Trump and the Flat Tax?

There’s going to be a big tax fight in Washington next year, regardless of who wins the House, the Senate, and/or the presidency. That’s because major portions of Trump’s 2017 Tax Cuts and Jobs Act will expire on December 31, 2025.

Will those tax cuts be extended? Will they be expanded? Will they be curtailed? Politicians will be forced to choose.

In general, I’m rather pessimistic about the outcome for the simple reason that there’s been a huge increase in the burden of government spending.

I wrote about that problem two days ago and highlighted how politicians used the pandemic as an excuse to permanently increase the cost of government.

One result of all that wasteful spending is that we now have enormous deficits. And even though I don’t worry much about red ink (the real problem is spending, not how it’s financed), the practical reality is that it is well nigh impossible to have good tax policy when there is bad spending policy.

But that doesn’t mean we shouldn’t try. In an article for Bloomberg, Stephanie Lai, Amanda L Gordon, and Enda Curran write about the advice Trump is getting on tax policy.

Donald Trump is under pressure from economists in his circle to embrace a flat tax rate… The efforts demonstrate how people around the former president are already lobbying for their preferred economic policies ahead of a potential second term where both taxes and tariffs will be top priorities. …Forbes said…he is advocating for Trump to support a flat 17% tax rate for all income brackets with “generous” exemptions… For a family of four, he said, he would suggest the first $54,000 of income be exempt from federal income tax. …Whoever wins the White House in November will be forced to negotiate a tax deal next year because key portions of Trump’s 2017 tax cuts — including individual rates — expire at the end of 2025. That will set up a complex negotiation — particularly if control of Washington is split between Republicans and Democrats… Trump has not detailed what his tax plan would look like.

I’m glad that people are pushing Trump to be bold on taxes, but that advice needs to be augmented by a big push to make him better on spending.

Alas, that’s one of his worst areas.

Not as bad as he is on trade, but he record on spending is nonetheless mediocre. And that was the case even before the pandemic spending orgy.

The bottom line is that Trump needs to change his mind on entitlements if we want to have any hope of better tax policy. I won’t be holding me breath.

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Trump, China, and Trade: Be Afraid, Be Very Afraid of I.E.E.P.A.

Earlier this year, I identified Trump’s “worst ever tweet.”

I was wrong. That tweet, which displayed an astounding level of economic ignorance, is now old news.

Trump issued a tweet yesterday that is far worse because it combines bad economic theory with horrifying support for massive economic intervention. Pay special attention to the part circled in red.

Huh?!?

Since when does the President get to dictate where companies can do business?

Unfortunately, whenever he wants to.

Congress has delegated to the President massive “emergency” powers over the economy. Specifically, the International Emergency Economic Powers Act (IEEPA) is a blank check.

Here are some excerpts from a report by the Congressional Research Service.

By the twentieth century, …Congress created statutory bases permitting the President to declare a state of emergency and make use of extraordinary delegated powers. …The International Emergency Economic Powers Act (IEEPA) is one such example of a twentieth-century delegation of emergency authority. …IEEPA grants the President extensive power to regulate a variety of economic transactions during a state of emergency. …Since 1977, Presidents have invoked IEEPA in 54 declarations of national emergency. On average, these emergencies last nearly a decade. Most emergencies have been geographically specific, targeting a specific country or government. …No President has used IEEPA to place tariffs on imported products from a specific country or on products imported to the United States in general. However, …such an action could happen. In addition, no President has used IEEPA to enact a policy that was primarily domestic in effect. Some scholars argue, however, that the interconnectedness of the global economy means it would probably be permissible to use IEEPA to take an action that was primarily domestic in effect. …Neither the NEA nor IEEPA define what constitutes a “national emergency.” …While IEEPA nominally applies only to foreign transactions, the breadth of the phrase, “any interest of any foreign country or a national thereof” has left a great deal of room for executive discretion.

You can click here for the actual legislative language of IEEPA.

You’ll see that the President has the power, for all intents and purposes, to severely disrupt or even block financial transactions between people and/or companies in the United States and people and/or companies in a designated foreign country.

And there’s no limit on the definition of “emergency.”

One could argue that an emergency declaration and a ban on the movement of money wouldn’t necessarily prohibit a company from doing business in a particular jurisdiction, but it surely would have that effect.

The economic consequences would be profound. In a negative way.

By the way, the White House Bureau Chief for the Washington Post responded to Trump’s tweet with one of his own.

He says the President, who criticizes socialism, is acting like a socialist.

