Donald Trump

Tax Reform 2.0? Let's Do Better

We need to get serious about controlling government spending.


Republicans and President Trump are talking about tax reform 2.0. Unfortunately, it's futile without first having a real conversation about controlling spending. Indeed, the White House isn't just unserious about cutting spending; it's contributing to the problem. It's time for a broader approach.

Don't get me wrong. There are a few tax changes we should hope for. Some key provisions from the 2017 tax reform 1.0, particularly tax rate cuts for individuals, expire in 2025. Removing the uncertainty would be good. Ideally, we'd level the playing field for as many Americans as possible by getting rid of deductions for state and local income tax and mortgage interest, and then lighten their load by further cutting the corporate income tax rate and indexing capital gains to inflation.

While we're at it, why not implement large and flexible universal savings accounts? And in light of the administration's reckless trade behavior, what about subjecting an executive trade action that lowers the tax-reform 1.0 gains we receive to congressional approval?

Some of these tax reductions could be "paid for" by getting rid of tax carve-outs and other expenditures, which often distort how Americans spend money and benefit some of us far more than others. However, without serious spending restraint, any further tax reform—even pro-growth reform—is unsustainable in the long run.

The Congressional Budget Office has projected an increase in deficit spending from $665 billion in 2017 to $1 trillion in 2019. After that, it's red ink all the way. Not surprisingly, this leads to astronomical debt: from $20.2 trillion in 2017 to $33.8 trillion in 2028.

Other signs are pointing to an acceleration of our fiscal problems. We have known for a while that Social Security is in trouble. The program has been running a permanent cash flow deficit since 2010. If Congress doesn't change the law that administers the program—and considering how much debt we have already, that will be difficult—benefits could fall by over 20 percent by 2034, harming the poorest Americans the most.

Meanwhile, Medicare and Medicaid spending continue their run to the sun. This administration and Congress, like their predecessors, continue ignoring the telltale signs of insolvency. Far from seeming concerned, the president just authorized $12 billion for American farmers in an attempt to alleviate the negative consequences of his own efforts to start a trade war. That follows many instances of Congress and the White House joining forces to jack up defense spending and non-defense spending, not to mention bursting the sequester spending caps.

Don't they understand that failing to keep spending in check while cutting taxes will inevitably result in the need for higher taxes down the road?

Arguments to ignore the problem abound: "We can't address our debt by cutting discretionary spending"; "Entitlements are the real problem, so who cares about budget caps?"; "No one wants to control spending, so let's focus on tax reform and grow the economy." No wonder we are in this fiscal mess.

Considering what Democrats have in mind for fiscal policy if they regain power, Republicans might want to get their house in order to protect the 2017 tax reforms. New York congressional candidate Alexandria Ocasio-Cortez, for instance, wants to raise the corporate tax rate from 21 to 28 percent, impose a carbon tax, and put a "Buffett tax" in place to cover a ridiculously small percentage of the cost of "Medicare for All."

As economist Milton Friedman said, the real size of government is measured by how much the government spends, not by the taxes we pay. Most of us would like our taxes to be lower. But it's only a matter of time before a continued failure to control spending comes back to bite us where it hurts. Mark my words: The problems we fail to solve now will one day lead Republicans to accept a value added tax perched on top of our income and payroll taxes, a carbon tax, and higher tax rates on all of us.

NEXT: Ontario Ends UBI Experiment Two Years Early

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  1. Maybe this time, Congress will listen to Trump Executive Branch budget cut ideas.

    The real money is in cutting Social Security, Medicare, and the US military.

    1. Lay a list of cabinet posts down alongside the US Constitution.
      There is quite a bit that can be totally eliminated.

      1. I would bet that cutting 25% would not even cause much of a stir.
        50% would increase unemployment because of unemployed bureaucrats.
        75% would be fun to watch.

    2. Nothing is going to get cut, the best thing they can do is freeze “inflation” increases, then the various agencies could learn to phase in efficiencies, as alien as that is to government officials.

  2. Don’t they understand that failing to keep spending in check while cutting taxes will inevitably result in the need for higher taxes down the road?

    Not if they inflate the dollar into nothingness.

    1. Seriously. There is a long historical record of governments using inflation to debase the currency so they can more easily pay back bonds. Goes back to the Greeks and Romans, and probably before that.

