Saturday, August 26, 2017

COHN: Tax Reform Will Mean Getting Rid of Many Personal Deductions

President Donald Trump's national economic adviser, Gary Cohn, discussed tax reform with the Financial Times.

Here are the highlights of what he had to say (my bold):
We are completely engaged in tax reform. Starting next week the president’s agenda and calendar is going to revolve around tax reform.

He will start being on the road making major addresses justifying the reasoning for tax reform and why we need it in the US.

At the end of the day,
tax legislation has to happen in Congress and the House. The “big six” [a group of White House officials and leading congressional Republicans] have been meeting and have come up with an outline and skeleton and we have a good skeleton that we have agreed to...

In the next three or four weeks the tax bill will be written in the ways and means committee and Congress is going to own the writing of legislation — that is key. They are going to create the piece of legislation — we feel there will be enormous buy-in from the committees — and we will try to do this in an accelerated basis...

On the personal side, we have protected the three big deductions — charitable, mortgage and retirement saving. We want to raise the standard deduction caps and get rid of many of the other personal deductions. We want to get rid of death taxes and estate taxes.

On the business side, we are proposing to get rid of many of the deductions that companies can take right now to lower taxable income. At the moment we start with a high corporate tax rate in America but companies use deductions: what we are trying to do is get everyone to pay at a lower rate. This is a big base-broadening exercise.
Bottom line, for the most part, tax "reform" is going to be about shifting the direction by which government taxes you. Cohn did not mention at all the possibility of cutting government spending to relieve part of the tax burden. Indeed, he suggested just the opposite that borrowing would go up to make up for any real decline in tax revenues:
Revenue may decline in the medium term but it will then explode for the government. 
Increasing the government debt is an immediate problem that few understand. I wrote in an article titled, Why the Exploding US Government Deficit is Going to be a Very Real Immediate Problem:
[T]here is an immediate problem with ballooning government debt that is hardly ever mentioned---and this is a problem that exists far before any debt crisis emerges.

It is that money borrowed by the government is money that would otherwise remain in the private sector. This is a major immediate hit to the economy.

Instead of money ending up in the hands of businesses serving consumers, consumers themselves, and entrepreneurs, The money ends up in the political world of special interests, politicians, bureaucrats, cronies and the Deep State.

In other words, the deficit problem is in the here and now as soon as the deficit expands. A growing deficit crowds out and suffocates the private sector immediately, resulting in an immediate lowering of the general standard of living.
So what we are about to get from Trump under the guise of "tax reform" is shifting taxes, higher government debt loads and no shrinkage in government spending.

No wonder Cohn expects the  “big six” of the Big Swamp to buy in.


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