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The Debt Ceiling Football

By September 8, 2017 No Comments

The debt ceiling is a political football.

Yesterday Trump went against his republican colleagues, sided with the democrats and worked to raise the debt ceiling limits.  This is a dangerous political move that only pays off if Trump gets his tax plan passed.

Taxes are an American atrocity.  The roughly 75,000 pages of tax code is overly costly, administratively burdensome, and allows for a select few to pay dramatically less than others through tax breaks, incentives, and special interest loopholes.  The entire code should be thrown out and simplified.

I am okay with the rich paying a greater percentage of their income than the poor. This is the essence of a graduated income tax system.  However, the Gordian Knot of tax law that currently exists only benefits the tax attorneys and CPAs that specialize in guiding their clients through its maze.

This is wrong on so many levels.  First, administrative labor is unproductive labor (see Adam Smith).  That means we are wasting some of our brightest minds on tax avoidance rather than creating (doing something productive) economic benefit.  Imagine if the smartest CPAs and tax attorneys were set free to work on problems like public education, technology, or virtually any other social cause.  We are wasting not only money and time but talent.

Second, as it sits today, accurate compliance is virtually impossible.  This lack of compliance insures cheating, supports fraud, and all but guarantees that the government will not get all the money it is entitled to under the Code.  Tax code simplification will increase compliance and allow for rates to be reduced.  More people paying what they are supposed to equals less that everyone pays.

Third, the tax code punishes those who are needed most in this economy.  Small business owners are paying upwards of 50% of their income in taxes each year while large corporations pay closer to 35%.  This injustice is perpetuated by the lobbyist and special interest groups who save their clients millions.  Yet, our country was built on innovation and opportunity that is birthed in small business. Look at the largest companies in the S&P 500 today.  Nearly half of the top 10 did not exist as companies 15 years ago.

Finally, the tax code is artificially propping up certain industries at the expense of others. Think about wind power.  Wind power is the most expensive way to generate power.  So, the government gives tax incentives for people to build wind-based power plants.  Solar is over 10x more efficient than wind, so we can throw out the “clean” energy argument.  Wind farms are being constructed all over the country.  Hmmmm.  So, we are paying taxes, so that a few companies (the ones who make windmills) can get paid so that we (the citizens) can pay again when we utilize the energy.  That is stupid!

So, if abandoning his republican colleagues gains Trump the political capital needed to achieve tax reform, he will be remembered as a hero.  If not, he will remain just a loud-mouthed, vindictive, often offensive, terrible negotiator that he appears to be right now.

 

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