The Patriot Post® · Selling the Trump Tax Plan

Donald Trump dispatched his team to the Sunday talk shows to discuss his tax plan, but the positioning continues to puzzle me.

The Democrat rhetoric can be found in the playbook that dates back decades — tax cuts for the rich, crumbs for the middle class, yadda, yadda, yadda. They even enlisted a left-wing tax policy “think tank” to do an analysis that concluded to the third decimal place that the rich will benefit and the deficit will explode (the deficit being the one new chapter in the Democrat playbook), even though the details of the plan are so vague that it is literally impossible to know who benefits and who doesn’t.

The Trump rhetoric seems to be focused on selling the plan as the biggest tax cut in history that will benefit “working people” and the middle class. Trump has gone out of his way to claim that there will be “very little benefit to the wealthy” and “I will not benefit.” When you have half the country not paying federal income taxes, and the top 1% of earners paying 40% of the total taxes, it is impossible to have the biggest tax cut in history without cutting taxes for higher-income folks. I guess the verbal sleight of hand could play with the words “benefit” and “wealthy,” but eventually Team Trump is going to be caught by the facts.

First, the plan is primarily business tax-oriented. The corporate rate is being cut substantially, but corporations pay less than 10% of total taxes, and corporations are neither rich nor poor. Moreover, the beneficiaries of those cuts are not easy to identify. Ideally corporations will use the cuts (along with immediate deductions for capital equipment and repatriation of the trillion or so offshore dollars) to invest and expand hiring. That clearly should indirectly “benefit” the middle class, but any direct tax reductions to those same folks are a lot less evident. There are also big tax cuts for pass-through companies, but the vast majority of those companies are already paying taxes at or below the new low rate, so the primary beneficiaries should be the higher-income folks. (Are they “wealthy”? You tell me.)

And we do not yet know who will benefit from the proposed changes in the individual tax code. True, there are fewer brackets, but we don’t know what the income break points are, nor do we know which deductions will be modified. The outline of the plan hinted that all deductions except mortgage interest and charity will be eliminated. But it took three nanoseconds for those in high-tax/high-spend states to cry foul if the deductions for state/local taxes and property taxes were gone. Ditto for the usual suspects regarding the alternative minimum tax and the estate (a.k.a. death) tax, which also clearly benefit the “rich.” Trump himself is in that club, so how he can claim there will be no benefit to him is a head scratcher. Why not celebrate the fact that taxes are being cut, and everybody (rich included) is getting less government intrusion and more personal freedom?

The death tax is a great example of how taxes should not be analyzed. The Democrats assume that the tax is good simply because it’s there and that any reduction/elimination is a gift to the few rich estates that the tax applies to. Team Trump seems to be relying on sob stories about the few cash poor/land rich family farms that are big enough to exceed the exemption level. But nobody is going back to square one and asking why such a tax that essentially is a government asset grab is appropriate or fair. I heard a debate on this over the weekend. Those in favor of keeping the tax stressed two rationales. One was that it is just immoral to perpetuate “dynasties.” The Democrats suddenly believe wealth should be earned, not inherited. The counter to that one was that America is all about freedom, and folks who have wealth should be able to give that wealth to whomever they want upon their death. Why is it more moral to give it to the government? Guess which side I’m on.

The second was a real doozy. It was the position of someone who claimed to be a free market economist who said that throughout history, estates left to children of wealthy business people are often squandered. So rather than have the assets disappear thanks to mismanagement or frivolity, it is more efficient economically to have the assets redistributed through government. And no, I’m not making that up.

Just like entitlement programs and other government spending, tax issues should be revisited regularly to review why they are there in the first place. Of course, there are an infinite number of ways to fund government (consumption tax is my favorite), but specific tax code provisions need to be re-evaluated every so often to see why they make sense, not perpetuated just because they are there.

Ditto for the estate tax’s little brother, the gift tax, which was put in place primarily to prevent cheating on the death tax. True, there are thresholds, but why is it American for anyone not to have the freedom to give stuff to whomever they wish without the government taking its cut? I have a personal story on that.

The recent hurricanes totally destroyed several Caribbean islands. We have good pals on St. Martin who run a dive shop, and we scuba with them a few times a year along with another couple from our hometown. They lost everything in the storm — shop destroyed, equipment looted, and two boats sunk. The French are being French so we decided to join our hometown friends in setting up a GoFundMe effort to help them out. We put the word out thinking that we might double our couple thousand dollar contribution. But two weeks later we have over $30,000 in the account.

Our local friend is managing the account, but when he tried to authorize the transfer of funds to the beneficiary, our pals on St. Martin, he was told that the banking system there couldn’t handle the transfer. One of the dive shop owners had family in Brazil and she was visiting there, so we offered to transfer the funds to her in Brazil and she could bring it back to St. Martin personally. But GFM told us that it didn’t have a mechanism to deposit funds in Brazil. The logical solution would be to have the funds sent to our local friend and he could then arrange to get the money to Brazil. No problem, right? Not according to our tax laws.

He was told by his tax accountant that if he took possession of the money and then sent it to the beneficiary, he might have to pay gift taxes on it because the total amount exceeded the exemption threshold. We are still studying the matter, but note the irony that if we donated the money to a tax-exempt organization like the Red Cross, we would get a deduction. However, if we try to help a friend, the tax code gets in the way. We’ll figure this out, but it shouldn’t be this hard. Thank you, IRS.

I could make the same case for many of the other deductions that should go away, particularly state/local and property taxes and even the sacred cows, mortgage interest and charity. What is the logic of having folks in fiscally conservative, low-tax states subsidize the high-tax/high-spend actions of states like New York, New Jersey and Illinois? Why not simply eliminate the deductions and lower the rates to compensate? God forbid that the high-tax states might have to deal with the revolt of their local taxpayers when they have to pay full freight and get their fiscal houses in order.

When you lose the high ground of principle, like the Trump selling points are appearing to do, you set yourself up for lobbying pressure from all sides and a stalemate. I hope negotiations behind closed doors in Congress are more focused, but as it stands now, it looks like we are headed for a lobbying free-for-all that will either fracture any consensus or cause the end result to be so complicated, diluted and ineffective that the original purpose of getting the economy jumpstarted will fail. Maybe the key business elements will survive, and that’s a good thing, but without equally aggressive changes on the individual front, the impact of the overall once-in-a-generation effort will be less than optimal.