The Trump Tax Plan Is Government as Usual

Despite big promises, it fails in its primary mission: paying for the actual cost of government


Donald Trump has declared "with tax reform, we can make it morning in America again" and that "revising our tax code is not just a policy discussion — it is a moral one, because we are not talking about the government's money – we are talking about your money, your hard work."

The Republican tax plan, which would cut rates for individuals and small businesses, sounds like good policy, but it's not. Before we get lost in details and political infighting, it's worth laying out what effective tax reform actually looks like.

The hallmark of a good tax code is that it doesn't attempt social engineering via revenue collection.. It's our money and the government shouldn't be telling us how to spend it or what to spend it on. And yet our tax code is larded up with all sorts of incentives for certain types of purchases—such as the mortgage-interest deduction, which is defended on the grounds that owning a home is morally and culturally superior to renting. It's not by the way, and the result is market distortions that saddle families that would be better off renting with mortgage debt. Trump's tax plan keeps the mortgage interest rate deduction–and the one for charitable giving, which is another example of social engineering.

Another distortion in the tax code is that individuals can deduct the cost of their state and local taxes from their federal bill, effectively allowing jurisdictions like New York and California to get away with charging their residents more than they would otherwise. To its credit, the Trump plan at least attempts to do away with this practice, although it's doubtful this idea will survive the legislative process..

The most important principle for tax reform is that revenue should cover the actual costs of government so that citizens can actually make an informed decision about what services they're willing to pay for. On this score, Trump's plan is sadly business as usual.

First, it would take even more people off the tax rolls. There are already over 40 million households that pay no federal income tax at all and the president brags that his plan would add another 31 million to that total. As Chris Edwards of the Cato Institute writes, "taking more people off the tax rolls is not a good way to keep the government limited. If something is 'free,' people will demand more of it."

And the problem is much bigger than that. For decades now, the feds have been spending far more in any given year than they take in via taxes. Last year, for instance, the government spent 20 percent more than it took in and between 2009 and 2013, it spent 33 percent more than it brought in. Hence annual deficits and ballooning national debt. This is like government by Groupon: Every year, we're getting such a great deal, of course we want more and more stuff. We'd be stupid not to.

Where does Trump's plan land on this topic?

Who knows?

Every tax reform promises to either be revenue neutral or to increase the government's haul. In many cases, neither outcome is close to being truthful. More to the point, after years of accumulating debt we need to focus on government spending first and foremost. In 2016, the feds took in about $3 trillion in taxes. That should be the absolute spending limit—instead of the nearly $4 trillion Congress is talking about.

Taxes aren't the price we pay for civilization—they're the price we pay for government. And until we bind the two together, we'll be spending more and more money that we don't have on things we almost certainly wouldn't want if we had to pay full price for them.

Produced by Todd Krainin. Written and narrated by Nick Gillespie. Cameras by Jim Epstein.

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  1. The most important principle for tax reform is that revenue should cover the actual costs of government so that citizens can actually make an informed decision about what services they’re willing to pay for.
    That is spending reform. Simplifying the tax code and removing the distortions it causes is good in itself.

    1. Yes, don’t earn more till you figure out how to spend less.

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    2. The most important principle for tax reform is that revenue should cover the actual costs of government…

      That would imply that tax reform needs to raise rates, since no one in Congress wants to cut spending.

      1. Hauser’s Law: Hauser’s law is the proposition that, in the United States, federal tax revenues since World War II have always been approximately equal to 19.5% of GDP, regardless of wide fluctuations in the marginal tax rate.

        The biggest drivers of federal revenue are GDP, the general performance of the economy, and economic growth.

        Rat on a train nailed it, the budget can only be brought into balance by cutting spending, but drastically simplifying the tax code woukld be good for the economy in general.

    3. Why is simple viewed as necessarily better?

      1. Not only would simple be fairer for almost everyone, but tax law and compliance is a giant money suck and time drain. The less time and money American industry and special interest groups need to spend of lobbying congress and buying special exemptions and favors, the more time and money they can spend on innovation and producing things that are of real value.

