By Murray Sabrin
Donald Trump, who is leading the GOP presidential primary field, issued his tax plan on September 29 in a Wall Street Journal op-ed (“Tax Reform for Security and Prosperity”). Trump’s proposals are generally in the right direction for what the economy needs and the American people deserve…lower tax rates for both individuals and businesses. However, Trump also proposes some questionable initiatives that stray from free market principles.
First, the good news. Trump’s tax plan cuts marginal tax rates for all individuals and businesses. Every tax cut is a plus for the economy because it leaves more money in the hands of the actual producers—workers, business owners and investors, all of whom have the right to keep every dollar that they earn to spend and invest as they see fit.
In fact, under Trump’s plan there is zero tax rate for couples earning $50,000 or less and individuals earning less than $25,000. The tax on capital gains and dividends is capped at 20% for high-income earners. The much hated Alternative Minimum Tax is abolished under Trump's plan. Also, the Net Investment Income Tax of 3.8%, which was passed as part of the Affordable Care Act, would be eliminated.
Corporate income taxes would decline to 15%. In addition, corporations with funds overseas could repatriate them to America and only pay a 10% tax.
Trump also asserts that his tax plan would be “revenue neutral".
In general, Trump’s tax plan will reduce the federal government's tax burden on individuals and businesses. That is a huge plus for the economy and individual freedom.
However, there are several questionable proposals and Trump's tax plan. Trump wants to undertake "smarter trade agreements." Trade agreements are nothing more than managed trade and a violation of free trade principles.
The United States doesn't need any more international trade agreements; the country needs an income tax rate ideally at zero for individuals and businesses, which would be the greatest boon to the US economy---and make our country greatest place in the world to do business.
As I explain in my 1995 book, Tax Free 2000: The Rebirth of American Liberty, a tax-free society would reflect the preferences of every individual and business owner in our country. In one fell swoop, every special interest group would leave Washington DC, there would be no more lobbying firms in Washington DC, and there would be no legal payoffs to members of Congress known as campaign contributions from big donors. In short, the United States would become a totally free and prosperous society with a zero federal income tax rate.
After all, Trump is proposing zero federal income taxes for half the American people. Let's take that proposal and extended to all Americans and businesses. We could phase in a zero tax rate for the other 50% of the American people over five years. The federal budget would have to be reduced substantially during this period, which would, in the final analysis, accelerate the phase-out of the welfare – warfare state.
Trump’s asserts his proposal calls for “revenue neutrality.” In other words, Trump wants to preserve the funds available to perpetuate the welfare warfare state.
The federal government spends nearly $4 trillion a year redistributing income and military intervention overseas. Nothing in his plan addresses the bloated federal budget, which spends the American people's money on scores of unauthorized spending. The U.S. Constitution does not authorize the federal government to spend money on healthcare, education, housing, corporate welfare, retirement benefits, and dozens of other programs. In addition, the U.S. Constitution does not authorize the federal government to be the world's policeman.
Trump ends his essay about his tax plan the following, "This plan is bold, but is also cast in reality and common sense" (emphasis added).
In today's economic and political environment, Trump’s plan could be considered “bold.” From a free-market perspective, however, Trump’s plan is in reality tweaking the welfare warfare state while maintaining the flow of funds to the federal Leviathan.
Common sense dictates we need a radical overhaul of the federal government – – from taxes, spending, regulation, foreign policy and of course addressing the Federal Reserve’s manipulation of money and credit.
We need country based upon free enterprise principles, individual freedom and a noninterventionist foreign policy. That is the common sense prescription for security and prosperity.
Dr. Murray Sabrin is Professor of Finance at the Anisfield School of Business at Ramapo College of New Jersey. He recently ran for the Republican nomination for US Senator from New Jersey.