Tax Reduction and Simplification — How to Defeat the Demos
"You can't be for big government, big taxes and big bureaucracy and still be for the little guy." —Ronald Reagan
“An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation.” —John Marshall (1819)
After deliberating about “tax reform” for the last six months, the GOP’s congressional leaders announced last week that they had reached broad agreement with the Trump administration on common principles and goals for tax reform measures that they aim to implement by year’s end.
Of course, Democrats quickly responded with a letter to Trump ostensibly expressing their “interest in working with [the GOP] on bipartisan tax reform,” but playing their class-warfare card: “Tax reform cannot be a cover story for delivering tax cuts to the wealthiest.”
Notably, only 45 Demos signed the letter.
Joe Manchin (D-WV), Heidi Heitkamp (D-ND) and Joe Donnelly (D-IN) were slammed by their party for refusing to sign — meaning there is not unified leftist opposition to the GOP tax reduction plan. (Recall that Manchin, Heitkamp and Donnelly were the lone Demo voters for the Supreme Court confirmation of Judge Neil Gorsuch.)
Manchin tersely rebutted the condemnation of his party: “I don’t care if I get defeated. … If [Democrats] think because I’m up for election that I can be wrangled into voting for s—t that I don’t like and can’t explain, they’re all crazy.”
While Manchin is at risk of defeat in 2018, he may cast off that Demo label. Last week, West Virginia Governor Jim Justice traded his “D” for an “R.”
The primary components of the GOP tax reduction plan include lowering and simplifying the individual brackets at 0%, 10%, 20% and 25% (the top rate is currently 39.6%). The “zero bracket” would apply to the first $50,000 of income for married couples, and correspondingly, $25,000 for individuals.
It also includes repeal of the Alternative Minimum Tax and the “death tax,” plus a phase-out of itemized deductions except for charitable contributions and mortgage interest, which will be subject to higher means-testing.
The corporate tax rate, now the highest in the industrialized world, will drop from 35% to 15%. (Remind your leftist friends that every dollar in tax paid by a corporation is actually paid by those who consume their products and services.)
The godfather of tax reduction, Americans for Tax Reform president Grover Norquist, approves of the GOP plan, writing that there are plenty of reasons to be optimistic about passage, especially the fact that it “is very pro-family and helpful to middle class voters.” Heritage Foundation president Ed Feulner concurs, noting the proposed reforms will “unleash economic growth and prosperity.”
According to Treasury Secretary Steven Mnuchin, “This is about creating jobs. This is about putting money back in the American worker’s pocket.” He insists it is critical for our economy “to get this done and it’s going to get done this year. [Trump] is the greatest negotiator and he understands business.”
“This is a pass-fail exercise,” Mnuchin added.
Frankly, the GOP plan faces a much higher hurdle than ObamaCare repeal. It will be confronted head on by the Democrat Party’s tried and true class-warfare rhetoric, Marxist doctrines first “Americanized” by Demo-populist Woodrow Wilson to gain rapid passage of the Sixteenth Amendment in 1913.
That amendment specified, “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
“From whatever source derived” indeed. (Read my analysis, “American Liberty v Taxation: A Short History.”)
If I may, I highly recommend that President Trump and the GOP — and those who oppose their tax reform plan — take a close look at one state’s economic record for the hard evidence in support of tax reductions.
Ten years ago, noted Stanford economist Arthur Laffer abandoned the high taxes and oppressive regulations of California and moved to my ancestral home state of Tennessee. In the decade since, many other California friends have followed Arthur’s trail — for the same reason.
Laffer, who is best known for authoring Ronald Reagan’s “supply side economics” policies — which led to the largest economic expansion of the 20th century — argues that Tennessee is the best case study in the nation for the economic principles President Reagan advocated.
Laffer notes, “Tennessee is now the lowest tax state in the nation and we still have a $2 billion budget surplus with some of the fastest economic growth in the nation and the most improved schools in the nation. So if you want a good model for growth, look to Tennessee.”
And things are getting better by the day.
Tennessee is also a model for how Republican majorities should function. We have a Republican governor who, like Donald Trump, was a successful business owner not a professional career politician. We have a conservative GOP super-majority in our state house and a state senate with a firm Republican majority. (Additionally, our state’s national congressional delegation consists of two Republican senators, and seven of our nine House seats are Republican.)
There is a strong correlation between our state’s leadership and its economy.
Tennessee is now among the top five states nationwide for job creation and low unemployment. We’re a “right to work” state with an economy driven by entrepreneurial ingenuity and hard work — unfettered by excessive state government interference and regulation. We have the lowest debt ratio of any state in the nation, even though we have no state income tax (except on capital gains). In short, the Volunteer State is well-managed, and its citizens enjoy the lowest tax burden in the nation.
Last year, our state GOP leadership legislated a phase-out of estate taxes and the last of the investment taxes. Consequently, Tennessee now ranks among the top five states for best economic outlook.
Yes, all with no income tax.
