The GOP Tax Plan Won’t Bring Economic Boost…But A Flat Tax Would…and other thoughts about taxes.

 

So, taxes are coming up in the failure that is the Trump presidency. Now if you think that meaningful tax reform will come out of this excuse for a presidency, please contact me as I have some lovely bridges to sell, and a few skyscrapers to boot.

But let’s deal with what real tax reform would actually look like.
Ideal Tax Structure
The ideal tax code would be as simple as possible in that it will have few loopholes, few sources, few brackets and few ways to get around paying taxes. In a true ideal system you would tax one and only one source. So instead of having income taxes, capital gains taxes, payroll taxes, tariffs, sales and excise taxes, estate taxes, and corporate taxes we get this shit show. The reason for this is the problem of having numerous sources of taxation allows the government to hide exactly how much it is taxing the people. It’s hard to hide a single tax on tea when that is the only tax around, but when you have tariff on the import, a harbor fee above and beyond what is needed to actually run the harbor, a tax on transportation by numerous fees on the truck driver and truck (including government payoffs to the unions for their votes to keep the trucks rolling instead of letting the private sector find more efficient means of transportation), numerous taxes on the store selling the tea (property, social security, unemployment, medical for the employee) plus a sales tax on the money you pay for the tea (after your income has already had half a dozen taxes taking out your own money)…it’s become easy to not see that a good portion of the money has been eaten out by the government. This allows the government to cut taxes in one place, increase them in another, make the general public think they’re getting a cut, when in fact they’re paying just as much (possibly even more) than they were before.
This needs to end.
There needs to be one tax and one tax alone for every level of government. For instance, an income tax at the federal level, a sales tax at the state level, and a property tax at the country and city level. Something like this. That way people can see exactly how much they’re paying for each level of government clearly, and judge if the benefits they’re receiving are comparable to the amount they’re paying. As we all know implicitly, if people could see these costs and benefits, this clearly then the government would see machete level cuts to every aspect of its bulk.
But in dealing with the income tax the other thing that needs to occur is that we need to remove ALL deductions. All of them. I can see a standard deduction of the first $30,000 because that is what you need to live a middle-class lifestyle on (and if we implement this along with the UBI then you already have around the $12,000 of that covered) and perhaps another $6,000 deduction for one child per person (so two parents could each claim one child and the first $36,000 they each earn would be tax free). But the minute you go beyond that with any deduction you begin down a road of madness. Why? Because with every deduction comes another reason why we should have multiple tax brackets, and with that becomes more of a reason to have more deductions, and with that comes reasons to raise taxes, and have more taxes and again we are back to a situation where government isn’t accountable because you can’t actually see very clearly how it is taking money from you. So, damn all deductions. I don’t care that you have a mortgage, just because you chose to buy a house doesn’t mean you’re in a special class…all it means is that the government feels it should encourage people to buy houses (if it is such an economic good, then the market and reason should provide the incentives without government help). I don’t care if you donate to charity. How you choose to spend your money should be how you choose to spend your money. Spending in certain places doesn’t make that money magical and suddenly tax-free. Charitable spending doesn’t noticeably go up when the deduction for charity is increased and I speculate that it will not go down appreciably either. (Further, by getting rid of corporate taxes altogether every charity can save huge portions of their budget not having to work to comply with government regulations and tax codes to ensure they keep their tax status). The child credit is the only thing that is negotiable because having children is an honest to god greater expense, not just the government trying to get you to spend money in one place over another—but here too you have to be careful not to just subsidize people having a brood they can’t possibly support simply for some short term payoff.

So how does the new tax plan stack up to this? Terribly. We still have multiple brackets, multiple taxes, numerous deductions (and nothing even resembling the courage needed to take out those deductions). As far as real reform goes this is little more than rearranging deck chairs on the Titanic. It changes some numbers, changes who exactly it benefits and who gets screwed but does not do the serious work of providing a system that benefits all Americans in the long term.

