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Posts Tagged ‘Republicans’

To be blunt, Republicans are heading in the wrong direction on fiscal policy. They have full control of the executive and legislative branches, but instead of using their power to promote Reaganomics, it looks like we’re getting a reincarnation of the big-government Bush years.

As Yogi Berra might have said, “it’s deja vu all over again.”

Let’s look at the evidence. According to the Hill, the Keynesian virus has infected GOP thinking on tax cuts.

Republicans are debating whether parts of their tax-reform package should be retroactive in order to boost the economy by quickly putting more money in people’s wallets.

That is nonsense. Just as giving people a check and calling it “stimulus” didn’t help the economy under Obama, giving people a check and calling it a tax cut won’t help the economy under Trump.

Tax cuts boost growth when they reduce the marginal tax rate on productive behavior such as work, saving, investment, or entrepreneurship. When that happens, people have an incentive to generate more income. And that leads to more national income, a.k.a., economic growth.

Borrowing money from the economy’s left pocket and then stuffing checks (oops, I mean retroactive tax cuts) in the economy’s right pocket, by contrast, simply reallocates national income.

Indeed, this is one of the reasons why the economy didn’t get much benefit from the 2001 Bush tax cut, especially when compared to the growth-oriented 2003 tax cut. Unfortunately, Republicans haven’t learned that lesson.

Republicans have taken steps in the past to ensure that taxpayers directly felt the benefits of tax cuts. As part of the 2001 tax cuts enacted by President George W. Bush, taxpayers received rebate checks.

The article does include some analysis from people who understand that retroactive tax cuts aren’t economically beneficial.

…there are also drawbacks to making tax changes retroactive. …such changes would add to the cost of the bill, but would not be an effective way to encourage new spending and investments. “It has all of the costs of the tax cuts but none of the economic benefits,” said Committee for a Responsible Federal Budget President Maya MacGuineas, who added that “you don’t make investments in the rear-view mirror.”

I’m not always on the same side as Maya, but she’s right on this issue. You can’t encourage people to generate more income in the past. If you want more growth, you have to reduce marginal tax rates on future activity.

By the way, I’m not arguing that there is no political benefit to retroactive tax cuts. If Republicans simply stated that they were going to send rebate checks to curry favor with voters, I’d roll my eyes and shrug my shoulders.

But when they make Keynesian arguments to justify such a policy, I can’t help but get upset about the economic illiteracy.

Speaking of bad economic policy, GOPers also are pursuing bad spending policy.

Politico has a report on a potential budget deal where everyone wins…except taxpayers.

The White House is pushing a deal on Capitol Hill to head off a government shutdown that would lift strict spending caps long opposed by Democrats in exchange for money for President Donald Trump’s border wall with Mexico, multiple sources said.

So much for Trump’s promise to get tough on the budget, even if it meant a shutdown.

Instead, the back-room negotiations are leading to more spending for all interest groups.

Marc Short, the White House’s director of legislative affairs, …also lobbied for a big budget increase for the Pentagon, another priority for Trump. …The White House is offering Democrats more funding for their own pet projects.

The only good news is that Democrats are so upset about the symbolism of the fence that they may not go for the deal.

Democrats show no sign of yielding on the issue. They have already blocked the project once.

Unfortunately, I expect this is just posturing. When the dust settles, I expect the desire for more spending (from both parties) will produce a deal that is bad news. At least for those of us who don’t want America to become Greece (any faster than already scheduled).

Republican and Democratic congressional aides have predicted for months that both sides will come together on a spending agreement to raise spending caps for the Pentagon as well as for nondefense domestic programs.

So let’s check our scorecard. On the tax side of the equation, we’ll hopefully still get some good policy, such as a lower corporate tax rate, but it probably will be accompanied by some gimmicky Keynesian policy.

On the spending side of the equation, it appears my fears about Trump may have been correct and he’s going to be a typical big-government Republican.

It’s possible, of course, that I’m being needlessly pessimistic and we’ll get the kinds of policies I fantasized about in early 2016. But I wouldn’t bet money on a positive outcome.

