Tax plan provides needed reform and increased economic activity

President Donald Trump and Congressional Republicans have a tax plan up for consideration. Tax relief is badly needed, as is a budgetary overhaul that addresses and works to reduce the annual deficits and the insane national debt.

Analysts say that many good things are proposed but, of course, it is not – and cannot be – perfect, or even acceptable, for everyone.

The following three takeaways come from an analysis by the Heritage Foundation:

1. Simplification - The proposed plan would vastly simplify the tax code by eliminating a host of unnecessary and inefficient provisions designed to benefit special interests; would also simplify the process of tax filing by doubling the size of the standard deduction, which would cut in half the number of taxpayers who need to itemize their deductions; collapses seven different tax rates into four and simplifies the tax code.

2. Lower Rates - The proposed plan would drastically lower tax rates for lower-to-moderate-income individuals and families, small businesses, and corporations. The new 20 percent corporate tax rate would help make the U.S. competitive with the rest of the world, and the top 25 percent small business or pass-through tax rate would go a long way toward stimulating entrepreneurship, job creation, and income growth across all income groups in America.

3. Business Taxes - The combination of business tax reforms — including five years’ worth of full expensing, and a modernized international tax system — would provide a huge boost to the U.S. economy and its workers; have the potential to bring trillions of dollars back into the United States and to significantly boost economic output, jobs, and incomes within the U.S.

Heritage notes an area that is popular with liberals, but that is an economic negative: “By maintaining the top marginal tax rate on individuals, however, the plan would fail to achieve optimal economic growth, as it leaves a significant portion of economic activity subject to a 39.6 percent federal tax rate (43.4 percent including the Obamacare surtax).”

In this crazed Congressional atmosphere, the special interests and fact-twisters will interfere with the tax plan’s efforts at reforming the current tax system from the chaotic monster that it has become into a simplified and manageable one. This environment means progress will be slow, but we must take what we can get.

Naturally, those pro and con are putting forth their assessments to rally the troops, and the truth often gets trampled beneath the stomping feet of the partisans.

"The more people find out about it, the less they'll like," Senate Minority Leader Chuck Schumer, D-NY, said. "This bill is like a dead fish. The more it's in sunlight, the more it stinks, and that's what's going to happen." Thanks for the graphic description, Senator, and for providing no details.

Not to be outdone, House Minority Leader Nancy Pelosi, D-Calif., said, "The American people deserve real, bipartisan tax reform that puts the middle class first. This Republican plan doesn't do any of that. In fact, it's a giveaway to corporations and the wealthiest." More blather that slings general concepts, but provides no substance, and is at odds with reality.

The idea of America’s Founders was a limited government, one that didn’t overly intrude on the lives of its citizens, and therefore would ideally be relatively small, relatively inexpensive and quite efficient. Obviously, through the decades our elected officials have been unfaithful to that design.

Over time government has grown in virtually every way that it should not have. The power of the IRS and the bulk and complexity of the tax code are good examples. The U.S. Tax Code consists of 82,000 pages. It contains a long list of taxes, including one that taxes people for the privilege of dying. Change is unarguably needed.

A major criticism is that the Republican plan will add to deficits and the national debt. But this depends upon which scoring analysis you use.

Simply put, static scoring considers that tax cuts reduce tax revenue, and raise the deficit. Dynamic scoring, on the other hand, takes other factors into account, such as the economic boost from tax cuts and reduced regulatory restraints on economic activity.

Tax cuts and regulation reduction are the mother’s milk of economic growth. Businesses respond to them like plants do to sunshine, rain and fertilizer; they grow, producing jobs and raising tax collections.

Tax cuts obviously put more money at play, as people buy more of the things they want and need, and businesses then must increase the available supplies of the things people are buying in greater quantities, and grow to meet the demand.

Everyone benefits from measures that drive economy activity. While it is unlikely that the economic activity produced by the plan will completely erase the deficit created by tax cuts, it will erase some of it, and it produces other benefits that cannot be ignored. And needed spending restraint will make up the difference.

A perfect bill, one that everyone in Congress likes, is virtually impossible. However, this plan is a good start on needed improvement, and it must be viewed for the good it accomplishes rather than for the few less-than-perfect elements it contains.