In fact, they are officially keeping the top tax bracket the same, which is odd because despite proclaiming that they want to help small businesses, no one in Congress seems to understand that most small businesses actually pay the top personal income level not the top corporate level even if they are a business. Of course, what’s worse is while the top tax bracket is officially the same it’s not. There is a back door additional tax for people (and small businesses) making over a million (which is surprisingly common for a small business) that can raise the top rate to about 45%. (Title I Section 1(e) found on page 16 of the bill .

That’s right they’re raising taxes on the rich and small businesses by almost 7%. If tax cuts help the economy will a 7% increase hurt it? Yes, yes it will. Make no mistake that this bill kills jobs, not create them.

Then there is the way they changed deductions. They no longer allow you to deduct state income tax. This is something that should be done since it subsidizes big tax-and-spend liberal states like California and New York to bilk their citizens for as much as possible but basically have it subsidized by the federal government. But what they kept in was allowing them to deduct property taxes, which are more popular in states like Texas. So, we’re going to hurt people in blue states but help the red states. I would be fine with a principled reduction in all deductions as these deductions only aid in high taxes and government over -pending, and I would defend that because it is a fight that needs to be defended. But this petty partisanship designed to hurt Trump’s opponents and help his followers. It’s a modern-day Tammany Hall spoils system and it has no place in our government. And even in the unholy event this bill is passed, this pathetic favoritism will be the first thing overturned when new people come into power. That is a problem because only lasting change is worth fighting for, and this is worse because this kind of pettiness will become standard practice. So, congratulations Trump you just gave the Democrats another weapon to use.

A note on Corporate taxes. I oppose a separate corporate tax, especially one as insanely high as the one we have. However, I also believe that legal fiction that corporations are people is a very important one to follow. Any populist or modern liberal moron who wants to attack the idea that corporations are individuals is ignorant of law, history and how corporations work. If you get rid of this legal fiction then you don’t just risk the safety of the global economy, you are trying to destroy it. That is not hyperbole, that is merely how important the idea of corporations as people are to the growth of the modern economy and current levels of prosperity. But I have recently realized if I’m going to defend a corporation as an individual then if they get the rights of individuals they must also have the fiscal responsibilities. As such their profits should be taxed at the exact same rate as income for individuals should be taxed. Doing this has numerous benefits as well but, as with so many of my articles, this is getting rather long so we’ll deal with that at another point.

The Limits of Tax Reform
Here’s another sad fact: The Trump tax reform, even if everything that Trump has proposed that a Chicago school economist would love is kept and everything stupid the Orange one has blathered on about is ignored, it’s still not going to be a massive shot of adrenaline that the Reagan cuts were. On income, it’s helping people by a few percentage points. And that’s at best (there are a lot of things Trump has proposed that could actually lead to the middle class paying more in taxes). But here’s the thing. Reagan’s laffer-curvereform was cutting the top rate from around 70% to 40%, just as the Kennedy tax cut a generation earlier was cutting the top rate from 90% to around 70%. Those are cuts of 30% and 20%, and yes obviously, even with the reduction of allowable deductions (actually because of that) those huge tax cuts did do a lot for the economy. Trump’s plan at best cuts the top rate by around by 0% (it actually increases it). 0% will not get the same results as 30%. That part is obvious to even the dumbest out there, or at least it should be, but more importantly, the Laffer curve which was the basis for the Reagan/Kemp move to cut taxes says that you can only cut so much before you stop having the effect of a massive effect on the economy. Roughly speaking if you want peak income for the government then you can only take about 33% of all income in taxes. We’re a little above that right now so a cut here and there would get us closer to that, but the marginal gain for every point cut now is less than at the far extreme (i.e. if Reagan had cut only by 3% it would have more of an effect than if Trump cuts by 3%…and Reagan cut by 10 times that).