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It’s depressing to see how Republicans are bungling the Obamacare issue. But it’s also understandable since it’s politically difficult to reduce handouts once people get hooked on the heroin of government dependency (a point I made even before Obamacare was enacted).

Unfortunately, I fear that the GOP might bungle the tax issue as well. I was interviewed the other day by Dana Loesch on this topic and highlighted several issues.

Here’s the full discussion.

What’s especially frustrating about this issue is that taxes should be reduced. A lot.

Brian Riedl of the Manhattan Institute debunks six tax myths. Here they are, followed by my two cents.

Myth #1: Long-term deficits are driven by tax cuts and falling revenues

Fact: They are driven entirely by rapid spending growth

Brian nails it. I made this same point earlier this year. Indeed, because the tax burden is projected to automatically increase over time, it is accurate to say that more than 100 percent of the long-run fiscal problem is caused by excessive spending (particularly poorly designed entitlement programs).

Myth #2: Democratic tax proposals would significantly reduce the deficit

Fact: Their most common proposals would raise little revenue

Once again, Brian is right. There are ways to significantly increase the tax burden in America, such as a value-added tax. But the class-warfare ideas that attract a lot of support on the left won’t raise much revenue because upper-income taxpayers have substantial control over the timing, level and composition of their income.

Myth #3: Taxing millionaires and corporations can balance the long-term budget

Fact: These taxes cannot cover Washington’s current commitments, much less new liberal wish lists

Since even the IRS has admitted that upper-income taxpayers finance a hugely disproportionate share of the federal government, it hardly seems fair to subject them to even more onerous penalties. Especially since the IRS data from the 1980s suggest punitive rates could lead to less revenue rather than more.

Myth #4: The U.S. income tax is more regressive than other nations

Fact: It is the most progressive in the entire OECD

There are several ways to slice the data, so one can quibble with Brian’s assertion. But when comparing taxes paid by the rich compared to taxes paid by the poor, it is true that the United States relies more on upper-income taxpayers than any other developed nation. Not because we tax the rich more, but because we tax the poor less.

Myth #5: The U.S. tax code is becoming more regressive over time

Fact: It has become increasingly progressive over the past 35 years

Brian is right. Child credits, changes in the standard deduction and personal exemptions, and the EITC have combined in recent decades to take millions of households off the tax rolls. And since the U.S. thankfully does not have a value-added tax, lower-income people are largely protected from taxation.

Myth #6: Tax rates do not matter much to economic growth

Fact: They are among the most important factors

There are many factors that determine a nation’s economic success, including trade policy, regulation, monetary policy, and rule of law, so a good tax code isn’t a guarantor of prosperity and a bad tax system doesn’t automatically mean malaise. But Brian is right that taxation has a significant impact on growth.

In the interview, I said that I had two fantasies. First, I want to junk the corrupt internal revenue code and replace it with a simple and fair flat tax.

Second, I’d ultimately like to shrink government so much that we could eliminate the income tax entirely.

Many people don’t realize that income taxes only began to plague the world about 100 years ago.

If we can somehow restore the kind of limited government envisioned by America’s Founders, the dream of no income tax could become a reality once again.

But if Republicans can’t even manage to cut taxes today, when they control both the executive and legislative branch, then neither one of my fantasies will ever become reality.

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Republicans control the House, the Senate, and the White House.

In theory, that means a long-overdue opportunity to eliminate wasteful programs and cut pork-barrel spending.

In reality, it mostly means business as usual.

Politicians in Washington just reached a deal to fund the government for the rest of the current fiscal year. As reported by the Washington Post, it’s not exactly a victory for libertarians or small-government conservatives.

