Taxing the rich and other sacred cows

e details of their tax plan last week. President Trump called it a Christmas present to the American people. Democrats and most journalists called it a gift to the rich.
I am disappointed to say that in my 30 plus years in the news business I have found it extremely difficult to find a reporter who understands economics or math. In fact, in my early years working for large daily newspapers I regularly lobbied that all newsrooms should have a financial person on their staff. It didn’t happen.
So reporters fall back on the same old tired rhetoric that sees tax cuts as a way for rich and powerful republicans to reward their rich friends. The problem of course is that we keep going down the road of trying to put lipstick on a pig.
Our tax system is broken. It is counterproductive and divisive. It pits the poor against the rich and small business against big business.
Having said that, I am dubious about the ability of Congress to remodel the tax code into a system that will work for all Americans. But I know one thing for sure. We cannot continue to expect the richest and most successful members of our society to subsidize the rest of us. We must all share in the cost to some extent.
Personally, I have lobbied for abolishing the income tax in favor of a national sales tax. In Europe they call this a VAT tax for Value Added Tax. Let’s be clear, the government adds no value to any product or service. So a VAT tax is just another one of those politically sensitive names designed to make taxpayers feel better about paying it.
Whenever, Republicans begin to talk about a tax cut Democrats start screaming how it will explode the deficit. Like somehow the Democrats are suddenly concerned about deficits.
Ideally, they would agree to cut spending along with cutting taxes but don’t expect that to happen. So let’s look at the numbers and try to make some sense of what is being proposed.
First the 2018 budget calls for spending of $4.09 trillion with revenue of $3.65 trillion. So in other words the government is planning on adding another $.44 trillion to the deficit next year. That is actually down from last year’s deficit of $.58 trillion. That is a 24% savings!
Try not to let your eyes glaze over here. I’ll try to make this as simple as I possibly can. Personal income tax accounts for one half of the tax collections. Payroll taxes add another one third. So 83 percent of the Federal governments revenue comes from individuals. Ten percent comes from corporate taxes and 1 percent comes from the death tax. The remaining 6 percent comes from excise taxes, tariffs and interest.
The corporate tax rates are scheduled to drop from 35 percent to 20 percent. That is a reduction of 42 percent in the tax rate.
Critics of the plan love to point out that few corporations pay the 35 percent rate because of deductions and exemptions. None of that is relevant without knowing what the exemptions and deductions were. The reality is that at 35 percent many American companies have found moving their headquarters overseas has dramatically reduced their U.S. tax bill. As a result, revenue that might have gone to the U.S. government went into foreign governments and foreign banks.
If nothing changed except the tax rate the net impact to government revenue would be a reduction of 4 percent of the federal revenue or  $.15 billion.
The other major criticism is the plan eliminates the inheritance tax or “death tax.” This is an especially unfair tax because individuals who have paid their taxes all of their lives are taxed once again because they died so they can’t complain. It accounts for something less than 1 percent of the total federal revenue but Democrats want you to believe the government just can’t function without it.
The truth is that much will change about this plan as it winds its way through the Congressional washing machine. So it is much too early to speculate about what the final bill will include.
What is absolutely true is that our current tax system is far too complex. It discourages individual initiative and the creation of wealth. We all need to contribute something to the operation of our government. There is no free lunch.
We have tried the liberal way of increasing government programs and making the rich pay for all of it. The result is our economy is stagnating and the middle class has had to pick up the bill. It is time to take a different road.

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