The present federal income tax code creates a massive amount of wealth inequality by allowing the extremely wealthy to escape taxation by passing its wealth, tax-free to future generations, who again, with proper planning, can pass it to their heirs, tax-free. These tax provisions allow the wealthiest 10% of Americans to control $93.8 trillion of the nation’s wealth, more than double the $40.3 trillion in the hands of the remaining 90% of Americans.” By returning to a more transparent and fair tax code, the government can raise the money it needs to operate, create more jobs for its people, and lower the marginal tax rates for all Americans.

This transformation can be accomplished by simplicity.

First, to create jobs, eliminate income taxes on corporations. Currently, the tax code allows corporations to manipulate the tax system to obtain government subsidies and disadvantage competitors. The U.S. can stop these tax games by junking corporate taxes.

Corporations are merely organizations to generate wealth by providing society with needed products and services. They pass the generated wealth to its owners, managers, employees, suppliers, consultants, or others who provide goods and services. As pass-through organizations, the taxes should be imposed on those who are paid for the labor, goods, and services provided or contracted for and those receiving the dividends and capital gains from the corporations.

By eliminating the federal corporate income tax, the United States immediately becomes the most tax-competitive nation in the world. If the claims of the corporations are correct—that the taxes are a real burden on their world competitiveness—eliminating corporate taxes should attract businesses from all over the world, so the U.S. can make products for the world and create massive numbers of new jobs in America. With all the new jobs, there will be new wealth, and, yes, more tax revenue for the government. The revenue will come from those paid by the corporations.

Second, make all gross income taxable with few deductions, and the fewer the better.

While this might seem like an impossible idea, it merely follows Amendment XVI of the US Constitution, which reads: “The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived…”

Moreover, “gross income” as defined in the current Internal Revenue Code at title 26, section 61 means:

“. . .all income from whatever source derived including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items (2) Gross income derived from business (3) Gains derived from dealings in property (4) Interest (5) Rents (6) Royalties (7) Dividends (8) Alimony and separate maintenance payments (9) Annuities (10) Income from life insurance and endowment contracts (11) Pensions (12) Income from discharge of indebtedness (13) Distributive share of partnership gross income (14) Income in respect of a decedent (15) Income from an interest in an estate or trust

By taxing all gross income, every American would be subject to the same simple and transparent income tax code, at every established marginal tax rate. All special tax benefits would be eliminated. By taxing all sources of income, the tax rate could be substantially lower than the current code, since the base of taxed sources would be substantially larger. A 2006 report by the Tax Policy Center on the benefits of a broad-based tax without most deductions, found the lowest marginal tax rate dropping from 10% to 6.6% and the highest marginal rate dropping from 35.5%to 23%. Moreover, with all sources of income taxed, taxpayers will be unable to manipulate the tax code, something they have done since the first amendments to the federal income tax code were enacted by Congress in 1918.

A few examples of the revenues to be raised annually by eliminating tax deductions, thus allowing for lower tax rates:

• Home mortgage deduction, $60 billion dollars.
• Employer-paid health insurance, $300 billion.
• Carried-interest, $1.4 to $18 billion.
• Stepped-up basis allowance in the Estate Tax, $113 billion.
• Close CEO pay loopholes, $ 5 billion annually.
• Treat all fringe benefits as exactly what they are—compensation (income) to attract and retain employees.
• Eliminate the hundreds of obscure special interest provisions in the current tax code, thereby making billions of dollars in income subject to taxation.

Once the complexity is removed from the tax code, the tax structure can easily be converted to a simple, fair, and transparent system for taxing individuals and for funding the government. Moreover, if the federal government seeks to raise taxes, it will be directly visible to every taxpayer.

This seemingly absurd proposal is more than doable, It is, in fact, similar to the first income tax code in 1913. The entire 1913 Internal Revenue Service Form 1040 was four pages long, including instructions.

On the 1913 Form 1040, the taxpayer listed its income, which included income from salaries, wages, personal services, sales or dealings in property, rents, interest from notes and mortgages, partnership profits, coupon payments, trusts, and from any source derived. A certain amount of income was exempt from taxation, i.e.; $ 3,000 – $ 4,000 in 1913. The only deductions that could be subtracted from gross income were those necessary business expenses, interest on personal indebtedness, causality losses, debts deemed worthless in that year, and depreciation.

The 1913 tax, like today, was progressive—it had six rates. At $20,000 there was an additional 1% tax on the income. Marginal rates increased up to 6% on incomes over $500,000. It was a simple return to complete, straightforward in its application, and fair in that it eliminated “tax tricks” that are found throughout today’s tax code.

The 1913 tax code, with a few modifications, could literally be dropped into place today and taxpayers could complete it. Perhaps the first tax bracket would start at income exceeding $30,000, to provide an incentive to work. There would be several tax brackets that are similar to 1913, which had 6, and today there are 7.  The brackets would be determined based on the pre-pandemic revenues so as not to inflate the revenue needs of the government. A few other modifications would be needed, such as eliminating the deduction for the payment of personal interest, which would today be called the mortgage interest deduction.

To prevent tax fraud within this simple process, the penalties, like the penalties in the original 1913 tax law, would need to be stiff. Penalties in 1913 ranged from $20 to $1,000, which is the equivalent of $560 per violation to $27,938. Such high penalties place all individuals on notice that there are serious penalties for tax fraud. This is essential, as those who do not pay their fair share of taxes merely transfer the cost to honest citizens in the form of additional taxes.