    2. That process is well under way. It really started to ramp up with Nixon and the Vietnam war, but the seeds had been planted long before.

      1. Yes, it has. Herb Stein, who was on Nixon’s council of economic advisors, famously said “something that cannot go on forever won’t.” Stein’s statement has been used to describe the deficit and debt since before I was in college during the Dark Ages. Yet, here we are in 2018, long past many of the professed dates of debt and deficit doom over the years, and it still goes on. And while the Feds have done untold damage to the dollar and the wealth of the nation, we remain the richest nation in the world and the dollar, while less valuable than it should be, is not the old Italian Lyra either. Maybe some things can go on forever.

        1. I think we can get away with a larger debt because of the size of our economy, at least in part, and also in part because of the petro-dollar. Everyone wants to do business here, and to do so they have to have dollars, and if anyone wants to buy oil from Saudi Arabia they have to have dollars to do so as well. It won’t last forever, though, nothing does, and when it collapses it’ll be ugly. Implied inflation against the debt alone is something like 1200%, not to mention our unfunded liabilities. Now if I could only pinpoint exactly when…

          1. You can go into debt until the bank won’t lend you any money. As long as we have a huge, productive economy, people are going to be willing to loan us money. I wish we would stop abusing the privilege. But I don’t think there is any sort of natural check on it short of some kind of civil unrest or economic collapse.

            1. Governments can go into debt until people stop buying bonds.

              1. Yes, and buying bonds is just lending them money. We are saying the same thing sarcasmic.

                1. Yes, and buying bonds is just lending them money. We are saying the same thing sarcasmic.

                  People and banks are not the same thing, but whatever.

              2. Which means buying houses with a mortgage, going to college on a loan, issuing corporate debt to offset stock options, M&A, etc.

                All of our private debt is built – and priced – on a foundation of T-bonds.

        2. Until China becomes the dominate economy.

  3. Institute a 500% tax on political contributions, to include all “position ads” not coordinated with a particular candidate.

    2018 spending $639,635,565

    The tax would have raised $3,198,177,825

  4. It is a complete fallacy to link taxes and spending. Congress’ attitude towards taxes has never correlated to its attitude towards spending. One seems to exist independently of the other. So claiming that “we must cut spending before we cut taxes” is at best irrelevant and at worst just giving Congress an excuse to never cut taxes in the name of fiscal responsibility.

    Further, deRugy is just wrong when she claims that spending must cause further tax hikes down the road. The only thing that is going to stop Congress from spending is running out of money. And the only thing that will do that is cutting off their ability to get more money, i.e. lowering taxes. DeRugy is a complete fool if she thinks that Congress will someday raise taxes and not just spend the extra money on something new. If they could keep from spending money when they got their hands on it, spending wouldn’t be a problem in the first place.

    Basically, deRugy is arguing that Congress should become tax collectors for the welfare state. No. Fuck you cut spending and taxes.

    1. Does deRugy consider inflation, i.e. printing more money, to be a tax? If so, then printing money is a “further tax hike down the road.”

      1. You are right in that sense. Yet, the fed has been printing money for decades and still no inflation. I have given up trying to figure this shit out. Nothing seems to work the way economic sense says it should.

        1. No inflation? What planet are you on?

          1. I didn’t mean no inflation. I meant no hyper inflation.

            1. Not yet…

            2. the fed has been printing money for decades and still no inflation.

              No they haven’t. They have been issuing new DEBT. As long as that debt is successfully rolled over or paid off, the consequence is simply transferring wealth from the non-financial sector to the financial sector. Once it isn’t successfully rolled over, then it becomes a financial crisis where either the debt burden remains (debt-deflation or depression) or it is written off (bankruptcy) or the debt is repudiated (hyperinflation or more accurately money switching from one standard to another).

              I meant no hyper inflation

              Hyperinflation is not a consequence of ‘printing money’. It is a consequence of repudiating debt. ‘Printing money’ (the banknotes in your pocket – 0% interest, infinite term, and small denomination) is just a means by which the debt is (or was at least) repudiated. Since that ain’t actually economic money, people desperately switch to whatever IS money at that point – eggs, chickens, cigarettes, silver coins, etc so the price of that REAL money rises while the fake money drops.

