Donald Trump Storm Chaser Network

Trump’s Terrible Tax Plan

The Los Angeles Dodgers won 104 games this year. They won three games in the World Series. They swept into game seven and fell flat on their face. I listened to the first inning and knew the game was lost for the Dodgers. It only took 3 pitches for me to know that the superstar pitcher who had been brought in late in the season just for this moment was a bust.

I find a disturbing parallel in the GOP Trump administration. They hold both houses of Congress.
They captured the White House in an upset for the ages. Now they are in position, it is time for them to deliver. The seventh game of the political World Series is in its early innings.

The GOP is closely emulating the Dodgers. They are crumbling in crunch time. Their attempt to overturn Obamacare produced a great deal of sound and fury but fell two votes short. Close, but close only counts in hand granades and horseshoes.

Now the GOP has brought their much balley-hooed tax reform plan out of the wings onto center stage and it is a joke. Like the outriders of doom in the first 3 pitches of game seven, it only took fifteen minutes to scan the Trump Tax plan and recognize it as a disaster. The best outcome one can hope for is for it not to pass and be sent back into committee to be studied for the rest of the term.

The Trump tax plan is not revenue neutral. That is a fatal flaw. There is no need to read further, it will not work. It cannot work.The US Government cannot afford it. We are broke. Obama maxed out our Federal credit cards by doubling the national debt in only eight years. This is an awe inspiring accomplishment largely ignored by the liberal press. Obama added as much to the national debt as President 44 as the combined efforts of his 43 predecessors. He blew the budget with his social engineering.

Trump has nothing to do with this but you have to play the hand you are dealt. If the GOP wants to cut corporate and personal income taxes by 5 trillion or so, they must find 5 trillion somewhere else.

A close look at the tax plan reveals the same old trickle down distorted economics dressed up in new clothes. Trump promised to help the middle class and the working man which is the reason I supported him. Now I feel that I have been conned. It appears that Trump thinks the working class are the rank and file millionaires that belong to his country clubs. The tax plan gives big tax cuts to the rich and it is supposed to trickle down to the poor. The tax cuts will enable one
of Trump’s friends to buy a couple of more polo ponies. This will of course create employment. Trump’s friend will have to hire someone to muck out the stable. The rich get the ponies and the poor get the horse pucky.

It would be a simple matter to make the tax cut revenue neutral by initiating a Federal Value Added Tax with the tax rate set at the level required to make up for the shortfall caused by the income tax cut.

The economic experts providing the intellectual cover fo the Trump tax plan are putting out the same old supply side garbage that has poured out of the GOP for the last twenty years. I have said before and I will say again, Supply Side Economics is pure bull. It is Sayes law, supply creates it own demand. That was disproved over 150 years ago but like a bad penny it keeps popping up again. Recently we had the intellectual joke of the Laffer Curve. This is Sayes law in new garb. It is what one would expect from the econ department at USC which is of course the University for Spoiled Children. I must admit my PhD from UCLA over on the better side of town might cause some bias. The Laffer curve holds that high tax rates reduce economic growth and low tax rates increase growth. Art Laffer offers this theory without a speck of data to back it up. In fact, the empirical data seems to show it has the major defect of not working. Reagan cut taxes and the national debt went up contradicting the Laffer curve. Every tax cut has raised the national debt. The data is in. Tax cut induced growth does not make up the lost revenue. Never has. Never will but the Laffer curve lives on because it is so simple a politician can understand it. There is no free lunch in government revenue. If you cut one tax drastically you had better raise another one to make up the shortfall because growth ain’t going to do it.

When you read the details of the GOP tax proposal it contains one bad idea after another. t provides a huge cut in corporate tax revenue with no offsetting gain. This is simply irresponsible.
It provides a tax cut for S Corporations. The fact that the middle class and working men do not have S corporations does not seem to bother Trump’s tax advisors. It seems he hired them from Alice in Wonderland. He could have gotten better economic advice from the Russians.

Perhaps the dumbest idea in the whole package is the elimination of the deduction for state and local taxes. This bit of financial vandalism is a payback for the Blue states of New York and California whose electoral votes went to the other side. Trump’s nitwit tax advisors are even looking at elimination of the home mortgage deduction which is a fundamental bedrock of the concept of home ownership for the masses.

