It’s Still the Debt, Stupid!

© David Burton 2017

     On Thursday, 3 November 2017, House Republicans unveiled their plan to update the nation’s tax code. Such an update has been sorely overdue because, if put into law, it will mark the first time in over 30 years that our tax laws will be upgraded. It would be hoped that the final version of the tax plan would simplify the current tax code, eliminate inequities, update the business tax system to make the U.S. more competitive in the world marketplace and remove barriers to investment and job creation. A plan that does this has the potential to lead to higher wages, job creation, and the generation of greater economic opportunity with a larger and more dynamic economy.

     The GOP tax plan was immediately blasted by Democrats who are likely to oppose just about any legislation proposed by President Trump and the Republicans. The proposed tax plan even drew objections from a few Republican legislators who found that some aspects of the plan would not be beneficial to their home states.

     Vigorous opposition from the Democratic side of the aisle was expressed by ultra-liberal Senators Liz Warren of Massachusetts and Bernie Sanders of Vermont. Senator Warren railed that: “. . . right now, the Republicans are planning to rain about $2 trillion in tax giveaways down on these giant corporations.” While Senator Sanders complained that: “Do you think it’s a good idea to cut Medicaid by a trillion dollars, cut Medicare, cut education, cut environmental protection in order to give $1.9 trillion in tax breaks to the wealthiest people in this country? . . .”
     “It’s not only that it makes the rich richer at a time of massive income and wealth inequality, . . . it fulfills the Koch Brothers’ agenda. Their agenda is to basically end every federal program, whether it’s Social Security, Medicaid, public education. They’re after privatizing virtually every public program that helps working families in order to make the very, very rich richer.” (Ref. 1)

     In truth, no plan originating in Republican quarters would be acceptable to either of these two and to many other Democrats, particularly when the proposal is drawn up with no input from Democrats. It is highly unlikely that the tax plan, as it now stands, will see the light of day. If and when an acceptable plan emerges, it will likely be quite different from what is now on the table. Right now, the plan has features that will displease someone – perhaps the best indicator the plan might be a good one. The “Republicans focused on findings by Congress’ nonpartisan Join Committee on Taxation that the bill would lower taxes across all income levels over the next several years {while the} Democrats returned repeatedly to a section of the analysis showing taxes would go up beginning in 2023 for some 38 million taxpayers or families making $20,000 to $40,000 a year.” (Ref. 2) Clearly, both parties are pandering to the “middle class” where most of the voting power resides. However, with any luck, the good features of the tax plan will remain in any potential final version, while the bad features will be alleviated or dispensed with. Based upon the past ongoing failures of Republican and Democratic Senators and Congressmen to come to an agreement on anything, the odds of enactment of updated and meaningful tax legislation are not very high. As in recent years, the ultimate benefits of updated tax legislation to all Americans take a back seat to petty party politics.

A Quick Summary of Some of the Good and the Bad in the Tax Plan

THE GOOD

     Briefly, the good features of the Republicans’ plan include the simplification of the income tax code for the average tax payer. The current income tax code is outdated, incomprehensible, inequitable, overly expensive to manage and enforce, and an unnecessary waste of taxpayers’ time and money. The proposed plan simplifies the tax code by eliminating a host of unnecessary and inefficient provisions designed to benefit special interests and it also simplifies the process of tax filing by doubling the size of the standard deduction, while collapsing 7 rates into 4.

     The Republicans’ plan drastically lowers the tax rates for corporations, small businesses, and lower- to moderate-income individuals and families. Lowering the corporate tax rate from 35% to 20% would make the U.S. competitive with the rest of the world.

THE BAD

     “President Donald Trump promised Americans ‘the largest tax cut in our country's history’ “ (Ref. 3) Unfortunately, America needs a tax increase, not “the largest tax cut in our country's history”!

