Trump’s “Make America Better” tax speech

President Trump spoke yesterday in Springfield, Missouri to motivate the need for Congress to pass a major tax reform bill. He outlined four reforms necessary to spur economic growth and wage increases:

• Tax simplification to make taxes easier to do, understandable, and free of special-interest loopholes;
• Reduction of corporate taxes to make the U.S. competitive again in the world market;
• Tax relief for middle-class families;
• Repatriation of U.S. corporate profits abroad without punitive taxation.

These are all worthy and essential goals. But surprisingly Trump’s speech violated his own principle numero uno in his book, The Art of the Deal, to Think Big. “If you’re going to be thinking anyway, you might as well think big,” he wrote.

Trump’s four proposals will make America Better — but not Great. What’s missing, at least explicitly, from his proposals, is:

• Immediate expensing of investments by businesses, thereby scrapping cumbersome depreciation schedules whose compliance costs are especially onerous to startups and small businesses;
• Taxation of income once only, thereby eliminating the double, triple, and sometimes even quadruple taxation of income, that discourages saving and investment. As a side benefit, this would also scuttle the hated death tax;
• Elimination of the tax provisions that favor debt over saving and equity, which make businesses and individuals more vulnerable to bankrupcy in a downturn;
• Implementation of a single flat tax rate for businesses and individuals, eliminating an important disincentive to marginal increases in both labor and business earnings and encouraging the gaming of the system by allocating income to whichever rate is lower.

A “yuge” “Make America Great” tax program would include those provisions as well, and give the package its well-known name since the early 1980s – the Hall-Rabushka flat tax, the gold standard for tax reform.

Go for it, please, Mr. President! Some Democrats, it should be noted, once favored this package, including California’s Governor Brown. They’ll reflexively oppose it now, but perhaps some Democrats can be peeled off if a major infrastructure bill and Obamacare reform are on the table at the same time so that side deals can be offered to the wavering.

If Hall-Rabushka were to be passed, 4%-plus growth rates for the economy would almost certainly be assured, barring sabotage by the Federal Reserve. It would also make Trump’s counterproductive protectionism unnecessary. U.S. production has moved abroad largely because of our miserable tax structure, not cheating by China, Germany, Mexico, etc.

But Trump will have to actively campaign for tax reform, and Republican Congressional leaders be on the same page as he is. Trump is an effective campaigner when he chooses to be. The 1986 tax reform passed only because Reagan campaigned widely for it. Trump can’t just make one speech in Missouri and then pass the ball to Congress to close the deal. That seems to be his default stance, and it’s a guarantee for failure.

Click here to go to the previous Founders Broadsheet post (“Thursday’s news (8/31/2017)”)