The Trump Tax Plan

As promised, the Trump Administration released the outline of its tax plan. Predictably and amusingly enough, it was greeted by cries of horror and anguish by Progressives. It would appear that the Trump plan would allow American taxpayers to keep more of their own money. This simply will not do. Bernie Sanders, Chuck Schumer and Tom Perez have made much better plans for it. Look at the job they have done already.



Before addressing the plan, let’s take a look at some facts, to put all this in context. First, let’s define the word “tax”. As Milton Friedman never tired of saying, federal taxes are not simply the checks that taxpayers send to the government. Taxes are equal to the resources that the government consumes. That is best measured, however imperfectly, by government spending. Taxpayer checks are merely part of the financing package. Borrowing to cover deficits is another. The real tax burden is a combination of the two. (It’s actually more, when you toss in unfunded mandates and regulatory compliance, but let’s leave that aside).



As the chart illustrates, spending is far more variable than tax receipts. In fact the standard deviation of receipts as a percent of GDP is 1.1% around a mean of 17.4%. That compares to a standard deviation for spending of 1.6% around a mean of 20.3%.


This still underestimates government resource use because it does not adequately capture things like regulatory compliance costs. Nor does it include loan guarantees or unfunded liabilities like Social Security.


This brings two subsidiary questions  to the fore. Who pays the taxes (defined narrowly in terms of revenue collections), and where is the money spent? The answer to the question of who pays the taxes is easy. It is the much-maligned rich. In 2013 (using the latest data available) the upper 1% of pre-tax income earners paid 38% of all federal income taxes; the upper 10% paid about 63%, and the upper quintile paid 88%. By contrast the bottom quintile paid a negative rate of 4%. In fact the bottom 40% got more back from refunds and “refundable credits” than they paid in.


These data are available from the Joint Economic Committee of Congress at this link.


So where does all that money go? Transfer payments and interest on the debt. In 2014, the government spent $3,883 trillion. Of that, $2,420 trillion (62%) went to transfer payments, mostly for Social Security ($834 billion) and Medicare ($587 billion). Interest payments on the debt amounted to $442 billion. All told transfer payments and interest on the debt captured about 74% of all federal dollars. These data are available at this link at the Bureau of Labor Statistics.


For all the talk about investing in infrastructure, the reality is that the modern Administrative state is really about income redistribution. Specifically what we are dealing with is an extraordinarily progressive tax-spend-and-vote regime that has created an entitlement culture that is all too ready to punish success and reward failure. And it has produced plenty of policy failure.


The Trump Administration proposes to cut both individual and corporate tax rates. Individual rates would go to a 3-bracket system (10%, 25% and 35%), and the corporate rate would go to 15%. The Trump plan would eliminate most deductions, except for the mortgage deduction and charitable giving. The plan also eliminates the inheritance tax.


Democrats are up in arms because the Party of Science refuses to acknowledge that flattening and simplifying the tax code has the potential to produce enormous gains in the private sector through greater efficiency, investment and innovation. They would rather continue to subsidize the failing models of the early 20th century—like the public school system and its teachers unions, for instance. But as tax reform goes, the Trump plan gets only a B minus. That is because the Trump plan—outline really—is a change on the margin when radical surgery is needed. A much better plan would be a flat rate of about 18% for all with incomes over something like $30, 000, with no deductions or exemptions at all, including the home mortgage deduction and charitable giving. Nor should the federal government be in the business of subsidizing child care through the tax code, as the Trump plan promises to do.


But the Trump plan is better than nothing. That said, among the worst arguments against the proposal is that the plan has to be “paid for”.  Taxes represent government’s use of what would otherwise be private resources.  The phrase “paying for” a change in tax rates under static analysis (which is what the CBO is required to do) is simply an attempt to redistribute the burden without addressing the underlying problem. A real reform of public finances would reduce the total amount of government spending, privatize Social Security and Medicare, and reduce and flatten tax rates.