Another benefit of this simple approach would be its ability to capture a greater amount of tax owed by closing the Tax Gap.  The IRS defines the tax gap as the difference between true taxes owed for a given tax year and the amount that is paid. The gap is caused by the under-reporting of income, non-filing, and tax evasion. While the exact amount is unknown, the IRS estimates it to range from $574 billion to $700 billion, annually. A complex tax code invites under-reporting, whereas failing to pay taxes in a simple system, could easily place one in a position of defending a fraud or tax evasion charge.

Just based on the new sources of income listed above, and closing a portion of the tax gap, generates around a trillion dollars annually while the marginal rates are lowered for all taxpayers. These revenues would be used for reducing the tax rates imposed on income to their lowest in modern times.

Our current tax code is anything but fair, neutral, and transparent. Every attempt at tax reform has been nothing more than tinkering around the margins of the tax laws to provide more benefits to those who already reap the benefits of society. With more than ten million words of unreadable laws and regulations related to every activity of life, it is time for a simpler, fairer, more equitable system. It has been done before. It can be done again.

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Federal tax laws primarily tax labor, wealth accumulates tax-free

When it comes to tax reform it is amazing how many objections the wealthy and the big business community can raise against any efforts to simplify the tax code. They claim every change to the current code will harm small businesses, family farms, shut down the economy, or fall primarily on the poor as if they sincerely care. It’s also amazing that a special benefit tax-avoidance like “carried-interest,” still exists? These gimmicks allow wealthy hedge fund managers to pay their income tax at lower capital gains rates, rather than at the higher income tax rates, that a laborer or secretary pays. Every presidential candidate for decades campaigned on repealing it, yet it still exists. Congress makes sure it exists for its big contributors.

Paying federal income tax was once and could be again, a four-page form, including Form 1040 and instructions. Anyone with a grade school education could complete it. So, why is it so hard to simplify 2,652 pages of unreadable legal text that contains 2,412,000 words and is implemented through 8 million words of regulation?

The simple answer is government and the wealthy greatly benefit from a complex tax code! To paraphrase a line from Shakespeare, Congress and the wealthy remark about the tax code, “How do I love thee? Let me count the ways.”

The primary reason is the wealthy have successfully persuaded Congress to obtain most of its revenues from salaries and wages while giving significant tax breaks to capital and its long-term preservation.

The federal government loves the tax code being unreadable by most taxpayers. By being opaque, it allows the government to collect whatever money it wants from us, with little reason or direct need, simply by calling it a tax. If we don’t pay what the government demands, the tax code allows the government to take our property and/or put us in jail. It also allows the government to reward groups it favors and punish those it finds objectionable.

As to why the wealthy love it? The federal income tax code is a corrupt document that allows friends of the government, usually wealthy individuals, to manipulate tax benefits for themselves at the expense of the many. Moreover, it gives the wealthy a great talking point – they can assert they pay the bulk of individual income taxes to run the nation while allowing themselves the ability to massively accumulate the wealth of the nation without taxation.

The wealthy defend their privileged tax status asserting the top one percent of income earners pay 39.5% of the income taxes collected by the government and the top five percent pay sixty percent of all individual income taxes. While these statistics support a technically correct talking point, the real impact of the tax code tells a very different story. The federal tax code effectively transfers the wealth of the nation to the wealthiest of the wealthy, tax-free and in perpetuity.

Over the last three decades, the federal income tax law has dramatically altered the wealth of the nation. In 1965 the income disparity between the American CEOs and the average employee was twenty to one. In 1989 it was 58 to 1. In 2018 it was two hundred and seventy-eight to one. Today, it is three hundred and fifty-four to one. During the same time period, wealth inequality spread dramatically, with the top five percent of the richest people owning two-thirds of the wealth of the nation. “The United States has some of the highest levels of income and wealth inequality in the world. U.S. Federal Reserve data shows that the wealthiest 10% of Americans control $93.8 trillion of the nation’s wealth, more than double the $40.3 trillion in the hands of the remaining 90% of Americans.”

And the top one-tenth of one percent of the wealthiest increased its ownership of the nation’s wealth from seven percent to twenty-two percent, over the same period.

How did this occur? The wealthy have friends in key political positions and on their boards of directors. As part of a reciprocal relationship, they protect each other, thus ensuring greater wealth for all in their class. The tax code authorizes maneuvers like carried interest, generation-skipping trusts, and other trusts to avoid taxes; deferred compensation; tax credits for favored entities; direct subsidies to businesses, farm subsidies for insurance companies who own vast amounts of farmland; tax-exempt fringe benefits for health and life insurance; allowing corporations to pay for the limousines and private aircraft used by executives; and almost unlimited expense accounts. All these tax-free benefits transfer massive amounts of wealth to the already wealthy with little to no tax liability.

In 2017, Congress sweetened the already sweet tax benefits by doubling the estate tax exemption to $11.2 million per decedent while still allowing a stepped-up basis so that future generations can avoid taxes on accumulated wealth. The stepped-up basis is perhaps the most significant of the tax benefits to the wealthy. A stepped-up basis is a tax mechanism that automatically increases the basis of an asset at death from the cost to the original owner to the value of the asset at the time of inheritance. This adjustment to the base value of an asset at the time of transfer results in total tax avoidance for all the assets transferred to the heir. It can be used to allow wealth to dramatically increase while remaining untaxed until the end of the world, with proper planning.

