This article was published by The McAlvany Intelligence Advisor on Friday, October 21, 2016:  

English: The standard Laffer Curve

The standard Laffer Curve

The Tax Foundation, founded nearly 80 years ago, considers itself non-partisan, guided by what it calls “the principles of sound tax policy, simplicity, transparency, neutrality, stability, no retroactivity, broad [tax] bases and low [tax] rates.” It has steadfastly opposed tax increases of any kind: income, corporate, or excise. Especially annoying are tax “preferences” (i.e., subsidies) for the housing industry and tax credits for certain constituencies (which the Foundation calls “picking winners and losers”).

So it’s no surprise that in its study of Trump’s and Clinton’s so-called “tax plans” the Foundation concluded that Trump’s was vastly superior to Hillary’s:

Trump’s tax plan would increase the size of the … because [it] would increase investment opportunities in the United States … and … would drive foreign investors to invest more in the United States.

On the other hand, Hillary’s plan

would reduce the long-run size of the economy … [while taking] all of the new revenue (and then some) and spending it on new government programs.

Its study was hampered by opacity in both “plans”: Trump’s plan failed to clarify to the Foundation’s satisfaction how it would handle “pass through” income from small businesses to their owners, while Clinton’s plan failed to clarify just what it meant by “business tax reform.” As the author of the study, Kyle Pomerleau, wrote:

For months she has promised to raise more than $200 billion through “business tax reform.” However, no one seems to know exactly how she would do it. It could be borrowed from President Obama … which would tax multinational [corporations’] overseas profits at 14 percent….

But the Foundation, given its predilection towards as opposed to nonsense and the (deliberate?) lack of clarity in both plans, did the best it could. over the next ten years under Clinton would shrink by 2.6 percent, while under Trump it would grow between 7 and 8 percent. Capital investment in the economy would be discouraged under Clinton’s plan by seven percent, while it would grow by between 20 and 23 percent under Trump’s.

Real wages under Clinton would drop 2 percent, while under Trump they would grow between 5.4 percent and 6.3 percent. under Clinton would decline by 700,000, while they would increase under Trump by between 1.8 million and 2.2 million.

The Foundation’s close look at the details of Clinton’s plan is unnerving, especially for the enemy: those most successful, earning incomes in the millions, even though, through , graft, pay-to-gain-access schemes, and other various illegal machinations behind the scenes at the Clinton Foundation she herself now falls in that category: Clinton would put a four percent “surcharge” on high income earners, establish a 30 percent minimum tax on taxpayers earning more than $1 million a year, limit the amount of itemized deductions those high earners could claim (thus exposing more of their income to taxation), and raise the tax on capital gains to a maximum of nearly 40 percent. She would also limit the total value of tax-deferred and tax-free accounts that citizens could accumulate, forcing more of their income to be subject to taxation.

Trump’s plan, on the other hand, would cut tax rates substantially on ordinary income to 12 percent, 25 percent, or 33 percent, depending on amount. He would also cut the tax on capital gains accordingly. He would increase the standard deduction from $6,300 (currently, for singles) to $15,000 and from $12,600 (currently, for married couples) to $30,000. His plan would also cut corporate tax rates from today’s 35 percent – the highest in the world – to just 15 percent.

Missing from the Foundation’s analysis was any mention of the Laffer Curve (see chart above)  or the potential incoming flood of new investment capital if corporate tax rates were actually reduced by the 20 percent promised by Trump. Neither plan mentioned anything about deficits, the , the unfunded liabilities of Medicare or , or the implosion of ObamaCare.

Also missing was any mention that neither plan is likely to see the light of day in the sausage-making factory called Washington. Every politician will seize the opportunity in whatever plan is offered to do for himself first, his constituents second, and the last.

If Hillary is elected, there is another element of grace to keep much of anything untoward from happening over the next four years: gridlock. Through redistricting, the House – which is where all spending bills start – will remain in hands. Current Senate races appear to favor the continuance of a majority there as well.

The glories of gridlock, therefore, make much if not most of the Tax Foundation’s careful analysis and comparison irrelevant.


Sources:

Background on the Tax Foundation

The Tax Foundation: How do Clinton and Trump’s Tax Plans Compare?

The Tax Foundation: Understanding the Candidates’ Tax Plans

The Laffer Curve

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