That’s what real change would look like. Absent that, we are still headed down the path chosen by Greece.




Now What?

In response to Bashar Al-Assad’s use of nerve gas to attack his civilian population, President Donald Trump ordered an attack on the Syrian airport Assad’s Air Force used to launch the attack. Now what?

It isn’t so clear what exactly Trump hoped to accomplish by lobbing a reported 50 + Tomahawk missiles at the airport from two Navy warships stationed in the eastern Mediterranean. One prominent theory making the rounds is that Trump used this as a way of “sending a message” to North Korea’s Kim Jong-un. Buttressing this argument is the Pentagon’s announcement that a U.S. Navy aircraft carrier-led strike group is headed toward the Korean Peninsula. It is apparently meant to be a show of force.

U.S> Navy Battleship

In the short run, Trump’s response to the Syrian use of a gas attack on civilians provided him with the opportunity to reap lots of political benefits without taking any appreciable risk. For one thing, it pretty much demolishes the argument, fashionable in the Resistance, that Trump is a tool of the Russians. After all, it was the Russians who negotiated a deal with then Secretary of State John Kerry to take control of and destroy Syria’s WMD, including poison gas. It is now abundantly clear (to the surprise of no one except perhaps John Kerry and Barack Obama) that Syria and Russia had no intention of doing any such thing. The only question now is whether Russia was actively complicit in the actual gas attack.

The larger geo-strategic question is whether the Trump Administration is about to toss the populist nationalism overboard and begin to reassert U.S. leadership in world politics after 8 years of atrophy under the Obama Administration. That is certainly plausible, especially given the fact that political advisor Steve Bannon has been cut down to size, particularly with respect to foreign policy. But it runs directly counter to the forces that got Trump elected in the first place.

At the heart of the Trump Presidency there is an insoluble political / economic dilemma. His (for the moment) politically popular protectionist economic policies are on a collision course with his need to increase economic growth. Supply chains and finance are global. The leg bone is connected to the thighbone so to speak. Serious disruptions in global financial markets and supply chains would be economically and politically catastrophic.

While Trump professes to be a non-interventionist in foreign affairs, he jumped into the Syrian civil war at the first opportunity. It is not clear why. A pinprick will not dissuade Assad from his determination to retain power at any price. Moreover, a pinprick without any follow-up would leave Assad in a more powerful position, something that would not escape notice in Pyongyang.

So the question remains. Does President Trump intend to begin reasserting U.S. leadership in the world? If so it is going to require working with allies, keeping the U.S. economy open, increasing funding for the military, and getting the U.S. government’s fiscal position on a path to solvency. Which is to say, pretty much the opposite of what he has been promising from the beginning, with the possible exception of increased military spending.

The Conservatives who cheered Trump along ought to be getting pretty nervous thinking about this. Trump has given no indication of anything remotely resembling a coherent view of world politics, much less a governing philosophy. That’s probably because he doesn’t have one. He has instead shown himself to be a remarkably ignorant man, who lacks intellectual curiosity, and who prefers to think of himself as a practical businessman. All of which means that there is no telling what he will do, or why he will do it. That is hardly a conservative approach. In fact, his approach thus far seems more Wilsonian than anything else, but it is still early in the game.

Conservatives and libertarians should not be comfortable with Trump taking action after announcing that his thinking had changed because of pictures he saw on television. If he is to gain the support of policy intellectuals on the conservative / libertarian side, he is going to have to enunciate a coherent doctrine that describes the world the way it actually is, what U.S. goals are, and the means to achieve them.

Reasserting U.S. leadership in an increasingly fractious world after 8 years of Obama’s neglect is also going to require the assent of the citizenry, which means leadership at home. Leadership is not a quality Trump has demonstrated to date, unless you call rants in stadiums before worshipful followers leadership. The foreign policy catastrophe produced by Obama demonstrates the need for U.S. leadership in world politics. It is not clear if Trump is up to the job.