Trump spends a lot of time calling Democrats socialist, but a head of state ordering companies to do things is, well, socialism. https://t.co/CkTKXqEDkP

— Philip Rucker (@PhilipRucker) August 23, 2019

He’s actually wrong, at least technically.

Socialism is government ownership and control of the means of production.

What Trump is seeking is private ownership and government control. And there’s a different word for that economic policy.

P.S. It’s a good idea for the U.S. government to have powers to respond to a genuine emergency. But it shouldn’t be the decision of one person in our separation-of-powers system. It was a bad idea when Obama was in the White House, and it’s a bad idea with Trump in the White House.

In peacetime, an emergency should require the approval of Congress. In wartime, it should require approval of the House and Senate leadership from both parties.

P.P.S. Trade laws are another example of Congress delegating too much power to the executive branch.

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Trump Treasury Secretary Supports French Tax Harmonization Scheme

Much to the consternation of some Republicans, I periodically explain that the Trump Administration is – at best – a mixed blessing for supporters of limited government.

It’s not just that Trump is the most protectionist president since Herbert Hoover, though that’s certainly a damning indictment.

The Trump White House also has been very weak on government spending, and the track record on that issue could get even worse since the President supports a new entitlement for childcare.

Yes, there are issues where Trump has been a net plus for economic liberty.

The overall regulatory burden is declining (though the Administration’s record is far from perfect when looking at anti-market interventions).

And the President gets a good mark on tax policy thanks to the Tax Cut and Jobs Act.

But Trump’s grade on that issue may be about to drop thanks to horribly misguided actions by his Treasury Secretary, Steven Mnuchin. Here are some excerpts from a report by France 24.

US Treasury Secretary Steven Mnuchin said Wednesday that the US supported a push by France for a minimum corporate tax rate for developed countries worldwide… “It’s something we absolutely support, that there’s not a chase to the bottom on taxation,” Mnuchin said in Paris after talks with Finance Minister Bruno Le Maire. Le Maire said last month a minimum tax rate would be a priority for France during its presidency of the G7 nations this year. …France in particular has railed against Amazon, Google and other technology giants that declare their European income in low-tax countries like Ireland or Luxembourg.

Needless to say, it’s utterly depressing that a Republican (in name only?) Treasury Secretary explicitly condemns tax competition.

Politicians and their flunkies grouse about a “race to the bottom” when tax competition exists, not because tax rates would ever drop to zero (we should be so lucky), but because they don’t like it when the geese with the golden eggs have the ability to fly away.

They like having the option of ever-higher taxes.

In reality, the world desperately needs tax competition to reduce the danger of “goldfish government,” which occurs when vote-seeking politicians can’t resist the temptation to destroy an economy with too much government (see Greece, Venezuela, Zimbabwe, etc).

I’ll close with a remarkable observation.

The Obama Administration supported a scheme that would have required American companies to pay a tax of at least 19 percent on income earned in other jurisdictions, even if tax rates were lower (as in Ireland) or zero (as in Cayman).

This was very bad policy, completely contrary to the principle of “territorial taxation” that is part of all market-friendly tax reforms such as the flat tax.

Yet Trump’s Treasury Secretary, by prioritizing tax revenue over prosperity, is supporting a proposal for global minimum tax rates that is much worse than what the Obama Administration wanted.

And even further to the left compared to the policy supported by Bill Clinton.

P.S. I’m sure the bureaucrats at the European Commission and Organization for Economic Cooperation and Development are delighted with Mnuchin’s policy, especially since American companies will be the ones most disadvantaged.

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2018 Election Predictions…and Potential Economic Consequences

If you look at my election predictions from 2010, 2012, 2014, and 2016, you’ll see that my occasional insights are matched by some big misses. So I don’t think I offer any special insight.

But since readers seem to enjoy these biennial predictions, I’ll once again go out on a limb. The bottom line is that my Democratic friends will be happy.

Since so many Democratic seats are up, it will be a big defeat if Republicans stay at 51 seats in the Senate. And the loss of more than 45 seats in the House is approaching bloodbath territory.

This outcome is why I advised my GOP friends that it might have been better to lose the 2016 presidential election.

Now let’s consider the potential economic implications, which is what I care about.

The first-order effect is that we’ll have gridlock and that’s not a bad outcome as far as I’m concerned. Simply stated, that means less legislation, which presumably means less mischief from Washington.

But not all gridlock is created equal. Here’s a chart published a couple of days ago by the Washington Post. I’ve highlighted in green relative stock market performance when there’s good gridlock with a Republican Congress and not-so-good gridlock with a Democratic Congress.

