Tag Archives: economics

How Close Are the House and Senate Tax Reform Bills?

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See the table below, from The Wall Street Journal.  While the Left and its NLMSM emphasize the differences, and the Progressive-Democratic Party denizens rail at the claimed iniquities in their manufactured dudgeon, the tax reform bills on offer from the House and the Senate are remarkably similar.  The agree right down the line on the goals of tax reform, and they agree right down that same line on the means of achieving those goals.  The differences between the two bills are matters of degree, details bordering on trivial.

Tax rates and brackets differ only slightly, even the Senate’s seven brackets only amount to a finer parsing of income.  In both bills, the death tax disappears for at least eight years—four House election cycles, a Senate election cycle, and two Presidential election cycles.  It’ll be tough, even for the Progressive-Democratic Party, to let the death tax reappear after that amount of time, and the same difficulty will exist for letting the individual tax cuts disappear.

The biggest difference is with the Medical Expense deduction, but that effect on our general taxes or on Federal revenues flowing from the tax code reform is minor; settling it entirely in favor of one house or the other, without compromise, should be easily doable.

The House-Senate Conference should be able to settle these minor differences quickly.  Whether the Conference Bill passes both houses then will depend in large part on the egos of a very few snowflake Republican Senators.  Keep their votes in mind come primary season.

Tax Reform and SALT

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The Wall Street Journal Friday opined that a House-Senate conference on the tax reform bills passed by the House and then-on offer by the Senate (since passed, with some changes to the on-offer version) could improve on the two bills and produce a better one for final passage and President’s signature.  The Editorial Board is right as far as it goes.

Notably in the context of their piece and this post, one of those changes to the Senate’s version that was included in what finally was passed was a change to their complete removal of State and local taxes: the Senate-passed version now includes the House’s deductibility of up to $10,000 in property taxes paid.

But the Editorial Board included this in their piece:

…the bill’s biggest flaw, which is a lousy individual tax reform that raises taxes on many Americans in high-tax states. Eliminating the state-and-local income tax deduction, as both bills do, is sound policy. But the bills don’t offset that with a corresponding reduction in the top marginal tax rate.

This is disingenuous because the editorialists know better. It’s certainly true that, with SALT deductions severely restricted (only that $10k max deduction), citizens of Progressive-Democratic Party-run States likely will pay more in State and local taxes. But to call this a raise in taxes on those Americans is obviously false. Those (excessively) high State and local taxes were already in place, and the House and Senate tax reform bills do not, cannot, touch them.

The “offset” needed is not a “reduction in the top [Federal] marginal tax rate;” although such a reduction would be optimal in its own right.  No, the offset actually needed is for State and local politicians, with encouragement from those States’ Congressional delegations, to reform their own tax codes and reduce their own States’ spending.

It would seem that some members of the “Editorial Board” reside in New York and New Jersey while others phone it in from California.

Showcase Potential

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Brussels is worried, and we should be, too, but for different reasons.  The People’s Republic of China is gaining influence in eastern Europe, and it’s doing it with one of my favorite tactics: international trade as a national policy tool.

In Hungary it is hailed as the “Eastward Opening.” Serbian authorities see it as the glue in a “reliable friendship”, while the Polish government describes it as a “tremendous opportunity.” Yet the 16+1, a grouping of 16 central and eastern European countries led by China, receives more caustic reviews in leading EU capitals, with diplomats fearing it could be exploited by Beijing to undermine union rules and take advantage of growing east-west tensions in the pact itself.

The catalyst for the group is China’s ability to finance and build the roads, railways, power stations and other infrastructure that some poorer central and eastern European countries need. But the scope of its operations has spilled over into overtly political and strategic areas, breeding mistrust among some of the western European powers that dominate the EU’s agenda.

The Financial Times piece at the first link is well worth the read, but the quoted paragraphs are the sum of it.

We should be worried, but not because Europe—the EU—is beginning to lose the contest for the hearts and minds of central and eastern Europe to the PRC, even as it’s beginning to lose the contest for the geography to an aggressively acquisitive Russia.   We should be worried because we’re not taking advantage of the opportunity the People’s Republic of China’s moves in eastern Europe presents us.   This is a contest we cannot lose, were we to enter it at all.

The way we should enter this contest is two-fold, and one of those folds also would serve to counter, and to roll back, the gains being made by that empire-seeking, domineering Russia.  One fold is to engage with eastern Europe—all of those 16, but not the +1—economically through international trade.  We should be busily pursuing free trade agreements with those 16—and contra President Donald Trump, we should be working toward a regional free trade agreement involving the 16 nations.  And Great Britain.  True enough, central Europe also is the heart of the EU, and that would complicate trade agreements, but that shouldn’t stop us from pursuing, separately and in parallel, such arrangements with the nations of eastern Europe.

