Tax Reduction? Yay! But …   Leave a comment

So I’ve been kind of nice to Donald Trump lately. I admire his regulatory rollback via executive order. But I’m not a Trump supporter, so don’t expect that to continue. I said when he got it right, I’d say so. That’s what I’m doing.

I’m writing this in late April to give myself some time to work on my novel. Trump has just released his tax plan and we will probably know the outcome by the time this publishes. No problem. I actually kind of like seeing how well I guess at something.

Under President Trump’s proposed tax reforms, individuals and corporations could see lower tax rates, and the number of tax brackets reduced. Conversely, the reforms would also eliminate most other deductions beyond the standard deduction, charitable contributions, and deductions for mortgage interest.

The standard deduction would be doubled, which is really a good thing for families, especially in the middle class. However, it takes that many more people off the tax rolls. Philosophically, I want to see the elimination of income tax entirely, but I oppose the idea that 50% or more of the population doesn’t may it. Why? Because those who pay no effective taxes tend to believe they “pay the right amount” and are much more comfortable with imposing taxes on those who make more than them, so they will vote for that … and that is just wrong. It’s as wrong to mug a millionaire in the park as it is to mug a poor person.

Corporate income taxes would drop to 15 percent. I’m not a corporation and Brad’s business is a sole-proprietorship, but this is tremendous news for small business people across the country who were absolutely hammered by Obama’s regulations. He appears unconstrained by the fake concept of revenue neutrality. Deficit neutrality should be achieved through spending cuts rather than revenue increases and experiences around the world have shown that a reduction of the corporate rate pays for itself. Canada and England have dramatically cut their rates and their revenue to GDP have stayed the same. Also, we know that the payoff in term of economic growth will be huge. We saw that in the 1980s, following Reagan’s tax restructuring.

Press releaseTrump also wants to repeal the alternative minimum tax (sometimes called the “awfully mean tax” because it overrides your potential deductions) and the estate tax (a.k.a. death tax). The information available right now is basic that it can be summed up by the graphic to your left, which came from a journalist who attended the White House press briefing.

It would eliminate deductions people claim for paying state and local income taxes, which could impact people who live in states like California and New York. Treasury Secretary Steve Mnuchin said it wasn’t the federal government’s job to “subsidize” these states. He’s absolutely right, though at current federal income tax rates combined with state income taxes in high-tax states would amount of about 80% of many people’s incomes.

Veronique de Rugy, Reason columnist and senior research fellow at the Mercatus Center of George Mason University, had a quick initial response:

Cutting the capital gain tax rate is good and so is his proposal to end many deductions. Plus ending the death tax and the AMT is excellent. I like the individual tax reform based on what I have seen but where are the spending cuts?

“Where are the spending cuts?” is libel to be a refrain from both libertarian and small-government conservatives who otherwise have positive feelings about these changes. Trump has shown a willingness to cut federal programs, but then he turned around and increased military spending as if that was somehow going to save the taxpayers money. I remember when Reagan promised the spending cuts would come later … and we had to wait for the Contract with America more than a decade later. Back then the national debt was considerably less than a trillion dollars and now it’s at $20 trillion. I don’t think we can wait for … later.

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Posted May 16, 2017 by aurorawatcherak in economics, Uncategorized

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