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Free Minds & Free Markets

Here Are the Cuts to Make Tax Reform Work

The problem that has long plagued reformers in the two controlling parties is the failure to put a stop to spending.

Congress produced yet another can-kicking, stop-gap spending bill, and now major tax reform is on its way.

The one-page outline for President Trump's long-awaited plan – some of it, anyway – reads like a wish list for conservatives: Corporate tax rates slashed, the top income tax bracket lowered, an Obamacare tax on investments repealed. For all the talk of how the rich stand to gain, the plan doubles the standard income tax deduction helping a majority of Trump's working class base.

But there's a problem with this plan, a problem that has long plagued reformers in the two controlling parties: The failure to put a stop to the spending that necessitates higher taxes.

After so many promises broken, the yearly warnings of impending fiscal crisis fail to alarm anyone. I sometimes worry I am self-plagiarizing, having written the same recaps so many times year after year. Without major reforms, debt will continue to rise to unsustainable levels, yet Congress perpetually fails to take serious action.

Now, when a Republican occupies the White House, the deficit suddenly matters again, and most mainstream discussion has centered on how much Trump's tax plan will add to it. Vice President Pence insisted Sunday to MSNBC's Chuck Todd that while the plan might increase the deficit, "in the short term" economic growth would more than make up the gap. Democrats and some nonpartisan watchdogs are, to say the least skeptical of Pence's forecast.

It remains unclear exactly what "pay-fors" will be included in the final package, but at least President Trump has officially abandoned the Border Adjustment Tax, which is good news – if you like affordable consumer goods and free markets.

But the deficit implications could end up imperiling the political chances of passing any major reform. Republicans who have spent the last eight years decrying debt and spending under Obama find themselves in an unenviable position – at least as long as they ignore spending.

Things don't have to be this way.

Trump's tax reform plan has been estimated to add around $6 trillion to the national debt over the next 10 years. When the Tax Foundation analyzed Trump's campaign tax plan last year, they found roughly a third of that deficit impact would be made up by economic growth.

While some others have been less optimistic, we'll work from these assumptions, which leave about $400 billion per year remaining.

It would, of course, be nearly impossible, politically and procedurally, to seek spending cuts to make up for every dollar in tax changes. But to abandon the idea outright would be unacceptable. Obvious cuts abound.

The Government Accountability Office's 2017 study of duplication and fragmentation identifies at least $20 billion in potential savings per year. Past estimates by former Oklahoma Senator Tom Coburn have been as high as $95 billion per year. For our purposes, let's assume a conservative total of $25 billion year or $250 billion over a decade in savings.

Back in January, news broke that the Pentagon buried an internal report that found administrative waste alone could be reduced by $125 billion over a 5-year period, without requiring layoffs or personnel reductions. There's another $25 billion per year from the country's biggest discretionary department.

No politically dicey changes would be required just yet on the infamous mandatory side. There are the well documented improper government payments, estimated at $144 billion for fiscal year 2016. Most of this is overpayments by Medicare and Medicaid, along with other programs like federal education grants and the EITC.

This brings the total identified savings to just under $200 billion, assuming no increases since 2016.

To be clear, no spending cut is easy – every dollar in waste has its own interest group loudly insisting no other dollar could be more important to the wellbeing of the country.

But none of these suggestions involve sequestering workers or even meaningfully changing the size or role of government and its departments. When just a few items can make up as much as half of the shortfall from a massive tax cut, it should be a sign to policymakers that focusing on spending cuts is possible.

And if Republicans believe cutting duplicative programs, self-identified waste, and improper payments is just not politically possible and not worth fighting for, perhaps they should ask themselves just what the hell they're doing in Washington in the first place.

Photo Credit: Spaces Images Blend Images/Newscom

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  • John Galt II||

    Revolutionary thinking! Cutting waste fraud and abuse!!! Does Reason have some minimum number of pointless web pages to publish??

  • bartzman86||

    So cranky. Somebody woke up on the wrong side of Atlus this morning. Why don't you eat a fiber bar and have some coffee?

  • John Galt II||

    Because I'm an adult.

  • Quo Usque Tandem||

    Albeit an apparently constipated one.

  • John Galt II||

    ANOTHER kid who doesn't know that "eliminating waste, fraud and abuse" has been a political LIE -- and political SATIRE -- for at least 30 years. (gasp)

    The political class survives by harvesting a mew crop of ignorant goobers every 20 years or so,

  • ||

    I agree. Any bureaucracy will have a certain amount of waste, duplication, and theoretical inefficiencies that are in practice very difficult to eliminate. Why should we think government bureaucracies can operate at or near 100% efficiency? Especially when they lack a critical incentive for doing so - the fear of being put out of business by more efficient competitors.

