Yes, change may be coming to America's tax code, and it's going to cost you MORE
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America's tax code may change, and it's going to cost you MORE

Posted April 05, 2017 06:00 AM by Daniel Horowitz woman pick-pocketing wallet
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Conservatives were told they must rush through a health care bill that doesn’t repeal Obamacare or heal the insurance market because there was an imperative to move on to tax reform. But much like with health care reform, the Trump administration and congressional Republicans never offered any details or philosophy behind their tax plan. We are now seeing that, once again, these “reform” proposals are more like interceptions than touchdowns.

Our tax code, much like our regulatory burden (which costs families $15,000 per year), punishes productivity, is too redistributive, socially engineers our economy, and has too much uncertainty. Yet, rather than lead with a plan that addresses these problems, Republicans are talking about raising taxes, and worse, opening up entirely new streams of revenue that will crush economic growth, job creation, and consumer pricing. Evidently, the projection of less than two percent growth for the indefinite future is too much for these people to handle. They are gunning for zero growth! 

The Washington Post reports today that the Trump White House is mulling a carbon tax and a value-added tax (VAT), which is a de facto national sales tax on consumers and businesses alike. After all, nothing screams blue-collar populism like driving up the cost of all products, energy, and basic goods sold at Walmart:

Administration officials are aware how politically divisive these ideas are, but they are searching for ways find new revenue sources.

The value-added tax, which is popular in many other countries, would serve as a kind of national sales tax, one that consumers would pay when they make purchases and that businesses would pay for supplies, services and raw materials. But many economists view a VAT as a tax that disproportionately hurts lower-income workers, who typically benefit from a progressive income-tax system.

A carbon tax would target the emissions of carbon dioxide and other greenhouses gases in the burning of gasoline, coal and other fossil fuels. Many Democrats support the creation of a carbon tax as a way to address climate change, but they couldn’t even reach an agreement on the issue when they had control of Congress and the White House during the early years of the Obama administration.

It’s as if we are in the twilight zone. This time into the Obama administration, they were voting on a Keynesian stimulus, cap and trade, and expanding government health care (SCHIP). Some things never change. 

Clearly, as the Post notes, some administration officials strongly oppose these proposals, but the concern for conservatives is that the lead players on tax issues — Steven Mnuchin, Gary Cohen, and Wilbur Ross — are all progressives. It’s hard to imagine any pro-growth tax plan emanating from that trio, and no tax plan would be worth the creation of these pernicious new revenue streams that strike at the lifeblood of our economy.

This rumor comes on the heels of months of negotiations in pursuit of yet another tax increase — the border adjustment tax (BAT) — championed by Ways and Means Chairman Kevin Brady, R-Texas. His proposal would open a new revenue stream by taxing imports and subsidizing exports. Aside from social engineering the economy, this plan would devastate consumers who rely on cheap products from retailers.

Concurrently, the president has voiced support for yet another pernicious tax hike on “carried interest.” Although proponents use demagoguery to single out evil wealthy hedge fund managers, this plan would tax the sale of ordinary private equity partnerships as full income (even though they are already paying annual income taxes on the business) instead of at the lower capital gains level. This will drive a stake through the heart of entrepreneurship and risk taking — the lifeblood of capital formation.

The only positive aspect to Republicans dabbling in progressive ideas is that it will finally get Democrats to hate taxes and worry about the cost of public spending.

A carbon tax, a VAT, a BAT, and raising taxes on investors are all bad ideas. It would be one thing if Washington were planning to abolish the income tax or the corporate tax altogether. But to add another revenue stream in return for a promise of some other tax cuts, which invariably make the code even more progressive … conservatives should not waste their time on this issue.

The seminal issue of our time, unlike during the Reagan era, is debt, dependency, and socialist health care. Not only will the leviathan bankrupt our country, but it is weighing down our economy to the point that the benefits even from legitimate tax reform will be somewhat muted. If Republicans are going to insist on pursuing the worst forms of taxation to pay for undefined “tax reform,” they should focus on actually reforming entitlements and dependency so that the budget scoring of future tax plans is not a problem.

In the meantime, Republicans should pursue a simple reduction in the corporate tax rate from 35% (or as high as 38.9%) to 25% without touching any deductions or creating disruptions. This will inject an immediate pro-growth shot into the economy at a time when it badly needs a recovery. And given that corporate taxes don’t even bring in that much revenue, a simple reduction to 25% (as opposed to 15%) is very achievable. Moreover, Democrats are already on record as supporting such an idea, and this would be a great way to call their bluff.

We’ve tried taxing and subsidizing our way into prosperity and it never works. The only positive aspect to Republicans dabbling in progressive ideas is that it will finally get Democrats to hate taxes and worry about the cost of public spending.

Editor's note: This article has been updated to correct a typographical in the headline.

Daniel Horowitz is a senior editor of Conservative Review. Follow him on Twitter @RMConservative.