Democrats are surprised by just how many concessions they extracted in the trillion-dollar deal, considering that Republicans have unified control of government. …Non-defense domestic spending will go up, despite the Trump team’s insistence he wouldn’t let that happen. The president called for $18 billion in cuts. Instead, he’s going to sign a budget with lots of sweeteners that grow the size of government. …the NIH will get a $2 billion boost — on top of the huge increase it got last year. …Planned Parenthood…will continue to receive funding at current levels. …after the deal was reached…, Chuck Schumer and Nancy Pelosi quickly put out celebratory statements. …“Overall, the compromise resembles more of an Obama administration-era budget than a Trump one,” Bloomberg reports. …Reuters: “While Republicans control the House, Senate and White House, Democrats scored … significant victories in the deal.” …Vox: “Conservatives got almost nothing they wanted.”

I guess you could call this a triumph of “public choice” over campaign rhetoric. Politicians did what’s in the best interest of politicians rather than what would be best for the nation.

I’m disappointed, as you might expect. But as I say in this interview, there are far more important battles. I’ll gladly accept a bit of pork and profligacy in the 2017 budget if that clears the decks for much-needed repeal of Obamacare and long-overdue reform of the tax code.

But here’s the catch. I don’t expect that these reforms will actually happen. Yes, the deck has been cleared, but I don’t think Republicans will take advantage of the opportunity.

The fundamental problem, which I pointed out in a different interview, is that there’s not a governing majority for smaller government. And that has some very grim implications.

Even more depressing, I point out that only Trump has the power to turn things around. Yet I see very little evidence that he, a) believes in smaller government, or b) is willing to expend any political capital to achieve smaller government.

To make matters worse, Republicans have convinced themselves that they lose the spin battle whenever there is a shutdown or some other high-stakes fiscal fight with Democrats.

For what it’s worth, I’m trying to remind Republicans that it is in their long-run political interests to do the right thing (as Reagan demonstrated). That’s why, in the first interview, I said they need to gut Obamacare and lower taxes if they want to do well in the 2018 and 2020 elections.

But don’t hold your breath waiting for the “stupid party” to behave intelligently.

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Fundamental tax reform such as a flat tax should accomplish three big goals.

The good news is that almost all Republicans believe in the first two goals and at least pay lip services to the third goal.

The bad news is that they nonetheless can’t be trusted with tax reform.

Here’s why. Major tax reform is based on the assumption that achieving the first two goals will lower tax revenue and achieving the third goal will generate tax revenue. A reform plan doesn’t have to be “revenue neutral,” of course, but politicians would be very reluctant to vote for a package that substantially reduced tax revenue. So serious proposals have revenue-raising provisions that are roughly similar in magnitude to the revenue-losing provisions.

Here’s the problem.   Notwithstanding lip service, Republicans are not willing to go after major tax loopholes like the healthcare exclusion. And that means that they are looking for other sources of revenue. In some cases, such as the proposal in the House plan to put debt and equity on a level playing field, they come up with decent ideas. In other cases, such as the border-adjustment tax, they come up with misguided ideas.

And some of them are even talking about very bad ideas, such as a value-added tax or carbon tax.

This is why it would be best to set aside tax reform and focus on a more limited agenda, such as a plan to lower the corporate tax rate. I discussed that idea a few weeks ago on Neil Cavuto’s show, and I echoed myself last week in another appearance on Fox Business.

Lest you think I’m being overly paranoid about Republicans doing the wrong thing, here’s what’s being reported in the establishment press.

The Hill is reporting that the Trump Administration is still undecided on the BAT.

The most controversial aspect of the House’s plan is its reliance on border adjustability to tax imports and exempt exports. …the White House has yet to fully embrace it. …If the administration opts against the border-adjustment proposal, it would have to find another way to raise revenue to pay for lowering tax rates.

While I hope the White House ultimately rejects the BAT, that won’t necessarily be good news if the Administration signs on to another new source of revenue.

And that’s apparently under discussion.

The Washington Post last week reported that the White House was looking at other ideas, including a value-added tax and a carbon tax… Even if administration officials are simply batting around ideas, it seems clear that Trump’s team is open to a different approach.

The Associated Press also tries to read the tea leaves and speculates whether the Trump Administration may try to cut or eliminate the Social Security payroll tax.

The administration’s first attempt to write legislation is in its early stages and the White House has kept much of it under wraps. But it has already sprouted the consideration of a series of unorthodox proposals including a drastic cut to the payroll tax, aimed at appealing to Democrats.

