slatten49 Loc: Lake Whitney, Texas

Rick Newman
Columnist
Yahoo Finance/September 27, 2017

Most people want to pay less in taxes, and President Trump is saying what many want to hear: Tax rates are coming down. “There’s never been tax cuts like what we’re talking about,” Trump said during a speech in Indianapolis on Sept. 27, as he laid out his tax-reform plan. “Our current tax system is a colossal barrier standing in the way of America’s comeback.”

Trump wants to slash corporate and individual tax rates, while making the whole system simpler and fairer. Parts of the US tax code are, in fact, undoubtedly complex. But the overall tax burden on most Americans is relatively low, and the case for cutting taxes on most people is pretty weak.

The presumption is that Americans are overtaxed and deserve relief. But if anything, Americans are under-taxed. This isn’t an argument for raising taxes or expanding a government that’s probably too big already. It’s just simple math.

There are two basic types of taxes: Those on individuals and those on businesses. Republicans plan to cut taxes for most individuals, to put more money in people’s pockets. There’s a fundamental problem with doing that, however. The federal government will take in about $3.6 trillion in taxes this year, but it will spend $4.1 trillion. Spending will exceed revenue by 17%, with the Treasury financing the deficit by issuing debt. By definition, Americans are already getting more in government spending than they’re paying for. So why should we pay even less?

Yeah, I know: Some supply-siders think cutting taxes will magically make the economy grow faster, generating more tax revenue, on net. If only. That was the idea when George W. Bush cut taxes in 2001 and 2003. It didn’t happen then and it won’t happen now.

Compared with other developed countries, the U.S. tax burden is low. The total tax burden — including federal, state, local and payroll taxes — on a typical American family with two kids is 14.1% of gross income, according to the Organization for Economic Cooperation and Development. That’s lower than the tax burden in 24 out of 33 other countries surveyed by the OECD. By comparison, the tax burden is 18.3% in Canada, 21.3% in Germany and 22.7% in the United Kingdom. Where are taxes lower? In Chile, the Czech Republic, Estonia, Ireland, South Korea, Mexico, the Slovak Republic, and Switzerland. In Spain, the tax burden is the same as in the U.S.

I’ll make this personal. Last year, federal income taxes accounted for 20.5% of my total pay. Social Security and Medicare contributions raised the federal cut to 25.4%. Add in state and local taxes and my total income tax burden (not including property taxes!) was 32.5% of my gross pay. That’s a lot. Would I like it to be lower? Hell yeah.

Problem is, I can’t easily identify a big chunk of federal spending that should be slashed so I can keep more of my money. Social Security and Medicare benefit people like my mom. I’ve known people who relied on Medicaid and other relief programs while in between jobs or enduring some kind of hardship. With a nuclear North Korea, a bellicose Russia and all the other global problems, it doesn’t seem like a good time to slash defense spending. The rest of the federal budget is peanuts compared with these big programs. And I don’t think Washington should add even more to the national debt —which my kids and grand-kids will have to pay off — so that I can spend a bit more borrowed money today.
Tax burden has eased over the years, but Americans still struggle

Americans tend to think taxes have drifted up over time, but the opposite is true. The average federal tax burden for the middle 60% of earners is 13.8% of income, according to the latest data from the Congressional Budget Office. That’s 2.8 percentage points lower than the historical average of 16.6%. So overall, American taxpayers already get more than they pay for, they pay less than most citizens elsewhere, and the tax burden has dropped over time. This is a weak case for tax cuts. Arguably, no case.

American taxpayers do have some legitimate gripes, however. First, they are not getting good government for the taxes they do pay. Congress can barely accomplish its most basic job — funding the government — and it seems incapable of addressing major problems such as i*****l i*********n, soaring health care costs, and worsening income ine******y. If the government offered a money-back guarantee, no doubt millions of taxpayers would demand a full refund.