There’s nothing like free market competition to increase the prosperity of the citizens involved, and so the nations involved, and from that, showcasing—again—both the fatal weaknesses of centrally planned economies in contrast with free markets, and the power of individual liberties and responsibilities for each citizen compared to the stultifying “security” of Big Government doing for the citizens, while firmly controlling what Big Government will allow those same citizens to do on their own.

The other fold is a mutual defense arrangement, much like NATO although separate from and in addition to it, with certain nations of eastern Europe.  As a first stage in setting this up, the treaty nations should include us, Great Britain, each of the Baltic States, Poland, Czech Republic, Slovakia, Hungary, and Romania.  This arrangement would profit from a second stage that would include Finland, Sweden, Norway, and Denmark.  In addition to the ties generated by trade, the mutual defense imperatives would both move toward a strong barrier to Russian expansionism, and it would spur economic development as a happy side effect—to both the nations’ benefit and further to resist PRC inroads.

It’s Only a Few

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It’s only a few Americans that we don’t like—the despicable 1% (actually the 0.2%).  That’s the Progressive-Democratic Party’s excuse for insisting that the death tax be kept in place in the current tax code reform effort.

The estate tax affects a very small—and very wealthy—number of Americans.

Only the estates of about 2 out of every 1,000 Americans who die face this tax right now.

Besides, repealing the tax, the Progressive-Democrats claim, would

unfairly provide more benefits to the wealthy over low- and middle-income Americans.

No, the real unfairness, in the minds of these persons, is that it would provide any benefits to the wealthy.  Never mind that the wealthy pay the largest share taxes, especially when compared to income earned.  A couple of CBO statistics, coarser than just the hated 1%, compiled in 2013 from 2010 data:

Quintile Share of Income, % Share of Taxes Paid, %
Top 57.9 69.3
Bottom Two, Combined 9.7 2.8

Notice, too, quite apart from that, the Progressive-Democrats’ fundamental philosophy: those not rich are not in a position to take the same tax-avoidance steps as the rich, so the rich must be denied those steps; they must be held back.  The right of each man to show the best that there is in him must be denied the successful because others cannot or do not keep up.  Can’t possibly reform the tax code so that it applies equally to all income levels.  So much for equal opportunity, according to the Progressive-Democrats.

Never mind, also, that the estate tax is a fundamentally unfair tax that taxes wealth, much of which has been taxed already in the earning.

Never mind, too, that the identity politics-centered claim is false: the death tax affects the minimally wealthy and the small businessman and small farmer whose businesses and farms reach above the threshold in asset value but that don’t have free cash, and so the businesses and farms must be sold to raise the taxman’s vig—impoverishing the heirs.

No, this is just another excuse to hammer those hated wealthy, and who cares about the collateral damage.

A State Runs a Budget Deficit

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Louisiana, run by Progressive-Democrats since Bobby Jindall was term-limited out of office, is facing a $1.5 billion deficit as “temporary” tax increases implemented earlier begin to expire.  Jay Dardenne, the center-left Republican Commissioner of Administration, Louisiana governor John Bel Edwards’ chief budget officer, says that “devastating” spending cuts would be necessary absent a renewal of the tax increases or enactment of other tax increases.

Devastating: among those are additional reductions in higher education. This is misleading from a State official whose State already objects to school choice and to successful voucher schools in the K-12 range—because they take money away from badly failing public schools.  Except they don’t.  The State funds the public schools on a per-student basis, but when a student leaves for a voucher school, he takes less than his full allotment of funds with him, leaving the “losing” public school fiscally net better off.

It’s misleading, too, because higher education has an inflated tuition and fee structure supported by all that government funding (the Feds are contributors to this inflation with their own money transfers to the higher ed institutions), leaving those students fiscally net worse off.

Other areas facing spending reductions are tear-jerker “child-welfare” programs and “other” state agencies.  Never mind that these facilities waste the funds allocated with their high bureaucratic overhead and middle-man frictions.  And in the case of welfare (not just child), through uncertain enforcement.

No, the only ones truly facing serious spending reductions are the lobbyists and the Progressive-Democrats’ (and too many Republicans’) cronies.

It’s past time for a $1.5 billion reduction in State spending.  Louisiana needs to leave the money in the citizens’ hands, and it needs to stop competing with the private sector in providing goods and services and in acquiring resources for its own (unnecessary) functioning.