Murray Rothbard famously said that all tax cuts are good tax cuts. This is not the view at the Cato Institute.
Chris Edwards, the director of tax policy studies at Cato, in an analysis of President Trump's tax proposal objects to the most significant tax cuts in the proposal and also calls for the elimination (or reduction) of some deductions that Trump leaves on the table.
From conversations I have had with people on the Hill, I seriously doubt that the tax cuts in question will actually end up in a reformed tax code. But this is not the point of my objection to the Cato analysis. The serious problem is that the Edwards analysis is not looking at the proposal from a free market, limited government, low tax perspective. It is rather looking at the tax proposal from the view of a beltarian technocrat.
The most significant tax cut in the Trump proposal is the reduction in the pass-through tax rate to 15%. This would be a major reduction in the tax rate for individuals who use LLCs, subchapter S corporations, etc. who now may pay as much as 35% plus.
It does not appear this cut will make it into any final tax reform bill, bwhywht would any libertarian object to such a cut?
But Edwards does object to the cut. He writes:
Cutting the tax rate on “pass-through” businesses to 15 percent, however, is a mistake. Policymakers should aim to equalize the overall rates on income earned by each type of business. So if the corporate rate is 15 percent, corporate income would face a combined tax rate of 15 percent plus the individual dividend rate of, say, 15 percent under tax reform, for a total of about 28 percent (0.15+0.85*0.15). Thus, the top rate on pass-through income should be cut to the same 28 percent.Well, how about calling for "equalization" by advocating cutting everyone's taxes be cut to 15%? Wouldn't that be moving more in the direction of less tax than calling for an increase in proposed pass-through tax to 28%? Why is the head of tax policy at a so-called libertarian institute calling for tax increases above those propsed?
Then Edwards comes out in support of the elimination of the tax deduction for state and local taxes. He writes:
Eliminating itemized deductions—such as the state/local tax deduction—is a good reform.What the hell is small government, low taxes about this? It would increase the federal tax burden significantly in high tax states compared to other states? Why would you want to increase this burden if you are a libertarian?
It gets worse, in the analysis, Edwards calls for the elimination, or at a minimum a cap, on the mortgage interest rate deduction:
[W]e should also eliminate, or at least cap, the mortgage interest deduction.This, of course, would do nothing but raise the tax bill for homeowners who have a mortgage and itemize their deductions.
The Edwards analysis is a beltarian horror.
More than any other piece coming out of Cato, this analysis of the Trump tax reform proposal exposes Cato as simply an inside the Beltway institution providing the government with technocratic fixes to keep the vast government operation going without any serious concern about really shrinking government or the overall tax burden of every American.
It is positively bizarre for a so-called limited government advocacy institution to call for higher taxes and the elimination of deductions.