This article was published by The McAlvany Intelligence Advisor on Friday, September 29, 2017:
Otto von Bismarck is credited, rightly or wrongly, with two famous quotes about laws and sausages: “Laws are like sausages. It’s better not to see them being made.” And “To retain respect for sausages and laws, one must not watch them in the making.”
One of the more insightful comments on the whole business in today’s Washington comes from the President’s son, Donald J. Trump, Jr., (shown above) who said:
I’ve been able to see some very impressive people that are in politics, and I’ve been able to see a lot more people that are much less impressive that I don’t know if I’d want to spend my life working with. When I see sort of how the sausage is made, it’s not very pretty.
How his father’s tax reform “framework” will look when, after several months of bickering, dickering, horse-trading, deal-making and sausage-making, it finally arrives on his desk for signing into law is anyone’s guess. The framework, released earlier this week, was cobbled together by Trump’s administration, the House Ways and Means Committee, and the Senate Finance Committee, and is now fair game for anyone with an opinion.
The president, predictably, calls it “tremendous”:
This is a tremendous change, and the biggest winners will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labor, and as wages start going up [to] levels you haven’t seen in many years.
Nancy Pelosi, also predictably, calls it a disaster. For the first time in her political career, she is worried about the plan’s potential impact on deficits. In her own style, she complains:
Make no mistake: After [the] Republicans’ tax plan blows a multi-trillion-dollar hole in the deficit [sic, budget], they will sharpen their knives for [cuts in] Social Security, Medicare, Medicaid and vital job-creating investments for middle-class families across America.
This nonsensical and non-linear quote perhaps reveals more about her mental condition, as noted by Matt Vespa, writing in TownHall: “I know it may not be news to some since she’s a California liberal, who by default has a shaky grip on reality. Maybe it’s emblematic of what’s happening to the Democratic Party as a whole, but the House Minority Leader Nancy Pelosi is just losing it. She’s mixed up Donald Trump and former President Bush at least three times this year. She thought the National Rifle Association was part of the intelligence community….”
Chuck Schumer, on the other hand, has a firm grip on his own reality: if Trump likes something, ipso facto, Chuck opposes it:
Dynamic scoring is fake math. It’s just made-up fake math to hide another deficit-busting tax cut to benefit the wealthiest Republicans.
That “dynamic scoring” – otherwise known as “supply-side” economics – is a good thing, according to Roy Cordato, senior economist with The John Locke Foundation: “Overall, this plan is standard supply-side fare and should give rise to sustained economic growth and wealth creation for all Americans.”
The nine-page framework includes reducing the current seven tax brackets to three – 12 percent, 25 percent, and 35 percent – with the possibility of a fourth higher top rate, to make sure that the wealthy “pay their fair share.” It would repeal the estate or “death” tax, the Alternative Minimum Tax (AMT), it would cut the maximum tax rate for small and family-owned businesses to 25 percent, it would reduce the corporate tax rate from 35 percent to 20 percent, and it would provide a one-time low but unspecified tax for capital overseas that is repatriated to the United States. Nothing is mentioned in the framework about reducing or eliminating the onerous anti-capital capital gains tax which punishes capital accumulation rather than encouraging it.
If passed in its present form, which is highly unlikely, the framework “would be one of the largest tax cuts in the past century,” according to Heartland Institute Research Fellow Justin Hopkins, “and perhaps the most important economic policy change of the past three decades. By simplifying and flattening the tax code and lowering the tax rates on businesses, millions of new, high-quality jobs would be created, benefitting everyone in society.”
The proposal would eliminate many special incentives, deductions, and credits that would keep Congress from being able to “fine tune” the economy by rewarding special interests. And because of its highly touted simplification, more taxpayers would be able to file their returns “on a postcard,” as promised by the president during his campaign. Gary Wolfram, economics professor at Hillsdale College, said that “eliminating various deductions and credits reduces the ability of government planners to drive spending into the sectors they approve of … [and that] most individuals would be able to do their taxes without the assistance of a paid professional.”
The framework is predictably still “progressive,” however, meaning that rates go up as incomes go up – a hat-tip to the egalitarian philosophy that those “getting wealthy off the labors of the poor workers” should be forced to give some, most, or in extreme cases, all, of those ill-gotten gains to those workers. As the framework itself clearly said, “the reformed tax code is at least as progressive as the existing tax code and does not shift the tax burden from high-income to lower- and middle-income taxpayers.”
What a relief! For a moment there, one thought the framework might be the beginning of efforts to get rid of the income tax altogether. Alas.
Not all deductions will be eliminated if the framework is adopted, however. Tax incentives through mortgage interest deductions will remain in place, allowing taxpayers to purchase more house than they can afford by writing off those deductions. And charitable deductions will still be allowed, so that “dependence on government … charitable giving” will be reduced, according to the framework’s authors. And increased incentives to save for retirement will be expanded, but without any details being provided by the framework.
If adopted as is, will middle-income Americans really see an improvement in their paystubs? According to an analysis performed by the Congressional Budget Office and Haver Analytics, 60 percent of families in the middle of the income distribution – those earning between about $32,000 a year and $140,000 a year – pay an average of just 2.5 percent of their income to the IRS.
If that study is correct, then what happens in Washington over “tax reform” – sausage-making and all – really won’t matter.
Townhall.com: Let’s Face It, Nancy Pelosi Is Losing It—But That’s Okay
The White House tax framework: UNIFIED FRAMEWORK FOR FIXING OUR BROKEN TAX CODE
The New York Times: Trump Proposes the Most Sweeping Tax Overhaul in Decades
The Wall Street Journal: What Investors Don’t Know About the Tax Plan
The Wall Street Journal: GOP Tax Overhaul Aims for Corporate Cuts, Simpler Code