        I can definitely understand why a tax lawyer and CPA might not be a fan of the idea though.

        1. The second half of what you said makes sense, but it’s not clear that it’s “fairer” (this is obviously very subjective) and it’s also not clear that it optimally allocates resources. For example, profit and loss can be complex to quantify, and an optimal tax rate often requires those factors to be estimated as accurately as possible.

        2. Also the fact that for a lot of people who are on a payroll get more income tax taken than they owe and then have to fill out paperwork to get it back.

          1. Isn’t that just poor planning by the employee? I have a fair estimate of what my deductions will be each year, so I’ve selected my deductions accordingly.

  2. Taxes aren’t the price we pay for civilization?they’re the price we pay for government. And until we bind the two together, we’ll be spending more and more money that we don’t have on things we almost certainly wouldn’t want if we had to pay full price for them.

    Cool, reduce every spending program starting with the ones with the largest tabs, and do not collect those taxes next year.

    But deficits do not matter anymore. Given that Republicans are in charge

    1. But deficits do not matter anymore. Given that Republicans are in charge

      Truer words have never been spoken.

      And bitch-slap Sevo for me please.

      1. Deficits don’t matter when one party is in power.

        1. When have deficits ever mattered? Politicians don’t give a damn how badly they indebt us all, and they never have. And the majority of the public obviously can’t be persuaded that this is in any way a problem. Everyone’s just going to continue on with their eyes shut and their fingers in their ears until the whole thing collapses. The handful of people who know better have never given a pass to either party.

          1. How can you even talk about taxes at a time like this? We have a bigger issue that needs to be addressed. Football players are kneeling during the National Anthem because they don’t support the troops.

          2. Debt is a long term problem. Politicians have short term motivations – getting reelected and maintaining power.

            In this sense they are like teenagers with their parents’ credit card.

            40% of households don’t pay federal taxes so why should they care about the debt?

            1. For the same reason they care about welfare.

  3. Something as tangled as the tax code didn’t appear overnight. It won’t be brought to heel except through agonizing baby-steps that barely do anything.

    I’d be content just to eliminate taxes and deductions outright. Hell, don’t even bother cutting taxes, just cut the tax code. Eliminate 10,000 pages yearly until it is under 10,000 pages. That would be a great start.

  4. Another distortion in the tax code is that individuals can deduct the cost of their state and local taxes from their federal bill, effectively allowing jurisdictions like New York and California to get away with charging their residents more than they would otherwise.

    You can tell Gillespie (Ohio still?) and Krainin don’t live in NYC. Welch has been crying up a storm over this possibility.

    1. Anyone who lives in one of those places (like me) should applaud the pressure it will put on them to cut spending.

      1. Okay, let’s not get carried away. It will take years of mass exodus for them to even consider state and local taxing/spending reform.

      2. They will spend more because they will fear the Feds will do less. Sacramento has a Democrat super-majority.

    2. Not really true. Taxpayers making 100K to 150K in California are paying less in state income taxes than similar earners in red states like Idaho and South Carolina. California’s top rates are higher, but other states have them kick in much lower. Those two red states have top rates of 7 percent or more that kick in around 15K. California doesn’t hit 8 percent until you are over 83K (for married filing jointly).

      California may have higher taxes overall, but you can only deduct one or the other of income and sales taxes.

    3. It’s more than arguable that we are better off the more local our taxes are — local governments are more responsive and accountable. What libertarian would support a change that would direct more tax revenue to the feds and less to state and local?

  5. “Taxes aren’t the price we pay for civilization”

    That’s right, they are the price paid because we aren’t civilized. If we were, we’d gladly pay for the services we use and expect others to pay for the services they use.

  6. Another distortion in the tax code is that individuals can deduct the cost of their state and local taxes from their federal bill,

    Distortion? If that deduction isn’t there, part of the state or federal income tax is a tax on tax. I fail to see how double taxation of the same income is any less of a distortion!