A lot of Americans are falling behind, as well. There’s voluminous evidence showing the rich are getting richer while much of the rest struggle to keep up with inflation. This isn’t happening because taxes are too high. It’s happening because a global, digitized economy heavily favors people with certain sk**ls while punishing those who are less-educated. The solution to this is complicated, involving better education, more effective job training and probably also more grit and determination among the disaffected. Lowering taxes won’t do much, if anything, to help people who aren’t prospering prosper.

There’s a better case for fixing the business tax code, which is riddled with distortions that create incentives for companies to stash money overseas and spend on the wrong things. The top corporate rate, 35%, needs to come down, if only because rates are now lower in most other developed countries. Most U.S. companies pay far less than the 35% rate, thanks to dozens of loopholes bought with lobbyist money. That produces this paradox: The United States has the highest corporate tax rate of any developed nation — 14.5 percentage points higher than the average for Europe — yet corporate taxes have dropped from 17% of federal revenue in 1970 to 10.5% today. Something is seriously broken.

There should probably also be lower rates for small and medium-sized businesses, which often pay taxes at individual rates that can be two or three times higher than the discounted rates corporations with armies of tax lawyers typically pay. In general, lower rates with fewer loopholes are better than high rates with all kinds of workarounds, even if there’s no net difference in the revenue raised. The best thing Congress could probably do is make the U.S. tax code as efficient as possible — the envy of companies everywhere — without cutting any tax revenue or adding to the national debt. And if Congress actually accomplished something, maybe we wouldn’t feel so bitter about the taxes we do pay.

Theophilus

We could save a lot of money by stopping any and all benefits to i*****l a***ns. It would also have the beneficial side effect of giving them no incentive to come here in the first place.

slatten49 Loc: Lake Whitney, Texas

...Right along with cutting waste, greed, corruptness and payola in the governmental sector.

As it is, they're all closely related.

mongo Loc: TEXAS

I agree with you slatts. They go hand in hand!

SEMPER FI

peter11937 Loc: NYS

About 50 percent of the money we send to government is wasted on unnecessary bureaucracy. That's because there are too many duplications, and they have reduced the workload o an mount pvt. businesses take care of in 4 hours to a minimum of eight in government. The answer should be obvious. Let go the o verage, redistribute the load and have the remaining bureaucrats do it or be replaced with someone who will, seniority be damned..

oldroy Loc: Western Kansas (No longer in hiding)

Why can so many of us see this and so many can't? I have wondered and wondered for a very long time about that.
So many people don't seem to see that bureaucrats are to blame for so much of our expenditures.

Theophilus

I would be happy if Congress would simply learn some fiscal responsibility.

slatten49 Loc: Lake Whitney, Texas

A follow-up to the original thread posting:

Trump is over-promising on tax cuts

Rick Newman
Columnist
Yahoo Finance/September 27, 2017

His truest supporters may not care, but President Donald Trump is promising much deeper tax cuts than Washington is likely to deliver.

During a highly touted speech in Indianapolis on Sept. 27, Trump said, with familiar hyperbole, that he was aiming for the “largest tax cuts in our country’s history. Our current tax system is a colossal barrier standing in the way of America’s comeback,” Trump said. “There’s never been tax cuts like what we’re talking about.”

That’s an overstatement, but Trump’s cuts would be substantial. Trump hopes to slash the top corporate rate from 35% to 20%, while let corporations bring home profits stashed overseas at reduced rates. For individuals, he’d reduce seven tax brackets for individuals to three and increase the standard deduction from $12,000 to $24,000, furthering lower taxes for many filers.

The idea is for just about everybody to get a tax cut, with nobody feeling any pain. But Washington doesn’t quite work this way and the ultimate result will be much more modest tax cuts for fewer people, if Congress can even get that far. “The proposed changes seem likely to be scaled back as the congressional debate progresses,” Goldman Sachs advised clients. “The plan released this week will need to be scaled back substantially.”