Of course, there is the issue of corporate tax reform. Trump is theoretically correct that we should lower the corporate tax. Although if you wanted to be honest we should just get rid of the corporate tax completely if we want to not only make our nation competitive but to also bring about economic prosperity for the US and the whole world. Of course, he is completely wrong in thinking what will happen. Even if you got rid of the corporate tax entirely it will not bring back manufacturing jobs, nothing will. If corporations have the money they will automate what they can. That is going to happen unless you want to institute socialist controls over the economy (which Trump does)…and that will only destroy the nation (again what Trump actually wants). But more importantly, if you really cared about US companies being competitive you would get rid of all tariffs. ALL OF THEM. If you have the choice between getting rid of the corporate tax and getting rid of tariffs, getting rid of tariffs would be far more likely to benefit the US economy. From Adam Smith to Thomas Paine to Alexander Hamilton to John Adams to just about every person who had their head screwed on right when our nation was founded there was a complete understanding that free trade is what nations need. And in the two centuries that have followed the American Revolution economics, be it from the left and Keynes or the Right and Hayek and Friedman, have all understood that free trade is an absolute good. There isn’t even any question about this only the kind of idiot small minded tyrannical bastards we shot without qualm in their red coats and their insane king believed in mercantilism. Oh and Trump and his followers, because they know less than nothing about economics.
A massive corporate tax reduction would do a lot of help to the economy if there were no new barriers to free trade being put up. It would do even better if we simply adopted free trade as a bedrock policy. It would do far more good to not only cut corporate taxes but to cut all corporate subsidies across the board. It would do far more good to get rid of all tariffs. It would do far more good to cut all regulations to the point where the only thing being paid for imported goods is fees to pay for the cost of docking the ship and checking the cargo for security concerns. Populists and nationalists will immediately whine about the fact that other countries aren’t giving us the same consideration, but it really doesn’t matter. Because without tariffs here it will still be cheaper not only to do business in the US but to ship things out to the rest of the world. If other countries want to continue having tariffs they’ll only hurt their own people as most of the things people will want to buy will still be cheaper when coming out of the US, it doesn’t matter what kind of tariffs their own stupid country puts on the product, they’ll still be buying it. If some other idiot nation wants to continue offering subsidies to help out businesses in their own nations, who cares, whether they buy our product with a tariff or pay for the subsidy with their own taxes they will only be hurting themselves. If the US leads the way on this every nation will have to follow suit or simply not be competitive. Especially since the people who have money will have an even greater incentive to come to the US and bring their money with them. Adam Smith in Wealth of Men and Thomas Paine in The Rights of Men recognized this basic fact of economics…it’s sad that nationalists can’t recognize a fact of economics older than the theory of evolution, relativity, or even a basic understanding of electromagnetism.

But what does this tax plan do?
It raises taxes on foreign trade. Taxes on assets overseas. Taxes on money going to parent companies overseas. Taxes for earning money overseas. America was already the only nation that taxed its citizens for earning income overseas, now we’re the only nation that I know of that taxes its corporation’s foreign earnings. If I were a corporation I would be sure to move out of America and not bother to do any business there because the rest of the world is a bigger market than America and as it’s no longer going to be worth to do business in America with taxes this moronic why bother.

 

Yes, fools often make the perfect the enemy of the good, and sacrifice movement in the right direction because they can’t get everything they want immediately. But there is the opposite end as well of change for the sake of change. And regrettably Trump’s tax “reform” is more of the latter. It just changes some numbers around without addressing any of the core problems. The corporate tax cuts might be a good thing but they’re offset entirely by Trump’s taxes on overseas commerce and then made worse by his war on free trade. The removal of the deduction for state income taxes is good but it’s not nearly enough especially since it is born from a desire to hurt those in blue states rather than one to seek real capitalistic reform…and because it’s not being sold correctly, even if passed (ha!) it will be overturned in the next administration. Nothing in this bill will lead to long-term good. It is at best going to lead to sum zero in the economy…and that is at best. With the restriction on engaging in the global economy it could easily collapse the US economy in a way not seen since the Smoot-Hawley Tariff.

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Categorised in: America, Conservative, Economy, Political, Taxes

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