Back in 2015, I subjected the tax proposals President Obama made in his State of the Union address to a libertarian analysis. It’s time to do the same for President Trump, albeit briefly.
On April 26, Trump released a one-page outline of his plan for “Tax Reform for Economic Growth and American Jobs.” He claims that it is “the biggest individual and business tax cut in American history.” This is actually Trump’s third tax plan. The first was released in September of 2015 and the second was released in September of 2016. Each of them was much more detailed than Trump’s current plan.
Here are Trump’s individual and business tax reform proposals in their entirety:
- Tax relief for American families, especially middle-income families:
- Reducing the 7 tax brackets to 3 tax brackets of 10%, 25%, and 35%
- Doubling the standard deduction
- Providing tax relief for families with child and dependent care expenses
- Eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers Gun Control and the Se... Best Price: $5.94 Buy New $5.95 (as of 10:20 EDT - Details)
- Protect the home ownership and charitable gift tax deductions
- Repeal the Alternative Minimum Tax
- Repeal the death tax
- Repeal the 3.8% Obamacare tax that hits small businesses and investment income
- 15% business tax rate
- Territorial tax system to level the playing field for American companies
- One-time tax on trillions of dollars held overseas
- Eliminate tax breaks for special interests
As I mentioned in my analysis of Obama’s tax proposals, a libertarian analysis is based on certain libertarian axioms of taxation. Here are some of them:
The best tax is always the lightest. ~ Jean-Baptiste Say
There cannot be a good tax nor a just one; every tax rests its case on compulsion. ~ Frank Chodorov
There can be no such thing as “fairness in taxation.” Taxation is nothing but organized theft, and the concept of a “fair tax” is therefore every bit as absurd as that of “fair theft.” ~ Murray Rothbard
A deduction or exemption is only a “loophole” if you assume that the government owns 100% of everyone’s income and that allowing some of that income to remain untaxed constitutes an irritating “loophole.” Murray Rothbard
The real issue is total spending by government, not tax reform. ~ Ron Paul King James, His Bible,... Best Price: $14.14 Buy New $14.95 (as of 10:40 EDT - Details)
Does it reduce or eliminate an existing tax? ~ Lew Rockwell
Any decrease in taxes or tax rates is a good thing and any increase is a bad thing and any increase in tax deductions or credits is a good thing and any decrease is a bad thing. ~ Laurence Vance
A libertarian analysis of any tax reform plan has nothing to do with economic growth, revenue-neutrality, job creation, fairness, compliance costs, simplification, efficiency, government revenue, the federal deficit, the national debt, or the Laffer curve.
A libertarian analysis of any tax reform plan is concerned with one thing and one thing only: to what extent does it allow Americans to keep more of their money in their pockets and out of the hands of Uncle Sam.
A brief plan calls for a brief analysis.
The seven current tax brackets are 10, 15, 25, 28, 33, 35, and 39.6 percent. Reducing them to three brackets of 10, 25, and 35 looks like a good thing, not necessarily because there would be fewer brackets, but because the 39.6 percent bracket would be gone and more people might be in lower tax brackets depending on the income thresholds to which the new brackets would apply.
The standard deduction is currently $6,350 for single filers and $12,700 for married filers. Doubling these to $12,700 and $25,400 is a good thing because it lowers everyone’s taxable income.
Tax deductions for families with child and dependent care expenses are currently part of the tax code. Because Trump’s plan seems like it would provide families with additional tax relief, this provision is a good thing.
Because tax breaks are always a good thing—even if they are “targeted,” for “special interests,” or only benefit “the rich”; that is, those who pay the majority of the taxes—eliminating tax breaks is a bad thing.
Because tax deductions are always a good thing, “protecting” the home ownership and charitable gift tax deductions can’t be otherwise; however, this implies that all other tax deductions would be eliminated, including the War, Empire, and the M... Best Price: $5.98 Buy New $9.95 (as of 09:50 EDT - Details) medical expense deduction. That would be a bad thing. However, it could just mean that all other “itemized” deductions would be eliminated and not “above the line” deductions like those for student loan interest, alimony paid, and educator expenses. If “above the line” deductions are retained, then Trump’s plan to eliminate deductions would still be bad, just not as bad.
Because repealing any tax is always a good thing, repealing the Alternative Minimum Tax, the death tax (the Estate Tax), and the 3.8 percent Obamacare tax (the Net Investment Income Tax) is a good thing.
Because any cut in tax rates is always a good thing, lowering the business tax rate to 15 percent is definitely a good thing, especially since the United States has the highest corporate tax rate in the world. How this “business tax rate” might also affect limited liability companies, S corporations, partnerships, and sole proprietorships—pass-through businesses, or businesses that pay their taxes through the individual income tax code rather than through the corporate code—is unclear. If they likewise will only have their profits taxed at a rate of 15 percent, then that will, in most cases, be a good thing.
Under current tax law, U.S. companies must pay tax on all their profits, no matter where they are earned. Changing to a territorial tax system in which U.S. companies only pay tax on their profits earned in the United States is a good thing because it would lower the total taxes that companies must pay to the government.
A deemed repatriation of currently deferred foreign-source income, because it is a “one-time tax on trillions of dollars held overseas”—and is therefore still a tax—is a bad thing, although, depending on the rate, it may be better than the alternatives. Ideally, companies should be able to repatriate their offshore earnings tax free and never again have to engage in tax avoidance schemes.
There are many unanswered questions about Trump’s tax plan. For example: tax bracket thresholds, the fate of the Earned Income Tax Credit and other refundable tax credits, business expensing of their capital investments, business expensing of interest costs, and the nature of tax relief for families with child and dependent care expenses. As it stands, it appears to allow Americans to hang on to more of their money than the so-called Bush tax cuts ever did. But knowing what we do about Republicans, they are certain to argue about and get bogged down with how the Trump tax cuts will be “paid for” since they are loath to actually cut spending.