The stepped-up basis when combined with the law of compound interest, which Albert Einstein called the greatest mathematical discovery of all time, ensures massive wealth becomes even more massive. Compound interest is a function of generating earnings on the reinvestment of money. It has only two components: the amount of the investment and the length of time the money is allowed to accumulate. The more money one invests, and the longer the investment generates income, the more money is generated. When the assets are not taxed upon the owner’s death, these massive assets are transferred tax-free to future generations. Without the tax, these future generations continue to accumulate greater amounts of wealth, and therefore more and more of the nation’s wealth is concentrated in fewer families. As long as the future generations can live on the millions or billions of dollars generated in interest, the principal can be preserved forever, tax-free and whatever is left over, can be given to future generations tax-free.

According to economist Edward N. Wolff the wealthiest one percent of households own more than the bottom ninety percent of households combined This point is easily illustrated. Under the rule of sevens, a dollar doubles in value in 10.3 years if it receives 7% interest a year. If the founder of a tech company holds the stock, he/she purchased for $1 a share and it is worth a billion dollars at death, the person inheriting the stock now has a basis of $1 billion. If that person holds the appreciated asset for twenty years, under the rule of tens, it will be worth $ 4 billion and it is all tax-free due to a stepped-up basis. If the new heir holds the same stock for another 20 years, his/her heirs will inherit $16 billion tax-free. Wealth just keeps accumulating tax-free. While it is likely a portion of the appreciated asset will be spent by the heir and that portion taxed; most of the appreciated asset will remain unspent and can be passed to future generations untaxed.

While the wealthy can avoid paying taxes on accumulated wealth for years or generations; ordinary people pay more and more regressive taxes. A regressive tax is defined as a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. Social Security is a good example of a regressive tax. It consumes a significant part of a worker’s ordinary income, yet with the income cap of $142,800 on social security, the amount paid by a worker making $142,000 a year is the same as a person making $1,420,000 or 14,200,000,000 a year.

To the wealthy, paying income taxes is far less important than having the government protect their ability to accumulate and transfer their wealth tax-free for generations. This is the primary reason real tax reform cannot be achieved. The U.S. could achieve real tax reform by returning to the simple four-page tax return, but that would require the extremely wealthy to pay taxes at the same rates as a laborer, on all their income, and be subject to a stepped-up basis on assets at the time of death.

The post Congress Only Enacts Tax Reform to Benefit the Wealthy appeared first on The Libertarian Republic.

Steve Bannon, one of President Donald Trump’s top White House advisers, is pushing for tax reform that increases the top marginal rate from 39.5 percent to 44 percent, according to The Intercept. This is in conflict with Trump’s earlier proposed plan, which would lower the top marginal rate to 35 percent.

However, it is not in direct conflict with what Trump has said about taxing the rich. Speaking to the Wall Street Journal on Tuesday, he said,” if there’s upward revision it’s going to be on high-income people.”

Speaking further on the subject, Trump said, “I have wealthy friends that say to me, ‘I don’t mind paying more tax.” According to The Intercept, White House spokesperson Sarah Huckabee Sanders said that specifics of Trump’s proposed tax plan would be released soon.

It’s no surprise that Bannon is one of the voices pushing for increased taxes on the rich. The former Breitbart CEO has pushed for increased taxes earlier this month according to Fox News. Bannon allegedly said that he wanted,”the top tax bracket to have a 4 in front of it.”

Sean Spicer, the White House spokesperson at the time, denied that it was an accurate portrayal of Bannon’s views.

Breitbart’s John Carney wrote an article that was favorable to Bannon’s push for increased taxes on the people making over $5 million. He wrote:

“Raising the top rate would also not necessarily raise taxes on many Americans. For example, a tax plan that included a 44 percent rate on income over $1 million but compressed the current brackets from seven to four by lowering the 15 percent bracket to 10 percent, the 33 and 28 percent brackets to 25 percent, and lowering the current 39.6 percent to 35 percent, would very likely lower the effective tax rate on nearly everyone.  That’s because the bulk of income would be taxed at the lower rates, with the new top rate applying only to income above the $1 million mark.”

According to The Intercept, the tax hike would increase revenue by $18 billion a year or $180 billion over ten years. The federal government had a deficit of  $552 billion in 2016 according to InsideGov.com.

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By: Juliegrace Brufke

Speaker of the House Paul Ryan is expected to focus on the importance of accomplishing permanent tax reform in 2017 and the need to incentivize companies to keep their business in the U.S. during his speech to the National Association of Manufacturers Tuesday.

According to leadership sources, the Wisconsin Republican won’t discuss the ongoing negotiations between the House, Senate and Trump administration and will instead make his case for the transition to a territorial tax system he feels will level the playing field.

“He will talk about all the actions the House has taken so far this year — on health care, regulations, job training, and financial reform — to keep our promises and advance a unified Republican agenda,” Ryan’s office said. “The crown jewel of this economic agenda, however, is tax reform, and that will be the focus of the speaker’s remarks. There is nothing that could strengthen our economy and give people greater confidence more than fixing our antiquated tax system.”

Top Republicans have experienced some hurdles while trying to come to a consensus on a plan members across the conferences can agree upon. Language on the border adjustment tax — a key revenue-raising component of the leadership-backed “A Better Way” blueprint — remains the biggest sticking point. Ryan is slated to acknowledge they are still working to find a mechanism to raise revenue to offset major tax cuts and prevent inversions, noting major reforms almost always face obstacles.

“We are actually unique in the world in the way we discourage capital from coming back to America and how we incentivize off-shoring jobs,” he’s expected to say in his address. “This is not the kind of exceptionalism we should aspire to … We must think differently, so that once again we make things here and export them around the world.”

Ryan is expected to stress the urgency of tax reform, making the case it’s needed for domestic job growth and is critical for both small and large businesses in the U.S.

