Why Trump tax reform will be even better than Reagan

Over the course of the last few months, Americans listened to the hyperbole from both sides of the aisle about the effects of tax reform and the consequences. Some of us feared nothing would get done. But to the surprise of many who saw Washington as dysfunctional, this congress has passed a tax reform act which, in hindsight could make the Reagan reforms look small.

Economists seem to be myopic when it comes to taxes. They forget one very important variable which drove the markets and innovation in the eighties. It was an unexpected intangible.

The tax reforms passed by Reagan and Tip O'Neill did more than bring down marginal rates. It unleashed an entrepreneurial spirit which had been lacking for the prior decade. It helped unlock the millions in seed capital which spawned the some of the great tech companies of today. It did way more than lower taxes; it propelled the U.S. into the digital era.

Now we find ourselves on the verge of the next iteration of the technology revolution. We have witnessed more innovation in the last five years than we did the prior two decades. The world of technology is moving faster and faster.

"As one who witnessed, first hand, the effects of Reagan's tax reform package, I can say unequivocally, that it will lead to higher growth, stronger wages and more tax revenue."

This tax reform package will do more than realign corporate America into a more competitive global landscape. It comes at a time when capital is needed to sustain our place as the technological leader of the world.

Vladimir Putin said in 2016, "Whomever rules AI (Artificial Intelligence) rules the world!" It was a bold statement but one which brings with it an untold truth... It's a quiet war of innovation; one that we must win at all costs.

The capital which has been held hostage overseas along with the lower and broader tax base will help propel the U.S. into the next stage of the technology revolution and solidify our place as the leader in global technologic innovation. Capital goes to where capital is treated best and now that happens to be the U.S., it's really that simple.

As one who witnessed, first hand, the effects of Reagan's tax reform package, I can say unequivocally, that it will lead to higher growth, stronger wages and more tax revenue. Under Reagan, the concern was that we would see a decrease in tax revenues.

From 1983 to 1990, tax revenues doubled, though that was in part because of an increase in the payroll tax. But more importantly, we began to see real investment into ideas and concepts. We began to witness an economy growing organically. We saw serious job creation and we all enjoyed growing wages.

Of course, there are those who might be affected more than others, especially those of us living in high tax states. A byproduct of the bill is forcing states to be more fiscally responsible. But let's understand something. High tax states are inherently mismanaged, and in many ways corrupt.

In Illinois, where I live, half of the governors over the course of my lifetime have gone to prison. That's not to say every high tax state is corrupt but this tax reform package makes each state much more accountable, something which is critical and necessary.

What this means for traders and investors is that the recent rally in stocks might only be the beginning of things to come. The recent parabolic move in equities might be more of a foreshadowing of the actions we might see in 2018.

With real Tax Reform done, the road has been paved for the next leg in this amazing bull. Capital expenditure will grow exponentially because of immediate expensing. Market forecasts will be adjusted upward by analysts looking for another 20 to 25 percent gain in stocks next year.

Those of us who have been asking for serious tax reform for years have been given a great holiday gift. We have been given the opportunity to rid ourselves of self-imposed burdens and obstacles as we find our place at the head of the digital world. Tax reform is much more than lower taxes, much, much more.

Commentary by Jack Bouroudjian, chief economist at the Universal Compute Xchange. Follow him on Twitter @JackBouroudjian.

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