“The tax plan that the Trump administration outlined on Wednesday is a potentially huge windfall for the wealthiest Americans. It would not directly benefit the bottom third of the population. As for the middle class, the benefits appear to be modest.” – NY Times, 10/27/17
Senate Minority Leader Chuck Schumer, D-N.Y., suggested Friday that former President Ronald Reagan would not be a fan of President Trump’s and Congressional Republican’s push for tax reform and would consider it an “absolute catastrophe.” – Washington Examiner, 10/27/17
With the details still in the planning and negotiating phase, the liberal press and liberal leaders across the nation are already declaring Trump Tax reform a disaster. The same old liberal saws that are trotted out each election cycle are being regurgitated here. The Republicans are cutting taxes for the rich. They do not care about the poor or middle class. They are going to push Grandma’s wheelchair over the cliff. The hysteria continues unabated. And as usual, too many Americans react with ill-informed feeling and wring their hands at such concerning reports. If it is stated in the New York Times, it must be accurate, right?
Well, not necessarily. Though we have a rough idea, we still do not know all of the specifics of what Trump and Congress are proposing. We still have no idea if any deal can actually get done. Remember how the Obamacare revision went? Same problem. Congress, at least so far, has been all talk and no action on the Trump agenda. Life is tough when your own supposed allies are passively obstructive on your best ideas.
And tax reform is the best idea of numerous Trump ideas. Tax burdens in America have had an incremental creep for decades. Kennedy cut taxes and Reagan cut taxes, each with historic bumps in economic activity and revenues. But after each tax cut comes decades of little tax increases that may or may not be associated with income tax. Obama raised taxes everywhere. A few were obvious such as boosting long-term capital gains, doubling the rate from 15% to 28% (known as a soak-the-rich tax) and imposing new real estate taxes to underwrite the Affordable Care Act. Remember the old Book of Mormon deal where the Nephites had to pay 50% of their goods to the Lamanites as a slave tribute? When you add up all of the various taxes on income, goods, sales, business, property, payroll, etc. we blew through that threshold long ago. In short, we are currently slaves of an over-burdening tax system.
Below I outline several principles of why fewer taxes are good for everyone, not just the rich. Politics and personal feelings aside, it is hard to argue with the beneficial economic principle:
Principle 1 – Every dollar that stays in the economy versus taxed out of the economy benefits everyone. – As Milton Friedman so eloquently argued decades ago, every dollar that stays in the economy increases the velocity of capital (where each dollar gets spent over and over again on downline purchases and reinvestment). The higher velocity of capital increases business growth, innovation, the number of available goods and services and lifts the standard of living across the board for everyone.
Principle 2 – Taxed dollars are spent inefficiently. – Our government is not efficient, frugal or even (these days) accountable for the tax dollars they spend. In addition to the detriments to Principle 1, it seems that no matter how much the government collects in tax dollars it is never enough. There is always a new program, or a hungry unfunded liability to consume every dollar collected. Every dollar the government takes in only results in cents actually being spent on specific benefits. The rest is eaten up in administrative costs. Our national deficit should speak for itself. Bureaucrats are poor stewards of tax revenue and deserve to preside over as little as necessary.
Principle 3 – The majority of government programs and departments have no constitutional basis. – The Constitution outlines powers to our government. It was never constitutional to take from the citizenry large taxes and spend them on endless regulatory departments and programs. We have allowed and accepted this abrogation of power and resources over the years as a matter of course, but we should be demanding up to 80% of government spending be curtailed. For those who believe chaos would ensue, we have done just fine in years past without all the bureaucracy. As one example that author and media personality Dan Bongiono often trumpets “What in the world do we need seventeen intelligence agencies for when we could easily do the job with two or three?”
Principle 4 – The whole “rich are getting all the breaks” argument breaks down on one simple fact. – The wealthiest 20% of Americans already pay 95% of the taxes. Of course, any tax break will benefit those brackets more. How can you benefit a lower income bracket person paying zero taxes? Higher tax rebates? The argument is specious at best. The principle behind it all is that higher income individuals create the most jobs. Tax cuts to the wealthiest brackets free more capital for additional investment and business growth. More jobs means benefits for everyone who is willing to qualify themselves for a burgeoning marketplace.
Principle 5 – Reduced corporate tax rates fuel business repatriation and expansion. – The liberals always like to point out the fact that reducing business taxes pads the pockets of shareholders and executives. Somehow I fail to see a problem there. What it also does is attract more businesses and more capital back into the American economy which means…you guessed it…more jobs for everyone and more padding in their pockets. We have the worst corporate tax structure in the world, and if we are ever to get going again we need businesses back on our soil Makin’ Stuff.
Principle 6 – Estate taxes are double taxation and should be illegal since they are already immoral. – Also argued to be a benefit for the rich, it makes absolutely no sense to pass down assets that have already been taxed from one generation to the next subject to additional (and quite onerous) “death” taxes.
The Trump tax reform plan seems to address all of these principles in a positive way. The same old “Trump loves the rich” attacks have no merit. The liberal Emperor truly has no clothes. If there are objections to the plan they should be on specific provisions and the principles demanding those provisions. And if for some reason our economy does not expand with massive tax relief, then we should figure a simple way to spend less money. Maybe we should run a bunch of tax accountants in the interim election versus the usual career politicians. Perhaps then we could keep some of this common sense rolling.