Trump and Taxes: A Bush-Like Plan from “The Donald”

It’s been a challenge to assess Donald Trump’s fiscal policies since they’ve been an eclectic and evolving mix of good and bad soundbites.

Though I did like what he said about wanting to pay as little tax as possible because the government wastes so much of our money.

On the other hand, some of his comments about raising tax burdens on investors obviously rubbed me the wrong way.

But now “The Donald” has unveiled a real plan and we have plenty of details to assess. Here are some of the key provisions, as reported by the Wall Street Journal. We’ll start with the features that represent better tax policy and/or lead to lower tax burdens, such as somewhat lower statutory tax rates on households and a big reduction in the very high tax rate imposed on companies, as well as a slight reduction in the double tax on capital gains.

…no federal income tax would be levied against individuals earning less than $25,000 and married couples earning less than $50,000. The Trump campaign estimates that would reduce taxes to zero for 31 million households that currently pay at least some income tax. The highest individual income-tax rate would be 25%, compared with the current 39.6% rate. …Mr. Trump also would cut the top capital gains rate to 20%, from the current 23.8%. And he would eliminate the alternative minimum tax. …For businesses, Mr. Trump’s 15% rate is among the lowest that have been proposed so far.

But there are also features that would move tax policy in the wrong direction and/or raise revenue.

Most notably, Trump would scale back certain deductions as taxpayers earn more money. He also would increase the capital gains tax burden for partnerships that receive “carried interest.” And he would impose worldwide taxation on businesses.

To pay for the proposed tax benefits, the Trump plan would eliminate or reduce deductions and loopholes to high-income taxpayers, and would curb some deductions and other breaks for middle-class taxpayers by capping the level of individual deductions, a politically dicey proposition. Mr. Trump also would end the “carried interest” tax break, which allows many investment-fund managers to pay lower taxes on much of their compensation. …The Trump plan would raise revenues in at least a couple of significant ways. It would limit the value of individual deductions, with middle-class households keeping all or most of their deductions, higher-income taxpayers keeping around half of theirs, and the very wealthy losing a significant chunk of theirs. It also would wipe out many corporate deductions. …The plan also proposes capping the amount of interest payments that businesses can deduct now, a change phased in over a long period, and would impose a corporate tax on future foreign earnings of American multinationals.

Last but not least, there are parts of Trump’s plan that leave current policy unchanged.

Which could be characterized as “sins of omission” since many of these provisions in the tax code - such as double taxation, the tax bias against business investment, and tax preferences - should be altered.

…the candidate doesn’t propose to end taxation of individuals’ investment income… Mr. Trump would not…allow businesses to expense all their new equipment purchases, as some other Republicans do. …All taxpayers would keep their current deductions for mortgage-interest on their homes and charitable giving.

So what’s the net effect?

The answer depends on whether one hopes for perfect policy. The flat tax is the gold standard for genuine tax reform and Mr. Trump’s plan obviously falls short by that test.

But the perfect isn’t the enemy of the good. If we compare what he’s proposing to what we have now, the answer is easy. Trump’s plan is far better than the status quo.

Now that I’ve looked at the good and bad policies in Trump’s plan, I can’t resist closing with a political observation.  Notwithstanding his rivalry with Jeb Bush, it’s remarkable that Trump’s proposal is very similar to the plan already put forth by the former Florida Governor.

I’m not sure either candidate will like my interpretation, but I think it’s flattery. Both deserve plaudits for proposing to make the internal revenue code less onerous for the American economy.

P.S. Here’s what I wrote about the plans put forth by Marco Rubio and Rand Paul.

Scott Walker Proves that Neoconservative Pandering Is No Route to White House

There may be no sadder political spectacle than a Republican governor running for president. He knows nothing about foreign policy. But he panders to Neocons who dominate the GOP and expect the nominee to advocate perpetual war. Then his presidential campaign collapses.

So it was with Rick Perry. Now it is with Scott Walker, who last week abandoned his presidential bid.

