Topic: Tax and Budget Policy

Assessing Jeb Bush’s Pro-Growth Tax Plan

In my 2012 primer on fundamental tax reform, I highlighted the three biggest warts in the current system.

1. High tax rates that penalize productive behavior such as work and entrepreneurship.

2. Pervasive double taxation that undermines saving and investment.

3. Corrupt loopholes and cronyism that lure people into using resources inefficiently.

These problems all need to be addressed, along with additional problems with the internal revenue code, such as worldwide taxation and erosion of constitutional freedoms and civil liberties.

Based on these criteria, I’ve already reviewed the tax reform plan put forth by Marco Rubio. And I’ve analyzed the proposal introduced by Rand Paul.

Now let’s apply the same treatment to the “Reform and Growth Act of 2017” that former Florida Governor Jeb Bush has unveiled in today’s Wall Street Journal.

Big Problems with Anthony Atkinson’s “Inequality: What Can Be Done?”

“The godfather of inequality research,”  is how The Economist describes septuagenarian  British economist Anthony Atkinson. A frequent co-author with Thomas Piketty and Joe Stiglitz, Sir Atkinson has written a book about inequality which a  New York Times reviewer described as a “flurry of largely recycled policy proposals.”   Inequality: What can be done? is all about “unapologetic support for aggressive government intervention,” says The Economist, and “a throwback to the 1960s and 1970s.” 

There is no need to buy the book, because the following summary – “15 Proposals from Tony Atkinson’s book ‘Inequality: What can be done?’ – is more than enough.  Each Proposal is in the author’s own words, but followed by my own view of Problems with those plans.  [I skip Proposals 9-11, which are just inflated versions of policies similar to those in the U.S. – the earned income credit, estate & gift tax, and property tax.]

Higher Tax Rates and Lower Revenues 1925-36

My recent Wall Street Journal op-ed, “Hillary Parties Like It’s 1938,” is not just about FDR’s self-defeating “tax increases” in 1936-37.  It is also about the particularly huge across-the-board increase in marginal tax rates the Herbert Hoover pushed for and enacted retroactively in 1932.   The primary motive in 1932, as in 1936, was to raise more revenue.   Federal spending under President Hoover doubled from 3.4% of GDP in 1930 to 6.8% in 1932, and he believed that unprecedented spending spree required that tax rates be even more than doubled to “restore confidence.”

Unfortunately, things did not quite work out as planned.  Total federal revenues fell dramatically to less than $2 billion in 1932 and 1933 – after all tax rates had been at least doubled and the top rate raised from 25% to 63%.  That was a sharp decline from revenues of $3.1 billion in 1931 and more than $4 billion in 1930, when the top tax was just 25%.  

Some may object that this is unfair, arguing that revenues should be expressed as a share of GDP because GDP fell so sharply in 1932 and 1933.  But that begs a key question.  Comparing the drop in revenues to the even deeper drop in GDP would make sense only if the depth and duration of the 1932-33 drop in GDP had absolutely nothing to do with higher tax rates (including Smoot-Hawley tariffs).  Yet neither Keynesian nor supply-side economics would consider huge tax hikes are so harmless (though Keynesians, seeing no revenue gain, might come to the paradoxical conclusion the Hoover actually cut taxes).  

In any case, dividing weak revenues by even weaker GDP doesn’t help support the conventional wisdom that higher tax rates always bring higher revenues. Revenues fell even as a share of falling GDP –  from 4.1% in 1930 and 3.7% in 1931 to 2.8% in 1932 (the first year of the Hoover tax increase) and 3.4% in 1933. That illusory 1932-33 “increase” was entirely due to less GDP, not more revenue. 

Does Donald Trump Think Washington Politicians Should Have More of Our Money to Prop Up the Entitlement State?

I have a very straightforward rule when assessing politicians. Simply stated, if they are open to tax hikes, then it’s quite likely that they have no desire to control the size, cost, and power of the federal government.

Based on that rule, I’m skeptical about Donald Trump.

To understand my doubts, here are some passages from a story on the topic in the New York Times.

For years, Republicans have run for office on promises of cutting taxes… But this election cycle, the Republican presidential candidate who currently leads in most polls is taking a different approach… Mr. Trump has…suggested he would increase taxes on the compensation of hedge fund managers. And he has vowed to change laws that allow American companies to benefit from cheaper tax rates by using mergers to base their operations outside the United States.

