By John F. Di Leo -
The primary goal of the mainstream media and their puppets in Washington known as the Democratic Party (or is it the other way around? It’s so hard to tell these days…) is now to study the 2017 Tax Reform plan and identify who directly benefits most, and who directly benefits least, so that the program can be portrayed as a contest between winners and losers.
This is logical in their zeitgeist – a world that operates under the “zero sum game” theory of the anti-capitalist mentality. They believe the economy is a pie, so if someone gets a bigger slice, then by definition someone else’s slice must be shrinking.
Never mind that any objective study of history proves the zero sum game to be utterly false… never mind that economies expand based on the actions and choices of individual and groups, to the extent facilitated or restrained by the leviathan. Thousands of years of continually expanding economies are apparently not enough data for the Left to break from their core belief that for one to benefit, someone else must suffer. It is a religion for them.
But we do know that economies expand, and in fact the whole design of this tax reform package is to enable our economy to expand at a much greater rate than it has in recent years. The USA should be producing GDP growth of at least four to five percent, and the current tax plan was designed to help get us there. It may not succeed as well as hoped, or it may even over-perform… but whatever it does, the ‘winners and losers’ vision of the Left is utterly inapplicable.
Fairness in Taxation
One great quest of government is to set taxes that are “fair”… this is a fool’s errand. It’s unattainable.
In a republic in which every adult non-felon citizen has one vote on election day, the only truly fair system of taxation would be to calculate the total cost of government, and divide it equally among those of voting age. Bill Gates and I each get one vote; is it fair for him to have to pay tens of thousands of times more in taxes than I do? Of course not.
Unfortunately, such a system is politically and economically impossible. Our government has grown so large, and our economy includes so many who live from hand to mouth, a truly equitable division of the cost of government would be beyond the reach of at least half the country. So we have to think of something else.
The goal of our politicians is therefore to identify a ‘less terribly unfair” method than the current one, and that at least is an attainable goal.
Businesses that turn a profit, plus well-paid individuals, have a top federal income tax rate of 39.6%, and that’s before we even consider all the other taxes they pay. The employer-match or consultant-match of Social Security and Medicare is another seven or eight percent, for a total of about fifteen when you count both halves… our property taxes are another five or ten thousand or more each year, much more, for many people… almost everything we buy has sales tax on it… most states have their own income tax too, on top of the federal one, even some big cities have their own… so there are people in this country who pay three separate income taxes in addition to all these others.
While we must give up on an effort at true fairness, surely we can make a dent in that massive burden of unfairness.
The Joint Purposes of Tax Cuts
It would be a lie to deny that one goal of any tax cut measure is to win votes. Since lowering tax rates is a huge component of the Republican brand, it is certainly hoped that by lowering the tax rates of many voters, the bill will keep them in the Republican column on Election Day, and perhaps even win converts as well – as it did during the Reagan years, when the Kemp-Roth Tax Cut succeeded in highlighting this major difference between the parties. Just as Democrats never run out of creating ways to put their hands in our pockets, the Republican party is expected to find ways to install buttons, zippers, snaps, and every other possible closure to keep the Democrats’ hands out of them!
But in the end, the more important aspect of a tax cut is to create economic growth.
For decades, we have watched our manufacturing base erode as factories have fled to China, India, Malaysia, and every other country with lower taxes and simpler regulations than ours.
The activist Left will tell you it’s all about wage rates, but it’s not. Anyone who’s worked for a manufacturer with plants in both the USA and a developing nation will tell you that the costs of flying engineers and managers and samples and expedited shipments back and forth often cancels out the lower wages paid out on the assembly line. Besides, as those countries succeed, the wages rise, so the wage advantage diminishes yearly.
The keys are the burdens of American regulations (which the president can lessen by executive order, temporarily at least… and he has been) and American taxation, which this current bill tackles head-on.
We’re competing against countries with lower tax burdens than our own. If we can match or beat their tax burdens – and there’s no reason we can’t – we will be able to both stop the erosion of manufacturing and even reignite growth again.
With this bill, job growth will boom. Existing companies will expand lines here, and even pull back lines that have been sent temporarily to other countries. And new startups – the absence of which has been such a source of economic pain for decades – will finally burst on the scene again.
The bill could be better… it does have advantages for big businesses over small businesses, for example, but that just leaves us room for a phase two in 2019, when the GOP has a stronger senate majority. And the general tax rate on businesses is still too high… but this is such a marked improvement over the status quo, there’s no question that it will be a blessing to every American.
Direct and Indirect Effects
The press focuses – perhaps because they think It’s how their audience thinks – on the direct result of a tax cut. This individual will pay a higher or lower rate, this other individual will save more or less, this company will pay a lower tax bill on the same profits than he did before. This approach enables people to make clear, easy dollar-for-dollar comparisons.
But it is deceptive, because again, it‘s a zero-sum approach.
In fact, the whole beauty of a growth package is that we won’t be comparing apples to apples, because the opportunities will arise to change the numbers so much for the better.
For example, consider a taxpayer who works as a buyer in a purchasing department, and because of this stubbornly flat economy, he’s been stuck at the same salary, say, $75,000/year, for the past five years. As the tax cut takes effect, his employer will presumably do better, and be back to giving raises again, and more jobs will open up in his area. Maybe his boss will give him a decent raise, maybe he won’t… but either way, he’ll now have the opportunity to leave for a better-paying job at a competitor’s purchasing department, at say, $80K or $90K… or maybe he’ll finally be able to move up to purchasing manager at $100K, because that job opens up for him.
The press wants us to analyze how has tax payment would change if he were still paid $75K, but in most cases, he’ll now be paid more. Even if his personal tax rate didn’t go down at all, his personal financial situation will still have improved because he’s making more money.
This is the case for almost everyone, in a boom economy. People who don’t have jobs now will be able to get jobs… people who’ve been stuck in a dead-end job will finally have promotion opportunities open up… so the end result will be better than cold predictions on paper would indicate.
This even applies in cases where people lose some of the old deductions that are being eliminated… As some of us in high-tax states lose the deductions that may have masked the pain of our high state income taxes or high local property taxes, the writers of the bill did try to look out for them in increased standard deductions and a lowering of rates. But still, they too will benefit from the improvement of the economy; they too will benefit from greater opportunities to get raises, promotions, and bonuses, as their employers benefit from the economic boom that has already begun, but will really take off only once this new tax code is in place.
Winners and Losers
In the final analysis, therefore, everyone’s a winner. Everyone quotes this line all the time, and I hate overusing clichés, but it really is true: as JFK said, a rising tide lifts all boats. This tax cut will create that rising tide, so investors, assembly line workers, clerks, middle managers, and everyone else will stand to benefit.
The only real losers will be those who have opposed tax cuts for so long – the ones who have fought to keep American tax rates high, out of class envy, social engineering, and other statist impulses.
If I were managing a political campaign in 2018, I know which candidates I’d want on my slate.
The incumbents who opposed this tax cut – and especially the ones who’ve continued to champion high taxes and the whole “anti-capitalist” line – will be easier to defeat at the polls in November.
Politicians who stubbornly keep the lid on an economy, people who fight growth and prosperity, people who fight to keep you from job opportunities and new career paths… THESE are the real losers.
Copyright 2017 John F Di Leo
John F Di Leo is a Chicagoland based trade compliance trainer, actor and writer. His columns are regularly found in Illinois Review.
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