Trump is aiming big, of course, and on one hand it might be shrewd to shoot for the moon at the beginning of negotiations. But Trump has promised big on other matters and come up empty-handed, contributing to the narrative that he can’t win in Washington. Three Trump-backed efforts to repeal the Affordable Care Act have gone down in flames, embarrassing the GOP. Trump’s southern border wall is an unfulfilled campaign pledge and the North American Free Trade Agreement, which he vowed to undo, remains in effect.

Trump faces better odds on tax cuts, because Republicans who control Congress have been working on plans for years. But Congressional procedures and simple budget math put limits on how far Congress can go.

Here are the tedious details: First of all, tax cuts cost the government revenue, and U.S. taxpayers are already $20 trillion in debt. So there will be some pushback against measures that push the debt much higher. You’ll probably hear that this shouldn’t be a problem, because tax cuts magically make the economy grow faster, meaning incomes go up and the government actually collects more in revenue. This is largely hogwash, and besides, Senate budget rules limit Congress’s ability to rely on magic potions.

The Senate can pass tax cuts with a simple majority of 51 v**es — avoiding a filibuster that might sink the effort — but there’s a catch: The bill can add no more than $1.5 trillion to the national debt during the next decade. Cuts of the magnitude proposed by Trump would add around $2.2 trillion to the debt, according to the Committee for a Responsible Federal Budget. Other estimates put the cost at $4 trillion or higher. So Trump is way off the mark right out of the gate.

Here’s what you could do if you were willing to give up $1.5 trillion in revenue over 10 years, according to recent analysis by JPMorgan Chase: cut the corporate rate from 35% to 20%, or cut rates paid by individuals by about 2 percentage points. But you couldn’t do both. Cutting corporate rates without giving middle-class earners a tax cut is a political nonstarter. You could split the difference, cutting the corporate rate to around 28%, while giving typical families a 1-percentage point tax cut. But that’s kind of hard to explain to v**ers, too, and it would still fall way short of Trump’s goals.

Congress could pass tax cuts of more than $1.5 trillion, but that would require 60 v**es in the Senate, which means some Democrats would have to sign on. What would it take to get “Chuck and Nancy,” Trump’s temporary Democratic allies, on board? Probably large tax cuts for lower and middle earners, with a sharp limit on giveaways to corporations and the wealthy. How much of your personal money would you bet on that sort of compromise?

It’s also possible Congress could come up with other sources of revenue that help pay for a combined tax cut of more than $1.5 trillion. If done right, closing loopholes and eliminating deductions would raise some needed revenue, while making the tax system fairer and more efficient. But tell that to the people whose loopholes might be targeted — which includes homeowners, small businesses, retirees, and people who get health insurance from an employer. Some, even most, of them could end up better off if they give up a skewed tax break in exchange for lower rates and a fairer system. But who trusts Washington to pull off such a feat? The answer: virtually nobody who v**ed for Trump and few who v**ed for anybody else.

As if these hurdles aren’t enough, there’s some talk among Republicans of attaching yet another effort to repeal the Affordable Care Act to a tax cut bill, in the hope that tax cuts would have enough momentum to carry ACA repeal over the finish line. Yes, that’s delusional. But apparently there’s a masochistic wing of the Republican Party.

The good news for Trump is he ought to be able to wring some kind of tax cut out of Congress. The corporate rate might fall to 25% or so. Multi-nationals will probably be able to bring back $1 trillion or more in profit at unusually low tax rates. And most families might see a modest tax cut that will put a few hundred extra bucks in their pockets. Trump can claim victory and forget about whether it’s the biggest tax cut ever. Or go on fighting.

Hogback

I disagree with this article. The author said there are two types of taxes one on individuals and one on business. Well, business don;t pay taxes PEOPLE PAY TAXES!!! If a business is taxed the cost is passed on to the consumer. The people who aren't taxed (supposedly) pay the increased price of the goods or services! People whonhave it out for big business are only raising the price for good and services they buy!