        2. A dollar a hundred years ago would be worth twenty dollars in today’s money. That’s not inflation?

    2. It is a complete fallacy to link taxes and spending.

      No it isn’t you fucking moron. Because DEFICITS (bond issuance) is a form of tax. It is a tax on the future. Cutting current revenues (taxes) while continuing along the same spending is nothing but attempting to get a free lunch – and getting future generations to pay the bill for that.

      1. You totally misunderstood the point. They are not linked politically. Congress’ actions on spending never have any correlation to its actions on taxes. If Congress raises taxes, it just spends the money. So claiming that raising taxes is somehow going to do something about spending or the deficit is just wrong.

        You are a rucking moron JFree. You never understand what I am saying. You never have anything interesting to add other than you misunderstanding and idiotic reponses to the point at hand.

        1. They are not linked politically.

          Of course they’re not linked politically. Cutting taxes while keeping spending the same is called buying votes by offering a free lunch. But stop pretending that that is sound economics. It isn’t.

          1. Cutting taxes while keeping spending the same is called buying votes by offering a free lunch.

            Cutting taxes is letting people have more of the money they earn and more freedom. If the spending is going to be what it is regardless, and it clearly will, then cutting taxes is a good thing. How do you want to finance spending? While neither is a good option, financing it by people willing to loan the government money endlessly is better than financing it by forcibly taking people’s rightfully earned money.

            Every tax cut is a good one. Every time taxes are cut people keep more of what is theirs. Stop trying to hold people’s money hostage as a way to get Congress to stop spending. It doesn’t work and never has. The solution is to stop spending. Sending them more money isn’t going to do that.

            1. The solution is to stop spending.

              Yes. Exactly. The solution is to stop spending. The more you dick around with trying to sell free lunches – all the benefits of current spending and you don’t have to pay – the LESS effort you spend on STOPPING SPENDING.

    3. Yeah, you can’t control anything without controlling the spending. It’s ludicrous to try and fix anything on the taxation side.

  5. And for the record, the federal government collects more money today by any measure, absolute terms, percent of the economy, inflation-adjusted, you name it, than it has at any time in its history. We don’t have a tax problem. We have a spending problem.

    1. Exactly right, John.

    2. And yet – you are the one arguing in the previous post that we don’t actually need to do much about spending cuz if we just do something about taxes, the spending will apparently solve itself.

      The leechlike ‘starve the beast’ strategy that has created $20 trillion of free lunch for older/voting Americans at the expense of all younger Americans.

      1. And yet – you are the one arguing in the previous post that we don’t actually need to do much about spending cuz if we just do something about taxes, the spending will apparently solve itself.

        No I am not. I am saying that we need to cut spending and what we do about taxes has nothing to do with that. Cut spending or you won’t solve the problem.

        The leechlike ‘starve the beast’ strategy that has created $20 trillion of free lunch for older/voting Americans at the expense of all younger Americans

        No it hasn’t. What has created the problem is the spending. We haven’t starved the beast at all. The federal government collects more money than it ever has by any measure. We are in debt because Congress can’t stop spending. No amount of raising taxes is going to solve that. You solve the debt by stop spending. Linking it to taxes is idiotic because Congress will just spend any additional money it collects. That is the problem.

        God you are fucking stupid. You are just dumb as fucking rock.

  6. How does cutting spending (which goes in large part to old white people who vote GOP) fit the GOP electoral strategy? Won’t happen. The duops got us into this mess which is exactly why they are going to keep us in this mess. Everyone in Genx and older gens knows it too – and at this point has either crawled in bed or made their peace with the duops. The change is too risky.

    For millennials and younger (is that Z?) – there’s only one option. Stop playing every single game your parents/elders want you to play. Stop going into debt for college. Stop going off to fight their wars. Stop thinking that you gotta move to expensive places and prop up older folks housing prices in order to get good-paying jobs and do fulfilling work. There’s only one purpose for all that – subconscious or not – to hook you in so that in 30 years you too will be stuck.

    Instead – move to and take over a big place like the Mississippi River watershed area. Make it yours – create the future you want to see – and force the rest of the US to come to you on your terms rather than you fitting into the rest of the US on theirs.