“We need to get this done in 2017. We cannot let this once-in-a-generation moment slip  . . . Transformational tax reform can be done, and we are moving forward. Full speed ahead,” the speech excerpt reads.

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The post Ryan Expected To Focus On Need For Permanent Tax Reform In Tuesday’s Speech appeared first on The Libertarian Republic.

By Robert Donachie

Conservative groups are throwing millions of dollars behind a campaign to sell the American people on how comprehensive tax reform will improve their lives.

Members of Charles and David Koch’s “Liberty Network,” Freedom Partners and Americans for Prosperity (AFP) are pledging millions to a nationwide campaign that promotes tax reform. The effort will include town hall meetings, door-to-door canvassing, phone banks and media buys.

“We have a tremendous opportunity to unite behind a positive vision to pass comprehensive tax reform that will help people improve their lives, and un-rig the U.S. economy. But we need to start making the case to the American people now to successful,” Executive Vice President of Freedom Partners, James Davis, told The Daily Caller News Foundation. Freedom Partners and AFP are trying to be “part of the solution,” Davis said.

The group’s proposal looks similar to the one that President Donald Trump revealed late April. Trump’s push for tax reform marks the first attempt to overhaul the U.S. tax code since former President Ronald Reagan in 1986, and includes features that the president floated on the campaign trail.

Like the president’s plan, Freedom Partners and AFP recommend that Congress cut tax rates, shrink the number of brackets and eliminate loopholes and deductions for the wealthy. (RELATED: Trump Reveals ‘Biggest Tax Cut’ In U.S. History)

Freedom Partners and AFP’s proposal does not include a Border Adjustment Tax (BAT), which the groups believe to be a tax on consumers. CEO of Koch Industries Charles Koch and his affiliated network stood opposed to Speaker of the House Paul Ryan’s push for a border adjustment tax.

To achieve Trump’s ambitious proposal, Ryan is pushing for a BAT tax that would levy a 20 percent tax on imports. It would allow U.S. companies to deduct the cost of goods made in America, but not ones made in foreign countries. It also would reportedly raise over $1 trillion in federal revenue over the next decade, a much needed sum to finance the government while simultaneously slashing business and corporate tax rates by 15 percent.

The White House is currently embattled in an investigation into Russian ties with the Trump administration and the fallout regarding Trump’s termination of former FBI Director James Comey. Adding to the administration’s woes, Deputy Attorney General Rod Rosenstein announced Wednesday that he is naming former FBI Director Robert Mueller as special counsel overseeing the Russia investigation.

Congress currently has its hands tied trying to pass some version of the American Health Care Act (AHCA), which would mark the major legislative achievement of Trump’s presidency. The AHCA is up for debate in the Senate, where Republicans are finding little to no compromise on key pieces of the bill, like funding the Obamacare Medicaid expansion program. (RELATED: GOP Senators Can’t Agree On Medicaid)

The effort by conservative groups to rally support behind tax reform could prove beneficial for members of Congress in selling a reform package to their constituents down the road. On the other hand, the push could fall flat if Congress is unable to pass health care reform, which the president says must come before tax reform. The investigation into the administration’s relationship with Russia could also prove problematic in gaining support behind tax reform.

EDITOR’S NOTE: Robert Donachie is a former Associate for the Charles Koch Institute class of 2016-2017. 

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The post Koch Network Backs Comprehensive Tax Reform appeared first on The Libertarian Republic.

By Kody Fairfield

The Associated Press is reporting that President Donald Trump says businesses and individuals will receive a “massive tax cut” under a tax reform package he plans to unveil next week.

In an interview with the AP, Trump says the plan will result in tax cuts for both individuals and businesses. He would not provide details of the plan, saying only that the tax cuts will be “bigger I believe than any tax cut ever.”

The President expressed to the AP that the package will be released shortly before his 100th day in office.

Treasury Secretary Steven Mnuchin initially set a goal of getting tax reform passed by August, but that deadline has slipped. Mnuchin now says the administration still hoped to get a bill passed well before the end of the year, said th AP.

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By Robert Donachie

President Donald Trump insisted that tax reform is not an option until the White House and Congress can push through a plan to “repeal and replace” Obamacare.

Obamacare reform has to come first because it has such drastic effects on the tax code, the president said at a press conference prior to meeting with various governors about health care reform Monday morning. Repealing Obamacare and tax reform were two of Trump’s chief campaign promises, but it now appears as if the two are presenting the president with a serious conundrum.

The president is slated to lay out key details about his plan to repeal and replace Obamacare in Tuesday night’s speech to Congress. Thus far, Republicans are finding little to no consensus on the best way to go about a repeal effort.

Republican lawmakers are simultaneously experiencing a great deal of pressure from their constituents to both push forward with the Obamacare repeal, and to stop the repeal effort entirely — further compounding the problem.

Trump acknowledged the outcry some Republican lawmakers are receiving from their constituents in his comments Monday morning, but said it is important to remind them that Obamacare “is a disaster.”

Treasury Secretary Steven Mnuchin promised that Trump’s first budget proposal to Congress will make its first appearance in Trump’s Tuesday address to Congress. Mnuchin said the budget will not include any cuts to major entitlement programs, like Social Security and Medicare. The budget will include the promised cuts to the tax brackets from seven down to three, and to “create a level playing field for U.S. companies to be able to compete in the world.”

Representatives from major health insurance providers are scheduled to meet with the president Monday afternoon to discuss the best ways to go about repealing Obamacare. Humana and Blue Cross Blue Shield are two of the companies reportedly attending the meeting. The insurance companies allegedly have a long list of recommendations for the president, and will have ample opportunity to present them during the meeting.

