Tax Cuts for EVERYONE!

Photo by Martha Soukup

Photo by Martha Soukup

 

TAX CUTS 2017

It’s the end of 2017, and the U.S. Senate just voted 51-48 to pass a tax cut bill.  On one hand, I was pretty happy that our US Congress finally did SOMETHING.  On the other hand, I wonder how this tax cut will play out.

Shifting Economies

In general, we are overtaxed.  And not just by our federal government.  In general, approximately 20% of our Gross Domestic Product is government spending.  If this isn’t bad enough, a large chunk of this spending is borrowed.  In fact, so much has been borrowed, that we have accumulated $20.6 Trillion in national debt.  This is over $63,000 per citizen; and over $I70,000 per tax payer.  This is YOUR debt to either pay off or give to your descendants.  I want to be clear, national debt is not exactly like personal debt.  We will probably always have some necessary debt.  And, in many cases, future generations ought to pay these costs as they are reaping the benefits of many of these investments…. a free country, scientific innovation, healthy citizenry, etc.

If you listen to Democrats, you’d think the sky is falling and the government will have to cut all of these necessary programs to pay for Mercedes cars for the rich.  If you listen to Republicans, you’d think that we will see some great economic boom creating more and higher paying jobs; and allowing you to keep more of your money to spend.

The proposed tax cuts ought to stimulate the private sector economy.  Given a choice of private vs public, I will pick private economy almost every time. I believe that the private sector has much more automatic accountability in its spending than the public sector.  A private company knows that its investments must give it a return; or they will not make the investment.  The private company will cut costs and try to be efficient as it creates new assets for our economy.  The public sector is dependent on frugal managers who have no free-market consumer pushing back on how effective or efficient it is.  That’s not to say that public workers are not doing all they can to be cost-effective.  It just means there’s no automatic mechanism to insure such efficiency; and thus usually results in wasted efforts and money.

For this reason, on the whole, I think the proposed tax cut is a good thing.

The Problem

Tax Cuts are loved by conservatives and Increased Spending is loved by all politicians.  The problem, as I see it, is that our government has no spending discipline.  While they have shifted tax revenue from the public sector to the private sector, they have failed to cut spending in the public sector.  Yes, the government will probably see genuine benefit with increased tax revenues from the improved private economy.  However, will it be enough?  I don’t think that it will in the short term.  This means that our national debt will increase.

If this isn’t bad enough, I think something else even worse will happen.  I believe that because we are not cutting spending in the government, and we are stimulating the private sector economy while unemployment is at an all-time low, we will see inflation.  In fact, I believe we already are seeing inflation as a result of depressed unemployment, retiring baby-boomers, and mandatory minimum wage increases.  Now we will see HIGH inflation.

While inflation will increase wages, it will also increase the prices of goods purchased by wage earners.  That’s not the worst part.  We will then see interest rates increase on our bloated national debt.  We currently pay $480 Billion per year on interest only.  If these rates double, our interest will more than double because we will have to borrow even more to make up for high interest payments of $880 Billion per year.  This is the bubble that many citizens who oppose this tax cut plan are worried about.

The Solution

Our federal government has got to cut its spending.  In fact, they should have either made spending cuts part of this plan; or they should have created a trigger to reduce spending to avoid dramatic increases in debt… and subsequent interest costs if/when interest rates rise.

In addition to debt on our bloated debt, the four elephants in the room that are harming our domestic economy are: 1) Healthcare; 2) Infrastructure; 3) Military; and 4) Social Security.

Healthcare

We have a terrible healthcare economy.  We have decided to subsidize an already grossly inefficient healthcare system with government funds.  We need to either go fully Single-Payer with a disciplined management system like Sweden or other social economies; or allow consumers to drive a much more reasonably priced free-market healthcare system.  The “in-between” of the Affordable Care Act (Obamacare) is sucking money out of our pockets on a daily basis both in the private and public sector.

Infrastructure

Republicans and Democrats alike believe that we need to spend close to $1.5 Trillion on infrastructure improvements in roads, airports, rail, etc.  I agree.  The problem is that we will be paying top-dollar in an inflationary economy.  This means that we need to cut even more from other government spending to pay for needed infrastructure improvements.  Infrastructure is needed as we ramp up our private sector economy.  If it’s not there, we won’t see the benefit that we had hoped for in the private sector… even with tax cuts.

Military

I respect President Trump’s resolve in having other nations step up to the plate to pay for the protection that we provide them.  It looks like Iran is picking a fight with Saudi Arabia, so there’s another opportunity to gain payment from one of our wealthy allies.  We need to do even more cost cutting with our military.  We simply cannot afford to provide protection for the entire free world.  This budget item is so far greater than any developed country, we either need to get major payment from the international community or make drastic cuts.

Social Security

I almost hate to bring this one up, but we can’t ignore the problem with this program any longer.  While it’s encouraging that we are cutting income taxes, most of working people and their employers pay high social security taxes and get paltry payments once they retire.  Even with the terrible payout, this system is, it is in serious trouble.  I believe we need to tax ALL income, not just working income with social security taxes.  Why on earth are we having employees and employers pay all of the freight for this burdensome program?  This means all investment, capital gains, or other passive income will be taxed the same as working income.  The citizens who just got the great tax cuts will not want to hear this.  I then think we need to create a phase out plan that allows Americans to save money for themselves.  Social security should only be used for the elderly poor.  Given how much working people have paid into this system, this phase out period would be quite long; and it will not be a pleasant experience on our budgeting system…. but it needs to happen.

Conclusion

While I applaud Republicans for having the courage to follow through on being fiscally responsible on income taxes; I encourage all of congress to gain some economic sense in 2018, to make the even harder decisions of cutting unneeded government spending.  I’ve given them a place to start with my thoughts above.

 

 

 

 

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