In summary, like the Dodgers; as the national anthem played for the seventh game of the World Series, they were standing on the edge of greatness. One more step is all it would have taken but three pitches into the game it was clear that step was beyond them. With control of the White House and both houses of Congress, the GOP stands on the brink of greatness. Their tax plan shows that once again they are going to pull off a face plant into the mud. It doesn’t have to be this way but it seems it is.

Professor Joe Launie is a Professor Emeritus of Risk Management at California State University,
Northridge. His latest book is “The Road to the Ox Carts”, where he warns that continued abuse of the middle class by the government may lead to an insurrection.

4 Comments

  • Very well. Your academic opinion is that the tax reform plan is a bad deal for the middle class. I’m a student of history, believe that periods of economic prosperity in America ebb and flow with a boom roughly every 30 years or so. There was prosperity in the 50’s and the 80’s, I believe that we are due. I’m not even fully convinced President Trump is all that responsible for all the recent good economic news, but, since he is at the helm, he gets to take the credit. I see good times ahead for a sizeable portion of the middle class. History will be kind to one of us.

    • Thank you for your thoughtful comment. If history is to be kind to one of us, I hope it is you, the middle class needs a break. I also am a student of economic history. A Russian economist, Kondratioff (sp), found a 50 year business cycle.
      During the 1960’s I was a consultant for two major studies of the California Tax System. The first in 1964 was for the Democratic legislature. The second in 1968 was for the Republican Governor (Reagan). I know the Laffer curve does not work because we tried it.
      I am afraid that the GOP tax reform bill was written more by politicians than by economists. The income tax code is over 600 pages, each paragraph the result of pressure from some interest group. Were I given the task of reform I would keep the tax code book firmly shut and just modify the final tax amount up or down for each income group. To meet my goal of revenue neutrality would
      impose a Value Added Tax with the rate set to meet the income tax reduction. Remember, the personal income tax was unconstitutional. It was imposed as a result of one of the worst amendments to the constitution ever passed.

  • I’m not sure what to make of this article. The World Series analogy is definitely a confusing stretch considering the subject matter is tax reform. Even beyond the surface, the two are severely incompatible.

    As for your assessment on the tax plan, I’m also skeptical. President Trump won over the middle class despite having no political experience because of his business credentials. The maverick was worth the risk, and in his first year in office President Trump is making good on his campaign promise. Chances are that the tax reform plan is in the early phase, and that there is much more to add and subtract to the plan before it is eventually enacted.

    The Democrats, quite plainly, can not afford to oppose tax reform. The middle class wants the tax reform, and overzealous Democratic opposition would be political suicide. The Democrats, quite simply, lack both the power and the spine to oppose the wishes of President Trump’s middle class constituency.

    There might be some kinks to iron out, but consumer confidence and the economy are in a good (albeit cautious) place right now. The tax reform will eventually come, like it or not. As economically learned as you are, Professor, President Trump’s wealth of business and economic experience dwarves yours by a skyscraper. If he is willing to make good on his tax reform campaign promise in his first year, then it would be foolish to stake your professional opinion on some World Series-flavored nitpicking.

    The middle class wants tax reform. They will have it.

    • Sorry my article confused you Trump has business experience but he is not a public finance economist. I am. The middle class needs a tax cut. This plan helps the upper class, other than those in California and New York. The Laffer curve fantasy that the tax cut is self funding is wrong. This tax cut would help the upper class, leave the middle class worse off, trash the citizens of California and New York and increase the national debt. We deserve more.

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About the author

Professor Joe Launie

Professor Joe Launie

In 1951, at the age of 18 I enlisted in an all volunteer military intelligence organization. My Korean war experience differed from most. I obtained a Bachelor's degree in Sociology at Northeastern University on the GI Bill. I obtained a Masters Degree in Economics, at University of Nevada, Reno and my PhD in Financial Economics at UCLA. I retired from CSUN in 2000 as a Full Professor after a 35 year career. I have been a litigation consultant since 1978 and have been a consultant to the California Legislature, Public Utilities Department, and Attorney General's Office. I was principal investigator on a study of Punitive Damages done for the Texas Public Policy Foundation headed by George W. Bush. i have more than 75 publications. My latest book is entitled, "The Road to the Ox Carts".