Thursday, April 27, 2017

Trump's Tax Plan

Today's discussion will focus on the impact of President Trump's Tax Plan.

[We feel qualified to discuss this topic as we maintain advanced degrees in 
Business Administration and Economics from well regarded institutions 
such as Webster, Georgetown, and Oxford Universities, and
we have taught senior level International Business 
courses at the University of Maryland.

We also conducted a NSC/CSIS study of the impact of business
 on local and international economies to assist the 
Reagan Administration develop a strategy for 
International Economic Development.

Leftist [e.g., NYT, WaPo, CNN, etc.,] criticism of Trump's Tax Plan worries that it will reduce tax revenues, undercutting the ability of Congress to spend extraordinary amounts of money on pet projects, like the Trillion Dollar F-35, and will benefit "The Rich" at the expense of "The Working Class".

In reality, most economists [including this author] will point out that Economies of Scale play a major role in increasing tax revenues:

1)  The tax base of employed taxpayers expands as jobs are created
      by the return of corporation to the US [inspired by a reduced tax
      rate]; the more taxpayers, the more tax revenue,
2)  Companies previously squeezed by ObamaCare's requirement
      to provide health benefits forall employees, if the number of
      employees exceeds 49, can now return to normal business
      practices and hire more than 49 employees legally; thus, a
      larger taxpayer base,
3)   New companies will be created to meet increased demand for goods and services, no longer
       hampered by the burdensome bureaucratic regulations and criminal penalties buried
       in ObamaCare,
4)   The defunding and termination of enforcement of ObamaCare criminal penalties will end the cost
       of ObamaCare special enforcement units which had hired massive staffs and generated equally
       massive budgets, incurring massive court costs in prosecution of "offenders".
5)  Disposable income of taxpayers will increase, facilitating their expenditures on taxable goods
      and services; the net tax revenues gained through expanded commerce will more than offset
      the reduction in individual tax revenue.
6)  Home equity will continue to increase for
      taxpayers who no longer have to worry that
      Obama or Congress will eliminate the tax
      deduction for mortgage interest and real estate
      taxes; that concept created a negative impact
      on the expansion of the housing industry
      which had begun to contract based on rumors
      from Capitol Hill.
      a)   Home equity allows homeowners greater
             availability of cash through refinancing,
      b)   Home equity translates to more profit in
             the pocket when homeowners sell,
      c)   Home equity encourages new homebuyers,
             expanding the housing market at all levels.
      d)   Housing Market expansion encourages new construction, which employs skilled and
             unskilled labor, expanding the workforce -- and again, expands the taxpayer base,
       e)  Housing Market expansion translates into increased sales of goods and services at all levels,
             from wood, nails, electrical components, stoves, ovens, HVAC systems, etc., all of which will
             both expand as well as create new companies which will hire new workers/taxpayers.
        f)  Housing Market expansion will create new companies which will not only hire new workers,
             but which will increase the business tax base for local and federal taxes.

Individual Reform
1)  Tax relief for American families, especially middle-income families:
     a)  Reducing the 7 tax brackets to 3 tax brackets of 10%, 25% and 35%
     b)  Doubling the standard deduction
     c)  Providing tax relief for families with child and dependent care expenses
     d)  Eliminate tax on individuals earning below $25,000 per year,
           and on couples eating less than $50,000 per year,
2)  Simplification:
     a)  Eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers    
     b)  Protect the home ownership and charitable gift tax deductions
     c)  Repeal the Alternative Minimum Tax, allowing standard deductions once again,
     d)  Repeal the death tax, allowing family wealth to be passed directly to heirs

As for business, we've noted the expansion above of Small Business in the economy is of major significance.  Here are the documented facts of the impact of Small Business:

1)  99.7%    of US employers
2)  64%       of net "new Private-Sector jobs"
3)  42.9%    of Private-Sector payroll
4)  46%       of Private-Sector output
5)  43%       of high-tech employment
6)  98%       of exporting firms
7)  33%       of value of exported goods

Notably, the impact of ObamaCare provisions forced many Small Business to shut their doors and cease to operate, laying off employees, terminating their sale of goods and services, eradicating their percentage of the economy of local, national, and international commerce, and thus eliminating the tax revenues previously tied to Small Business.

Most politicians -- and economists -- fail to factor in the impact of ObamaCare on the economy and joblessness rates.  The data above makes it a bit more clear for the uninformed.

As a footnote to this mini-discussion of Small Business. we will point out that such companies as Microsoft, Apple, Northrup-Gumman, Oracle, HP, Google, Amazon, and EBay all began as "Small Businesses" -- none of which would have flourished had ObamaCare existed when these companies were start-ups.

Business Reform
1)   15% business tax rate
2)   Territorial tax system to level the playing field for American companies
3)    One-time tax on trillions of dollars held overseas
4)    Eliminate tax breaks for special interest groups
5)    Repeal the 3.8% Obamacare tax that hits small businesses and investment income

The reform of the tax rates on business is especially significant for large, multi-national corporations [MNC], many of which moved their operations outside the US to avoid high taxes and onerous regulations which significantly increased overhead costs and decreased the levels of profit centers.

Lowering the tax rate will attract these extra-territorial companies back to the US where they will not only pay corporate taxes on their profits, but, they will hire American workers to produce goods and services.  These new hires will pay taxes, and consume goods and services provided by Small Business; they will also buy durable goods such as Appliances, TVs, Electronics, etc., and, they will consume services as they expand and enhance their lifestyles.

The territorial tax system will also make these American-based MNCs more competitive, increasing taxable profits, and expanding employment.

The One-Time tax on the protected overseas assets will generate hundreds of billions of dollars in a single event, which can then be invested in the US infrastructure -- creating more jobs.  It has the spin-off effect of eliminating the burden of criminality declarations against US executives who can better expend their resources on building business enterprises rather than expanding the number of lawyers in their legal offices.

And, last, but certainly not least, repeal of the 3.8% ObamaCare tax which has smothered Small Business enterprise, and stifled investment in publicly traded companies, many of which have gone private to reduce the costly impact of federal restrictions.

Noteworthy of this entire review is the impact of ObamaCare -- which most critics have considered merely a fly in the health-care ointment.  In reality, its impact has affected US commerce in all phases of the economy based on its myriad provisions hidden from view in the thousands of pages of both the original ACA as well as the implementation instructions.  

Eliminate ObamaCare, and we can return to business as normal.