According to Heritage Foundation economist Stephen Moore, “The nine no-income tax states (including Tennessee) have had almost three times the job rate increase that the states with income taxes have had. There is a clear migration of businesses, factories and jobs to these states that have no income tax, and I’m just mystified that more states have not moved into that column.”
Of course, Moore isn’t really “mystified.”
He knows well that the only power politicians have is directly correlated with their ability to tax, regulate and spend. Thus, taxation and regulation is the fuel that powers the Democrats’ socialist machine. As such, it is their best assurance of re-election.
In 1961, Ronald Reagan, in his famously prophetic remarks about the path to socialism, said, “One of the easiest first steps in imposing socialism on a people has been government-paid medicine. It is the easiest to present as a humanitarian project. No one wants to oppose care for the sick.” That was 50 years before Democrats passed Barack Obama’s so-called “Affordable Care Act,” which is now on life support.
Reagan also condemned progressive taxation, warning, “None of these extensions of socialism can be effected without money.” He noted, “Once we were told the income tax would never be greater than 2%, and that only from the rich.” But that was a ruse, and Reagan declared, “There can be no moral justification of the progressive tax.” He spoke about the economic implications: “We have a tax machine that, in direct contravention of the Constitution, is not designed to solely raise revenue but is used, openly and admittedly, to control and direct the economy and to equalize the earnings of our people.”
(Reagan further refined his economic principles in his most famous 1960s speech, “A Time for Choosing.)
The danger of direct taxation is precisely why our Founders objected to it, and enumerated their objection in our Constitution’s Article I, Section 8, Clause 1, a proscription against such taxes — which, as noted previously, lasted until Woodrow Wilson overturned their wisdom in 1913.
In 1962, Reagan’s tax-cutting supply-side views were echoed by an unlikely ally, the Democrats’ favorite son, John F. Kennedy. Arguing for passage of his tax-reduction bill, Kennedy proclaimed: "Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power … an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits. … In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.”
Similarly, in 1963 Kennedy insisted: “A tax cut means higher family income and higher business profits and a balanced federal budget. Every tax payer and his family will have more money left over after taxes for a new car, a new home, new conveniences, education and investment. Every businessman can keep a higher percentage of his profits in his cash register or put it to work expanding or improving his business, and as the national income grows, the federal government will ultimately end up with more revenues.”
Kennedy concluded: “A rising tide lifts all boats.”
And he was right — tax reductions did increase tax revenues, just as they did after President Reagan cut taxes 20 years later.
According to Treasury records, as tax rates dropped, profits increased — and so did tax revenues from those profits, most notably on the wealthiest Americans. The total income tax burden paid by the top 10% of earners increased from 48.0% in 1981 to 57.2% in 1988. Even more notable is the fact that the top 1% of income earners saw their share of total income taxes rise from 17.6% in 1981 to 27.5% in 1988.
Apparently, Reagan’s “trickle-down” supply-side tax reduction principle not only works but works well — which explains why the Democrats loath it! Again, Tennessee is the model for those principles today.
Regarding the complexity of the tax code, Reagan also offered this warning about the burden of tax complexity in 1961: “In my lifetime, this law has grown from 31 words to more than 440,000 words.”
Today, the federal tax code and its supporting documentation, rules and regulations, has grown to more than 10 million words. That includes more than 100 pages of instructions for the “simple” Form 1040!
To put that into perspective, our Constitution, the enumeration of Rule of Law that binds our Republic, is only 4,543 words.
Another overwhelming consequence of the unmitigated and oppressive growth in the central government’s behemoth tax scheme is the preparation and compliance costs borne by taxpayers and corporations. That cost is now estimated at almost $1 TRILLION. And the Tax Foundation estimates that Americans will have to devote more than 8.9 billion hours annually to ensure compliance with the tax code and Federal Register.
Once asked about completing his tax return, Albert Einstein replied, “This is a question too difficult for a mathematician. It should be asked of a philosopher. … The hardest thing in the world to understand is the income tax.”
As humorist Will Rogers lamented, “The income tax has made more liars out of the American people than golf.” Novelist Herman Wouk wrote, “Income tax returns are the most imaginative fiction being written today.”
Now, against what will be the endless Democrat onslaught of class warfare rhetoric amplified by their mainstream media propaganda machine, what’s the GOP to do?
First, when the Republicans’ tax reduction and simplification proposal is swamped with the Demos’ classist rhetoric, remind them that, in the words of Ronald Reagan, “You can’t be for big government, big taxes and big bureaucracy and still be for the little guy.” (Reagan aptly summed up the Democrats’ policies: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”)
Second, Trump and the GOP should also remind their Democrat opponents in every public forum that the origins of American Liberty are rooted in a tax revolt. That trenchant observation will certainly resonate with Trump’s patriotic supporters.
As James Madison wrote, “The people of the U.S. owe their Independence and their Liberty, to the wisdom of descrying in the minute tax of 3 pence on tea, the magnitude of the evil comprised in the precedent,” which led to the Boston Tea Party of 1773.
Semper Vigilans Fortis Paratus et Fidelis
Pro Deo et Libertate — 1776