     Here, nearing the end of 2017, “The U.S. has the largest debt in the world and one of the largest as a share of GDP. [Emphasis mine] That’s likely to emerge as a key sticking point in the debate over President Trump’s proposed tax plan – which is looking increasingly like a budget-buster. Republicans’ tax-cut wish list exceeds $5 trillion, according to multiple estimates, and many experts doubt that the economy would get enough of a boost from the proposed cuts to make up the shortfall.” (Ref. 4)

     The U.S. is in debt to the tune of $21.0 trillion, while the country with the next highest debt is Japan with a debt of $9.9 trillion. The U.S. comes in at 3rd place globally in terms of Government Gross Debt as a Share of GDP with a debt-to-GDP ratio of 108.3%. The other two countries ahead of the U.S. in this category of national debt are Japan with a debt-to-GDP ratio of 239.2% and Italy with a debt-to-GDP ratio of 132.8%. [4]

Trump's Tax Reform “Framework Plan”

     President Donald Trump began the process of instituting changes to America’s antiquated system of taxation in September of 2017. As usual, the Trump administration’s new tax proposal was long on self-aggrandizement and very short on factual details. It drew immediate fire from both sides, but it gained enough Republican support to allow a final version of tax reforms to pass with a simple majority in the Senate (50 yes votes instead of 60 yes votes, otherwise).

     “The plan, meant to be a framework for Congress to negotiate into legislation, still has missing parts. And as the House prepares to vote on the Senate’s budget plan Thursday, some lawmakers, including Republicans, still have qualms with parts of the tax framework.
      - - -
     “. . . The framework lowers the corporate tax rate to 20 percent from 35 percent. Trump initially wanted to lower it to 15 percent . . .
     “It also lowers the tax rate for small businesses to 25 percent. The majority of small business owners would {supposedly} use the extra cash to expand businesses and hire additional employees . . .
     “The plan {also} eliminates the so-called death tax, or estate tax. The federal estate tax, which typically affects wealthier Americans, is a tax on property transferred after the owner’s death.
     “. . . With the framework, Republicans hoped to simplify the tax code and the way Americans file their taxes. The plan collapses the number of brackets from seven to as little as three. {Hopefully, the tax code simplification would enable the average American to simply file his/her tax return on a postcard. Because the plan would streamline the tax process, less people would potentially need to hire tax accountants, lawyers and firms. Trump has said he wants to put H&R Block "out of business."} It’s yet be seen if America’s entrenched lawyers and accountants will stand still for this significant loss of their income!
     “{Perhaps most controversial, t}he framework includes multiple tax cuts for high-income taxpayers, including the elimination of the Alternative Minimum Tax. . .
     “{Another controversial aspect of the Trump plan is the elimination of} state and local tax deductions, {which would be construed by many as resulting in double taxation.}
     “{Perhaps the most significant aspect of the proposed tax revision plan is its impact on the federal deficit!} The plan would result in approximately $2.2 trillion of net tax cuts -- a blow to the national debt, the Committee for a Responsible Federal Budget said.
     “{On the other hand,} some advocates say eliminating SALT {the deduction for State And Local Taxes} could generate at least $1.3 trillion in revenue over a decade for the federal government {which would help to reduce the federal deficit.}
     “{When all is said and done,} . . . the plan {is} lacking in details, making it difficult for policy experts to come up with concrete estimates of the framework’s impact.
     “ ‘People can make assumptions about what the details will be and make estimates based on their assumptions, but you won’t really know until the details are in.’ “ (Ref. 5)

     “The framework proposes cuts to personal and business tax rates, in line with previous Trump campaign and House Republican proposals. It would simplify the tax code by scrapping most itemized deductions and reducing the number of personal income tax brackets. Many important details have been left out, however, such as the income levels the proposed tax brackets would apply to.” (Ref. 6)

     One controversial aspect of Trump’s plan is that, apparently, it appears as if the highest earners would benefit far more than anyone else. Whereas the bottom four income quintiles would gain from 0.5% to 1.2% in after-tax income in 2018, the top 1% would gain 8.5%, and the top 0.1% would gain 10.2%. Such should not be the case! Top earners should not benefit more than the lower earners and, in all fairness, should benefit less or not at all. It remains to be seen if this inequality will remain in the final version of the plan. In any case, it is almost a certainty that any revised tax plan will not satisfy everyone. Some will gain and some will lose. But the true significance will be the net result. Will the American people as whole, be better off with the new plan than we were under the old arrangements?

