Tax Reform?

Congress is wrestling to reform the federal income tax system. Both corporate/business and personal taxes are under examination. The timeframe is tight for a number of reasons, so how much actual reform will be accomplished is under debate.

Most likely changes will focus on tax rates, a general lowering of them, especially for businesses and for higher income earners. The belief is that higher rates penalize these people and organizations and thus dampen their willingness to invest in new businesses, products and services. In other words, high taxes discourage economic activity and job growth.

There are other aspects of the tax code that will be changed as well such as tax deductions, categories of expenses that will or will not be subject to taxation and more. 

Why are these reforms being considered? Especially at this time?

On the republican side of the argument are these beliefs:

1.      The government is already too large and taxing people too heavily; reduce the onus

2.      The economy is not producing very well in several sectors; it needs a boost by lowering  taxes; more money in the pockets of businesses and individuals means more money is available for spending in the open market or investing in creating a more vibrant economy

3.      They promised key supporters of their election campaigns that their winning office will produce tax benefits they will like; they are fulfilling campaign promises.

On the Democrat side of the argument are these beliefs:

1.      Interest rates are already low and stubbornly remain so; this is so because there are trillions of surplus funds not being used for consumption or investment; thus the economy does not need a stimulus via lower taxes

2.      Unemployment is declining, but there remains a large number of people pushed out of the labor market who would return to work if appropriate jobs were available; such is not the case because labor markets have shifted from the old economy to the newer, high tech economy; this labor pool lacks training and development for the new jobs; so those people remain out of the market; a different kind of investment is needed to bring them back into active labor markets – training and development

3.      With declining funding for public education – including primary, secondary and higher education levels – society is not preparing students for the new world of work. Corporations do not remediate new personnel to take on the newer jobs. If there is a labor shortage of experienced personnel, it is because both the private and public sectors have avoided responsibility to fund such education. A tax cut will not solve this issue.

4.      The economy does not need a stimulus to perform better at this point. A more vigorous economy will only drive up prices (including labor) because such an economy is out of balance with supply and demand of many types; inflation is sure to result

5.      Inflation will push the poor further down the poverty scale and produce more severe social problems to be addressed, and paid for later by all of us

6.      Tax cuts work best if there is a healthy middle class that will spend tax savings on services and goods. The middle class is declining and decidedly not in good shape. Tax benefits will not produce the desired effects; only the wealthy and business community will benefit and whether they share their bounty in the markets or not is open to serious debate.

7.      Trickle down economic theory does not work. We have proven that many times over the past 30 years. It only works at the beginning of an imbalanced situation; that does not describe what we have at this moment in time

Congress should be creating a task force to fully study our economic system so policies and decisions are carefully integrated with the reality of economic laws and proven theory. They need to do this before they tinker with working parts without proven results. Too much bungling has happened already. The economy and its people need protection from foolish handling.

Tax reforms are not needed at this point. Maybe later. Maybe never. Other issues are of higher priority for our attention at this time. And the attention needs to be mature, careful and rooted in fact. Today’s debate is nowhere near such requirements. 

The only consideration these days appears to be political. Only political. Sad.

November 16, 2017