Don’t Fall for Tax Reform

Please don’t fall for tax reform. 

It’s a con, and a shell game. It’s a promise every presidential candidate makes, including Trump. But we ought to be suspicious of grandiose talk about Congress reforming anything. Tax reform proposals always evade and obscure the real issue, which is the total cost– financial, compliance, and human– taxes impose on society. The fundamental questions about war and entitlements and state power go unasked. We never consider whether Congress really needs to spend more than $4 trillion in 2018, or how it managed to double federal spending in only 15 years. 

Since those questions are never seriously raised, every proposal necessarily pits various interest groups against each other in a deadly game to make sure the other guy pays. After all, that $4 trillion has to come from somewhere. Hence we read articles about “winners and losers” in the Wall Street Journal, hapless tax serfs in a zero-sum world.

Other articles, including this one from Esquire, demonstrate how unlikely any substantive tax changes really are. Any talk of eliminating the senseless estate tax, for example, gives rise to paroxysms of anger and talk of “plutocrats” (when did Esquire become a bizarre leftwing mouthpiece instead of a men’s style mag?):

The Senate’s tax plan emerged full-grown from the forehead of Mania on Tuesday. As is customary for some documents, it is vague in almost all its major details. But we do know that it eliminates the estate tax entirely — a plutocratic goodie that probably caused a postmortem emission from the grave of John D. Rockefeller that looked like the gusher from his first oil well — and it gives to the middle class with one hand while taking it away from the other, thereby robbing Peter to bribe Paul. Ultimately, the estimates are that it will cost the federal treasury $1.5 trillion over the next decade, and the people pushing it decline to say how they’re going to make that cut pay for itself, proving that the Republicans at least continue to adhere to the first half of the blog’s First Law of Economics, to wit: Fck The Deficit. The only details that are clear about the plan are the ones that benefit the country’s real owners.

Note the old “cost to government” argument, which never seems to go away. And a very heartfelt concern, I’m sure, about deficits. This is why I’m exceedingly skeptical Congress will pass overarching tax legislation. The last true “reform,” in the sense it significantly altered the tax code, passed in 1986. In today’s political climate there is little appetite for debating the tax treatment of labor vs. capital, earned income vs. unearned income, retail sales vs. flat topline income, renting vs. owning, etc. And we should not forget that taxes are a form of carrot and stick, a way for Congress to reward and punish various constituencies. It makes little sense for them to give up this power, just as it make little sense for lobbyists to lobby themselves out of a job. 

Whole armies of such lobbyists, journalists, accountants, and tax lawyers inevitably go crazy analyzing every new tax reform proposal. They spend hundreds of hours writing about what it will mean, as though existential questions are at stake. But what emerges from Congress a year or so later, if in fact anything emerges at all, generally looks nothing like the earlier proposals. It is almost always milder and worse than promised, especially when “tax cutting” Republicans are in office. But nobody runs for office promising to tinker with the tax code.

As an aside, presidents should have nothing to do with tax policy. The White House staff should have nothing to do with it. The Treasury department and IRS should have nothing to do with it. When we talk about any president’s “policies,” we act as verbal accomplices to a great crime, namely the rise of executive power during the 20th century. The imperial presidency has not been good for America, and we should resist its language — even the implication that executives (or their staff) should drive legislation. Trump can veto tax bills or sign them, nothing more.

When it come to tax reform, we only need to ask one question: does the proposal reduce or eliminate an existing tax (or taxes)? Beyond that bright line test, complexity serves only as a tool for Congress to obscure the truth. If a proposal is complex it’s probably no good.

This article was taken from the Mises Wire which appeared at:  https://mises.org/blog/dont-fall-tax-reform