I don’t think S&P performance is the best indicator of prosperity, and the “sample size” produced by American elections it rather small, so I caution against over-interpreting this data.

That being said, I’ve crunched budget numbers and revealed that Republican presidents generally allow more spending than Democrats. The only exception to this rule is Ronald Reagan.

Unfortunately, as I warned the day after the 2016 election, Trump is no Reagan. As such, I wouldn’t be surprised if the net result (assuming my predictions are remotely accurate) is that the already-excessive growth of spending becomes an even bigger problem.

P.S. There are some very important ballot initiatives that will be decided today.

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Trump Humor

Donald Trump should be an easy target for political humorists, but I’ve mostly been disappointed in the quality of the anti-Trump satire.

That may be because comedians think he’s a raging conservative, so their jokes based on that theme strike someone like me (who fears Trump is a big-government populist) as senseless.

After all, clever humor should take something true and then mock it by taking it to an absurd extreme. Indeed, this is why I can appreciate even anti-libertarian humor if it’s well done.

Fortunately, we have foreigners who are willing to do the job that American humorists won’t do. Beginning with the Netherlands (from what I can tell), some clever people in other nations have produced videos “welcoming” Trump.

Here’s the Dutch version.

The Danes also got into the game.

And since I’m a big fan of Switzerland, I obviously can’t resist sharing the Swiss version.

By the way, there are many other examples for anyone who wants to kill some time seeing how other nations introduce themselves to Trump. Just do a search on YouTube.

Meanwhile, we presumably remember how the Obama Administration wanted to seize our guns. In the same spirit, the Onion has an amusing look at how the Trump Administration wants to take away our facts.

Alarmed at the prospect of unconstitutional overreach by the Trump administration, millions of fearful Americans have already begun stockpiling facts before the federal government comes to take them away, sources confirmed Friday. “I know my rights as an American, so you’d better believe I’m getting my hands on as many facts as possible and keeping them somewhere safe where this First Amendment–hating president of ours can’t snatch them all up,” said Pittsburgh resident David Edelman, 38, adding that he was worried that President Trump planned to not only suspend production of facts, but also seize existing ones, leaving Americans and their families completely defenseless. …A spokesperson for the Trump administration dismissed such fears, saying that the president merely wanted to keep facts away from certain dangerous people.

The videos and the article from the Onion are good additions to my sparse collection of Trump humor. Previous examples can be seen here, here, here, here, and here.

April 19, 2020 addendum: I had to remove links to a couple of videos that disappeared from YouTube.

But I’m compensating by adding one from Portugal.

And one from Luxembourg.

I haven’t seen any from some of my favorite places, such as the Cayman Islands, Monaco, and Bermuda.

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Trump and Taxes: A Bush-Like Plan from “The Donald”

It’s been a challenge to assess Donald Trump’s fiscal policies since they’ve been an eclectic and evolving mix of good and bad soundbites.

Though I did like what he said about wanting to pay as little tax as possible because the government wastes so much of our money.

On the other hand, some of his comments about raising tax burdens on investors obviously rubbed me the wrong way.

But now “The Donald” has unveiled a real plan and we have plenty of details to assess. Here are some of the key provisions, as reported by the Wall Street Journal. We’ll start with the features that represent better tax policy and/or lead to lower tax burdens, such as somewhat lower statutory tax rates on households and a big reduction in the very high tax rate imposed on companies, as well as a slight reduction in the double tax on capital gains.

…no federal income tax would be levied against individuals earning less than $25,000 and married couples earning less than $50,000. The Trump campaign estimates that would reduce taxes to zero for 31 million households that currently pay at least some income tax. The highest individual income-tax rate would be 25%, compared with the current 39.6% rate. …Mr. Trump also would cut the top capital gains rate to 20%, from the current 23.8%. And he would eliminate the alternative minimum tax. …For businesses, Mr. Trump’s 15% rate is among the lowest that have been proposed so far.

But there are also features that would move tax policy in the wrong direction and/or raise revenue.

Most notably, Trump would scale back certain deductions as taxpayers earn more money. He also would increase the capital gains tax burden for partnerships that receive “carried interest.” And he would impose worldwide taxation on businesses.

