Based upon all the chatter among talking heads and media gurus, enactment of tax legislation is absolutely critical to the country’s financial and political stability.
If Trump’s tax initiatives do not garner enough votes in Congress the Republican Party will likely implode, the stock market will drop precipitously, all possibility of greater economic growth will be dashed and Trump will be a lame duck for the next three years.
On Tuesday morning Senator Rand Paul indicated that a large tax decrease is very important to the US. Currently the 35% corporate tax rare is up to two times or more than any other nation in the world. This makes it more profitable and advantageous for corporations to operate overseas, increase transfer payments to subsidiaries in foreign countries and increase cash balances in banks outside the US to avoid paying taxes. The negative impact of this trend on workers and federal tax receipts is a real threat to our economy.
Skeptics continue to say that tax decreases proposed by Trump only benefit the wealthy and will increase the national deficit. Since a great share of taxes are paid by the affluent, it is not a surprise that cuts will be a boon to the wealthy. However tax cuts to businesses will result in more profits, much of which will accrue to lower and middle class working Americans.
As far as the national debt level is concerned, many economists accept the fact that greater economic benefits for corporations and average citizens will increase federal tax receipts, so fears of escalating deficits may be exagerrated.
The reduction of tax loopholes, if imposed, will also reduce the deficit. This aspect of tax reform is the most problematic because every tax deduction (depreciation along with deductions for state and local taxes, mortgage interest, charitable contributions, etc.) has a powerful lobby behind it. Renegotiation of these arrangements will be bloody.
The political ramifications of failed tax reform will be monumental. Ironically most of it is self-imposed by Republicans who control both houses and the presidency. Just like repeal of Obamacare, an inability to find votes has more to do with Republican infighting than effective opposition from do-nothing, uncreative Democrats.