Browsing the blog archives for October, 2016.

Revisiting the Tax Plans

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There’s a lot of confusion about taxes in this and every election cycle. Here’s what you should keep in mind as you dissect the plans proposed by the two major presidential candidates.

Before we start, taxes are essential to an economy. Even a limited constitutional government requires revenue to operate. A lower tax rate is almost always better than a higher one, but the details are important. Taxes should be spread among the beneficiaries of government services—not just the rich—and should be as low as possible to as to fund a constitutional government. Tax systems should be simple and transparent; our current code is neither.

Clinton’s proposal is simple—tax the rich to pay for more government. Aside from the moral problem with such plunder, it doesn’t work. The rich don’t have enough to pay for our oversized government and soaking them hurts business investment. Clinton would counter this with more tax “incentives” to prod individuals and businesses into activity she thinks is best for them and the country. Add to this another “stimulus plan” to reward her supporters and you have a repeat of the last eight years. It’s classic progressivism.

Trump’s proposal is equally simple—cut taxes across the board and reduce regulation. The resulting growth would expand the tax base and increase tax revenues. Trump isn’t looking to reduce spending, although he could (arguably) hold the line if he has majorities in the House and Senate. His approach is a blend of supply side economics and populism.

If I were grading, Clinton’s plan would easily get an F. Without some good luck in the coming years—no wars, cheap energy, and the like—the best it can produce is a repeat of the Obama stagnation. With a bad break or two, it could be worse. The irony is that the social engineering (loopholes) inherent in her plan creates the very cronies she claims to despise. Wealthy individuals and corporations can reduce their taxable income by taking advantage of the “tax incentives” progressives inflict on the economy. It also increases complexity and reduces transparency, with more tax brackets and complications.

Trump’s plan would get a C. It’s decidedly better than Clinton’s, but it could be better. Trump and the Republicans had a huge opportunity to simplify the tax code with a single, low flat rate, or even two rates to win over the moderates. He could have addressed entitlements, capping the growth on Social Security and allowing younger Americans to choose another option. He could have proposed a universal basic income (UBI) to completely replace ALL government transfers. Any of these would have been game-changers. His election would be a wrecking ball for Washington, but his economic policies wouldn’t differ much from those of previous Republicans.

Of course, we shouldn’t assume that either candidate’s proposals would be implemented as proposed. The Republicans aren’t known for much opposition in the House, but if they maintain one or both majorities and a scandal-ridden Clinton is elected, major initiatives could be off the table. Likewise, Trump hasn’t made too many friends in the halls of Congress, so he would likely face some opposition as well. The only scenario that would likely result in major economic change would be a Democrat sweep. It’s not out of the realm of possibilities, but I’m not betting on it.

Overall, a C is not an A, but it’s better than an F.

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