The tax bill passed and will become law. I think it’s a start. Contrary to what you believe, it’s not a giveaway to the rich. The spin on the left wing is disingenuous. They are adding in things that sunset in 2027. Don’t you think we will figure out things by then?
A lot of the whining you are seeing is from people in high tax states. They are going to feel the full brunt of their individual state tax policies. In my home state of Illinois, property taxes are going to get huge scrutiny. I saw an ad for a really nice house in St. Charles, IL the other day. St. Charles is around 50 minutes on a good day from the city of Chicago. The house was 3400 square feet. It was listed for $445,000 and had property taxes of over $12,000 per year. If I lived in St. Charles I’d be showing up at government meetings. However, the government doesn’t like to give up power. Look for a continued exodus from places like New York, New Jersey, Illinois, California and other high tax states. Homes that fall under the deductible amount will become more valuable. Homes above will take a hit.
I don’t think Republicans went far enough in reform. I’d love to see them revisit the bill in 2019. Here is a list of some things I would have liked to see them change.
- Eliminate the Import-Export Bank. Hey, they cut corporate taxes why not cut some corporate welfare as well? This is a total giveaway to American corporations that no individual can take advantage of.
- Tax on stock buybacks/zero tax on dividends. If we believe that individual people acting out in their best interests is better than centralized bureaucracies deciding for us, why not get all that unused cash off corporate balance sheets and into the hands of individuals that accepted the risk of company operations by owning the stock? Since buybacks add virtually nothing to the economy and merely manage earnings, taxing them is a good idea.
- Eliminate the deduction for health insurance by businesses. This is an artificial construct that isn’t economically efficient. It’s there because of wage controls that FDR put in place in the 1930’s. There is no magical or inalienable right associated with it. It would force businesses to pay more for employees, and it would start to create a huge free market for insurance. It would be a first step in getting rid of Obamacare. Health care was screwed up prior to Obamacare and it’s even more screwed up now.
- Get rid of the alternative minimum tax (AMT). No tax reform is tax reform without taking away this stupid Jimmy Carter era tax. It can be avoided by the very wealthy, and hits the upper middle class and sorta wealthy.
- Eliminate farm subsidies and ethanol subsidies. These totally screw up markets. Again, instituted by FDR to tame the farmers so they would vote Democratic. Did you know we have a peanut subsidy, a peanut price support, and a program to buy excess peanuts to keep them off the market so the price stays higher than it should? The ethanol subsidies are totally inefficient and it’s been proven scientifically that they do nothing to help in the fight for the environment. They might be worse.
- Eliminate protectionist tariffs. These are essentially taxes. Look at the sugar tariff. All it does is protect American sugar farmers from foreign competition causing the price of goods to rise for all Americans. It also encourages inefficient production of domestic sugar. The same could be said for a lot of tariffs. Free trade is a good thing but unpopular with a lot of Republicans right now.
- Expand the earned income tax credit. This is basically a call for universal basic income, but using the right economic incentives instead of welfare type incentives
- Flat tax for hedge funds. I’d tax management fees at the highest rate, and then have a blended rate of capital gains and the highest rate for carried interest. It would work out to something like 23%. More than they are paying today. Hedge funds do provide a market function, liquidity. They don’t “produce” anything but they do transfer risk and allow capital to flow more freely. Having a slightly higher tax rate than corporations recognizes this.
Clearly, none of the things I mentioned above is great politics for either party. What they do is transfer power and choice from a centralized government, or centralized corporate bureaucracy and put it in the hands of individuals. There would be blowback from special interest groups in the short term. In the long term, it would be better for America and better for the deficit.
From my friend Andy Swan:
If you don’t agree with the tax cut, here is a link where you can protest. https://www.pay.gov/public/form/start/23779454