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Trumpian Tax Triumph?

29 Apr 2017

GLobal Corporate Tax Rate distribution

Mr. Trump unveiled his tax plan earlier this week, and there was something for almost every conservative to like.  Our current obscene corporate tax rate of 39% is the highest among industrial nations (only exceeded by Chad and the UAE), but doesn’t yield all that much revenue, so Mr. Trump proposes drastically reducing it to 15%.   As shown in the figure above, that would put the U.S. slightly more competitive than the average country, instead of being the most uncompetitive.  Mr. Trump has many other parts of the proposal that should garner support–lowering and reducing the number of individual tax rates, doubling the standard deduction, getting rid of the estate and alternative minimum tax, among others.

Now from an economics perspective, I think this is all good.  If you believe that our country’s slow growth is due to lack of demand, and that we’re in a new normal of slower growth, then you probably disagree with Mr. Trump (or maybe you just react negatively to anything that Mr. Trump says).  But if you think we’ve tried working on the demand side of the economy for a decade now, and we’ve throttled the supply side, then maybe its time for a supply side approach.  But there is never a time to stimulate the private sector, at least according to our progressive provocateurs:

Trump tax plan is Voodoo Economics on steroids. If you believe in magic, unicorns or Batman, this plan is for you.

Now I would prefer a corporate tax rate of zero, but alas, that would never happen.  Let’s first remember that corporations really don’t pay taxes–they are a legal fiction–people pay taxes.  If a corporation makes money, it can only go to one of three places–either retain the earnings for future investment, or distribute to the employees, or pay it out to the owners (shareholders).  Economists generally seek to gain the maximum revenue from the minimum amount of underlying economic distortion.  So the best way to tax corporate revenue would be to tax it once.  I used to be in favor of taxing it at the source–the firm (the most efficient, since firms have to have accountants already)–and then eliminating taxes on dividends, but have now gone the other way, preferring a zero tax on corporations and treating dividend income as ordinary income.  I believe this would significantly reduce the K-street crony capitalism we see so much of.  Of course, this is precisely why it can never go to zero: Congress has too much interest in being able to continually threaten to raise it higher (if lowered by Mr. Trump) and thus eliciting (or you could say extorting) campaign contributions from corporate America.

But on to the issue for Bereans to really consider.  The progressive left led by Ms. Pelosi calls this plan a “giveaway to the rich.”

The same Trickle Down Economics that undermined the middle class are alive and well in the President’s tax plan,” she said in a statement. “True to form, President Trump’s tax plan is short on details and long on giveaways to big corporations and billionaires.”

A giveaway to the rich.  This is the key moral issue, and leads to the key moral question.  Every public policy is going to affect groups differentially.  But does this mean that if any group will be made worse from the current status quo that they have been wronged? Only if the current status quo is morally right.  Progressives understand this, after all, that is their whole point of reparations movements, land redistribution schemes, etc.  Now its a hard case to make that anybody is made worse by this particular plan, except in the sense that some part of the population won’t get to see the wealthy “pay their fair share” i.e., while they might not be financially harmed, they will suffer a harm in that they will feel the system is “less just.”  But back to the question on taxes: whose property is the income that is earned (produced)? For the progressive left, the income you earned is simply what we collectively allow you to keep.  Income is produced from a social process, and we decide collectively how to distribute.  The other perspective is that that the product of a person’s labor is the property of the producer, and taxes are simply what each individual must pay to support the government.  If we collectively agree to not take as much from one group as we did previously, if it was the product of their labor, how can that be called a giveaway?  It really just depends on whether there is a concept of private property.

We can take this further in the comments.  What do you think?