    1. Re: Robert,

      The point being that the taxpayer would be shielded from the true cost of the State or local government because of those deductions. However I do not agree with Nick’s view of it because having your money stolen by only one pick-pockets cannot possibly be worse than having your money stolen by TWO pick-pockets in succession.

      1. The true cost of the the state and local government is the tax. Taxing the money you already spent on taxes is just further fed extortion.

    2. It is not a tax on tax. It is a tax on income. You income is already multiple-taxed. You pay federal, state, FICA and Medicare on your income. Then you pay sales, use and other taxes when you spend the income.

  7. Taxes aren’t the price we pay for civilization[…]

    It boggles the mind knowing how many clueless leftists justify taxation by using that bromide, as if civilization was the immaculate creation of bureaucrats.

    Of course taxation is not the price we pay for civilization, however I have to argue with the point made later that taxes are the price we pay for government. Saying it is a ‘price’ suggests there’s a voluntary exchange stemming from choice between competing alternatives. Instead, taxes are what we pay as victims of an extortion racket run by the State. Thus taxes are no more a price on government than having your wallet picked by a pick-pocket being the price of having pick-pockets roaming the streets.

  8. No thanks. Since they’re going to spend too much and borrow no matter what happens, I’ll take my money back now. Cut taxes until the govt goes bankrupt and folds.

    1. I don’t think bankrupt and fold is a choice in the repertoir of governments. Usually they pillage, steal, incarcerate, and declare war on their citizens and everyone else when things get irreversibly bad.

  9. Deficit spending is a subsidy from the future. And an involuntary one, since our future selves don’t get a say in the matter of whether or not to subsidize us in the present.

    The larger the deficit, the larger the subsidy.

    Tax reform and spending reform ought to work towards eliminating this forced involuntary subsidy.

  10. The mortgage deduction “saddles” families that would be better off renting with mortgage debt? Citation please. And even if there was some evidence to confirm this, why is an alleged libertarian like Nick arguing that people shouldn’t be able make their own decisions about whether to rent or buy so we should eliminate the deduction? And if you buy into that argument then the same faulty decision-making goes for mortgages when there is no tax deduction. So would Nick argue that mortgages should be outlawed entirely?

    1. No one is arguing that people shouldn’t be free to choose whether to buy or rent. The problem is, the mortgage interest deduction puts the thumb on the scale between the two choices, in favor of buying.

  11. I think this tax plan is a step in the right direction. Does it get us all the way there? Absolutely not, but it’s certainly better than doing nothing. I will concede to Nick that decreasing the amount of taxpayers is dangerous

    Now, I’m a firm believer in balancing the budget. I think it’s irresponsible to continue spending what our government spends AND simultaneously cutting taxes. Pay for this tax cut with an across the board spending cut this year, then continue cutting spending until the deficit is 0. Then tackle entitlements.

  12. Nick says “taxes aren’t the price we pay for civilization”.

    Without making any claim about the truth or falsity of that statement;

    By what way does civilization come to be?

    Is civilization free?

    Are there any really great civilizations presently (or in history) that are free of government and/or taxation?

    Are there any really great civilizations where the government is weak (in terms of economic resources) or its funding is limited to defense?

    1. Egad! It’s Judge Napolitano’s evil, statist twin!

      What do we do now? Is it torches and pitchforks or… what?

    2. The major problem is that, when our government was set up, through the Constitution, there were two main restraints on government – Article 1, Section 8, that lays out what powers the federal government may exercise, including that “all Duties, Imposts and Excises shall be uniform throughout the United States”, and Article 1, Section 9, that laid out, that which was prohibited of government. One key provision being that any direct tax be laid in proportion to the population.
      They wanted government limited to certain things and for everyone to pay the same rate.
      Sure, some of those things, especially the latter, were changed through the amendment process but, in this constitutional republic, we have strayed far from what our Constitution intended.
      Any function that the federal government tries to fulfill, that is not in accordance with Article 1, Section 8 should be immediately shut down – that would be a good start on spending reform. Broadening the tax base would be a good start on reform in that area.