The Wisconsin governor won some significant domestic political victories. He tried to compensate for his nonexistent foreign policy credentials by claiming to be tougher and meaner than any other Republican presidential candidate.

Walker assumed that to prosper “we need a safe and stable world.” Which was simple nonsense. When has the earth been “safe and stable”?

Naturally, Walker lauded Ronald Reagan, who deployed the military in only three limited actions. Reagan was appalled by the possibility of war. Neocons denounced him as an appeaser for dealing with the Soviet Union’s Mikhail Gorbachev and withdrawing from Lebanon’s civil war.

Walker contended that “America is not safer” than seven years ago. True, but mainly because of the dangerous military interventions he and other Republican candidates reflexively supported.

The Wisconsin governor talked in clichés: “We just need to lead again,” he declared. The U.S. did lead in Iraq, with disastrous results.

On the Islamic State Walker declared: “I’d rather take the fight to them than wait for them to bring the fight to us.” Alas, Walker confused ISIS with al-Qaeda. The latter attacked the U.S. The former wanted to create a state, which gave ISIS reason not to attack America—until the U.S. joined the Mideast’s latest sectarian war. Yet, argued Walker: “we have to be prepared to put boots on the ground.”

Walker wanted the U.S. to jump into the Syrian quagmire: train more “moderate” guerrillas, establish a no-fly zone, and create “a broader, U.S.-led regional coalition, with real buy-in and iron-clad guarantees from our allies that they will help us shoulder the burden.” The first has been a bust. The second would trigger much deeper American military involvement. The third is a joke.

The governor promised to tear up President Obama’s nuclear agreement on his first day in office. Then, he said, he would apply “crippling economic sanctions and convince our allies to do the same.”

How? America’s friends would be less than pleased with Washington leaving them high and dry. Nor would Tehran be likely to yield to American pressure, having responded to every previous U.S. rebuff by expanding its nuclear activities.

Walker also pledged to continue treating American defense policy as welfare. He echoed other GOP contenders in arguing that “we need to stand with our friends” since “our allies are among our greatest source of strength.” In fact, Washington collects allies like Facebook Friends. The Europeans, South Koreans, and Japanese all could defend themselves but don’t.

Of course, Walker wanted to spend more on the military, even though very little of the Pentagon’s effort actually goes for America’s defense. The bulk is devoted to defending wealthy allies, rebuilding failed societies, propping up dictatorial allies, engaging in foreign social engineering, and undertaking other similarly dubious tasks.

Being a superpower means America has interests everywhere, but few of them are vital or even important. Being a leader means distinguishing between critical and minimal interests.

 “America will not be intimidated,” Walker insisted. But that’s not the issue. Avoiding involvement in unnecessary wars is the issue. He claimed: “we can no longer afford to be passive spectators while the world descends into chaos.”

But as I pointed out for Forbes online, “there is little the U.S. can do to create order out of chaos. Far more often Washington inadvertently delivers disaster. It would be far better to stay out of foreign imbroglios instead.”

Other candidates likely soon will follow Walker out of the presidential race. Posing as uber-hawks is likely to work no better for them than for Scott Walker.

People Should Listen to Pope as a Spiritual Rather than Political Leader

Pope Francis has finished his U.S. visit and his message went well beyond the Catholic faithful. As he declared in the recent encyclical Laudato Si, he was addressing “every person living on this planet.”

The Pontiff’s predominant appeal is spiritual, not political. His commitment to the poor and our shared world is obvious. Most people yearn for meaning in their lives which no government can provide.

However, the papal visit generated controversy because Pope Francis appears to be a man of the Left.

Of course, religious imperatives may have political implications. For instance, Christian Scripture and church tradition require concern for the poor and environment. But there is no specific “Christian” answer to the many social ills.

Unfortunately, the Holy Father sometimes blurs the line between the spiritual and the political. The Pope overestimates the wisdom and efficacy of politics while minimizing the power and virtue of markets.

