The Final Bill: Trump Tax Reform

I take a break from my usual articles about gaming to write about politics instead. This is because something important has recently happened which would have a major impact on everyone. The Congress and the Senate have finally released the final version of the tax bill that they have compromised on.

All the pundits say that it will pass, yet I am skeptical given the past track record of congressional Republicans. I take the effort to write this today because of all the misinformation surrounding the bill. If were going to see congress reject it we may as well know what we could have had.

Deductions

The very first thing that critics of the bill say is that the bill is a tax hike on the poor and middle class due to all the deductions that were removed.

This is not true. According to the IRS 70% of Americans use standardized deductions instead of itemizing. This is not analysis but cold hard facts. Let me repeat it. According to the IRS 70% of Americans do not take a single penny of itemized deductions. If you are one of the 70% then any deductions removed or added do not affect you. How something like this can be a tax hike on the poor and middle class is beyond me. In fact if you are using standardized deductions like 70% then that has doubled. Yes for the poor and middle class who use standardized deductions the amount you can deduct has doubled.

Now for some analysis. According to some studies the number of people taking standardized deductions will increase from 70% to 85% – 90% due to it doubling. There are even some outlier studies that say that 95% of the population will be using standardized deductions. Imagine how simple filing your taxes will be. Remember the whole tax hike on the poor and middle class? Well that wont even affect 10% of the population.

Logically speaking it is also not the poor and middle class who will take itemized deductions. They simply do not have the raw income or even the diversity of income to take advantage of any deductions. The ones who will be using it most are the rich. Using the “poor and middle” class as their excuse Democrats are actually just out to protect their rich donors in blue states. After all they are the ones who abuse the State and Local Tax deductions the most.

If you are part of the upper 5% who may have to pay more well I have two things to say to you. First Democrats routinely say they want the rich to pay more so shouldnt you be happy? Second if you want lower taxes then maybe you should vote for people who will lower your tax bill?

Permanence

The next tactic the Democrats use to undermine the tax bill is the permanence of the tax cuts. They argue that the middle class tax cuts are not permanent but the ones for corporations are. There are two ways to answer this. The easy way and the intelligent way. The easy way is a lot more fun.

The easy way is that the poor and middle class should elect more Republicans. The only people against the bill are Democrats. If you give the Republicans a supermajority in Congress and in the Senate then they can pass the bill with no limits.

The intelligent way is to actually think about the situation. Does anybody really think that the tax cuts for the poor and middle class will go away? Once Americans are used to paying taxes at this level any party that tries to remove them will be run out of power.

Again its a lot more fun to use this point as a way to advocate for more Republican office holders.

Corporate Tax Rate

Before we begin let me just remind everyone that liberal Jesus Obama himself advocated for lowering the corporate income tax. He wanted it lowered to 28%. This lowers it to 21%. Both sides want it lowered the only real issue is the final amount. Obama wanted it lowered by 7% while the current Republican bill lowers it by 14%. They are not that far off are they?

CEOs and other economists have come out against it. They say that they will not use a single penny of this to invest in the American economy. They would instead use it to buy back stocks.

That is what they say. What do they actually do? Inversions are still a thing. In fact Ireland and Apple are now fighting the EU tooth and nail for the right of Ireland to tax Apple at the level they want. Burger King moved its headquarters to Canada where it would have to pay a rate of 20%. Companies build new production lines in Mexico, China, and other countries as well. Then there are companies like Google or Apple who are literally sitting on mountains of cash and are not doing any major stock buy backs.

I would say to take CEO at their actions and not their words.

Let me branch of a little while we are on the topic. For years economists have suffered through a period of what I call “shared willful blindness”. They ask why companies with all this money are not investing it. They come up with all sorts of reasons without bringing out the main one. Americans do not have the money for any more goods and services. Apple could come out with some sort of new line of business but very few people would have the room in their budget to buy it. Economists like to ignore that credit card debt is at record highs and so are default rates (the number of people who even after going collections cannot pay the debt). This is an obvious indicator of a cash strapped populace.

