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A Taxing Situation

Having failed in their efforts to repeal and replace Obamacare, President Donald Trump and the congressional Republican majorities are moving on with plans to revamp America’s tax system. So far, at least, it doesn’t look any more promising than the previous crusade.
Which is a shame, as America’s tax system is badly in need of revamping, and the traditional Republican remedies are probably best. The system should be simplified, flattened, rid of deductions that serve only well-lobbied special interests, include more deductions that encourage investment in the broader economy, and that highest-in-the-world corporate tax rate especially needs lowering. If commensurate budget cuts could somehow be effected, so the already disastrous national debt didn’t explode, it would probably be helpful to lower every other tax in sight.
A Republican president and Republican majorities in Congress should be able to get it done, and even persuade a few centrist Democrats from well-heeled districts with big corporate donors to go along, but at this particular moment it seems a daunting task. Any attempt at serious tax reform is difficult, as all sorts of well-lobbied special interests immediately get involved, and there are lots of class resentments and economic theories to be considered, so that last time it happened was way back when President Ronald Reagan unified the Republican minorities in Congress and got more than a few centrist Democrats in well-heeled districts to go along.
This time around the Republican president is Trump, the leaders of the congressional Republican majorities inspire little more confidence, the Congressional Democrats are more unified in opposition to anything they might come up with, and the economic and political circumstances aren’t quite so ripe.
When Reagan offered his 461-page tax plan to Congress he knew every minute detail of it, and had spent the previous decades making a persuasive case to America for the sophisticated free market theories that inspired it, and with his experience as a past president of the Screen Actors Guild and two-term governor of California he knew the more down-and-dirty practical arguments to use with reluctant Republicans or potentially friendly centrist Democrats from well-heeled districts. The tax rate on the uppermost bracket was 70 percent at the time, which was steep even by the standards of the moribund European economies, cutting that by rate to 28 percent freed a lot of capital for pent-up investment in the private sector, and after the stagflation that had started in Nixon administration and lasted through the Ford and Carter administrations, most of the the country and enough Democrats were willing to roll the dice on those sophisticated free market economic theories.
When Trump unveiled his nine-page outline of how to revamp America’s tax system during a typically rambling speech in Indiana, we couldn’t shake a vague suspicion he didn’t understand a word of it. We had a hard time making sense of it ourselves, as did everyone else we’ve read, but everyone seems to agree with Trump’s opening unscripted that it does involve those “massive tax cuts” that Democrats are always accusing Republicans of yearning for.
During the speech Trump insisted the vaguely worded tax plan wouldn’t benefit himself, and he added his catchphrase “believe me,” which will surely endear him to his many lower-bracket fans, but until he releases his tax returns you’ll have to take him at his word, and by now most Americans don’t. Reagan had released his tax returns and put his relatively modest fortune into a blind trust, so he didn’t have that rhetorical problem. He could also make a case that taking a 70 percent cut from anybody who got lucky or smart enough to make it to that rarefied tax bracket was unfair, whereas Trump is stuck with a rate that went up and down and up again through the Clinton and Bush and Obama administrations and lands in a mid-30s range that strikes the more average earner as about fair. The relatively insignificant cuts proposed won’t unleash a relatively significant amount of capital into the private sector, too, and with Trump constantly boasting about how high the stock market indices and how low the unemployment rates are the populace probably isn’t in any mood for tax cuts for the rich at the moment.
Those Reagan tax cuts brought a promised doubling of federal revenue collections, but without any commensurate budget restraint the deficits and debt swelled. The broad economic expansion nonetheless continued long enough to get his vice president elected for a third term, and although a brief and relatively mild recession got President Bill Clinton he fiddled so slightly with the tax system that all that capital wound up investing in a technological revolution that has propelled the American through the desultory administrations of George W. Bush and Barack Obama and even into the era of Trump. That soak-the-rich mantra the Democrats are still loudly chanting is as stupid as ever, and we discern a few very good ideas in that nine-page outline about how to revamp the tax system, so we’ll hope for the best.
The highest corporate tax rate in the world is an obvious problem that every last Republican and at least a few centrist Democrats with corporate donors should want to solve, and there’s also a strong case to be made against estate taxes, but there was also a strong argument to be made for repealing and replacing Obamacare. Trump and the congressional leadership weren’t quite coordinated on how far to slash the corporate tax rate, both were failing to acknowledge that the actual corporate tax rate is much lower, given all the deductions their lobbyists have obtained, most of which do have a invigorating affect on the broader economy, and we can’t shake a suspicion that Trump is about to find out that tax reform is even harder than health care.
The Republican majorities in Congress are as always all hepped up for tax reform, but they have diverse districts and different donors and individual viewpoints to consider, and no matter the ranch hands Republicans are always harder to round up in a pen than Democrats. There are still a few debt-conscious Republicans left, perhaps including the Speaker of the House, some Republicans from less well-heeled districts that went big for Trump and his promises of tax hikes on the rich, and even some free market hold-outs who now worry that the tax rates are not far off from optimal. A zero percent tax rate yields zero revenues, but so does a 100 percent tax rate, and both liberal and conservative have always agreed there’s some point in between at which tax rates start to result in lower revenue, which many of our states have tried to ignore, but with Trump boasting about the great economy he’s unlikely to convince anyone outside the hated Republican establishment that his rich buddies and cabinet members need any sort of tax break.
If it we’re up to us we’d concentrate on the arguments for a lower corporate tax rate, which are so compelling they have even persuaded all of the Europeans and the Asians, state the moral case that after someone has spent a long and fruitful life paying exorbitant taxes he shouldn’t be taxed a final for dying, and not antagonize any of those lower-bracketed and class-resenting die-hard Democrats and heartfelt Trump supporters with any noticeable tax cuts for the rich, and if we were Reagan we could probably get it done. Trump isn’t at all a Reagan-esque sort of ranch hand you might have seen on the silver screen, neither are that Senate Majority Leader or House Speaker, and at this point we can’t see any of them winning over any sort of Democrat. We’ll still hope for the best, but we won’t be making any bets, and will anxiously wait to see where the Wall Street money goes.