I’m not a big fan of fiddling with the payroll tax, and I definitely worry about making major changes.

Why? Because it’s quite likely politicians will replace it with a tax that is even worse.

This would require a new dedicated funding source for Social Security. The change, proposed by a GOP lobbyist with close ties to the Trump administration, would transform Brady’s plan on imports into something closer to a value-added tax by also eliminating the deduction of labor expenses. This would bring it in line with WTO rules and generate an additional $12 trillion over 10 years, according to budget estimates.

Last but not least, the New York Times has a story today on the latest machinations, and it appears that Republicans are no closer to a consensus today than they were the day Trump got inaugurated.

…it is becoming increasingly unlikely that there will be a simpler system, or even lower tax rates, this time next year. The Trump administration’s tax plan, promised in February, has yet to materialize; a House Republican plan has bogged down, taking as much fire from conservatives as liberals… Speaker Paul D. Ryan built a tax blueprint around a “border adjustment” tax… With no palpable support in the Senate, its prospects appear to be nearly dead. …The president’s own vision for a new tax system is muddled at best. In the past few months, he has called for taxing companies that move operations abroad, waffled on the border tax and, last week, called for a “reciprocal” tax that would match the import taxes other countries impose on the United States.

The report notes that Trump may have a personal reason to oppose one of the provisions of the House plan.

Perhaps the most consequential concern relates to a House Republican proposal to get rid of a rule that lets companies write off the interest they pay on loans — a move real estate developers and Mr. Trump vehemently oppose. Doing so would raise $1 trillion in revenue and reduce the appeal of one of Mr. Trump’s favorite business tools: debt.

From my perspective, the most encouraging part of the story is that the lack of consensus may lead Republicans to my position, which is simply to cut the corporate tax rate.

With little appetite for bipartisanship, many veterans of tax fights and lobbyists in Washington expect that Mr. Trump will ultimately embrace straight tax cuts, with some cleaning up of deductions, and call it a victory.

And I think that would be a victory as well, even though I ultimately want to junk the entire tax code and replace it with a flat tax.

P.S. In an ideal world, tax reform would be financed in large part with spending restraint. Sadly, Washington, DC, isn’t in the same galaxy as that ideal world.

P.P.S. To further explain why Republicans cannot be trusted, even if they mean well, recall that Rand Paul and Ted Cruz both included VATs in the tax plans they unveiled during the 2016 presidential campaign.

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On major economic issues, it does not appear that Republican control of Washington makes much of a difference.

  • Efforts to repeal Obamacare have bogged down because GOPers are willing to deal with the fiscal wreckage of that law, but don’t seem very comfortable about undoing the interventions and regulations that have caused premiums to skyrocket.
  • Efforts to cut taxes and reform the tax code don’t look very promising because House Republicans have proposed a misguided border-adjustment tax and the White House seems hopelessly divided on how to proceed.
  • Efforts to restrain government spending haven’t gotten off the ground. A full budget is due next month, but it’s not overly encouraging that Trump’s proposed domestic cuts would be used to expand the Pentagon’s budget.

Let’s see whether we get a different story when we examine regulatory issues.

We’ll start with some good news? Well, sort of. It seems the United States has the largest and 4th-largest GDPs in the world.

You may think that makes no sense, but this is where we have to share some bad news on the regulatory burden from the Mercatus Center.

Economic growth has been reduced by an average of 0.8 percent per year from 1980 to 2012 due to regulatory accumulation. Regulations force companies to invest less in activities that enhance productivity and growth, such as research and development, as companies must divert resources into regulatory compliance and similar activities. …Compared to a scenario where regulations are held constant at levels observed in 1980, the study finds that the difference between the economy we are in and a hypothetical economy where regulatory accumulation halted in 1980 is approximately $4 trillion. …The $4 trillion dollars in lost GDP associated with regulatory accumulation would be the fourth largest economy in the world—larger than major countries like Germany, France, and India.

