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Donald Trump's Policies - Part Five, Tax Reform

I’m hold the Libertarian philosophy, so, my bottom line position on taxes is that they’re theft, and no one in the Liberty movement said it better than Murray Rothbard. That being the case, the best tax reform is to repudiate them, as Rothbard said. So, I won’t have much good to say about any tax reform plan. Either way, for those who do not agree with Rothbard’s viewpoint, I offer this critique of Donald Trump’s Tax Reform plan, “That will Make America Great Again.” One has to start wondering if all 7 of Trump’s plans have to be enacted in order to Make America Great Again, or will he succeed if only 4 out of 7 or some other sum suffice. I digress.

Mr. Trump believes that Americans aren’t working because jobs are overseas, therefore bills can’t be paid. Because of this, taxes need to be reformed. He’s partly right, even if what is laid out on his website is vague at best.

His plan aims to

1.       Bring tax relief for the middle class
2.       Simplify the Tax Code
3.       Grow the American Economy
4.       Not add to the national debt

From that framework, Trump believes his plan will

1.       Eradicate income tax for unmarried, income earners making less than $25,000 or married making less than $50,000. He claims that such an action will remove 75million workers from paying taxes. Those outside of those brackets will supposedly pay $1,000 dollars less in Federal income tax.

My first question has to be, well, who will make up the shortfall? Does Mr. Trump really believe that his plan will pass the political quagmire that is Washington? Taxes are only one part of the problem. If he wants to stop adding to the national debt, then he’ll have to dramatically cut spending, and I don’t mean in the way that the Republicans wanted to reduce spending. Otherwise, his plan can only add to the national debt, something that he says he does not want to do.

2.       Simplify the tax brackets down to 4 categories – 0%, 10%, 20%, and 25%. It will also remove the Alternative Minimum Tax (AMT) and the marriage penalty.

Removing the AMT and marriage penalty is fine. But the fact that Trump is still willing to adhere to the graduated/progressive income tax shows that he doesn’t have a firm grasp of socialist/communist philosophy. Or perhaps he does, and that is why he wants to keep the 4 levels.

Let me state the issue this way. If I make $49,900 a year, which qualifies me for the 0% bracket, why would I want to take a job for $50,100, and thus qualify for the 10% tax bracket? I’d in effect earn less than before. Such a system has throughout history helped stifle personal ambition, which in turn affects the entire nation as a whole in that the masses would be encouraged to do less, not more as a whole.

The other option, which Mr. Trump is certainly aware of, is those making enormous sums of money have to create shell types of businesses in order to move money around, and so avoid paying the higher rates. That’s at least one of many loopholes that rich people use to dodge the system. So, that being the case, relief for the middle class would not happen as the middle class will have to pick up the burden of those paying 0% as well as those rich people who can afford to move money around. This is a gross oversimplification, but the bare-bones should be enough to illustrate the point, the middle class cannot ever have relief under a graduate income tax system. It was designed to crush the middle class, which is why Karl Marx advocated it in the first place.

3.       Establish 15% as the top rate that any business of any size would have to pay for corporate income taxes.

This sounds good on the face of it, but it is still theft. The government did not produce anything, the business did.  That being the case, taking from a producing entity is theft whether it be 1% or 15%. Beside the point, some companies can afford the 15% and others cannot. I have a hard time thinking that the largest companies will ever pay 15%, so the smaller businesses, with less capital and political clout will still shoulder the burden.

4.       Eliminate the death tax.

Yes. The fact that the government makes money from someone’s estate after they’ve passed is immoral. Get rid of this wicked sin.

Trump then claims that his plan is “Revenue Neutral”, meaning that his plan will still raise the same amount of money. In order for him to do this, he must make up the loss of 75million taxpayers, plus the lost revenue from corporate taxes. How does he plan to do this?

1.       Reduce or eliminate loopholes and deductions for the very rich.

He’s going to punish himself apparently, because he’s very rich. I don’t buy it. Besides, if he really means it, then he can hardly expect his other very rich friends to support him (many don’t already as it is). This idea is part of the graduated income tax mentioned above, and can only help in frustrating the ambitious entrepreneur from trying his hardest/best to succeed.