— Bud Norman

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A Presidential Wish List

One of the non-stories we most look forward to every year is the ceremonial unveiling of President Barack Obama’s annual budget proposal. None of Obama’s budget proposals have ever won even a single vote in Congress, and this one also isn’t likely to do any damage, but it’s always instructive to see what’s on the president’s wish list.
This year’s yearnings were trotted out Tuesday at a Washington elementary school, presumably because the tykes there would be more likely to take them seriously than any adult, and they are predictably expensive. The plan calls for spending $3.9 trillion next year, adds an extra $791 billion of spending over the next ten years, and winds up ballooning the national debt from the current $17 trillion-something to a nice round $25 trillion by 2024. Just the interest payments on all that debt would amount to $812 billion a year, making the hopelessly optimistic assumption that rates don’t rise, as well as assuming Obama’s less-than-rosy prediction of 2.6 percent annual growth in the economy, and the sum far exceeds planned defense spending but will pay for the lion’s share of China’s military.
Such profligacy “enables us to meet our obligations to future generations without a mountain of debt,” the president said with a straight face. Even the most innumerate urchin at an elementary school in the District of Columbia will immediately wonder how high debt has to be pile before it is considered mountainous, but the wizened reporters at the event were mostly unfazed by the statement. The Washington Post gave the proposal a more respectful hearing, noting approvingly that it “also aims to tame the national debt by raising taxes on the rich, squeezing payments to health-care providers and overhauling immigration laws.” Politely setting aside the sorry history of soaking the rich, the unsettling likelihood that squeezing payments to health-care providers will result in less health care being provided, and the inevitable economic and social costs of overhauling immigration laws along the lines Obama would prefer, the Post preferred to spend several paragraphs on the proposal’s supposed benefits to pre-school programs and the National Institutes of Health and climate research, “much of it aimed at providing support to a struggling middle class.”
There is reason to hope that the Congress won’t be so gullible. The most weak-kneed of the Republicans won’t dare go along with such nonsense, and even the safely-seated Democrats have yet to cast for such fiscal insanity. The recent budget agreements have been disagreeable to conservative tastes, to the point that they’ve provoked a much-needed insurgency within the Republican party, but at least they’re a darned sight better than what the president is wishing for.