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By Robert Donachie

President Donald Trump is scheduled to meet to discuss tax reform with four key financial and regulatory gurus at 11:15 a.m. at the White House Thursday.

The four tax policy wonks are Chairman of the House Committee on Ways and Means Kevin Brady, top Democrat member of Ways and Means Richie Neal, Senate Committee on Finance Chairman Orrin Hatch, and Oregon Sen. Ron Wyden. All of these legislators are supporters of pro-growth tax plans that lower tax burdens on Americans and regulatory burdens on business. Coupling the Thursday meeting at the White House with top Trump advisor Jared Kushner’s dinner at the Capitol Hill Club Wednesday night with Speaker of the House Paul Ryan, and to outside observers it would appear that reform is gaining major traction in Washington, D.C.

What would a tax reform plan look like?

Whatever tax reform plan makes its way out of Congress will undoubtedly be some amalgam of what Trump, Ryan, and Brady have proposed over the course of the past year. This will include input from congressional Republicans and Democrats.

Ryan and Brady put forth their own tax reform platform called “A Better Way for Tax Reform,” in August, 2016. Trump originally put out his tax reform agenda in summer, 2016, but revised it in September following widespread criticism from the Democrats. (RELATED: A Comprehensive Look At Donald Trump’s Tax Plan)

Both Trump and Ryan wish to make changes to marginal income tax rates, and both men propose lowering rates to the lowest levels since before World War II as well as eliminating four tax brackets, taking the total from seven down to three.

The Trump and Ryan plans would also make it difficult for individuals to benefit from specific deductions, closing often exploited loopholes and increasing the standard deduction limit.

The Trump plan would “increase the standard deduction for joint filers to $30,000, from $12,600, and the standard deduction for single filers will be $15,000. The personal exemptions will be eliminated as will the head-of-household filing status. In addition, the Trump Plan will cap itemized deductions at $200,000 for Married-Joint filers or $100,000 for Single filers,” according to Trump’s campaign website.

Ryan’s plan would alternatively eliminate all deductions except for mortgage interest and charitable gifts, the Wall Street Journal reported.

Trump has vowed to eliminate the estate tax, which he and other Republicans label the “death tax,” and would instead enact taxes on capital gains for the recently deceased. Ryan’s plan flatly abolishes the estate and gift taxes. No formal proposal for gift taxes was included in Trump’s plan.

“The plan has added a provision that would offer manufacturing companies the choice to deduct the full cost of their capital expenses (‘full expensing’) in exchange for no longer being able to deduct net interest payments,” Scott Greenberg, analyst with the Center for Federal Tax Policy at the Tax Foundation, told The Daily Caller News Foundation. Elaborating on his previous point, Greenberg said that some manufacturing companies, likely those with high levels of investment and low debt burdens, “may choose to take advantage of this opportunity to lower their overall tax bill.”

Over the last two years, manufacturing accounted for around 11-12 percent of U.S. GDP. The manufacturing sector reported gains in January, adding 15,000 new jobs. The month of January also marked the fifth consecutive month of employment gains in the manufacturing industry.

Overseas industries would see the most impact from a Trump tax plan, whether or not Congress incorporates all of his suggestions. The president-elect proposes a one-time tax for domestic businesses with trillions of dollars overseas, hoping to incentivize these companies to bring their foreign capital back to the United States.

For small businesses, he plans to promote a separate tax rate that matches the proposed 15 percent corporate tax rate.

Also a key component of the Republican House tax plan is the much discussed border tax adjustment, a term used to describe a tax levied on goods imported and sold in the U.S. Specifically, the tax is aimed at making U.S.-Mexican trade relations more fair, following the “America First,” economic philosophy touted by Trump on the campaign trail.

Obstacles to tax reform

Washington’s lobbying district, known as “K Street,” is actively mobilizing against the proposed border tax adjustment. On the left and the right of the political spectrum, tax reform groups are organizing to kill the border tax, Politico Playbook reports.

Lobbyists are reportedly locking their sights on the Senate, where they believe they have greater potential to influence legislators, as many represent large American-based retail firms that would take a financial hit from an adjustment tax.

One of the Senators meeting with Trump today at the White House, Senate Finance Chairman Orrin Hatch, has raised questions about whether the tax would impose undue burden on U.S. consumers and businesses. Furthermore, the senator questioned whether the border tax adjustment might undermine U.S. international trade policies.

“We don’t have definitive answers to any of those questions at this particular point. And without them, I don’t think I can give definitive positions,” Hatch said in a speech to the U.S. Chamber of Commerce.

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The post Why Major Tax Reform Is No Longer Just Talk appeared first on The Libertarian Republic.

The “FairTax” is popular idea among some conservative and libertarian circles. Supporters of the tax seek to replace federal income, payroll, business income, estate, and capital gains taxes with a national consumption tax. Eliminating the IRS and the tax code, raising wages, letting individuals choose their level of taxation through how much they spend, growing the economy, and raising the same revenue under the current system are other assumed benefits of the FairTax. This all sounds good on the surface, but actually implementing the FairTax will likely not work out in reality as it works on paper.

The first problem with the FairTax is the name. Calling it “fair” sidesteps the question of the morality of taxation. Libertarians believe taxation is theft as it is the removal by force or threat of force of justly acquired property without necessarily having permission from the owner of said property, and therefore oppose it as immoral. Thus, anyone with this basic view of taxation sees all taxation as inherently unfair; to say that taxation can be made fair is like saying murder can be made fair. The name avoids this discussion by assuming taxation is fair or can be fair if done a certain way and keeping people focused on how a tax is levied rather than the morality of taxation, in addition to making anyone who opposes a “fair” tax appear to support an “unfair” tax. The name may be the first problem with the FairTax, but it’s hardly the worst.

