Liddick: Handing out tricks and treats (column)
October 30, 2017
Ready for tricks and treats? On this most appropriate of days, let's have a look at some of the scary stuff that surrounds the tax "reforms" we're waiting for Congress to spring on us like homeowners await the midnight arrival of drunken teenagers armed with rolls of toilet paper.
First, the treats.
We've heard time and again about the "postcard tax return" and other such fever dreams. But each and every time the issue rises from the grave, it is immediately swarmed by lobbyists who are on it like vampires on a blood bank. Each of them seek to suck out as much benefit as they can for their particular constituency, with the counterintuitive effect that the proposed tax return bloats up like a corpse in the noonday sun. And smells worse. What we need here is a heavy dose of lobbyist garlic. Or the bureaucratic equivalent of the Texas Chainsaw Massacre.
We also hear that the protean middle class will receive a $4,000 — or $5,000, or $3,500 — tax "cut." Since it's Halloween, we can charitably call these the equivalent of unicorns or benevolent faeries; they are equally improbable. But if you expect a full-size Snickers bar and get a fun-size bag of M&Ms, are you really worse off than if you got nothing? Of course not. Taxpayers below incomes of about $75,000 will probably see modest relief. Tasty.
The real payoff comes if Congress manages to wrangle corporate tax rate reductions and a "tax holiday" for repatriated funds. If the top rate approaches the European average of 18.8 percent, or even the wordwide average of 22.8 percent, this will attract capital held abroad by U.S. firms, and encourage further investment in the U.S. At present, foreign earnings will not be repatriated, since corporations holding them refuse to pay the third highest corporate taxes in the world; they're neither charities nor stupid. Repatriation would bring an estimated $3 trillion into the U.S. economy over the following year. That's a lot of Milky Ways.
Now, the tricks.
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Inevitably, one will hear Democrats whining about any non-extortionate tax reforms: they are "unfair;" they are "tax cuts for the rich;" they are part of a nefarious scheme to impoverish average Americans, line the pockets of plutocrats and Republican cronies, steal the moon and raise an army of the undead. Remember, it is Halloween. To understand how deliberately untrue these arguments are, one must remember a few things about the structure of U.S. federal income taxes. First, if one is looking for a lack of "fairness," consider that the maligned "one percenters" pay 39.5 percent of all Federal income taxes, although they earn only 20.6 percent of income. In fact, they paid more than the bottom 90 percent of taxpayers combined. Seems rather unfair, but there one is.
Second, given the above, any tax cuts are going to favor those with higher incomes. As Willie Sutton once observed when he was asked why he robbed banks: "That's where the money is."
And no — tax reform will not impoverish the middle class. Once again this year, about 47 percent of income earners will pay no Federal income tax, including 16 percent of those earning between $50,000 and $100,000. The median income, to remind, is just over $52,000. No significant changes are expected for these ratepayers.
Finally, the Great Pumpkin.
The last-ditch argument of those fighting tooth and nail against tax reform is that it must be "revenue neutral," i.e., that it does not increase the deficit. This is an appeal to people who have lost the ability to reason; if they could do so, they might respond by suggesting that, like the family budget and the Greek monster Orthrus, the deficit has two faces: income and spending. In the past, the problem has been that, presented with additional income triggered by tax reforms, Congress cannot prevent itself from spending like it's possessed. Want to decrease the deficit? Spend less.
There's a guide for this in the Constitution: Article Two, Section 8 contains 16 enumerated powers still valid for the federal government, plus an "execution clause" which provides for the machinery. Powers range from national defense through regulation of currency, commerce, immigration and foreign trade — period. Congress should use that as a spending guide, not the laundry list of special interests now claiming drawing rights on the public purse. Allocate 10 percent of what's left to discharging of the national debt and the rest, if any, can be distributed to other functions. When that happens, Chuck Schumer can rightly wail about deficits.
And zombies will no longer crave brains.
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