  • Shirley Knott||

    It's much worse than that.
    Any taxation scheme will have waste, duplication and real inefficiencies because no matter how justifiable the expense for which taxes are being collected, those who do the collecting are purely overhead.
    Transfer costs bite almost as hard as the problem of political authority.
    Nobody wants to pay the taxman his wages, and yet those get paid first, ahead of any other purpose for the tax.

  • John Galt II||

    Umm, major corporations have competition, and still have massive waste, fraud and abuse.
    It's about bureaucracies, public or private, not gummint.
    This is why libertarianism is rejected by 91% of libertarians -- the ones who can't be manipulated by a political elite.

    If you'd care to educate yourself ... outside the bubble -- use Google to learn the difference between Bureaucratic and Entrepreneurial Management ... for the last half-century or so that it's been common knowledge. To the informed.

  • Longtobefree||

    Why is it that the waste can always be found, but never prevented?
    How about just compare the budget to the constitution?
    No Dept of Education, no Dept of HHS, No NIH, no NEA. Are we there yet?

  • geo1113||

    Keep going.

  • Curt||

    Standing Army, NSA, DEA, DHS, all of the executive departments and agencies,

  • Longtobefree||

    Article one, section eight
    "provide for the common defense" seems to cover the military, standing or improv can be debated, but only standing would be effective in today's world; and most likely some form of international intelligence service.
    "lay and collect taxes" sadly covers the IRS
    "regulate commerce with foreign nations" gives us the State Department
    "constitute tribunals" brings in a federal court system
    So not all of the executive, but a great big bunch of it.

  • Curt||

    Yeah, I got a little silly there. "Standing" was the key point. on that one.

    Admittedly my issue is less about the basic premise of government authority to address the topics (and your list did cover stuff that wasn't in Art 1 Sec 8). More with the ludicrous size. We started off with a cabinet of four men. Now, we have about 20 cabinet level positions. The State Department employs 70,000 people and has a budget of $47B. Yeah, we've grown as a country, but that kind of stuff just kills me.

    But, I'll be happy to focus on stuff like DoEd with its $68B budget.

  • John Galt II||

    So what's your solution?
    Other than pissing and moaning (inside a tribal bubble)?

  • CE||

    Real world solutions? Freeze spending for 8 years and the budget will balance itself in short order. Lay off all government workers who were deemed "non-essential" in the last shutdown, and don't reinstate them or give them back pay this time. The government shouldn't have any non-essential employees.

  • John Galt II||

    Real world solutions

    You don't know what "real world" means?

    Freeze spending for 8 years and the budget will balance itself in short order.

    HOW short? If longer than 8 years ... you screwed up BIGLY..

    So what's your solution? Other than pissing and moaning (inside a tribal bubble)?
    Even Ron Paul doesn't have the guts to say slash Social Security and Medicare -- which he avoids with bullshit like -- Repeal the income tax and run the entire gummint on ... FICA TAXES!! (when 40% of Medicare is financed by INCOME TAXES, not FICA taxes or the Trust Fund.

  • Redcard||

    "provide for the common defense" seems to cover the military

    In its full glory:

    The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

    Somehow only one phrase is remembered by neocons pretending to be libertarians

  • John Galt II||

    Why is it that the waste can always be found, but never prevented?

    Because voters like to hear about it. Everywhere. Even here.

  • timeconsumer||

    Optimistic thinking. It will never happen.

  • Enjoy Every Sandwich||

    There's nothing to cut!!! Everything is desperately needed, everything!!! In fact we need massive increases--in everything!!! /progthink

  • Unicorn Abattoir||

    Everything would include defense. NO TRUE PROG would ever call for an increase in defense spending.

  • Enjoy Every Sandwich||

    I don't know about that. They're always calling for "humanitarian interventions" in whatever miserable place CNN trains its cameras on. They see soldiers as international social workers.

  • John Galt II||

    (shudder)

  • John Galt II||

    Oh, good! He said "prog." Now we know he's an independent thinker, not a tribal chanter.

  • Libertarian||

    Politicians think in terms of what is expedient within the period that comes before the next election. The broader problems with which we are now concerned are seldom in their minds.

    -- W.H. Hutt, 1936 (that's right, nineteen freakin' thirty-six!)