Eliminating the IRS is something practically everyone in the general populace apart from IRS employees can support. What could be better than getting rid of the organization that invades your privacy, forces your employer to take money from your paycheck before you even get it, makes you fill out forms each year certifying that the “proper” amount was stolen from you, further invades your privacy if it thinks you made a mistake, and can steal other property of yours besides your paycheck? And then you add in all the money that’s spent hiring accountants or tax preparation specialists to help the average person navigate the 70,000+ pages of the tax code, as well as the gas spent getting to these places and the opportunity cost of everything else that could be done instead during this time, and the case is even more convincing. However, a fundamental aspect of the FairTax is the “prebate”, which is a check given to every individual to help them cover, or “detax”, the necessities every month. Surely some organization would be needed not only to collect the revenue obtained through the consumption tax, but also to return some of that money in the form of the “prebate”. Would it make sense then to eliminate the IRS or simply shift its responsibilities from dealing with income taxes to dealing with consumption taxes? The case against the IRS is strong both from a moral and a practical viewpoint, but the FairTax could require it sticking around. Perhaps the “prebate” could be substituted with tax exemptions on the necessities. Although some bureaucracy would still likely be necessary for sorting out what is taxed and what isn’t, it would be less convoluted than sending money back and forth as the current idea proposes.

The idea that eliminating the income tax would result in an immediate increase in wages is certainly true. No matter what the level of taxation on income is, its mere existence lowers wages, so eliminating the income tax would raise them to what they really are. However, one phrase supporters of the FairTax use is “keep your entire paycheck”. While this is true for receiving the paycheck, having some tax in place, even if it’s just a consumption tax, negates it. If the government takes any money from you, regardless of how or where that money is taken, you’re not keeping your entire paycheck. Eliminating the income tax and replacing it with nothing would give everyone a boost in their wages without resulting in additional lost money elsewhere, which is one of the problems with the FairTax. Further, while the FairTax would be about 23% (or 23 cents out of every dollar spent), there’s no guarantee it would stay there. Look at how the income tax has changed since its inception in 1913. The rates, brackets, and people who pay it have all changed drastically over time, as have the schedules, exemptions, deductions, etc. Originally, only a few people were paying income tax, and the highest rate was very low. Who can say the FairTax wouldn’t be increased to 50% or 70% over time? An important but often overlooked fact about government is that giving the government the power to do X only more often than not results in the government having the power to do X plus Y, and that is certainly a possibility with the FairTax.

Another idea FairTax supporters promote is “Choose how much and when to pay federal taxes”. This sounds good at first, considering that every paycheck is currently taxed while the FairTax wouldn’t be applied to every purchase, and those who consume less would pay less than those who consume more. However, there is no option under the FairTax to not pay taxes on goods that aren’t covered by the “prebate”, so you really don’t get to choose whether or not to pay federal taxes unless you purchase only goods that are covered. This flies in the face of the idea of a “voluntary tax”, which many seem to think a consumption tax is. If you don’t have the option to not pay it, it’s not voluntary. Further, if one needed to consume more non-covered goods for whatever reason, they would end up paying more in taxes. Supporters recognize and even champion the fact that this makes it a “progressive” tax, rather than a “regressive” tax. Why not opt for a “flat” tax instead, in which everyone pays the same percentage every year? “Progressive” taxation is hardly a conservative or libertarian idea, so why are many conservatives and libertarians supporting the FairTax?

FairTax supporters say that by eliminating the IRS and raising wages, the economy will flourish. It’s possible that this could happen, most likely as a result of individuals having more money to spend or save as they see fit, and the end of lost time and money spent complying with the massive tax code, although it likely wouldn’t work as well as they’re hoping. There would still be the hassle of the “prebate” and the bureaucracy that would entail, as well as additional time and money spent by those who would collect the tax at the point of sale. Prices would have to be adjusted to reflect the additional tax, some paperwork that proves the tax was collected would be in order, and some response (for lack of a better word) to those who violate the procedures involved in collecting, transferring, or reporting the tax would be necessary. Would the cost of all this be higher or lower than the cost of the current system? Probably lower initially, but over time it could increase as the system inevitably changed due to new politicians coming in and proclaiming they have a “better” or “fairer” way to get things done.

Perhaps the most curious claim about the FairTax is that it would raise the same revenue as the current tax system. Before answering whether or not it would raise the same amount, why would that be a desired goal? Many people believe the government taxes and spends too much money now and wish to reduce both. These people would not be drawn in by a claim that the FairTax would allow the same reckless abandon that’s occurring now to continue. Only those who want the government to spend as much or more than it’s currently spending would be attracted by this claim, and those people tend to vote Democrat. So why is a tax that would be more likely to attract leftists being marketed to conservatives and libertarians? As for whether it would raise the same revenue as the current system, chances are it would not. The way humans act is dependent on a number of conditions, and changes to those conditions results in changes in their behavior. This is one of the fundamental laws of economics. Consider “sin” taxes, which are applied to cigarettes and alcohol. The purpose of levying these taxes is to both discourage consumption of those goods and to raise revenue from those who still imbibe. Proof that these taxes, especially higher taxes in places like New York, discourage consumption can be found in the illegal smuggling and sale of loose cigarettes from places with lower taxes to places with higher taxes. Those who illegally sell and purchase cigarettes would not risk all that that entails if the taxes were not acting as a disincentive. Tariffs, or taxes on imported goods, are another widely understood example of how taxes can discourage consumption, in this case consumption of foreign goods. With that in mind, a national consumption tax can absolutely act to discourage consumption of goods that aren’t covered by the “prebate”.