Consider environmental issues. Stewardship is an important Christian responsibility. However, the relationship between humans and the world around them always has been complex.

The pontiff assumes the worst regarding the environment. Yet much of the environmental news actually is quite good.

Important environmental problems remain, of course. However, capitalism helps answer even the toughest questions. For instance, greater economic development and innovation provide the means to solve often complex problems. Markets also promote efficient trade-offs, highlighting the benefits and costs of various policies.

Yet in Laudato Si the Pontiff appeared to suggest the common good yields only one correct environmental standard. However, facts are not a matter of faith.

For instance, the consensus that the climate is warming does not extend to how much and how fast temperatures are likely to rise, as well as how great the likely social impact and how best to cope with those effects. Even if one believes temperatures are rising and the consequences will be serious, there still are many possible solutions.

The most cost-effective strategy is adaptation, adjusting to specific problems. What is best is a matter of man’s wisdom rather than God’s commandment.

When markets do not operate and property rights do not exist, some government action is necessary to ensure environmental protection. Nevertheless, policymakers must recognize the inherent infirmities of politics. There is no guarantee that increasing the power of parliaments, bureaucracies, and courts will solve environmental or other social problems.

Yet the Pope in Laudato Si largely ignored the government’s own woeful environmental record. Not everyone who claims to represent the common good does so; politicians and environmentalists are no more virtuous than businessmen and conservatives.

Perhaps the most important trade-off ignored by the Pope is the importance of the free economy in providing wealth and opportunity—which improves the chance of living a fulfilling life—for the poor and disadvantaged.

Thus, while the pontiff’s moral judgments deserve respect, his economic opinions warrant less consideration. His formative economic experience came in Argentina, a statist kleptocracy which enshrined injustice. The principal lesson from Argentina and similar systems should be the importance of rejecting political restrictions on the economy.

As I wrote for the American Spectator: “Economic liberty, that is, freedom to work, invest, trade, and create is an outgrowth of the wondrous creativity with which God has infused mankind.” Still, the pontiff helpfully reminded us that there is far more to life than economic growth.

Pope Francis deserved a warm welcome in the U.S. He is an important moral and spiritual leader who speaks to people’s deepest human needs.

However, Americans should respond more skeptically when the pontiff moves from spiritual to political matters. His status as the Vicar of Christ gives him no special qualification as a political pundit.

The Passing of a “Progressive Originalist”

Over the weekend, I was shocked and saddened to learn that Doug Kendall, founder and president of the Constitutional Accountability Center, had died from complications of colon cancer. I knew that Doug had had some health problems earlier in the year, but wasn’t aware of their continuing severity.

Doug started CAC, a public-interest legal organization devoted to the idea that the text and history of the Constitution shows our Founding document to be profoundly progressive, as a successor to his more narrowly focused Community Rights Counsel. He, along with his colleagues, have become among the closest “frenemies” of Cato’s Constitutional Studies Center.

As Randy Barnett notes, even though Doug and CAC are typically at loggerheads with libertarian thinking, they compete on the same originalist playing ground. The battle is joined fairly and honestly, and even when I’ve most vehemently disagreed with Doug, Elizabeth Wydra, David Gans, Simon Lazarus, Brianne Gorod, and the rest of CAC’s formidable team, I’ve known that they approach their vocation with rigor and integrity. (Alas, I can’t say this about all the critics of Cato’s legal positions.)

And there are times when we’ve been aligned. The battle to restore the proper understanding of the Privileges or Immunities Clause in the context of the right to keep and bear arms (McDonald v. Chicago) was one. Same-sex marriage was another, including when we joined together to file briefs in Perry v. Hollingsworth and United States v. Windsor to make common cause regarding the Equal Protection Clause. (As we illustrated in the 2012-2013 Cato Supreme Court Review, Cato and CAC don’t always agree, but when we do, it’s the most interesting brief in the world.) I’ve often joked that after taking on guns and sex together, with a focus on two of the Fourteenth Amendment’s main provisions, the next time we join forces will be on a drug case relating to the Due Process Clause.

