Tax Reform is Hung Upside Down

The Senate Tax Reform package will eventually become the text book model for how to do all the right things wrong. Reducing taxes is a good way to increase economic output, the Republicans accomplished that. Modifying deductions and using progressive tax rates as a tool to reallocate income distribution. Done. Using taxes or lack of taxes to discourage or encourage certain behaviors? They do that as well.

Sound, economy boosting tax reforms would have all of the attributes of the Senate tax plan. Reducing taxes does do exactly what Republicans say it does. It allows more money to remain available by currency users to utilize resources. Currency is used by everyone but the monopoly currency issuer. In the US the currency issuer is the Federal government. Individual deductions are part of the income tax code to account for living expenses and increasing the personal deduction moves us somewhat towards that goal, but any improvements on that intention were erased when state and local taxes became limited on the amount that could be deducted from gross income. Likewise many deductions such as homeowner mortgage interest, charitable contributions, and medical deductions were further limited than they had been in the Reagan era. These events ultimately impact middle class taxpayers from seeing any significant decrease in their tax bill; which by the way the tax rates for middle class taxpayers are all scheduled to expire. Let’s not forget that by eliminating the Health Insurance mandate the tax plan only increases the cost of living for those that have insurance.

Progressive tax rates is one of the best tools that the managers of macroeconomic policy have to make certain that individuals that are living below the cost of living are not taxed, and persons whose incomes are exorbitantly beyond the cost of living, even after considering that a higher pay scale usually means a higher cost of living, pay a share of their excess income in order to totally remove that money from circulation. The tax impact to wealthy individuals is close to nil, since it is money they really did not need or were going to spend and increase the nation’s productive capacity, and contrary to myth will certainly add little to nothing of the employed ranks.

But, if the Republicans put in place a tax plan that eliminated any taxes on persons that earn the cost of living, with unlimited and unrestricted itemized deductions for those earning less than the average wage, higher taxes that eventually exceed 50% of income on the wealthy and restricting the amounts that they can itemize, we got a plan that will make America into a haven for the middle class, the poor will not be held back by the use of wage slavery and virtual poorhouses, and the wealthy will still earn outrageous sums because all money eventually ends up in their pockets.

So please do not talk about the Federal Debt, or deficits, keep your eye on the prize. The plan passed by the Senate is a start, but it is upside down and will work that way in the economy. What will happen is this; trickle-down has never worked and it won’t this time. Austerity will spread like a disease throughout the entire economy, forcing entire populations into poverty, all the wealth generated will remain at the top and coalesce there.