     While Donald Trump boasts that his plan will result in the biggest tax cuts ever for Americans, the reality of America’s indebtedness calls for an increase in America’s tax bill rather than a tax cut. It remains to be seen if our Washington politicians will bite the bullet and do the right thing for America, rather than continuing to pander to those who wish to avoid the fiscal reality that stares us in the face.

     The American people have waited too long for meaningful action on the growing federal deficit and on much needed tax reforms. The longer we wait to address these problems, the larger the bill our children and their children will have to pay down the road, in higher taxes, lower standards of living, or both. That is a cruel hard fact.

     “We, the American public, must stop looking for the easy and ineffective budget solutions and instead, we must show that we are willing to accept the difficult and effective solutions. We need to get rid of the delusion that a small tax increase on the rich, combined with cuts in not-very-important spending categories will somehow deliver us from fiscal ruin. We need to accept the fact that what’s necessary is an extreme makeover with a heavy dose of tough love. What we don’t need are politicians who keep telling us that they have simple and painless fixes that the politicians in the other party are against. What we don’t need are politicians who tell us that we can wait until after the next election to fix the problems. A pox on the houses of both parties!” (Ref. 7) It’s time to stop kicking America’s financial problems down the road!

The GOP House Tax Reform Plan

     Shortly later in 2017, the Republicans in the House of Representatives came out with their version of a tax reform plan, which was dubbed the Tax Cut and Jobs Act. “The 429-page 'Tax Cut and Jobs Act' includes a broad set of proposed changes to the corporate and individual tax system, building off a nine-page framework that the White House and congressional Republican leaders dropped in September.” (Ref. 8) Some key features of the House GOP Tax Cut and Jobs Act are: (Ref. 9)

“1. Simplification: The proposed plan would vastly simplify the tax code by eliminating a host of unnecessary and inefficient provisions designed to benefit special interests. It would also simplify the process of tax filing by doubling the size of the standard deduction, which would cut in half the number of taxpayers who need to itemize their deductions. In addition, the condensed rate structure—which collapses seven rates into four—also simplifies the tax code.
“2. Lower Rates:The proposed plan would drastically lower tax rates for corporations, small businesses, and lower- to moderate-income individuals and families. The new 20 percent corporate tax rate would help make the U.S. competitive with the rest of the world, and the top 25 percent small business or pass-through tax rate would go a long way toward stimulating entrepreneurship, job creation, and income growth across all income groups in America.
    - - -
“3. Business Taxes: The combination of business tax reforms—including a top 20 percent corporate tax rate, five years’ worth of full expensing, and a modernized international tax system—would provide a huge boost to the U.S. economy and its workers. These business changes have the potential to bring trillions of dollars back into the United States and to significantly boost economic output, jobs, and incomes within the U.S. This tax proposal marks a huge improvement over the status quo. It would go a long way toward making America more competitive . . . “

     The tax reform package maintains the top marginal rate of nearly 40%. Maintaining a high top rate for wealthy Americans makes the plan more politically palatable, more appealing to average Americans, and helps to somewhat alleviate the negative impact on the need to reduce the federal debt of the tax reform plan.

     The new income brackets would mean significant tax cuts for most Americans making below about $250,000 while a significant portion of upper-income earners, would see higher tax bills. Additionally, the plan effectively does away with the marriage penalty.

     Although the stated top tax rate is 39.6 percent, the bill actually includes a significantly higher 45.6 percent rate that would kick in at incomes of $1 million for individuals and $1.2 million for married couples.

     The Tax Plan would eliminate the Alternative Minimum Tax which many find to be an outdated, unfair, and complicated system.

     The GOP plan roughly doubles the standard deductions from $6,350 to $12,000 for individuals, and from $12,700 to $24,000 for married couples. This would go a long way toward helping Americans keep more income. Doubling the standard deduction also vastly simplifies tax filing for tens of millions of Americans who would no longer need to itemize their deductions. This would make tax filing easier and would make postcard-sized tax returns a reality for certain taxpayers. One estimate is that an additional 22 million taxpayers could avoid the headache of keeping track of all their itemized deductions. When combined with the plan’s elimination of state and local income and sales taxes, the number of taxpayers who could avoid having to itemize their deductions would increase even more.