Doug Kendall was a man of principle who lived his ideals. My condolences go out to his wife, daughter, and extended family and friends.

TTIP Could Rein in the Abuse of Tax Incentives to Attract Foreign Investment

I’ve written often about the global competition to attract foreign investment, and have made the point that investment flows to jurisdictions with good policies in place. Globalization of production and the mobility of capital mean that national policies (regulations, tax policy, immigration, trade, energy, education, etc.) are on trial, with net investment inflows rendering the verdicts.

But some countries (and some U.S. states) use tax holidays and other forms of tax forgiveness, in lieu of adopting good policies, to attract investment, which burdens taxpayers and subverts the process of matching investment to its optimal location. These are subsidies – like so many other programs – that distort markets and should be discouraged.

In today’s Cato Online Forum essay, which is associated with the TTIP conference taking place on October 12, Ted Alden from the Council on Foreign Relations puts forward a strong proposal to end this madness via the Transatlantic Trade and Investment Partnership negotiations.

Read it.  Provide feedback.  And please register to attend the conference.

$1,500 Sandwich Illustrates How Exchange Raises Living Standards

What would life be like without exchange or trade? Recently, a man decided to make a sandwich from scratch. He grew the vegetables, gathered salt from seawater, milked a cow, turned the milk into cheese, pickled a cucumber in a jar, ground his own flour from wheat to make the bread, collected his own honey, and personally killed a chicken for its meat. This month, he published the results of his endeavor in an enlightening video: making a sandwich entirely by himself cost him 6 months of his life and set him back $1,500.

(It should be noted that he used air transportation to get to the ocean to gather salt. If he had taken it upon himself to learn to build and fly a plane, then his endeavor would have proved impossible).

The inefficiency of making even something as humble as a sandwich by oneself, without the benefits of market exchange, is simply mind-boggling. There was a time when everyone grew their own food and made their own clothes.  It was a time of unimaginable poverty and labor without rest.

The greater the number of people involved in exchange, the more beneficial the process becomes. This morning, thanks to international trade, I am drinking coffee grown in Latin America, viewing a computer screen with eyeglasses made in Europe, and typing this blog post on a keyboard made in Asia. Fortunately, freedom to trade internationally has improved, on average, around the world. Increased trade has helped raise living standards and decrease global poverty.

“Take a Valium, Lose Your Kid, Go to Jail”

During pregnancy “occasional, small doses of diazepam (the generic name for Valium) are considered safe,” writes Nina Martin in a new ProPublica investigation. “But one morning a few weeks later, when [Casey] Shehi was back at her job in a nursing home and the baby was with a sitter, investigators from the Etowah County [Alabama] Sheriff’s Office showed up at the front desk with a warrant. She had been charged with ‘knowingly, recklessly, or intentionally’ causing her baby to be exposed to controlled substances in the womb — a felony punishable in her case by up to 10 years in prison. The investigators led her to an unmarked car, handcuffed her and took her to jail.” 

Read the whole thing here to learn what happened next. “Shehi had run afoul of Alabama’s ‘chemical endangerment of a child’ statute, the country’s toughest criminal law on prenatal drug use.” It provides for imprisonment of up to ten years in cases where the developing baby has suffered no ill effects from an exposure, as in this case. More than 1,800 women have been arrested under its terms since its passage in 2006. 

In the 2001 case of Ferguson v. City of Charleston the Supreme Court ruled 6-3 that a joint state hospital-police program in Charleston, D.C., infringed the Fourth Amendment rights of pregnant women by subjecting them to drug screening without their knowledge or consent and relaying the results to authorities for prosecution. My colleague Tim Lynch wrote about that case here

You can explore Cato’s decades of research on the Drug War and its consequences for liberty here (adapted and expanded from Overlawyered).