If the Republican Tax Plan Is Bad for Donald Trump, Then It’s Bad for All of Us

“…it’s not good for me. Believe me.“ Those are the words of President Donald Trump, the allegedly savvy negotiator and manipulator of media, about the Republican tax proposal. Officials in the Trump administration also pointed to language in that same plan that allows Congress to impose a surcharge on the highest earners as a way of ensuring that the proposed reform will deliver a tax code that is “at least as progressive” as the one we have now. 

So while Trump and the Republicans are going to great lengths to make sure their tax reform fails to reduce the burden on those with the greatest power to stimulate actual economic growth (yes, the rich), traditional media predictably gave the false impression that the GOP reform is all about slashing rich rates. As a New York Times editorial put it, Trump and the Republicans have “come up with a wish list of tax cuts for the wealthy.” That’s what the left always say, no matter how much Republicans neuter their reductions of the federal tax burden in order to please them.  

Ok, but if Trump is as rich as he says he is, and the Republican plan isn’t good for him, logic dictates it’s also not good for the United States. Much as the overly sensitive want to wish it otherwise, economic growth and prosperity that’s enjoyed by all springs from reducing the tax burden inflicted on those with the most money, and/or those with the greatest potential to earn a lot of money. 

The Rich Benefit Everyone

If readers doubt the above, they need only consider the car, the air conditioner, the computer on which they’re reading this op-ed, or the supercomputer that sits in their pockets in the form of the smartphone. Does anyone seriously think that the innovators who mass produced the previously mentioned goods on the way to broad affordability were typical and unassuming middle earners? Let’s be serious.  The people who change how we work and live become very rich for doing so. Their wealth is an effect of their having removed unease from our lives. Since it is, why are the Republicans and Trump going out of their way to maintain – and possibly increase – the existing rates of taxation on the well-to-do? In Trump’s case, if he’s really and truly the genius developer and entrepreneur that he says he is, why is he so agreeable about having the fruits of his genius taken away?

The rich, by virtue of being rich, have lots of money. The response from some, and this includes those who would prefer a much smaller federal government, might be that people like Jeff Bezos, Warren Buffett, Bill Gates and Trump don’t think about taxation when they set about innovating.  Fair enough, there’s likely some or even a lot of truth to the latter. So driven are the entrepreneurial that the incredible computers and phones created, the unmet consumer needs met, and the tall buildings built, are the true rewards. Money is, well, money.  Ok, but that still misses the point.

Lest we forget, there are no jobs, no businesses and no life-changing innovations without investment first. Nike founder Phil Knight recalls in Shoe Dog that the first eighteen years of Nike’s existence were defined by nightly insomnia owing to his fear that a lack of cash would put his company out of business. And while it’s not true that a successful streak of winning in Las Vegas saved a nascent FedEx from bankruptcy, founder Fred Smith acknowledges that the wiring of $27,000 in Vegas winnings back to Memphis gave the deeply-in-debt company a much-needed psychological boost. What’s important is that Knight and Smith’s flirtations with bankruptcy are the norm for the great businesses. Behind every multi-billion dollar company is a story (or many stories) of near bankruptcy on the way to fortune. 

The above is intensely relevant to any discussion of tax reform simply because the rich, by virtue of being rich, have lots of money. Precisely because they can’t spend it all, they alone have the means to put their capital to work so that the Knights and Smiths of tomorrow will have greater odds of surviving the always lean early years, and sometimes decades. Despite the truth that there’s no economic progress without growth capital that the rich have more of than anyone else, the allegedly growth-oriented Republicans continue to run away from the kind of tax cuts that would do the most to boost the rich, and by extension enhance the investment that benefits everyone. The obvious reply to this is that the media would crucify them if they actually reduced the burden on those with real wealth, but then as the previously mentioned Times editorial makes plain, they’re already crucifying them for allegedly writing up a “wish list” for the rich.  In that case, why not – just once – do just that? If so, the genius of tax cuts will finally become apparent to all but the witless. 

Taxing the Rich Is a Bad Idea

More broadly, why, when it’s an historical truth that the great life-changing advances nearly always enrich their creators and by extension expand the pool of available growth capital, is the tax code written to shrink the availability of that growth capital in response to immense wealth creation? If it’s an accepted truth that the great innovations result from entrepreneurs being matched with capital, why craft a tax code that quite literally exists to shrink capital availability via higher tax rates mindlessly foisted on those with the most capital to match with entrepreneurs?

The media are reporting on huge tax cuts for the rich, the Republicans and Trump are explicitly saying their tax proposal won’t accrue to them. Considering the above questions, readers should never forget that every dollar taken in by Congress expands the federal government’s control over the economy. Yet Trump and the Republican Party continue to assure us that their tax bill won’t shrink government revenues. Instead, they’re literally bragging about how their tax plan will maintain – and likely expand – a number of dollars that will flow to the U.S. Treasury, and by extension, Congress. Yes, you read that right, even though the media are reporting on huge tax cuts for the rich, the Republicans and Trump are explicitly saying their tax proposal won’t accrue to them, and may actually harm them. 

Thinking about all this, it’s worth asking where’s the outrage? For the Republicans to say they’re not going to reduce the tax burden on the very individuals who, by their own statistics account for the vast majority of federal revenue, is for the same Republicans to quietly acknowledge that they have no intention of reducing taxes very much. Government spending is the truest tax on the economy, it’s a function of revenues flowing into that same government, but Republicans have proven timid about doing anything to actually shrink the flow of money into Washington. 

So while the Republican tax plan is better than nothing (the proposed abolishment of the estate tax is hugely bullish as this column extolling capital formation ideally indicates), it could be so much better. The problem is that neither Republicans nor Democrats want to give up the power they exert over the economy. And while their rhetoric is different from that of the Democrats, the sad fact that Republicans promise to maintain confiscatory tax rates on the rich in concert with federal revenues in excess is an explicit sign that they aim to solidify and extend Washington’s control over the economy, not shrink it as they’ve long promised. 

Reprinted from RealClearMarkets