Tax Choices

Political decisions about taxes are not yet at the binary choice stage.  Congress critters, lobbyists, and The Donald are all trying to create support for some portfolio of tax changes.  We will review a number of proposals on three parameters.  First, is it a good idea?  Second, what are the prospects and third, is it worth fighting either for or against?

Eliminate the gas tax and replace it with a carbon tax with roughly the same impact on gas prices.  This is a great idea but it is mice to the GOP elephants.  We wouldn’t fight for it but we would love to see it get the Democrats on board for a portfolio of reasonable reforms.  We know it is exceedingly unlikely but we need to mention it.

We won’t provide details on eliminating all tariffs and the death tax.  We are for both but the former has no chance and the latter is small potatoes.  The Border Adjustment Tax (BAT) is more serious.  It is a bad idea.  The Donald has proposed it but not included it in his tax proposal.  We are against it and hope it is never included.  The rest of the tax bill would need to be great to vote yes on the whole thing that included BAT.

Reduce the corporate tax rate and tie it into reduced taxes on business income from other sources.  This is a great idea.  It should have great growth bang for the buck.  It makes the tax system more rational by taxing business income at one rate rather that giving special status to C corporations.  It is part of The Donald’s proposal so it has a real chance of success.  If the final proposal doesn’t include it we would have a hard time supporting it.  We are not, however, at 15 or fight for the rate.  We could see 20% as the final rate and still be reasonably happy.

We don’t support corporation lobby issues like immediate expensing of assets, special treats for manufacturers, or special treatment of research and development.  There will be lots of lobbying and some of these might get included in the final bill.  Unless they get too extensive we would still support the overall bill.

Reduction of individual rates beyond the Obamacare 3.8 percent surcharge is proposed by The Donald and a big deal to lots of conservatives.  If we have to pick between reducing business rates and reducing personal rates we go with business rates.  We are OK with reducing personal rates but reducing business rates come first.  If the proposal reduced personal rates and not business rates count us as a nay.

We support eliminating deductions except charitable donations and mortgage interest and increasing the standard deduction.  Count us in.  Some, like George Will, also want mortgage interest to be deleted too.  We would be OK with that but recognize the political price of doing it.  Increasing the standard deduction, however, will effectively eliminate the mortgage interest deduction because few folks will have sufficient deductions to exceed the higher standard deduction.

We are not yet to binary choice on taxes.  We need to weigh the costs and benefits of proposed policies with the political practicality of them.  We would like to see a bill that makes substantial progress and can pass.  Don’t let perfect be the enemy of the good.  At the same time we must fight for the best good.


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