2.       A one-time repatriation of corporate cash held overseas at a significantly discounted 10% tax rate, followed by an end to the deferral of taxes on corporate income earned abroad.

If Mr. Trump wants to keep businesses in America, this is not the way to do it.  Far from it, this plan will give the wealthy an ultimatum – “Stay here with your money, or leave altogether.” Athletes currently do this, as many of them leave their motherland for places like Monaco in order to avoid insane tax policies back home. No money will be raised this way, and over time, money can only be lost.

3.       Reducing or eliminating corporate loopholes that cater to special interests, as well as deductions made unnecessary or redundant by the new lower tax rate on corporations and business income. We will also phase in a reasonable cap on the deductibility of business interest expenses.

Basically, Trump’s plan is to eliminate the tax write off. Companies look to spend excess money on quite often frivolous things just to stay under a particular tax bracket. Though frivolity is part of it, charity can be as well, and many companies will make charitable donations at the end of a tax cycle. It’s a win-win for the business, because they do not have to suffer at a higher tax rate, and they can look like good guys in public opinion for helping the fight against breast cancer. Trump’s plan will eliminate both the frivolous and the charitable. (Whether you agree with funding a non-profit that is against your worldview is not the issue here, the issue is Trump’s plan eliminates freedom to use earned income (private property) in a personally chosen way. Mind you, some companies avoid the penalty by plunging earnings into research and development, which in turn makes better, cheaper products for the general public. That too would suffer under Trump’s plan.

Such a plan must have at least some sort of detail about how it would work. In the opening paragraph of the details section Trump restates his “conservative” goal for fiscal responsibility and not adding to the national debt. Oddly, and perhaps I’m missing something here, Mr. Trump uses language linking taxes to the national debt. By that I mean, it seems as if he believes we have the debt, because we have a taxation problem. If this be the case, then he couldn’t be any more wrong. We have a debt problem, because the government spends money it doesn’t have. Otherwise, nothing new is stated in these two paragraphs.

In fact, not much is said in the rest of this tax plan, but I did want to point out a few interesting statements.

1.       The politicians enacting the income tax in 1913 said that the income tax was never intended to burden most Americans. This was the progressive era’s heyday. They, as all progressives seem to understand, realized that in order for their programs to be fully enacted, they’d have to slowly introduce policies in incremental steps. The income tax was no exception. That being the case, it was always intended to be a tax that “most” Americans would have to pay.

2.       Simplifying and cutting taxes cannot both boost consumer spending while encourage savings and investment. The two points are at odds with one another. Think of it this way – The  Keynesian economist wants to spend, which is why the Federal Reserve tampers with the interest rate. It encourages spending at the expense of savings and investment, thus the bubble economy. The Austrian economist wants complete and total freedom to produce. Such production is the key to a sound, healthy economy, which in the long run increases personal as well as national wealth. That is the only way to maximize economic growth. Taxes can only hinder maximum economic growth, and Trumps plan, perhaps not as bad as France’s current system, is still a hindrance.

3.       Trump’s plan is some form of restated “Supply-side” economics, that conservatives hail from the Reagan Era. The concern I have with this is that the Reagan Era saw taxes cut to some extent, yes, but it also saw government spending dramatically rise. I’m not sure that Trump’s plan will be any different from both a philosophical as well as a historical standpoint.

4.       My final thought is that at the heart of it, Mr. Trump, like all other politicians, wants our money. This is illustrated by the comment he makes in point 2 of his final section – “U.S.-owned corporations have as much as $2.5 trillion in cash sitting overseas.” He says that his plan will lower the tax rate in order for those corporations to use that money in the country. But bringing that money back still comes at a cost – 10%. That’s still $250billion dollars that the company earned. If I were a businessman, I’d want to keep all of that, and the only way for me to do that is to keep it out of America. Mr. Trump realizes this, because he has money overseas himself, and it makes no sound business sense to bring that money back under even a 10% penalty.

Yet, all of this plan, however, might just be smoke and mirrors. You may have read my take for naught, because this might not even be the actual plan. Consider this to see what I’m saying. In other words, this tax plan (as are all tax plans) is bad, but it could be worse after negotiation.

This post first appeared on Clio's Lessons, please read the originial post: here

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Donald Trump's Policies - Part Five, Tax Reform


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