    1. Instead – move to and take over a big place like the Mississippi River watershed area. Make it yours – create the future you want to see – and force the rest of the US to come to you on your terms rather than you fitting into the rest of the US on theirs.

      That is the dumbest thing I have ever read in my life. Really, WTF. Is this a joke? It makes plenty of sense not to go into debt and live in a place you can afford. How you think doing that is going to get the feds to stop spending money is a bit of a mystery.

      1. In all likelihood, NOTHING is going to stop the US from over spending until it hits a wall and explodes. When it does, you want to be far far away from the entire debt – private and public – pyramid that will come crashing down at that point.

        How you think doing that is going to get the feds to stop spending money is a bit of a mystery.

        That’s not the point of that move. The point is that the Mississippi River watershed area is roughly equivalent to the area that ain’t a significant part of that debt pyramid – which is WHY it can be a place where a lot of changes can be made without resorting to debt to fund them – and it can sustain a lot more people/prosperity than exist there now.

        I suppose it’s possible that concentrating a generation that doesn’t benefit at all from fed spending into one area will create the political power to pressure spending. That’s far more likely than spreading them out among a bunch of teat-suckers while forcing them into perpetual debt. But that is secondary at best – esp since the young don’t really vote (and no reason they should if they ain’t teat-sucking).

  7. Spending will ALWAYS be a function of revenue. They will always slowly inflate away their debt and maintain and certain level of overspending. The only thing that has ever caused a reduction in spending has been a reduction in revenue.

    Does no one remember the vicious crazy battle over the ‘sequestration’ a few years ago? And all that was over a totally minor reduction in the planned GROWTH of spending. They will never ever cut spending . Ever. Unless they are really short of funds.

    Every tax cut is a good thing.

  8. Although the pattern was broken a bit by Obama’s massive budgets, I have observed that the federal government has usually taken in revenue that equals what it spent about 5 years prior.
    2004 revenues $1.880T 1999 spending $1.701T
    2005 revenues $2.153T 2000 spending $1.789T
    2006 revenues $2.406T 2001 spending $1.862T
    2007 revenues $2.568T 2002 spending $2.010T
    2008 revenues $2.524T 2003 spending $2.159T
    2009 revenues $2.105T 2004 spending $2.292T
    2010 revenues $2.162T 2005 spending $2.472T
    2011 revenues $2.303T 2006 spending $2.655T
    2012 revenues $2.450T 2007 spending $2.728T
    2013 revenues $2.775T 2008 spending $2.982T
    2014 revenues $3.021T 2009 spending $3.517T
    2015 revenues $3.249T 2010 spending $3.457T
    2016 revenues $3.335T 2011 spending $3.603T
    So all it would take to get back in the black (or fairly close to it), so to speak, is to assume that right now we have a big enough government spending enough money–if we don’t have a big enough government now, we never will–and say “freeze it”. Don’t allocate another penny in budget for next over this year, not even for inflation. Hold that course for a mere five years and let revenues catch up.
    No big cuts needed, no new taxes needed. Just the fortitude to say enough is enough.

    1. And the fortitude to withstand five years of political attack ads that go like this:
      10 secs of If you don’t eat your meat, you can’t have any pudding
      10 secs of You’ve just been listening to our incumbents austerity ideas. I believe in dessert now. So do the children. So for the children
      10 secs of
      (if R)Free Pudding Now for Taxpayers
      (if D)Free Pudding Now for All Voters
      (if L)We Don’t Need No Thought Control

  9. Tax reform is meaningless until the feds put a lid on all their spending.

    1. Hell I’d be happy if they would just say “no increases this year” but not even that happens. They can’t even stop increasing how much they spend.

  10. First of all, Veronique de Rugy, I love your name.

    And I agree we can do better.

    I have written to Congress that I will do what they’re too weak to do; cut government and eliminate federal taxes, but no one has replied.

    It’s really very simple.

    Cut the federal government by 98%, which includes abolishing the IRS.

    See, I did their job for free, now Congress can take the rest of the year off.

    You’re welcome

  11. Hi!

    Ok, I think we’ve been round and round this mullberry bush for quite a while….
    …and we’re not getting anywhere.

    Here’s something to make you think:

    If Government Spending is so rotten and horrible, and needs to be stopped?

    Then WHY is anyone buying the US BONDS of every series and stripe to fund the spending?