By the way, this data from Mercatus gives me an opportunity to re-emphasize the importance of even small variations in economic growth. It may not make that much difference if the economy grows 0.8 percent faster or slower in one year.

But, as just noted, a loss of 0.8 percent annual growth over 32 years has been enormously expensive to the U.S. economy.

The Competitive Enterprise Institute has a depressing array of data on America’s regulatory burden. Here’s the chart that grabbed my attention.

And here’s a video on the burden of red tape from the folks at CEI.

Who deserves the blame for this nightmare of red tape?

The previous president definitely added to the regulatory morass. The Hill reported last year on a study by the American Action Forum.

The Obama administration issues an average of 81 major rules, those with an economic impact of at least $100 million, on a yearly basis, the study found. That’s about one major rule every four to five days, or, as the American Action Forum puts it, one rule for every three days that the federal government is open. “It is a $2,294 regulatory imposition on every person in the United States,” wrote Sam Batkins, director of regulatory policy at the American Action Forum, who conducted the study.

And there was a big effort to add more red tape in Obama’s final days, as noted by Kimberly Strassel of the Wall Street Journal.

Since the election Mr. Obama has broken with all precedent by issuing rules that would be astonishing at any moment and are downright obnoxious at this point. This past week we learned of several sweeping new rules from the Interior Department and the Environmental Protection Agency, including regs on methane on public lands (cost: $2.4 billion); a new anti-coal rule related to streams ($1.2 billion) and renewable fuel standards ($1.5 billion).

As you might expect, the net cost of Obama’s regulatory excess is significant. Here’s some of what the Washington Examiner wrote during the waning days of Obama’s tenure.

According to new information from the White House, finally released after a two year wait, the total burden of federal government paperwork is more than 11.5 billion man-hours a year. That’s almost 500 million man-days, or 1.3 million man-years. More importantly, it’s 35 hours every person in the country (on average) has to spend doing federal paperwork every year, on average. …Time is money, and paperwork time alone costs the country almost $2 trillion a year, or about 11 percent of GDP.

But it’s not solely Obama’s fault. Not even close.

Both parties can be blamed for this mess, as reported by the Economist.

The call to cut red tape is now an emotive rallying cry for Republicans—more so, in the hearts of many congressmen, than slashing deficits. Deregulation will, they argue, unleash a “confident America” in which businesses thrive and wages soar, leaving economists, with their excuses for the “new normal” of low growth, red-faced. Are they right?

They may be right, but they never seem to take action when they’re in charge.

Between 1970 and 2008 the number of prescriptive words like “shall” or “must” in the code of federal regulations grew from 403,000 to nearly 963,000, or about 15,000 edicts a year… The unyielding growth of rules, then, has persisted through Republican and Democratic administrations… The endless pile-up of regulation enrages businessmen. One in five small firms say it is their biggest problem, according to the National Federation of Independent Business.

Though I would point out that President Reagan was the exception to this dismal rule.

That being said, who cares about finger pointing? What matters is that the economy is being stymied by excessive red tape.

So what can be done about this? President Trump has promised a 2-for-1 deal, saying that his Administration will wipe out two existing regulations for every new rule that gets imposed.

Susan Dudley opines on this proposal, noting that Trump hasn’t put any meat on the bones.

Like pebbles tossed in a stream, each individual regulation may do little economic harm, but eventually the pebbles accumulate and like a dam, may block economic growth and innovation. A policy of removing two regulations for every new one would provide agencies incentives to evaluate the costs and effectiveness of those accumulated regulations and determine which have outlived their usefulness. Mr. Trump’s statement doesn’t provide details on how this new policy would work.

Ms. Dudley points out, however, that other nations have achieved some success with similar-sounding approaches.