     The proposed tax plan would partially eliminate state and local tax deductions by getting rid of the deduction for income or sales taxes, and by capping the deduction for property taxes at $10,000. These deductions shift the burden of high-tax states onto low-tax states, and spread a portion of high-income earners’ taxes onto lower- and middle-earners’ tax bills. Eliminating the sales and income tax deductions would be a huge benefit to at least 85 percent of Americans. Eliminating these deductions would also provide a huge boost in federal tax revenues. The plan’s $10,000 cap on property tax deductions would help limit the subsidy to very wealthy homeowners in high-tax states and according to IRS data, the only taxpayers who would be affected by this cap are those who make well over half a million dollars a year.

     On the negative side, are arguments that eliminating the deductions on state and local taxes effectively amounts to double taxation.

     Permanently lowering the corporate tax to 20% percent from its current level of 35% is the single most important pro-growth change included in the Republican’s proposed tax plan. U.S. businesses currently face the highest statutory corporate tax rates in the developed world. The United States ranks consistently as one of the worst in business tax environments in the world. Over the past few decades, countries around the world have steadily lowered their corporate tax rates, leaving American businesses behind.

     Another pro-business aspect of the tax plan is that of lowering the “pass-through” tax rate. Most businesses, including the vast majority of small businesses, are taxed as S corporations or partnerships. Rather than pay taxes at the business level, the income they earn is “passed-through” to the individual owners who pay taxes on their individual tax returns. Pass-through businesses account for about two-fifths of all payrolls in the U.S. The GOP tax proposal would reduce the tax rate these businesses pay to 25% from as high as 40%. This would help small firms grow and have a positive impact on job creation and wage growth in the United States.

     The House GOP plan would repeal the estate tax after 5 years, and would immediately double the value of the basic exclusion from its current level of $5.45 million. Also, the plan eliminates the alternative minimum tax in both the corporate and individual tax codes.[9]

Simplifying the Tax Code

     The first article that I wrote, way back in 2005, called for relief from the inane federal income tax code that inordinately burdened every taxpayer in these United States. (Ref. 10)

     In that article, I made the following points concerning the unnecessary burdens imposed on the American Taxpayer:

1) In order to help me prepare my 2005 income tax return, I needed to use J. K. Lasser’s Your Income Tax 2005 which was 768 pages long with 49 chapters. In addition, there was a 21-page supplement. Some 12-years later, the size of this annual income tax aide has only grown.

2) I estimated the time I spent in the course of a year to record tax related transactions at some 60 hours (5 hours per month), the time to “peruse” J. K. Lasser’s Your Income Tax 2005 at 40 hours, and the time to actually prepare and submit my tax returns at 16 hours. This totaled some 116 hours of my time. This wasteful time burden has only grown over the years.

3) Each and every year, we, as a nation, are wasting the time of taxpayers and the resources that comprise the legal, accounting and other tax preparation organizations. In addition, we pay for for the bureaucracy that we call the Internal Revenue Service (IRS) and other governmental organizations that are involved in tax collection (including preparing and updating the tax codes, investigations of tax fraud, and prosecution, etc.). This waste of resources shows up in the cost of goods and services produced and in the reduced competitive position of the goods and services that we export because of the costs of lawyers, accountants, and government bureaucrats that must be included in the prices that go along with these goods and services.

4) According to an article on page 33 of the April 15th 2005 Boston Herald, it took Americans some 6.6 billion hours to do the paperwork for their tax returns. According to the government’s budget office, tax work “tower{ed} over the entire paperwork burden for the rest of the federal government.” By 2005, the income tax code was an incomprehensible, multi-thousand-page maze of inane regulations. The tax code has continued to grow since then. The tax code is so incomprehensible that even the IRS can’t understand it. It has been documented that, as often as not, if you ask them for a ruling, they will give you an incorrect interpretation.