The Resistance Continues

For lots of very good reasons, not the least of which is that he is—let us face it—an ignoramus, an awful lot of people find Donald Trump’s election to be simply unpalatable. Within this group are two distinct camps. There are the adults who will use checks and balances in the way they were intended. And then there are the Democrats, currently led by Tom Perez, former Obama Administration Labor Secretary.

Meet the New Chair of the DNC
Tom Perez, now Chairman of the DNC, gave a speech in Newark, NJ the other day in which he asserted among other things that (1) Donald Trump did not win the 2016 Presidential election, (2) the marches that followed i.e.—the “Resistance”—are far more important, and (3) “the GOP doesn’t give a shit about people”. Thus far no Democrats have come forward to disagree with Perez or at least give him a primer on how the Electoral College works.

Most amazing of all, the people who sponsored Perez’s speech seem to be quite pleased with themselves over the whole affair. They have proudly posted his performance on the Facebook page of NJ Working Families. The part of the video showing Perez’s rant, taken with a hand held camera, is about 24 minutes or so into the tape. It can be seen below.

The resistance is strong in New Jersey! Watch our live stream of the We Build the Resistance Rally with DNC Chair Tom Perez, DNC Deputy Chair Rep. Keith Ellison, New Jersey Democratic State Committee Chair John Currie, Rep, Donald M. Payne Jr., Newark City Mayor Ras J. Baraka, and CWA District 1 Director Hetty Rosenstein.

Posted by New Jersey Working Families Alliance on Friday, March 31, 2017

Susan Rice…Again
In the meantime, Susan Rice, who made her last appearance as the Obama Administration’s designated liar in the Benghazi Affair, is once again in the news. It turns out that she was the Obama Administration official who was responsible for requesting the “unmasking” of the identities of Trump associates whose communications were “incidentally” intercepted as a result of of NSA surveillance of foreign nationals. Whether the interceptions truly were “incidental” or a political bank shot remains to be seen.

Chuck Schumer as Otter
Not to be outdone, there is Chuck Schumer, who appears ready to filibuster the nomination of Gorsuch knowing full well there is virtually no chance it will succeed in derailing Gorsuch’s march to the Supreme Court. In this, his behavior is remarkably similar to Otter’s in that American classic, Animal House. When Otter realizes how dire their fraternity’s situation is, he demands one “futile and stupid gesture” of defiance.

Schumer’s gesture will however prompt Senate Majority Leader Mitch McConnell to trigger the nuclear option on Supreme Court nominees, eliminating the de facto 60-vote requirement for confirmation. It will likely not apply to legislation.

But contrary to popular belief, the filibuster itself will not actually be eliminated. Any Senator will be able to take the floor and speak forever in order to delay a vote. This is actually a sensible result. The point of the filibuster was to force debate by allowing the minority to make its case. It was not supposed to be a way to create a requirement for a super-majority that was not already required by the Constitution. And as for Senator Schumer’s insistence that there really is a 60-vote tradition for confirming Supreme Court justices, there is the fact that Clarence Thomas and Samuel Alito were confirmed with 52 and 58 votes respectively.

Schumer, who graduated from Harvard Law School, argues that Gorsuch is “out of the mainstream” because he allegedly has a history of siding with powerful corporations rather than “the little guy”. It does make you wonder though which of Schumer’s law school professors taught him that judges were supposed to look at the litigants respective balance sheets before deciding a case.

Leaving that aside, since Schumer is so enamored of “the mainstream” it does raise the interesting question of what the Senator from New York thinks the mainstream represents. And now we have a hint, brought to us by none other than Tom Perez, the Chairman of the Democratic Party’s organizational arm. Senator Schumer, who has yet to dispute Perez’s rather bizarre claims, apparently thinks that the mainstream doesn’t know who won the 2016 Presidential election and prefers mob rule to elections.

Thankfully, it is hard to imagine we have driven so far off the rails that anyone serious takes these people seriously.