…his team could look to experiences in other countries for insights. The Netherlands, Canada, Australia and the United Kingdom have all adopted similar requirements to offset the costs of new regulations by removing or modifying existing rules of comparable or greater effect. …The Netherlands program established a net quantitative burden reduction target that reduced regulatory burdens by 20% between 2003 and 2007. It is currently on track to save €2.5 billion in regulatory burden between 2012 and 2017 by tying the introduction of new regulations “to the revision or scrapping of existing rules.” Under Canada’s “One-for-One Rule,” launched in 2012, new regulatory changes that increase administrative burdens must be offset with equal burden reductions elsewhere. Further, for each new regulation that imposes administrative burden costs, cabinet ministers must remove at least one regulation. Similarly, Australia’s policy is that “the cost burden of new regulation must be fully offset by reductions in existing regulatory burden.” The British began with a “One-in, One-out” policy, requiring any increases in the cost of regulation to be offset by deregulatory measures of at least an equivalent value. In 2013, it moved to “One-in, Two-out” (OITO) and more recently to a “One-in, Three-out” policy in an effort to cut red tape by £10 billion.

The bottom line is that progress will depend on Trump appointing good people. And on that issue, the jury is still out.

The legislative branch also could get involved.

In a column for Reason, Senator Rand Paul explained that the REINS Act could make a big difference.

…13 of the 15 longest registers in American history have been authored by the past two presidential administrations (Barack Obama owns seven of the top eight, with George W. Bush filling in most of the rest)…federal lawmakers should pass something called the REINS Act—the “Regulations from the Executive in Need of Scrutiny Act. The REINS Act would require every new regulation that costs more than $100 million to be approved by Congress. As it is now, agencies can pass those rules unilaterally. Such major rules only account for about 3 percent of annual regulations, but they are the ones that cause the most headaches for individuals and businesses. …the REINS Act did pass the House on four occasions during the Obama administration. Lack of support in the Senate and the threat of a presidential veto kept it from ever reaching Obama’s desk.

But would it make a difference if Congress had to affirm major new rules?

Given how agencies will lie about regulatory burdens, it wouldn’t be a silver bullet.

But,based on the hysterical opposition from the left, I’m betting the REINS Act would be very helpful.

REINS would fundamentally alter the federal government in ways that could hobble federal agencies during periods when the same party controls Congress and the White House — and absolutely cripple those agencies during periods of divided government. Many federal laws delegate authority to agencies to work out the details of how to achieve relatively broad objectives set by the law itself. …REINS, however, effectively strips agencies of much of this authority.

That sounds like good news to me. If the crazies at Think Progress are this upset about the REINS Act, it must be a step in the right direction.

Let’s close with a bit of evidence that maybe, just maybe, Republicans will move the ball in the right direction. Here are some excerpts from a Bloomberg story.

The White House estimates it will save $10 billion over 20 years by having rescinded 11 Obama-era regulations under a relatively obscure 1996 law that lets Congress fast-track repeal legislation with a simple majority. …In all, the law has been used to repeal 11 rules, with two more awaiting the president’s signature… About two dozen measures with CRA’s targeting them remain, but because the law can only be used on rules issued in the final six months of the previous administration, Congress only has only a few more weeks to use the procedure.

Before getting too excited, remember that the annual cost of regulation is about $2 trillion and the White House is bragging about actions that will reduce red tape by $10 billion over two decades. Which means annual savings of only $500 million.

Which, if my math is right, addresses 0.025 percent of the problem.

I’ll take it, but it should be viewed as just a tiny first step on a very long journey.

P.S. The Congressional Review Act was signed into law by Bill Clinton. Yet another bit of evidence that he was a surprisingly pro-market President.

P.P.S. If you want some wonky analysis of regulation, I have some detailed columns here, here, here, here, here, here, and here.

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As part of an otherwise very good tax reform plan, House Republicans have proposed to modify the corporate income tax so that it becomes a “destination-based cash-flow tax.”

For those not familiar with wonky inside-the-beltway tax terminology, there are three main things to understand about this proposal.

  • First, the tax rate on business would drop from 35 percent to 20 percent. This is unambiguously positive.
  • Second, it would replace depreciation with expensing, which is a very desirable change that would eliminate a very counter-productive tax on new investment outlays. This is basically what makes the plan a “cash-flow” tax.
  • Third, any income generated by exports would be exempt from tax but the 20-percent tax would be imposed on all imports. These “border-adjustable” provisions are what makes the plan a “destination-based” tax.