    Think about that, for a minute before you answer….and….for those of you commenters ready to bite MY head off for “uttering” the “detestable” idea of you…”personally” holding the horrible things….


    1. Take a look at your 401K’s and your IRA’s and your Mutual Funds…

      You know….the accounts where you can HOLD things and amounts and LEGALLY say you don’t hold them?

      Sore spot, there?

      Yeah….thought so.

      Kinda like those NASTY DIRTY SOCKS your kid just has to wear all little-league season long, because they’re his “lucky socks”
      And they’re so dirty, and raunchy that they’re even standing up on their own in the corner, waiting for him to put his feet in again to head to the next game?

      Yeah, I’ve heard some of you talk about bonds in general like that, (Well, maybe not “anyone here” poormouthing your tax-free holdings, but lots of others, elsewhere….)

      BONDS are the nasty dirty socks that you don’t want to even ADMIT you hold, because even YOU know, that you’d be taxed to stupidity and beyond….just to get paid that yield (and the maturity) tax-free….

      and you know it.

      Why do you think Mutual Funds, IRA’s (roth and otherwise), and 401K’s exist…?

      For you to have a place to PARK those financial “nasty dirties” you got….so you can LEGALLY SAY, “Oh well that’s part of the portfolio of the *general mutual fund* that I’ve invested in….but….I don’t *own* (those god-awful filthy things….!)

      ..while all the while making that sweet Tax-free Yield that increases your “portfolios”


      But you want to talk about the EVILS that Government Spending IS, WAS and WILL BE, *IF* they don’t “straighten up and fly right* along the course you want to plot……..

      1. Correct?

        Ok, so….Bottom line….You want to cut spending? OK…..

        tell your bank….to tell the FED (who is supposed to be independent from the Government) to stop buying the bonds….
        And tell you what….offer them a matching rate….

        For every 10 Dollars in BONDs that the FED DOES NOT BUY from the Government…..

        You’ll MATCH by not buying ONE Dollar in Bond on the Private 3rd Party Side, or from the Fed, or from the Government Directly…..

        And have your bank back you up on it.

        In the End you’re the Bank’s Customers….they can’t LIVE without your deposits. That’s a fact.

        They can’t.

        So….the choice is yours.

        How bad do you want to get Government spending cut?

        or, did I just find another article engaging in “Political Mental Masturbation,” again?

        I’m just saying….

      2. A few questions about that.

        The 401k, basic IRA. That is all just numbers in a ledger. That is true.

        They mean nothing until you start to withdraw. Then you pay income tax.

        The majority of investors with those are small time. T bills you can invest in but not much better than the bank. Most is in individual stocks or mutual funds. So you are investing in companies. There is risk. We all know the rules.

        The simple unwashed like me know just a few things.

        – The best investment is a steady paycheck. Something you can do to trade for something people want and not everyone can do.

        – Save from an early age as much as you can and invest in a tax deferred plan. Compounding is powerful.

        – Watch those carefully. If you are not getting returns over market rethink your portfolio and adjust.

        – Work is what you get paid for. Life is more than that.

        – Die broke

        What is the problem?

        Government spending.

        Libertarians want smaller government. So long as they can the government will spend or do dumb things like tarrifs. We keep pushing the button for democrats and republicans who spend as if there were no limits.

        That is politics not economics.

        Just my dumb analysis.

  12. I’ll even add this further….

    US BONDS are the DNA to the BIGGEST WELFARE SYSTEM in the WORLD…..
    and the only reason WHY you can’t see it as such….

    You have to “buy-in” from your “take home” pay….to get a slice of that sweet, sweet, pie……

    And now you know it.

    But, then again… Constitution says that “in order to …. promote the general Welfare….. for ourselves and our posterity…”

    again, just saying…..

  13. Same Republican failed one horse idea, tax breaks for the rich. And as always the same result, massive deficits for average Joe, Jane and their kids to pay off in the future. What happened to “trick me once”?. This time out $1.4T to date and an estimated $1T a year into the future. Reagan’s “trickle down” Reaganomics I largest U S debt increase since WWII and runaway deficits for a decade. GW Bush, Reaganomics II, 2nd largest debt increase since WWII with the kicker collapsed the U S economy in the Republican Great Recession. Now here we go again.

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