Republicans now want to give the people back more of their money and make sure that companies have an easier time investing. That sounds like a solution to me.

Estate Tax

This has been another issue the Democrats like to bring up. They say that the Republicans are trying to repeal the estate tax to benefit Trump personally! Well what is actually happening? The exception from the estate tax is being doubled. Estates with a value of roughly 10 million used to be exempt from taxes. That is now being changed to estates worth 20 million.

Liberals like to diminish Trump by claiming he is not a billionaire and is actually poorer than what he claims. Despite what they claim his estate will certainly be worth more than 20 million. Going further than this. Suppose that the estate tax was not changed would the Trump family be paying massive estate taxes? I am honest enough to say they will probably pay nothing. When Steve Jobs died the common consensus was that he paid 0 in estate taxes. If liberal heroes like Bill Gates or Warren buffet die I would wager that they would pay 0 or close to 0 as well. The truth is at that level of wealth you have already structured everything to avoid any loss.

Repealing the estate tax means nothing to families at that level of wealth. The tax break here is designed to help individuals with estates that are moderately well off but not extremely wealthy. The kind of estates that would not necessarily have the kind of money that lawyers employed by Trump, Gates, or Jobs require. These are usually the kind of estates that have built up the wealth over one generation and need it to compete with the next level of income earners. In any case this is not the 1% or 0.01% as Bernie puts it by any means.

Pass Through Income

The next concern Democrats virtue signal about is the lower rate for Pass Through Income. First they say that there will be a rash of employees who will quit their jobs to be consultants and second they say that all rich people will now suddenly declare all their income as pass through.

On the first point first. Liberals speak as if there is no value to an employer-employee relationship. This is despite multiple lawsuits to claim this status for various workers the years. There is a significant risk in leaving your job and starting a consulting company or whatever type of company it is related to your previous post. Your former employer would not be under any obligation to hire you. Since you are now a third party contractor they can choose to hire others. Benefits, Job Security, and a whole host of other considerations. Consultants sometimes need a staff to complete their work. Reasearch Assistants and other specialists like that. Are they willing to follow you into what is effectively a start-up and give up their jobs? If so you will need to form an employee employer relationship with them.

I have no doubt there will be some who try to take advantage of this tax rate. They will have deserved it too for all the risk they are taking.

Moving on to the second point. The argument Democrats make show their ignorance on the topic. Rich people have all sorts of income and a lot of them do not do it by operating their own businesses. For a majority of them their primary source of income is by investing money that they had already earned previously. Most corporations cannot even be structured this way. Restructuring Wal-Mart, Mcdonalds, Proctor and Gamble, or any other multinational companies into these types of corporations is foolish and would cost much more than what you would save. The only rich people who could potentially benefit from this is one who starts lots of his own small businesses and owns them almost exclusively. Very similar to the situation of Trump if we are being honest.

The common complaint we have about the rich is that the money they have does not trickle down in investment. If they choose to structure their income in a way where they have lots of small businesses then they should be rewarded for that.

Deficit

I am not a fiscal conservative so for this point I will quote Hillary Clinton, the greatest of all liberal lions. “At this point what does it even matter”.

I think it was Ted Cruz who said that even if you were to tax the rich at 100% it still would not provide enough money for the US. The truth is we need to do something to revitalize the economy and have it grow at a better rate than the paltry 2% that Obama was able to accomplish. This plan has a better chance than most to succeed and is worth the risk.

Medicare, Medicaid, and Social Security

Lastly Democrats led by the famed St. Bernard Sanders say that this tax bill cuts all of these entitlements. The fact is that it doesn’t.

Will Republicans pursue entitlement reform in the future? Maybe. If they do pass something to that end then punish or reward them based on your stances on the entitlement issue. As of right now nothing specific has happened to these things.