Donald Trump has revived his earlier tax proposal that would (it appears) reduce taxes for everyone. The predictable debate has already begun with all the usual posturing.
Is this mainly for the rich? Any tax cut worth doing will disproportionately benefit the rich because the rich pay most of the taxes. That is a given, so anyone barking up this tree is just gaming the debate in hopes of inciting envy.
What’s important here is that cutting taxes on “the rich” reduces the penalty for becoming rich in the first place. That’s what we desperately need to start thinking about: unleashing wealth creation.
What about the middle class? There is plenty in this proposed legislation to benefit the middle class, including lower rates, a higher standard deduction, and larger child tax credit. The terrible truth is that this reform doesn’t touch the real problem: two-thirds of American families pay higher payroll taxes than income taxes. Someone, someday, is going to have to confront this problem.
How is this tax cut going to be paid for? This is another rhetorical trick. Actually, it’s worse: it’s an assault on the English language. The “paying for” language presumes that government already owns all your money and is somehow benevolently letting you keep some of it, and, by doing so, it is thus spending.
Analogy: if I stop a thief by putting a lock on my door, I am not making him “spend” the money he doesn’t pilfer. In other words, this language completely obfuscates the difference between spending your money vs. pillaging it from others. Congress doesn’t buy tax cuts from anyone. A tax cut merely lets people keep more of their own money and thereby reduces the punishment for creating wealth.
Will this balloon the deficit? That’s really up to Congress to decide. Congress could massively cut spending. Fine. If that doesn’t happen, there is still no justification for continuing to pillage American businesses and families and drain hopes for a brighter future. Cut spending by all means! Do it now. But if Congress fails to do so, that is not the fault of anyone but Congress. The rest of us should not be punished with high taxes because of their legislative failure.
The Real Issue
The real issue we must confront is the low rate of economic growth that the US economy has faced for the last ten years. In our own version of a “lost decade,” dreams of a bright future have been shattered for vast swaths of the American public. People are desperate.
The low unemployment rate masks the reality that many people have faced constant downward wage pressure, are working two and three jobs, or have just dropped out of the labor market. Jobs are hard to come by. High paying jobs are hard to get and keep. Small and medium-sized businesses fear hiring right now, and fear expanding investments in the future.
The Rise of Revenge
The political consequences are all around us. You can feel the seething anger everywhere in American culture. This is no surprise. The difference between 1% GDP growth and 3% GDP growth is the difference between despair and hope.
Are you trying to figure out where the Trump and Sanders movements came from? This is where they come from. They are the left-wing and right-wing versions of the politics of resentment. It’s about finding someone to blame–some imagined “other” who is the source of our problems.
Both of these movements are directing their anger at the wrong sources, such as Wall Street, Muslims, the rich, foreigners, fat cats, and multinational trade. Worse, both movements are bizarrely whipping up frenzied campaigns against large corporations that are right now the main source of job and income growth in the U.S.! Analogy: you are mad because there aren’t more eggs, so you kill all the chickens.
The politics of identity, scapegoating, fear, and loathing are deeply dangerous. There is no scenario in which this can end well. It is a moral and practical necessity to make dramatic changes in the economic rules to stop this.
Tax Cuts Kill Political Extremism
If it is anger at grim economic prospects that has fueled these movements, there is only one cure: get economic growth going again. Government programs cannot and will not drive economic growth. No amount of infrastructure spending — whether for “green” energy or for more awesome airports and bridges — is going to fix it.
For ten years now, government has tried every trick for repairing the economy, from bailouts to zero interest rates to ridiculous jobs programs to protectionism. Nothing works. The only way to repair the problem is to stop punishing wealth creation and start letting people and businesses keep more of their own earnings.
This shouldn’t be difficult to understand. Think of a locally owned restaurant you like. Better, go visit the restaurant and talk to the owner. Ask him and her what it would take to consider opening up another just like this one on the other side of town. How about a reduction of the corporate rate of taxation from 35% to 28.5%? I guarantee you will get the answer: yes, that would help. Much better would be 20%. Best would be 0%.
Turn the United States into a low-tax utopia, sea to shining sea, and you will watch economic growth move from nothing to astronomical in a matter of months. No one on the political stage is suggesting that, tragically, but every bit helps.
The Danger of Tax “Reform”
There are aspects of this reform that do worry me. I don’t like the elimination of the tax breaks for state and local taxes. That strikes me as a red-state plot to punish the blue states. We need to cut out the acts of vengeance and start thinking about the good of all.
As the legislative process unfurls in all its ghastly horror, we are going to see many tax increases snuck into the final bill and countless other manipulations that — if I were to make a prediction — are likely to wipe out the gains of whatever comes out on the other end.
This is very sad. A massive tax cut for everyone is the cure we need right now to stop the politics of mutual recrimination and hate, and to inspire people to dream big again about a bright future.