Wouldn’t it be great if we would buy “Made in America” again?”

 

Part of President Donald Trump’s “Make America Great Again” mission is to reinvigorate U.S. manufacturing, and like nearly everything Trump says or does, that idea produced much criticism. A lot of that is the automatic Trump-hater response, but some resulted from reasoned thought and philosophical differences.

National Review roving correspondent Kevin D. Williamson discussed this in an essay titled “Made in America: Not Important in the 21^st Century,” where he offers examples of products assembled in America that actually contain some or perhaps most parts made in other countries. The question is: do these products really deserve the “Made in America” label?

Calling Trump’s encouragement for us to buy products “Made in America” to support our manufacturers “a good slogan … [but] bad and incoherent policy,” reason.com’s Nick Gillespie went on to note that using more expensive American labor would increase the price of our products, and protectionist measures to exclude foreign-made materials from our markets runs counter both to the personal freedom the USA provides us, as well as the concept of free trade.

America is a “post-industrial nation,” Gillespie noted, and “the fact is that manufacturing jobs as a percentage of the work force peaked in 1943 and has declined ever since.”

He then urged pursuing policies that create new jobs, new opportunities and new wealth through “lower government spending, flatter and less distorting taxes, and less regulation.”

Opposition to Trump’s idea also includes the Chamber of Commerce and major players in the energy sector. As the Commerce Department worked to meet a late July deadline to present a plan to the president requiring oil and gas pipelines to be made with American-made steel, Trump’s allies in the energy sector warned that this might play havoc with his goal of energy dominance.

Gillespie is correct about the low percentage of manufacturing jobs. This decline occurred over many years, largely through natural progression, but as Gillespie hinted, external factors have also contributed. They had a significant negative effect that increased the decline, and removing those influences can provide some relief to manufacturing job losses.

Whereas technological advancement reduces the need for human work, natural progress in foreign countries is also a factor. In poor nations, people gladly work for pennies or quarters a day. While it may seem cruel to some of us to pay people so little for their efforts, those pennies or quarters are what enable them to achieve a better life in the less developed economy of their country.

If those workers can produce things that cost a fraction of what they cost if made by American workers, even after shipping them across the waters, businesses will go for the less expensive product in order to both enhance their economic situation, and to keep the price of their products lower.

But we often do things that increase our costs compared with other countries. High taxes and over-regulation on businesses, both of which put pressure on American companies to reduce costs to remain competitive, help push manufacturing jobs overseas.

The coal-mining sector is a good example of the effect of external factors. While natural gas usage was increasing and coal use was naturally trending down, Obama’s war on coal sped up that process through anti-coal regulations. That forced a dramatic decrease in coal use, wreaking havoc and harm much greater than if natural economic processes had been allowed to work.

Like coal mining, other manufacturing jobs are affected by the negative factors of over-regulation and high taxes. As Gillespie suggested, flatter and less distorting taxes, and less regulation would help make American steel and other products more competitive.

Other factors will also help to make American products more competitive, and provide a boost to U.S. manufacturing, such as a border-adjustment tax. The purpose of this tax is not to generate tax revenue to offset tax cuts, but to create jobs by evening out the playing field.

The U.S. is one of the few countries that does not tax imported goods and reward those exported to other countries, explains Newt Gingrich in his new book “Understanding Trump.” Taxing goods coming into the country, as other countries do to American goods, makes domestic goods more competitive, and helps create jobs and higher wages.

Gingrich also said that this “incentivizes businesses that want to sell in the United States as well as in other countries to move here, because it allows them to avoid the import tax.”

And lower the 35 percent corporate tax rate to something near that of nations to which American businesses have moved jobs. This will encourage those companies to bring back some, perhaps a lot, of the $2.5 trillion that they hold offshore to avoid the high U.S. corporate tax.

American manufacturing cannot return to 1943 levels, of course, but we have to stop shooting ourselves in the foot with anti-business policies. We need to reduce corporate tax rates, impose a border-adjustment tax, and roll back harmful regulations to free up American manufacturers.

This will enable the creation of thousands of new jobs, increase productivity levels and bring in new tax revenue. It will make it easier and smarter to buy products “Made in America.”