for people. You see this, Costco, all of these major companies are raising their wages.
You ask them, “Why are you raising their wages?” And what Target said is, “We have to raise our wages because if we want to retain and recruit workers, it’s a competitive environment out there.”
When you’ve got 7 million unfilled jobs, that gives workers an opportunity to bargain up their wages. And so that’s the positive aspect of this but when you raise the minimum wage, that hurts …
By the way, why should Mississippi have the same wage rate as California? That’s just crazy. You’ll put all the people in Mississippi out of work and of course, maybe that’s what California and New York want.
Gonzalez: Yeah. And like what Steve said earlier, we have the lowest unemployment, right? We have to pay more to get employees. …
Moore: Have you had to do that?
Gonzalez: I have to attract people. We have to raise it to keep our people. Great economy, low unemployment, best way to bring up the wages.
Bluey: Finally, I want to ask both of you, aside from tax reform and deregulation, which we’ve talked about, what other policies would you like to see from the Trump administration to really boost the economic growth here in the United States?
Gonzalez: From a business standpoint, I know this is maybe an impossible wish, but I’d love to see tort reform at some point.
Because as a business, especially if you employ in California, those employees can walk out. They can abandon their jobs and go to an attorney and you have no choice but to settle.
For businesses, I think tort reform would really go a long way but maybe Steve has some better thoughts.
Moore: No, that’s a good one. Good luck with that taking on the taking on the trial lawyers. Godspeed on that. I’m just joking.
But no, you’re right. That’s a huge issue for American businesses.
I’ll just say this, I support what Trump is doing on China. We’re in a big trade dispute, obviously, with China.
I would love to see Trump, and this is something Larry Kudlow, the chief economist for Trump, has mentioned, is for Trump to continue to pursue this idea of: We’ll go to zero on our tariffs if these other countries go to zero on theirs because we actually have the lowest tariffs.
Wouldn’t that be something, Rob? Because then … Donald Trump would give us more free trade because every country would have an incentive to lower their tariffs.
I will say this: If Trump can get this trade deal done with China, and everything Trump is asking for is very reasonable with respect to China, you think the economy is strong now, wait until he gets a trade deal drawn with China.
Then, I think we’re looking at 3% to 4% rates of economic growth.
Larry Summers, who was the chief economist for both Barack Obama and Clinton, will be pulling his hair out because he was the one who said after eight years of Obama, the economy can’t grow more than 2%.
Well, we’re already at 3.25% and I think we can actually get up to 4%. When I tell Trump that, he’d always say, “I want 5%. I want 5% growth.” I love his optimism.
Allen: Julio, a very important final question: How can our listeners follow you on Twitter?
Gonzalez: On Twitter I’m @TaxReformExpert.
Gonzalez: I try to post every day. These states are coming up with new state taxes every morning to drive the people out, so [I’m] just trying to keep everyone informed out there.
Moore: Thank you, guys.
Gonzalez: My pleasure. Thanks.