5) The solution that I proposed back in 2005 was the replacement of the income tax with a consumption tax, such as a national sales tax or value added tax (VAT). The rationale was simply that since the rich buy more than the poor, they would therefore pay more with a consumption tax than the poor. The more a person would make, the more that person would spend and buy, and therefore the more that person would pay in terms of taxes.

6) You and I would stop wasting our time preparing income tax returns. Lawyers and accountants could turn their talents to more useful pursuits.

7) As Malcolm Forbes noted in 1993 (How to win the tax issue: flatten it, July 13, 1993), “Whatever the variant, a flat {or consumption} tax would trigger a volcano-like economic boom. The prodigious amount of brain power and time now spent on coping with our currently incomprehensible tax code would be released for productive uses. This redirection alone would hugely stimulate the economy.
     “The flat tax would largely eliminate a powerfully corrupting influence on our political life. Countless millions of dollars are given for tax-code-related purposes – fending off destructive changes, pushing special-interest amendments.
     “Fairness would be enhanced: The more you make, the more you pay. Striking disparities in taxes owed on similar incomes would end.”

8) Again, in a 1994 article, Forbes wrote that the elimination of the income tax code, “would redirect an immeasurable amount of American brainpower from the numbing exercise of coping with the incomprehensible tax code to more productive purposes. There would be an enormous increase in efficiency.” In the same article, Forbes estimated that the savings from eliminating the federal income tax would amount to “$100 billion now spent filling out tax forms and other forms of compliance and another $100 billion wasted from investments being made for tax (avoidance) rather than economic purposes.” Eliminating the income tax, “would get rid of a profoundly corrupting influence on our political life: the countless millions of dollars now showered on politicians and bureaucrats to influence tax-related rules and legislation.” By 2017 the amount of dollars wasted on tax compliance and tax avoidance has only grown significantly greater.

     Two years later, in 2007, I again wrote that the tax code was still overly burdensome, complex, irrational, expensive and getting worse. (Ref. 11)

     Deroy Murdock, in an article tilted, Rationale for complex Tax Code falls flat on page 17 of the April 17, 2007 edition of the Boston Herald wrote:

The Tax Code and its accompanying regulations and IRS rulings stretch longer than 71 Gideon Bibles stacked side by side.
A typical taxpayer needs nearly 40 hours to complete Form 1040.
The IRS estimates that a self-employed person needs more than 80 hours to prepare their return, the equivalent of a 2-week paid vacation.
The Tax Foundation estimates that IRS paperwork compliance cost over $265 billion in 2005.
Even worse - nobody knows what the tax code means! Recently, USA Today had 4 tax professionals prepare returns for an imaginary family. All 4 results were different!
In 1998, Money magazine asked 46 tax professionals to prepare returns for another hypothetical family. No 2 returns were the same! Calculated taxes owed varied from $34,240 to $68,912.
David Keating of the National Taxpayer Union has written that, "The Tax Code is so convoluted that no one inside or outside the IRS understands it."

     “ ‘According to the Tax Foundation, the total taxpayer cost for IRS administration, enforcement, record keeping, tax filing, advice and collection was $194 billion last year {2006}. This sum is roughly the size of the total federal budget in 1970.’ [Emphasis mine] The total taxpayer cost of the IRS system is currently estimated to be $233 billion annually.” (Ref. 12)

     Here in the year 2017, simplifying the tax code makes more sense than ever. It would reduce the compliance burden on citizens and corporations, reduce corruption, and help contribute to the reduction of America’s indebtedness by stimulating business, making American goods and services more competitive in the international marketplace, and eliminating considerable tax avoidance that is now so prevalent.

     “People on both sides of the political spectrum agree that the tax code should be simpler. Since 1986, the last time a major tax overhaul became law, the body of federal tax law – broadly defined – has swollen from 26,000 to 70,000 pages [Emphasis mine], according to the House GOP's reform proposal. American households and firms spent $409 billion and 8.9 billion hours completing their taxes in 2016 [Emphasis mine], the Tax Foundation estimates. Nearly three quarters of respondents told Pew in 2015 that they were bothered "some" or "a lot" by the complexity of the tax system.” (Ref. 6) This should be more than enough reason to justify a simplification of our tax code.