I’m a big fan of the first two provisions, but I’m very hostile to the third item.

I don’t like it because I worry it sets the stage for a value-added tax. I don’t like it because it is designed to undermine tax competition. I don’t like it because it has a protectionist stench and presumably violates America’s trade commitments. I don’t like it because that part of the plan only exists because politicians aren’t willing to engage in more spending restraint. And I don’t like it because politicians should try to reinvent the wheel when we already know the right way to do tax reform.

Heck, I feel like the Dr. Seuss character who lists all the ways he would not like green eggs and ham. Except I can state with complete certainty I wouldn’t change my mind if I was suddenly forced to take a bite of this new tax.

Today, I’m going to augment my economic arguments by noting that the plan also is turning into a political liability. Here are some excerpts from a news report in the Wall Street Journal about opposition in the business community.

A linchpin of the House Republicans’ tax plan, an approach called “border adjustment,” has split Republicans and fractured the business world into competing coalitions before a bill has even been drafted. …There is also global uncertainty: Other countries may retaliate, either by border-adjusting their corporate taxes or by challenging the U.S. plan at the World Trade Organization as too tilted toward American producers.

And The Hill reports that grassroots organizations also are up in arms.

Americans for Prosperity is stepping up its efforts to advocate against a proposal from House Republicans to tax imports and exempt exports, as lawmakers are increasingly raising concerns about the proposal. …AFP has hundreds of volunteers and staff who are making phone calls about the proposal. The group has about 100 meetings set up with Congress members and their staff for next week, while Congress is in recess.

Meanwhile, the Economist reports that the plan is causing uncertainty around the world.

To offset a border-adjusted tax of 20%—the rate favoured by House Republicans—the greenback would need to rise fully 25%, enough to destabilise emerging markets burdened with dollar-denominated debts. If the dollar stayed put and wages and prices rose 25% instead, the Federal Reserve would have to decide how to respond to an unprecedented surge in inflation. Why tolerate such disruption?

Holman Jenkins of the Wall Street Journal has a devastating take on the issue.

Like a European value-added tax, its cost would be deeply hidden in the price of goods, thus easily jacked up over time. Also, compared with the current tax structure, businesses would see less incentive to move abroad in search of lower taxes, eroding a useful pressure on politicians to be fiscally sane. And because the tax would alter the terms of trade, it would be expected to lead to a sharp increase in the dollar. U.S. holders of foreign assets would suffer large paper losses. Since many foreigners borrow in dollars too, a global debt crisis might follow. The tax might also violate World Trade Organization rules, inviting other countries to impose punitive taxes on U.S. exports.

Last but not least, John Tamny outlines some of the political downsides at Real Clear Markets.

…the House of Representatives…is aggressively promoting a…tax on imports. …When we get up and go to work each day, our work is what we exchange for what we don’t have, including voluminous goods and services produced for us around the world.  …Party members are proudly seeking a tax on our work. …Only the “stupid” Party could come up with something so injurious to every American, to the American economy, and to its growth-focused brand.  But that’s where we are at the moment.  The Party that attained majorities with its tax cutting reputation is aggressively seeking to shed its growth brand through the introduction of tax hikes meant to give politicians even more of what we the people produce.  If so, the majority Party can kiss its majority goodbye.  It will have earned its minority status.

For what it’s worth, I think John overstates the case against the plan. The additional revenue from border-adjustable tax provision would be used to cut taxes elsewhere. Heck, the plan is actually a significant net tax cut.

But John is right when you look at the issue through a political lens. If the DBCFT actually began to move through the legislative process, opponents would start running commercials about the “GOP scheme to impose new consumption tax on Americans.” Journalists (most of whom dislike Republicans) would have a field day publicizing reports about the “GOP plan to raise average family tax bill by hundreds of dollars.”

Such charges would be ignoring the other side of the equation, of course, but that’s how politics works.

All of which brings me back to one of my original points. We already know that the flat tax is the gold standard of tax reform. And we already know the various ways of moving the tax code in that direction.