  • John Galt II||

    So why has libertarianism been such a massive failure?
    Is it because we have a total of zero credible policy solutions? No alternatives? Nothing at all. But lots of slogans and soundbites, by which the libertarian establishment manipulates and energizes its cult-like followers.
    (EVERY political base is dominated by trolls eager to be brainwashed ...and they all believe only the OTHER two tribes are ... dominated by mindless trolls eager to be brainwashed. To us independents, watching them run around in circles adds a humor break to the terror we actually face.)

  • CE||

    Because free stuff is always more popular than freedom?

    Libertarian solutions are inherently more credible than all the failed government programs, but the people deciding what's "credible" don't like them so they scoff.

  • John Galt II||

    the people deciding what's "credible" don't like them so they scoff.

    They're called voters. (sneer)
    WHY IS YOUR AUTHORITARIAN ARROGANCE SUPERIOR TO ANY SEMBLANCE OF INDIVIDUAL LIBERTY?

    And thanks for proving my point so perfectly!

  • Redcard||

    Precisely.

    And reason.com libertarians are simply LINOs, they are really Republicans.

  • Redcard||

    Precisely.

    And reason.com libertarians are simply LINOs, they are really Republicans.

  • I am the 0.000000013%||

    Soon all our tax dollars will go to servicing the debt - if they raise taxes it will prolong the process, but we'll still get there.

    Once we can no longer indulge in crony capitalism and inflated pays scales for government represented classes, they'll hopefully join the private sector or alternatively die.

    Problem solved.

    The nice thing about unsustainable is that it's unsustainable.

  • Quo Usque Tandem||

    "every dollar in waste has its own interest group loudly insisting no other dollar could be more important to the wellbeing of the country."

    Could have just wrote that and covered everything else in this article. Doesn't matter what or where the waste is, it comes down to who wants to protect their own particular Golden Fleece.

  • Uncle Jay||

    RE: Here Are the Cuts to Make Tax Reform Work
    The problem that has long plagued reformers in the two controlling parties is the failure to put a stop to spending.

    I read in either Fortune or Forbes that the Pentagon has over 200,000 bureaucrats in its Acquisition Department alone.
    Yet there are only about 160,000 active duty marines.
    If Trump the Grump wants to "drain the swamp," he can start there.

  • Presskh||

    The way to cut back on the number of federal employees required in the acquisition process is to cut back on the enormous volumes of requirements in the Federal Acquisition Regulations (FAR), which are written and passed into law by Congress, not federal workers.

  • Presskh||

    About the $144B you mention as improper payments to Medicaid and Medicare: I have no doubt about this number - in fact, I'm surprised it's not higher. The problem is how many more govt. workers are you willing to hire to monitor and go after every doctor's office, pharmacy, hospital, clinic, nursing home, physical therapy center, etc. in the country? It would take an enormous number of people to properly do this, if it can be done at all. So, I don't think you can realistically count most, if any, of this as potential savings.

  • Redcard||

    Now, when a Republican occupies the White House, the deficit suddenly matters again,

    horse shit! that is when the deficits and the debt do not matter.

    But reason.com Republicans pretending to be libertarians do not care about their lies or hypocrisy

  • jerryg1018||

    Several members of Congress have published long lists of wasteful government spending over the decades only to be ignored. Much wasteful spending goes to "studies" of idiotic subjects like "can an artificial squirrel fool a rattlesnake" or "does playing Bingo enhance senior citizens sex lives." Then there is the duplication of effort by federal agencies who run the same programs. Some 45 jobs training programs are run by a number of federal agencies. Combining them would save millions of dollars. Next is the over staffing of federal agencies by bureaucrats building their own kingdoms. Proof of this is federal employees spend most of their days surfing the Internet or writing power grabbing regulations by the EPA and Corp of Engineers with their WOTUS regulation giving them power over every small puddle of water.
    Congress needs to reign in regulatory powers and federal agency spending authority to save money. Any spend should be directly approved by Congress.

  • Brian Reilly||

    There is no real interest in either Party or among the bureaucracy to reduce spending (in real or nominal terms) anywhere in any level of government. So spending is never reduced. Someday, maybe soon, the accounting will become too tortured to continue. What then?

  • Art Gecko||

    Any budget that doesn't include DRASTIC cuts to Social Security, Medicare and the military/security/surveillance complex is guaranteed to increase the debt.

    Total federal spending for FY 2015 = $3,690 billion

    SS, unemployment and labor = $1,275 billion
    Medicare and health = $1,052 billion
    Military and veterans = $770 billion
    Sub-total = $3,097 billion (84% of federal spending)
    Interest = $229 billion
    Sub-total = $3,326 billion (90.1% of federal spending)
    Everything else = $364 billion

    $3,250 billion income
    $440 billion deficit
    Deficit if "everything else" were completely eliminated = $76 billion

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