    3. Freaking Communist China government spends less as a % of GDP than the US does.

      On the brighter side – so do Singapore, Costa Rica, Hong Kong, Bahamas, Chile, Taiwan, South Korea, Switzerland, Australia, Estonia, Canada, Japan, Luxembourg (and Norway Germany are very close)

      IOW – there are plenty of real-world ‘free country’ models to reduce spending. And reducing spending would also put the ‘tax debate’ on much more rational ground too – and take it out of libertarian lala land. But apparently we are no longer capable of that sort of political discussion.

      1. Oh – and one of the reasons many of those countries can spend less overall is precisely because they DON’T give a shit about spending so much blood and treasure on a huge cronyist spending item – defense.

        Keeping the world safe for Goldman Sachs and the reserve dollar and the whole group of globalists really isn’t doing a damn thing for 99% of the American population. And I can pretty much guarantee that Cuba, Haiti, Mexico, and Canada ain’t invading anytime soon.

      2. Well, crony-communism works better than this crony-capitalism

        That’s all it means.

        Capitalism somehow never gets done right, does it? Wonder why? All it produces is a few hundred very very very rich folks, and an ever-burgeoning slave class.

        Why? Because it is not done right.

        Either that or only those few hundred very very very rich folks and their womb lottery winners know how to do it right

        1. Are you actually this retarded?

        2. Are you actually this retarded?

        3. Funny how the “ever-burgeoning slave class” of capitalism has the highest standard of living the world has ever seen. Meanwhile communism only ever produces a few hundred wealthy party leaders, and millions dead. So what’s your preference? Starvation, the gulags, or execution and burial in a mass grave?

        4. Goddamn this is the dumbest thing I’ve read today, and I was on Twitter earlier.

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  14. How does this plan add 30 million more non-payers? How are there 40 million now? Can anyone give me an article to read or something so that I can educate myself on this? I’m not trying to argue or debate. I just want to learn. Thank you.

  15. This is a repeat.

    As in the 1980s and the 2000s, you had a Republican WH that cut cut cut cut taxes, borrowed borrowed borrowed and spent spent spent.
    We’ll do so again about 20 years from the last time

    Deficits do not matter
    Spending cannot be cut

    When the next Democrat president gets elected, deficits will matter and raising taxes? Why, you never do that.

    Here are a couple more wars, by the way

  16. If I had to pick between:

    A) A government with high spending plus high taxes, plus a mild deficit, versus (basically Bush and Obama)
    B) A government with high spending plus low taxes, with super high deficit (Trump and Reagan)

    I’d take option A as clearly the lessor of two evils. Sure, you could argue that you want to radically reduce spending as well, but THAT AIN’T HAPPENING.

    If I had to pick between:
    A) A welfare state that soaks the rich and gives a lot of money to the people on the bottom, versus
    B) A welfare state that takes a moderate amount from both the middle class and the super rich and gives a lot to the poor (basically, hitting the people in the middle)

    Again, option A is clearly the better choice. Off course, B is pretty much the Trump tax plan, except the poor don’t actually get the money from the middle and rich people, but instead it will go to Trump’s well connected friends and/or add to the deficit.

    A) Socialism that takes money from rich and/or the middle and gives to the poor (who, lets be honest, at least actually need it, so a small amount of socialism is actually a good thing as long as you don’t overdo it) vs
    B) Whatever you call what we currently have, give the money to a) well connected contractors, b) the military, c) old people lucky enough to survive into old age (social security + medicare, $$ just for being alive).

    Option A is clearly (less bad) better.

    1. Stick around, kid. You’ll learn.

    2. First Option A completely ignores the realities of the Bush and Obama presidency.

      Second Option A sounds better to anyone who is retarded because it is economically impossible.

      As for the Third Options, what makes you think that we don’t currently do both? Also, what is up with the false dichotomies?

    3. mild deficit, versus (basically Bush and Obama)


  17. Despite big promises, it fails in its primary mission: paying for the actual cost of government

    To be fair, there is no revenue plan possible that would pay for the enormous, insatiable cost of our government. And there is no will among the citizenry to reign in those costs.

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