The Odds Against Trump’s Tax Reform

In the coming months the Trump administration will attempt to reform the tax code. This reform is severely overdue. In recent years no president has been able to make changes to simplify the code because it is so controversial and will impact virtually every American. Exacerbating the debate are the outright lies, distortions and spin that will be spewed upon Americans. This essay is an attempt to simplify what will likely occur during the Spring and Summer months. Hold onto your hat. It’s going to be a very rough ride.

The objectives of the Trump tax agenda are: elevate economic activity, increase employment and reduce corporate and individual taxes.

Greater economic activity will benefit all Americans. It will result in new jobs and reduce underemployment. Moreover the quality and remuneration of such jobs will improve, and more hard-core and hopelessly unemployed will be able to find work.

Most Americans are expected to benefit by a reduction in their tax bill to some extent. The reality that liberals don’t seem to appreciate is that people who pay the lion’s share of personal taxes will axiomatically be the greatest beneficiaries of tax relief.

The potential risk of tax relief is that the economy doesn’t improve sufficiently to defray the reduction in federal taxes. Most economists project greater economic activity from lower taxes because it will spur consumer spending for goods and services and hopefully inspire more capital investment by corporations. Higher taxes on increased purchasing coupled with more payroll taxes should replenish lower tax receipts to some extent.

This theory is not really “trickle down economics” a pejorative term used to demonize tax reform by liberals. More activity and less unemployment will surely increase tax receipts.

So when the naysayers try to convince you that a reduction of business taxes will increase the national deficit by billions over the next decade, they almost always don’t mentionå greater tax receipts resulting from new jobs and increasing sales of goods and services.

The battle relating to tax reduction will be furious. Every special interest group will be fighting for a greater share of tax benefits. Because tax reductions will likely be possible only with corresponding decreases in other areas to mitigate a rise in the national deficit, the federal government will likely look to eliminate special interest tax deductions from a number of places. The likely ones could include deductions for mortgage interest and taxes, interest rates affiliated with debt incurred by individuals and corporation, charitable contributions and even for depreciation of plant and equipment. The response from the lobbying groups concerned with these issues will be monumental.

So you can see the negotiation of tax reform will be a complex and hard fought war. Given that certain entitlements and welfare plans may also be cut to offset the tax reductions, we should expect a huge blow back from other groups and their liberal supporters in Congress.

 

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