To pay for the proposed tax benefits, the Trump plan would eliminate or reduce deductions and loopholes to high-income taxpayers, and would curb some deductions and other breaks for middle-class taxpayers by capping the level of individual deductions, a politically dicey proposition. Mr. Trump also would end the “carried interest” tax break, which allows many investment-fund managers to pay lower taxes on much of their compensation. …The Trump plan would raise revenues in at least a couple of significant ways. It would limit the value of individual deductions, with middle-class households keeping all or most of their deductions, higher-income taxpayers keeping around half of theirs, and the very wealthy losing a significant chunk of theirs. It also would wipe out many corporate deductions. …The plan also proposes capping the amount of interest payments that businesses can deduct now, a change phased in over a long period, and would impose a corporate tax on future foreign earnings of American multinationals.

Last but not least, there are parts of Trump’s plan that leave current policy unchanged.

Which could be characterized as “sins of omission” since many of these provisions in the tax code – such as double taxation, the tax bias against business investment, and tax preferences – should be altered.

…the candidate doesn’t propose to end taxation of individuals’ investment income… Mr. Trump would not…allow businesses to expense all their new equipment purchases, as some other Republicans do. …All taxpayers would keep their current deductions for mortgage-interest on their homes and charitable giving.

So what’s the net effect?

The answer depends on whether one hopes for perfect policy. The flat tax is the gold standard for genuine tax reform and Mr. Trump’s plan obviously falls short by that test.

But the perfect isn’t the enemy of the good. If we compare what he’s proposing to what we have now, the answer is easy. Trump’s plan is far better than the status quo.

Now that I’ve looked at the good and bad policies in Trump’s plan, I can’t resist closing with a political observation.  Notwithstanding his rivalry with Jeb Bush, it’s remarkable that Trump’s proposal is very similar to the plan already put forth by the former Florida Governor.

I’m not sure either candidate will like my interpretation, but I think it’s flattery. Both deserve plaudits for proposing to make the internal revenue code less onerous for the American economy.

P.S. Here’s what I wrote about the plans put forth by Marco Rubio and Rand Paul.

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Does Donald Trump Think Washington Politicians Should Have More of Our Money to Help America Become Greece?

There’s a famous quote attributed to George Washington.

Government is not reason, it is not eloquence — it is force. Like fire it is a dangerous servant and a fearful master; never for a moment should it be left to irresponsible action.

But it’s apparently an urban legend. There’s no evidence Washington wrote or spoke those words.

That being said, I obviously appreciate the sentiment.

So much so that I’m tempted to make up a similar quote and start a rumor that it comes from Washington.

Politicians don’t have reason or sense – they are consumed by ambition. Like fire they are capable of causing great damage and only have value in very controlled circumstances.

That statement surely would apply to the ruling class in Washington, particularly those running for President. And it also would apply to many of the “outsider” candidates as well, including Donald Trump.

In other words, we should accept the fact that politicians are pathologically ambitious narcissists (which is why these jokes and cartoons are so funny) and simply try to figure out whether they might be vehicles for good and necessary reforms.

I have a very straightforward rule for determining whether politicians “have value in very controlled circumstances.” Simply stated, if they are open to tax hikes, then I can state – with 99 percent confidence – that they have no desire to control the size, cost, and power of the federal government.

Based on that rule, I’m skeptical about Donald Trump.

To understand my doubts, here are some passages from a story on the topic in the New York Times.

For years, Republicans have run for office on promises of cutting taxes… But this election cycle, the Republican presidential candidate who currently leads in most polls is taking a different approach… Mr. Trump has…suggested he would increase taxes on the compensation of hedge fund managers. And he has vowed to change laws that allow American companies to benefit from cheaper tax rates by using mergers to base their operations outside the United States.

These policy positions are raising a lot of eyebrows.

“All of those are anti-growth policies,” said David McIntosh, the president of the Club for Growth… “Those aren’t the types of things a typical Republican candidate would say,” said Michael R. Strain, a scholar at the conservative American Enterprise Institute, referring to the candidate’s comments on hedge funds, support for entitlement spending and the imposing of trade tariffs.

And Trump’s failure to sign the no-tax-hike pledge exacerbates the concerns, particularly when combined with his inconsistent statements on tax reform.

Mr. Trump and former Gov. Jeb Bush of Florida are the only leading Republican candidates who have not signed a pledge to not raise taxes. …In an interview with Fox News last week, Mr. Trump said a flat tax would be a viable improvement to America’s tax system. Moments later, he suggested that a flat tax would be unfair because the rich would be taxed at the same rate as the poor.

Trump’s views – to the extent that they can be deciphered – are causing angst for some GOPers, as illustrated by these excerpts from a column in the Washington Post.