My advice is that Republicans abandon the border-adjustable provision and focus on lowering tax rates, reducing double taxation, and cutting back on loopholes. Such ideas are economically sounder and politically safer.

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Donald Trump is, to be charitable, a rather unique and colorful presidential candidate. He seems incapable of letting a day pass without doing something that makes the political establishment shudder with disdain.

Since I’m not a fan of the status quo in Washington, I have no objection to ruffling the feathers of DC insiders. That being said, it’s important to look at why Trump elicits such hostility.

The bottom line is that the enemy of your enemy isn’t always your friend.

In other words, my ideal candidate almost surely would be hated by the crowd in DC, but the hostility would be based on the candidate’s agenda to shrink the size and scope of the federal government, not because the candidate makes offensive and/or controversial statements.

Heck, I’d be willing to forgive a certain amount of distasteful behavior in a politician if that was the price of getting a genuine reformer. For what it’s worth, I’m even willing to tolerate a politician’s misbehavior if he simply allows good reform to happen, which is why I now have a certain after-the-fact fondness for Bill Clinton’s presidency.

As a policy wonk, I don’t spend much time wondering whether Trump is a good or stable person. I’m more focused on the policies he would push (or simply allow) if he wound up in the White House.

On that basis, I’m not brimming with optimism. Here’s some of what I wrote for the U.K.-based Guardian, when asked to share my assessment about the possible economic policy agenda of a Trump Administration. I start by saying we are in uncharted territory.

Normal presidential candidates put forth proposals that usually have been vetted by policy experts. They also generally have track records from their time as elected officials. …Trump is not a normal candidate.

I then point out that Trump is all over the map on policy.

…his views on major economic issues are eclectic. He promises a big tax cut, but it’s probably not very serious since he has no concomitant plan to restrain the growth of government spending. He threatens to impose steep tariffs, which would risk triggering a trade war, but he claims protectionism would merely be a stick to extort concessions from trading partners. ….He makes noises about potentially defaulting on debt but then pivots and says the debt can be financed by printing money. …either approach causes angst among most economists.

My conclusion (which is nothing more than a guess) is that the overall burden of government would increase with Trump in the White House.

With all this uncertainty about what Trump really believes, it’s impossible to guess which policies will change and how the economy would be impacted. For what it’s worth, libertarians generally fear that Trump ultimately would govern as a left-leaning populist.

By the way, this is also why I was not a fan of Richard Nixon, Gerald Ford, George H.W. Bush, Bob Dole, George W. Bush, John McCain, or Mitt Romney.

Simply stated, non-ideological Republicans (whether pseudo-populists like Trump or career politicians) don’t challenge the conventional wisdom of Washington. And that generally results in a go-along-to-get-along approach to policy, which means continued growth of government.

Which is why I’ve pointed out that Democrats in the White House sometimes result in less damage.

By the way, my jaundiced assessment of Trump does not imply that Hillary Clinton is any better. She also has personal foibles that – in a normal society – would disqualify her from holding public office.

And I also wrote for the Guardian about her approach to economic policy, which is basically the same direction as Bernie Sanders but at a slower pace.

…she would move public policy incrementally to the left. Some tax increases, but not giant tax increases. Some new regulations, but not complete government takeovers of industry. A bigger burden of government spending, but not turning America into Greece. An increase in the minimum wage, but not up to $15 an hour. More subsidies for higher education, but not an entitlement for everyone. And some restrictions on trade, but no sweeping reversal of the pro-trade consensus that has existed since the second world war.

In other words, become Greece at 55 miles per hour rather than Bernie’s desire to become Greece at 90 miles per hour.

P.S. Since our topic today is so depressing, let’s end with some humor.

We’ll start with this PG-13 pro-Gary Johnson comparison of the candidates.

This shows libertarians can be funny, even though I think it’s wrong to characterize Trump as being on the right (at least from an economic perspective).

Here’s an amusing comparison of a teenage boy and Donald Trump.

I’ll have to add this to my limited collection of Trump humor, most of which is at the bottom of this post.

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