Another thing to keep in mind is that the national tax would be added on top of local or state consumption taxes, adding further difficulty for those who live where these taxes are already burdensome. This would most likely result in decreased demand for non-covered goods, leading to reduced employment in industries that provide such goods. A relatively modern example of this is a luxury tax President George H.W. Bush levied on luxury boats above $100,000. A massive downturn in boat purchases followed, resulting in increased unemployment and failure of boat-building businesses. And very little revenue was raised compared to what was predicted. That was from a tax on one specific good. Imagine what could happen if a national tax were applied on nearly all goods. Naturally, if the tax discourages consumption of certain goods and leads to reduced employment in industries that produce those goods, then less revenue than is expected will be raised. The response to this would likely be to add additional taxes elsewhere or raise existing taxes to make up for the lost revenue. This is the opposite of what we hope to accomplish through tax reform.

These predictions about the unintended consequences of the FairTax are just that, predictions. But they are predictions that, based on economic law and governmental theory, might very well occur. Whether or not they will, and whether or not they will result in a worse system than currently exits, can only be known if the FairTax is implemented. The purpose of this essay is to point this out to anyone interested in tax reform so that they may consider these points and do further research on the subject. Being informed, though it might not prevent disaster, can still help one better prepare for the disaster. And since “disaster” is an excellent word for describing the state of modern politics, there can never be too much preparation.

The post Is the FairTax Fair or Feasible? appeared first on The Libertarian Republic.

[dropcap size=small]T[/dropcap]he fourth GOP Debate was a turning point in the presidential contest. Lindsey Graham was removed from all debates, Chris Christie and Mike Huckabee were demoted to the undercard debate, and there was more time to go around for all candidates on the main stage. Thus, as time marches on, the candidates have more time to show their true colors on the issues. This also means less of a spotlight was put on candidates like Donald Trump and Ben Carson, who monopolized the previous three debates. Other candidates, most notably Rand Paul, were allowed to voice their opinion on issues previously unknown to voters. We got to see a side of those candidates we hadn’t seen before.

[divider]The Economy[/divider]

Discussion started with the minimum wage. Being Republicans, there was a general consensus that the minimum wage kills jobs. While this is true, it didn’t make for much of an interesting discussion. The debate didn’t start out as much of a debate.

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A notable element in this debate was a desire of the candidates to attack Democrats more so than their Republican competitors. For example, in nearly every answer she gave, Carly Fiorina (as well as Christie) did not hold back on attacking Hillary Clinton. The reasons for this sudden aggressiveness towards the Democrats, away from their fellow Republicans, was likely caused by approaching primaries and the desire to not anger a potential nominee. Fiorina, for example, knows she is unlikely to get the nomination at this point, so she wants to seem like a good choice for a running mate for someone who does. If you can’t beat ’em, join ’em, as it were.

A number of libertarian-leaning candidates spent the early debate waiting for Rand Paul to chime in. After all, the previous debates barely allocated him time. When given the question of income inequality, Paul pointed out that most income inequality in America occurs under Democrats and that the Federal Reserve has a large role to play in poverty.

It’s up for some debate if Democrats are mostly responsible for income inequality. Many Democratic cities are indeed unequal while many Republican cities are more equal in income, however this could be for a variety of reasons such as geography, logistics, and population size. Yet, as Brian Darling told Politifact a year ago, Paul’s statements on Democratic cities being unequal is more a reference to how Democrats fail to solve the problem rather than how they may be responsible for it.

Regardless, Senator Paul was the first candidate to mention how the Federal Reserve’s meddling in the economy is a major contributor in income inequality. That is something all libertarians can agree on.

Here’s Paul’s complete answer:

[divider]Immigration Reform[/divider]

Immigration has been called “the subject which will define the 2016 election.” Comments by Donald Trump have propelled the issue into the mainstream, with people from all ends of the political spectrum chiming in on the controversial issue. However, tonight immigration seemed less of an issue than it was in the early days of the election. Donald Trump’s controversial statements no longer dominated the discussion as they once had. In fact, compared to previous debates, Trump’s voice wasn’t as loud or bombastic this time around.

Trump not only failed to captivate the audience as he previously did, he spent more time on the defensive. More and more voters seemed turned off by the idea of deporting millions of people; those challenging Trump’s positions were seen more favorably than ever before. Trump’s nationalism has proven to be an alienating factor in his campaign, but it should be noted that it mirrors that of Bernie Sanders to a surprising degree.

Not only would Trump’s proposed deportation be unpopular, but it would be expensive. According to an NBC report with US Immigration and Customs Enforcement Deputy Kumar Kibbel, Trump’s plan would cost $12,000+ a person, a total of approximately $137 billion dollars in total. How “conservative” of Trump.

The two most ironic things about the nationalistic sentiment Trump holds are that it not only requires more regulation on whom businesses can hire based on nationality, and it ignores the country’s history of being accepting of immigrants.

[divider]Taxes[/divider]

Taxes were a trending topic on social media and of great concern to many voters. Plans ranged from abolishing the IRS to a “fair” or a “flat tax.” Candidates shared a variety of opinions, while few realized that the income tax was an unconstitutional measure designed to raise revenue for World War I.