Trump’s surging campaign has pushed the party in a different direction, one that often clashes with free-market principles that have long underpinned GOP economic policy. …Traditional supply-side thinkers…have urged candidates to flatten tax rates and reduce regulations to unleash faster economic growth.

Byron York of the Washington Examiner writes about Trump’s fiscal policy in the context of traditional Republican orthodoxy.

Trump is preparing a tax proposal that will again set him far apart from the party’s powers-that-be. …Trump has been sending signals that his tax proposal, which he says will be “comprehensive,” will include higher rates for some of the richest Americans, a position generally at odds with Republican orthodoxy. “I want to see lower taxes,” Trump said at an appearance in Norwood, Mass., on Friday night. “But on some people, they’re not doing their fair share.”

And if his campaign manager is accurately channeling Trump’s views. the candidate even equates higher taxes with making America great.

Trump campaign manager Corey Lewandowski would say little about Trump’s intentions, but noted that “Mr. Trump has said that he does not mind paying what is required to make our country great again.” Raising taxes on anyone, even the super rich, has generally been anathema to Republicans for a generation.

Wow, what’s next, a Biden-esque assertion that higher tax payments are patriotic?!?

Though, to be fair, it’s unclear whether Trump actually wants the federal government to have more money.

Perhaps the tax increases that he supports would be offset by tax cuts elsewhere, which is what would happen with major tax reform proposals such as the flat tax.

Though the fact that Trump so far has refused to sign the no-tax-hike pledge obviously makes me suspicious of his true goals.

In his column for the New York Times, Ross Douthat also wonders whether Trump will upend existing GOP thinking.

In movement conservatism, there’s an ongoing, interesting tension between starve-the-leviathan theories and the supply-side vision, exemplified by the Wall Street Journal editorial page among other sources, in which low taxes on high incomes and investment can allegedly make the public coffers fuller. …my own (modest) faction, the reform conservatives, whose preferred tax vision (in its varying forms) basically seeks a rebalancing of conservative tax policy, an approach that’s still responsive to supply-side and pro-growth ideas but also addresses both the anxieties of middle class families… The Republican Party is the limited-government, anti-tax party, and the weird rise of Trumpism isn’t going to change that basic fact. But the way anti-tax sentiment manifests itself, and the policies associated with those sentiments, can alter with time and circumstances, and for the G.O.P.’s sake they need to change right now.

I’m mostly in the starve-the-beast camp, though I like the supply-side approach (perfectly captured in this image) because of the recognition of how good tax policy boosts growth.

And I see the “reform conservatives” as allies even if their ideal version of tax reform has a few warts.

So I’m willing to have a “big tent”…on the sole condition that I get to exclude those who want higher taxes.

And it remains to be seen whether Trump’s in that distasteful group.

P.S. Speaking of distasteful, keep in mind that when Trump says favorable things about trade protectionism, he’s really saying that he wants higher taxes on American consumers.

P.P.S. I care about policy rather than politics, so don’t hold your breath waiting for me to endorse any candidate (indeed, I’ve only made one presidential endorsement in the past six years).

But given my passionate support for the Georgia Bulldogs, I might overlook some of Donald Trump’s dubious views simply because he has support from someone who made my college years very enjoyable.

Herschel Walker…, the former running back stated the Republican hopeful is his No. 1 choice for president. “There’s not a doubt in my mind right now he is my frontrunner,” Walker told USA Today. …”(Trump) wanted to win and he was prepared to go out and do whatever it took to win,” Walker said. “He was a guy that always did what he said he was going to do.” …”When are we going to get back to what’s best for this country?” Walker said. “I think that’s what’s Donald is pushing to do.”

That being said, I’m only aware of one other time Herschel endorsed a politician and that guy lost.

P.P.P.S. Today’s column has focused on Trump’s worrisome views on tax policy. Well, one of the reasons he may be weak on taxes is because he has no desire to control spending. You don’t have to believe me. These are his own words.

“I’m not going to cut Social Security like every other Republican and I’m not going to cut Medicare or Medicaid,” Trump told The Daily Signal. “Every other Republican is going to cut, and even if they wouldn’t, they don’t know what to do because they don’t know where the money is. I do.”

Huh?!?

Let’s take a look at “where the money is.”

If “The Donald” doesn’t think we need genuine entitlement reform, there are only a few possible explanations.

• He’s clueless.
• He’s dishonest.
• Or he wants the status quo and that’s why he’s leaving the door open for massive tax hikes.

If it’s the final option, he’s the GOP version of Bernie Sanders.

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