     While the tax code is overly complex, it can also be inequitable. “According to the Tax Policy Center, 72,000 households with incomes over $200,000 paid no income tax in 2011.” (Ref. 6)

Corporate Tax Reforms

     Corporate tax reform has long been needed. The corporate tax code has put American businesses at a major disadvantage relative to foreign competitors, encouraged the move of businesses to foreign shores, and created the need to spend enormous amounts of corporate funds on legal advice on how to navigate the byzantine regulations included in the tax code.

     Republicans and the Trump administration are attempting to once-and-for-all end the corporate tax code fiasco. Their plan to overhaul the corporate tax code would lower the corporate tax rate to 20%, from 35%, eliminate levies on all U.S. exports and impose a 20% tax on imports. It's a mix that is expected to raise an estimated $1 trillion in federal revenue over a decade, according to the Tax Foundation.

     The Trump/Republican plan would burn down the current tax code and replace it with something entirely new. Indeed, the existing 35% corporate tax rate is the highest in the developed world. But, because of loopholes, it produces less federal revenue, as a percentage of GDP, than in most other countries. The current system also creates an incentive for companies to perform feats of legal acrobatics, like relocating corporate headquarters and shuffling intellectual property to far-flung foreign locales, to shield their balance sheets from the IRS.

     The prosed tax code revision taxes corporate cash flow. That means it doesn't matter where a company's headquarters are located or where its intellectual property is housed. All that matters is where it sells its products. If it sells its products in America, it pays 20% on what it makes. If it sells its products abroad, it pays no U.S. corporate tax at all.

     The plan also simplifies the laundry list of deductions and carve-outs buried in the current tax code.

     It was estimated “that 100 consistently profitable Fortune 500 companies went at least one year between 2008 and 2015 without paying any federal income tax. There is a widespread perception that loopholes and inefficiencies in the tax system . . . are to blame.” (Ref. 6)

     Also, since the tax has the effect of essentially subsidizing exports and penalizing imports, textbook economic models predict the revision will have the effect of strengthening the value of the U.S. dollar by as much as 25%.[13, 14]

”Make the Rich Pay Their Fair Share!”

     Liberal Democratic demagogues like Senators Liz Warren and Bernie Sanders continue to trumpet their propaganda that the “rich” don’t pay their fair share of taxes and that the proposed Republican tax reform plan will favor the rich at the expense of the poor. It ain’t so! In truth, as of 2010, the United States had reached the point where “over half of the people depend on some sort of government check, yet 50% of us have no skin in the game and pay no federal taxes.” (Ref. 15) Things have only gotten worse since 2010.

     Like Senators Liz Warren and Bernie Sanders today, President Obama back in 2010 was railing against the fact that some of the rich were paying at the same income tax rates as everyone else. BUT what he and Senators Liz Warren and Bernie Sanders weren't and aren’t “telling the American people is that income tax rates are irrelevant. It’s the amount of taxes paid that is important. If you or I earn $50,000 and pay 20% in taxes, that amounts to $10,000 in taxes. If a rich person earns $1 million and is taxed at the same 20% rate, he pays $200,000 in taxes. The fact is – The rich pay much more in taxes than the rest of us!” (Ref. 15)

     “‘Tax breaks for the rich’ is the big lie come alive. Under the Bush tax cuts, 25 million Americans at the bottom half of the income scale have been wiped off the federal income tax rolls. And the rich? The federal tax burden of the top 1% of earners has gone from 19% under Jimmy Carter (in 1980) to 39.4%. Meanwhile, the bottom 50% paid 3.1% of taxes in 2005. In 1995, they paid 4.6%.” (Ref. 16)

     As of 2012 “. . . the top 1% of earners, or the so-called ‘Rich’, {were} paying nearly 40% of all the taxes while the bottom 50% {were} paying about 3%. You tell me – who isn’t paying their fair share? (Ref. 15)