— Bud Norman

High Taxes and Happy Days

When it comes to waging class warfare, President Obama is practically a pacifist compared to Paul Krugman. For pure Jacobin zeal even Francois Hollande, the admittedly Socialist president of France, pales in comparison to the New York Times’ columnist.
Obama only wants to raise the taxes on the highest earners by a few mere percentage points, and makes it a point to politely describe the multi-billion-dollar heist as “asking the wealthiest Americans to give a little bit more.” Hollande, who has stated with a more admirable French frankness that “I hate rich people,” only wants to help himself to 75 percent of the earnings of his most fortunate countrymen. Krugman scoffs at such extravagant government largesse toward the wealthy, and insists that they fork over a full 91 percent of what they earn.
The idea will no doubt have wide appeal, people being prone by nature to envy and all sorts of economic craziness, and Krugman’s prestigious endorsement will no doubt give such avarice an added intellectual respectability. We don’t mean that there’s any prestige attached to being a New York Times columnist, of course, but we refer rather to his Nobel prize in economics, an award which some people still take seriously for some reason. Those people should note that a Nobel prize in economics was also bestowed upon Friedrich Hayek, who believed in limiting the size of government to the point it could easily get along without 91 percent of anyone’s money, so at least one of these laureates is wrong about everything.
Perhaps sensing that his credentials are in insufficient to persuade a properly skeptical reader, Krugman wraps his class resentments in a widespread nostalgia for the 1950s. Most people fondly recall the decade as an age of tail fins, pony skirts, and danceable records, but in Krugman’s rhapsodic telling the decade was a halcyon era defined by Twinkies, powerful labor unions, and sky-high federal tax rates. As it hard as it may be for conservatives to admit, given their lingering fondness for Eisenhower, Krugman is quite correct on every count. The Age of Ike did indeed bring the invention of the artificially flavored snack cake, a historic peak in union membership, and the same 91 percent top tax rate that Krugman proposes to restore.
If Krugman hopes to return to ‘50s-era tax rates, though, he’ll have to replicate every other facet of the ‘50s-era economy as well. That would involve a global war that left the industrial infrastructure of every other advanced country in shambles, a federal government that spent only 25 percent of the gross domestic product, with no EPA or OSHA or EEOC or countless other regulatory agencies, a very strong dollar, a president who was widely ridiculed for his obsession with balanced budgets, most women staying home to tend to their multiple children, men smoking heavily at their three-martini lunches, and aggressive enforcement of global order. Liberals aren’t as enthusiastic about these sorts of things, but they might just be willing to put up with it in return for confiscatory tax rates on the rich.
While liberals such as Krugman wax nostalgic about the ‘50s as a time of enforced economic equality, they also tend to decry the culture of the decade as a dark age of suburban conformity and repressed sexuality. Somehow they square this with the invention of rock ‘n’ roll and the baby boom, but they fail to consider that the much hated old-fashioned morality of the era was also an important facet of the ‘50s economy. The young folks might not believe it, but in the ‘50s out-of-wedlock births were quite rare and intact families provided most of the services now performed by the social welfare agencies. The social culture also celebrated self-sufficiency and stigmatized dependence to much greater extent than today, judging by the music, movies, television, and presidential speeches of then and now, and the modern liberal is unlikely to embrace such archaic notions along with a soak-the-rich tax hike.
There was also poverty in the ‘50s, or at least enough of it that liberals felt obliged to wage a war on it in the ‘60s. That was the beginning of the social welfare state that supplanted the nuclear family for millions of Americans, with the unhappy results fully on display in the police reports of your local newspapers, but it seems unlikely Krugman has learned anything from the past five decades of social deterioration. The economy has grown since the ‘50s, rapidly following John Kennedy’s tax cuts for the rich and even more rapidly after Ronald Reagan’s even deeper tax cuts for the rich, but Krugman seems not to have noticed that, either.
Alas, Krugman is also correct in assuming that the fact tax rates did reach 91 percent back in the ‘50s will make it seem more acceptable. People associate the decade with a wholesome all-Americanism, either from their own recollections or the endless re-runs of “Happy Days,” and it is often assumed that anything that happened then — other than racial segregation, the Cold War, and chastity — is therefore non-controversial. The ‘50s aren’t coming back, though, no matter how much both conservatives and liberal desire it for their very different reasons. If any of it is to be revived, let it be rockabilly music or oversized Cadillacs, not some dumb plan to run all the money out of the country.

— Bud Norman