For a constitutional expert like Ted Cruz, it’s hard to see how he doesn’t realize that the income tax is unconstitutional and that even his proposed 10% income tax (welcome as it may be) is 10% of your income still stolen. Cruz also fails to mention how he would simultaneously abolish the IRS while having an income tax. Where would you file your taxes to? Cruz says on his website that we will need dramatically less accountants, agents, and facilities to process the tax forms, but surely we will need some. The only answer is that the IRS will be “replaced.” With what? Why would this new entity be any less wasteful than the previous government bureaucracy?

Even more ominous is Marco Rubio’s “pro-family” tax plan. The plan seems attractive at first, mostly because of the name. It allows families with children tax incentives so they don’t have to work longer hours. However, Rubio’s plan does not account for abuse of this system. If someone realizes they can write off their taxes for having another kid, what’s to stop them? Rand Paul rightly pointed out that this– coupled with Rubio’s proposed 10 trillion dollars in military spending– is not fiscally conservative.

[divider]Foreign Policy[/divider]

The issue of foreign policy is one that separates conservatives from libertarians the most. The hawkish approach to dealing with foreign affairs turns off many voters, particularly the young. It is also an issue that has defined candidates as well as set them apart from the crowd. For example, the Iraq war and military interventionism continue to define Jeb Bush, pinning an embarrassing legacy to him that won’t dissipate. Bush is torn between admitting that his brother was wrong and shaming his family, and defending his brother’s legacy and proving to voters that another Bush wouldn’t hurt. This provided plenty of ammunition for Trump to use against Bush during the debate. Bush once again, no doubt at the orders of his neocon donors, asserted that “American leadership” is crucial. Trump’s response was somewhat libertarian, saying that the US shouldn’t even act as the world’s policeman, and that the US shouldn’t bear sole responsibility for safeguarding the world. However, Rand Paul’s inner libertarian kicked in once more, and suggested we stop funding our enemies, proving he was the true libertarian opinion that night.

Many young libertarians no doubt were disappointed with the warmongering of Ted Cruz. He had ascended to the near-top of some polls and is a favorite among Tea Partiers. However, when it came to foreign policy, Cruz’s opinion was more of the same ol’ same ol’. He offered no new approaches to dealing with terror other than attempting to destroy it. Carson too suggested we should attempt to make the caliphate “look like losers” by destroying their base of operations. However, only Rand Paul seemed to realize that the best way to win the game is to not play it.

Rand Paul’s non-interventionist foreign policy was dubbed “isolationist” by neoconservative favorite Marco Rubio, just as his father’s was in the last election. What Rubio fails to realize is that hawkishness and war is more isolating than non-interventionism. A peaceful country is one that welcomes trade from other nations and is respected and sought after as a place of innovation and business development. Paul understands this, and it will be interesting to see over the course of the election how Republicans react to the sole voice of foreign policy reason.

[divider]Banking and the Fed[/divider]

Most libertarians can tell you the best thing to do with the Fed is to end it, as a  central bank is not at all conducive to the free market. In fact, a central bank was advocated for in Karl Marx’s Communist Manifesto. Sadly, most Republicans did not take a very strong stance on the Federal Reserve. Paul and Cruz were the most vocal.

While Jeb Bush couldn’t even answer if he would bail out the banks again, Ted Cruz could. Cruz called for the an audit of the Federal Reserve and condemned the bailouts of Wall Street that were unfair to the American taxpayer and small businesses. Interestingly enough, Ted Cruz benefited from the bailouts personally. His wife was a Vice President of Goldman Sachs in Texas, a company that received $2.9 billion from the $182 Billion dollars used to bailout AIG, according to an FCIC report obtained by HuffPo. It’s doubtful Cruz condemned the bailouts at that point.

Only Rand Paul could honestly say he’s got the interests of auditing the Fed at heart. He has not received any bailout money as Cruz has, and he continues to carry his father’s legacy to audit the Fed and remove it’s influence in our economy.

[divider]The Trans-Pacific Partnership[/divider]

One of the most mysterious trade agreements of all time was revealed in it’s 6,000 page entirety recently. The TTP contains provisions about anything from tariffs to intellectual property rights. It would take far too much time and study to closely examine the thousands of provisions the agreement contains in order to form a fair opinion on it to broadcast to the voters, and the candidates can only honestly say we should have read into it more before endorsing it. This was not the case for Donald Trump.

Trump’s big mouth ate his foot when he complained the TPP unfairly benefited China. Trump railed against Chinese economic aggression and the unjust implications of the trade agreement. He, and several other candidates at various points in the debate, inaccurately attributed the Chinese manufacturing sector to the woes of American joblessness. Trump and the other candidates did not take into account changing job requirements in the US, not China, are moving jobs to higher skill levels, thereby “stealing” manufacturing jobs. However, the most embarrassing moment for Trump in the entire debate was when Rand Paul corrected Trump on China’s role in the TPP; it doesn’t actually have one. In fact, Paul was right to point out that China stands to gain competition from other countries thanks to the deal. Here’s the exchange:

[divider]In Conclusion[/divider]

This debate was an interesting spectacle because it wasn’t dominated by Carson and Trump as the previous debates had been, most likely because less candidates allowed more people to get more time. No longer could the media just pamper a certain candidates with coverage without it seeming overtly lopsided. Additionally, we saw a resurgence of Rand Paul’s inner libertarianism that will hopefully attract more voters to the liberty movement. Overall, it’s reasonable to assume this debate was a turning point in the election, and now the former front runners are being challenged for their positions by those who,m may have seemed nonthreatening months ago.

The post Libertarian Analysis of the GOP Debate appeared first on The Libertarian Republic.