     Today, as it always has been, “It’s not the tax rates that are the issue. The real issues are how much total revenue there is and how much total spending there is. And, historically, the lower the tax rates the higher the tax revenues! Why? Because lower tax rates stimulate the economy. From a government revenue perspective, if a 20% tax rate creates a $2 trillion economy while a 30% tax rate results in only a $1 trillion economy, then it’s better to have revenue of 20% of the $2 trillion ($400 billion) instead of the 30% of $1trillion ($300 billion).” (Ref. 15)

     In 2012, I wrote, “As we come to the end of 2012, we have the President, members of the House of Representatives and members of the U.S. Senate bickering over who to tax and how much to tax them. . . . It’s all a smoke screen!!! The real issue is not who should pay higher taxes or how much, but how to reduce our outlandish federal debt and curb the out of control federal spending!! (Ref. 17) The same is still true some 5 years later!

     In 2012, “The United States {had} run up a deficit of more than $16.2 trillion, which means that every citizen of the U.S. {was} in debt to the tune of over $51,600 and every single taxpayer in the U.S., rich or poor, owe{d} more than $141,700.” (Ref. 18) That was 2012. This is 2017 and the national debt now exceeds $20 trillion!

Reducing the Federal Debt

     The total debt facing this nation has grown astronomically to $21 trillion in 2017. In 2011, “the federal deficit was so large that all federal revenues covered only mandatory spending and interest on debt. All discretionary spending – defense and non-defense – {was} borrowed!” (Ref. 7) Some six years later, this financial pit has only grown deeper.

     Today, We “are penalizing America’s low wage earners, America’s businesses and all Americans in general with our growing federal debt burden and the tax system that is paying for our indebtedness. Our current income tax system penalizes low wage earners and small businesses with a tax burden that amounts to about 26 - 30% of the cost of every product or service purchased.” (Ref. 7)

     There are only three ways to reduce the national deficit: 1. Spend less than the U.S. receives in taxes, 2. Take in more in taxes that than the U.S spends, or 3. Spend less and take in more revenue. But, raising corporate tax rates is not a solution! Neither is keeping corporate tax rates as high as they are a solution! High Corporate tax rates hurt everyone. “It makes American products and services less competitive in the global marketplace. It is unfair to America’s low income folks because corporations treat the tax as a cost and include this tax in the price of the products and services they sell. The price of every product that is sold by American companies has embedded in it corporate income taxes of 35% or more. Everyone pays the price. Increasing corporate taxes to pay off the federal debt is counterproductive – it sends business offshore and penalizes the people that it is supposed to help by raising the cost of goods and services with which they need to live. (Ref. 7) Corporate tax rates need to be lowered not raised! Lowering corporate tax rates will actually increase federal revenues, not reduce it. If tax rates drop by 10% but sales increase by 20%, tax revenue goes up by 10%. Currently, America has the highest corporate tax rates in the world, making the selling of American products abroad more difficult. On top of that, our current tax code encourages companies to seek tax loopholes that keep profits overseas rather than returning back here. America needs lower corporate tax rates and a revised tax code that eliminates tax loopholes and allows foreign profits to be returned to the U.S. rather than being kept overseas. What is also needed is a simplified tax code that significantly reduces the cost of tax compliance on the part of U.S. corporations.

     Instituting tax reforms that reduce costs to American businesses is one sure way to increase the sales of America’s goods and services overseas and at home. Increased tax revenues from this growth in sales will then contribute to the reduction of America’s federal deficit. Remember: It’s the tax revenue, not the tax rate that is important!

It’s Still the Debt

     President Trump and the Republican legislators have initiated a major tax reform plan. Trump’s proposal was meant to be a framework for Congress to use in formulating and negotiating the final tax revision plan. Both the framework and the initial Republican House plan have missing parts that will require substantial changes before a final plan is implemented. Hopefully, the end product will:

Greatly simplify the byzantine tax laws and code now in existence
Allow most American taxpayers to file their income taxes on nothing more than a postcard
Eliminate loopholes in the tax code that primarily benefit tax lawyers, accountants and their firms
Reduce exorbitant corporate tax rates that hobble American companies in the world’s market place
Overall, simplify, cut compliance costs, reduce paperwork, increase revenue and improve fairness
Produce significantly increased federal tax revenues to pay off the national debt.