ARCHIVE - SEPTEMBER 2017
Issues, News & Views
OUR SUGGESTION FOR REAL PRO-GROWTH TAX REFORM
2017/09/27 - Since the Trump Administration is planning to announce a new tax reform initiative this morning, we hereby front-run them and offer you our better tax plan. Let's get straight to it.
Don't reduce corporate tax rates, eliminate corporate incomes taxes entirely. Mitt Romney was wrong, a corporation is not a person. It is a pool of invested/investable capital that creates jobs and incomes, and products and consumer surplus. In short, businesses create prosperity.
What person would propose public policy that confiscates resources from these prosperity creation pools, and hand it over to the government to squander? Well, leftist politicians feeding at the trough, of course.
Businesses create the very prosperity that leftist politicians disingenuously claim that governments create; in truth, governments create the very problems that leftist politicians claim government is needed to solve.
Think of a business like a retirement account - the money is invested and returns are reinvested tax free as long as the funds remain in the account; then when distributions are made they are taxed in the hands of the plan beneficiary.
Businesses should operate income-tax free, and any distributions from the business - a prosperity-producing investment pool - should be taxed in the hands of the recipients at their full personal rates, regardless of the nature of those distributions, whether in the form of wages, interest, dividends or realized capital gains.
Business decision-making will become simpler and capital allocation will become more efficient if the effect of after-tax impacts are removed from consideration. Quite simply, the economy will run better.
By eliminating corporate double-taxation, the onerous burden of business compliance and government enforcement is removed, again, making businesses, government, and the economy generally, all more efficient.
It also eliminates the issues regarding the territorial structure of the system, and the resultant tack-on issues of repatriating overseas income. With no tax, there is no penalty to bring foreign income back to America where it can be reinvested or distributed to Americans in the form of wages, interest, dividends or gains.
Taxing all income in the same manner regardless of its nature eliminates the need for the whole "Buffett Rule" conversation. (Can we say that Warren Buffett is being disingenuous when he talks about the Buffet Rule, and we would look forward to him not speaking so foolishly again, at least on this subject?)
We would propose phasing out business income tax over a number of years, perhaps by reducing the rate by 3% per year over twelve years. Businesses would invest heavily immediately in order to pre-position themselves for a tax-free world, thus immediately generating permanent higher economic growth, as well as high amounts of tax revenue in the short term that could be used to pay down the debt.
On the personal side, all income, as discussed, should be taxed in a single uniform manner regardless of its nature. No more long term or short term gains, everything the same. And taxes generally should be lower, fewer, simpler, and flatter.
All deductions should be eliminated except for a very few, almost all of which would be contributions to savings plans.
The mortgage interest deduction should be replaced with a home ownership savings plans. The current scheme incentivizes people to take on debt, and this is the #1 reason for the last financial crash and Dodd-Frank - one of the worst pieces of legislation ever - did nothing to address it.
Taxpayers should be allowed to make tax-deductible contributions to a purpose-specific account, the value of which can be applied only to the purchase or improvement of real property. This will assist people in building equity in their homes, rather than help them build debt on their balance sheet.
While generally we do not accept the idea that one country's experience - good or bad -with a specific public policy is likely to be replicated in our country, we do note for what it's worth that Canada 1) does have home ownership savings plans; 2) does not allow mortgage interest deductibility; and 3) did not suffer a severe debt-fueled financial crisis that gripped most of the world in 2008.
In addition to home ownership savings plans, Similar purpose-specific tax-deductible savings plans would be allowed for a few of the largest expenditures facing taxpayers, primarily healthcare, education and retirement.
The only other allowable deduction should be for charitable donations. Charities do great things for this country, and do it far better than the government. And their spending is not directed by lobbyists and the DC swamp.
Tax deductibility creates a matching-grant system where donors decide where they want to invest their own money, rather than lobbyists deciding where to waste other people's money.
The National Endowment for the Arts and other such spendopotamus programs would be eliminated. Any organization seeking government funding should make their case directly to donors, who vet them and contribute accordingly. A donor with a 33% marginal tax rate making a $200 donation should donate $300 and then receive a $100 reduction in taxes.
Another item to be eliminated is the deduction for state and local taxes. As a New Yorker I can say that elimination of the state and local tax deduction subsidy is the best thing that could happen to New York - it is time to apply pressure on Albany to get its house in order, rather than expect the federal treasury to subsidize its corruption.
The basic underlying principal of our tax structure should be to incentive work. It should be lenient toward the working women and men of America, the blue collar and white collar people of America who want to work, who like to work, who expect to work, and who need to work. These people are the backbone of America. When they fail, America fails.
Tax credits are to be generally rejected in favor of deductions. Credits represent free money, money for nothing and chicks for free. They disincentivize work. The tax code should not be used as a handout scheme. Rather, it should motivate people to get a job. There will be plenty of jobs with our pro-growth pro-business policies. No more excuses. Get a job.
We have similar misgivings about basic personal and dependent tax deductions, depending upon the structure of tax rates.
Chalprem is a proponent of the earnership society - you get what you earn and you keep what you earn. We believe in paychecks, not handouts. So we support the inheritance tax because the recipients didn't earn their payout. What sense does it make to tax earned income, penalizing productive enterprise, but not tax gift income, which is free money that the recipient did nothing to earn?
Further enforcing our position is the principal that America is a meritocracy not a dynasty. We don't believe class, title, rank, position or even excessive wealth should be handed down from generation to generation. There should of course be exemptions and limitations, the last thing we would want is to assign the next generation to immediate poverty.
But it is for each generation to build on the success of the previous generation, not rest on their laurels. It is time for Mike Bloomberg and the Koch brothers to take their companies public, raise a pile of money, and prepare for their estates to pay taxes, at the same rate structure as all other income.
Of course we want to protect small businesses and the American family farm, but the onus needs to be on these entrepreneurs to maintain a succession plan, it's what businesses do. Perhaps the Small Business Administration can maintain an office that assists in these matters.
Before we conclude, allow us clarify a common misstatement, such as the title of this article. Contrary to what we and others might state or imply, there is no such thing as a "pro-growth" tax plan. A tax is a penalty. It is an extraneous burden imposed on someone for doing something, and might be so burdensome as to dissuade that person from engaging in that enterprise.
The real objective is to create a tax system that is as minimally anti-growth as possible, that creates as few distortions, as few disincentives as possible.
Our current burdensome tax code dissuades constructive enterprise, whether working at a job or investing in a business. This reduces prosperity, increases poverty, and emboldens leftists to demand bigger government, which in turn requires higher taxes, which increases poverty, which just increases the clamor for bigger government and higher taxes... yes, we are referring to the Democrat Party.
The Democrats are the party of perpetual poverty.
Small government, low taxes, and personal responsibility. That's the path to prosperity.
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