These policy positions are raising a lot of eyebrows.

“All of those are anti-growth policies,” said David McIntosh, the president of the Club for Growth… “Those aren’t the types of things a typical Republican candidate would say,” said Michael R. Strain, a scholar at the conservative American Enterprise Institute, referring to the candidate’s comments on hedge funds, support for entitlement spending and the imposing of trade tariffs.

And Trump’s failure to sign the no-tax-hike pledge exacerbates the concerns, particularly when combined with his inconsistent statements on tax reform.

Mr. Trump and former Gov. Jeb Bush of Florida are the only leading Republican candidates who have not signed a pledge to not raise taxes. …In an interview with Fox News last week, Mr. Trump said a flat tax would be a viable improvement to America’s tax system. Moments later, he suggested that a flat tax would be unfair because the rich would be taxed at the same rate as the poor.

Byron York of the Washington Examiner writes about Trump’s fiscal policy in the context of traditional Republican orthodoxy.

Trump is preparing a tax proposal that will again set him far apart from the party’s powers-that-be. …Trump has been sending signals that his tax proposal, which he says will be “comprehensive,” will include higher rates for some of the richest Americans, a position generally at odds with Republican orthodoxy. “I want to see lower taxes,” Trump said at an appearance in Norwood, Mass., on Friday night. “But on some people, they’re not doing their fair share.”

And if his campaign manager is accurately channeling Trump’s views, the candidate even equates higher taxes with making America great.

Trump campaign manager Corey Lewandowski would say little about Trump’s intentions, but noted that “Mr. Trump has said that he does not mind paying what is required to make our country great again.” Raising taxes on anyone, even the super rich, has generally been anathema to Republicans for a generation.

Wow, what’s next, a Biden-esque assertion that higher tax payments are patriotic?!?

Solyndra: A Case Study in Green Energy, Cronyism, and the Failure of Central Planning

Back in 2011 I wrote several times about the failure of Solyndra, the solar panel company that was well connected to the Obama administration. Then, as with so many stories, the topic passed out of the headlines and I lost touch with it. Today, the Washington Post and other papers bring news of a newly released federal investigative report:

Top leaders of a troubled solar panel company that cost taxpayers a half-billion dollars repeatedly misled federal officials and omitted information about the firm’s financial prospects as they sought to win a major government loan, according to a newly-released federal investigative report.

Solyndra’s leaders engaged in a “pattern of false and misleading assertions” that drew a rosy picture of their company enjoying robust sales while they lobbied to win the first clean energy loan the new administration awarded in 2009, a lengthy investigation uncovered. The Silicon Valley start-up’s dramatic rise and then collapse into bankruptcy two years later became a rallying cry for critics of President Obama’s signature program to create jobs by injecting billions of dollars into clean energy firms.

And why would it become such a rallying cry for critics? Well, consider the hyperlink the Post inserted at that point in the article: “[Past coverage: Solyndra: Politics infused Obama energy programs]” And what did that article report?

A Very Simple Plan to Balance the Budget by 2021

Earlier this month, Americans for Prosperity held a “Road to Reform” event in Las Vegas.

I got to be the warm-up speaker and made two simple points.

First, we made a lot of fiscal progress between 2009 and 2014 because various battles over debt limits, shutdowns, and sequestration actually did result in real spending discipline.

Second, I used January’s 10-year forecast from the Congressional Budget Office to explain how easy it would be to balance the budget with a modest amount of future spending restraint.

Here’s my speech:

Americans Want Politicians to Tackle Debt

A new poll by the Peter G. Peterson Foundation finds that 80 percent of Americans think that rising federal debt should be a top priority of policymakers. The poll also finds that:

… an overwhelming majority of voters (85%) are now calling for the President and Congress to spend more time addressing our nation’s long-term fiscal future. More than two-thirds (68%) say their concern about this vital issue has increased over the last few years, including nearly one-half (46%) who say it has increased “a lot.” Majorities of voters across party lines, including 53% of Democrats, 69% of Independents, and 84% of Republicans, say that their concerns about the debt have deepened in recent years.

The spokesman for the Peterson Foundation said that Americans “…want candidates to put forward plans to address our nation’s long-term fiscal challenges … Americans understand that putting our fiscal house in order is vital to ensure a growing, prosperous economy and are calling for more action from their leaders.” I agree with that, and so does the centrist group “First Budget,” which is trying to pin down candidates on fiscal specifics.