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Tax Non Reform

September 5, 2017

Massive tax cuts are being suggested, and are being justified by saying they will spur economic growth. In my opinion, nothing that is presently being suggested can work. The proposals can pass, but they will not work and it won’t be able to be proven for a number of years and then we will have to deal with bigger problems under pressure using a band-aid approach which almost never is effective as a permanent fix. Here is the way I see it.

  1. “Tax cuts can fuel economic growth if they offer the right incentives for business spending.” At present and for the past eight or nine years interest rates and fuel costs have been at greatly lower amounts and that hasn’t been able to spur business spending. Reduced taxes won’t provide a magic bullet that will cause businesses to suddenly increase spending in new plants and equipment.
  2. “Tax cuts have fueled economic growth in the past.” Occasionally! However, the economy has changed. We are no longer living in yesterday’s world. Wealth is no longer being created by massive physical structures but by new and clever uses of the Cloud, artificial intelligence, robotics, digitization and virtualization of transactions using a global marketplace and labor pool.
  3. “Tax cuts can fuel economic growth if they are the direct reason for the spending.” In recent years many of the tax cuts were made retroactive. How can a tax benefit for something you already did provide an incentive for doing it? It can’t and doesn’t; it is impossible, but our politicians continue to tell us tax cuts do that.
  4. Tax reform means to me that the tax code will change in a way that doesn’t increase or decrease aggregate tax revenues, i.e. it would be revenue neutral. If the “reforms” result in overall reduced taxes, it Is not a reform but rather a tax cut. If the reforms result in greater tax revenues, it is not reform but a tax increase.
  5. Taxes are necessary to maintain our government, our national security, our way of life and so many other necessary things. We know that and we pay our taxes voluntarily. Evenhandedness, fairness and consistency are cornerstones for voluntary compliance. Continued politicization of the tax system will draw people away from voluntary compliance, divide constituencies, cause divisiveness, confusion, and even more dissatisfaction, disillusionment, lack of faith and distrust with our legislators than exists today which appears to be at the nadir in our nation’s history.
  6. The more complicated the laws get, the more difficult voluntary participation will be. The present system stinks, but it is what we have and it seems to be working. Changes cannot be made in a vacuum. Adding a benefit to one group would require taking away a benefit from another group. The result of taking away a benefit will be dissatisfaction by those that lost the benefit; however without the lost benefits we will have reduced government revenues giving us a tax cut rather than a reform. BTW, I am not suggesting tax cuts are bad; I am suggesting that cuts in the cloak of reform or by using invalid assumptions are not truthful.
  7. There are major tax issues that are being bandied about. Some are reduced corporate tax rates, elimination of the net investment income tax, raising the exemptions to reduce coverage for those eligible for the alternative minimum tax, and increased depreciation deductions allowing a shorter cost recovery period for fixed asset acquisitions. Each of these, in and of themselves are desirable. However, I haven’t heard too many revenue enhancing changes, i.e. tax increases, except for the expected windfall that would result from large corporations repatriating foreign cash, which I contend will not occur. I am all for tax cuts, but they need to be responsible and consider the overall picture and not be done in a way that will cause insurmountable problems someday in the future…it will be kicking the can forward to be confronted at a later time by equally predisposed legislators inclined to avoid a confrontation with the overall issue.

I tried to set forth some issues as I see them in a clear manner, and hope you understand what I wrote. FYI, I have somewhat of a history with tax law changes. I testified twice before the House Ways and Means Committee – in 1980 and 1985. My 1980 proposals were adopted by then candidate Ronald Reagan and again when he became president as one of his arguments for the massive 1981 tax cuts that were enacted. Alas, none of my 1985 proposals were adopted, but my predictions of greater tax law obfuscation became reality after the 1986 tax law was enacted.

Hopefully I will be proven wrong about everything above; but that is a fool’s prayer.

One Comment leave one →
  1. 6hawthorne permalink
    September 5, 2017 7:00 am

    Hi Ed Good post enjoyed reading bob

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