The Elephant in the Room

There has been much hyperbolic discussion on both the left and the right about the proposed GOP tax reform and tax cut. Most of the discussion is about who wins and who loses. The Democrats assert that the one-percenters are reaping fistfuls of underserved money off the backs of the poor. The Republicans counter that the tax cuts are aimed at the middle-class and the simplified tax code requires only a postcard size (the millennials ask "what’s a postcard?") tax return. The media outlets loudly repeat the same according to their proclivities by parading a plethora of partisan talking heads in front of the public.

Everyone is talking like the government is some sort of gift shop where everyone goes to get presents and goodies. But all this discussion ignores the most important thing. Taxes are the public’s obligation to fund the government so it can operate. To the extent that we are all citizens of this great country, we should all bear an equitable share of this burden.

Taxes, or rather the avoidance of taxes, create powerful incentives and politicians have learned to use the tax code to motivate people to do all sorts of things such as purchase electric automobiles or put money in 401(k)s (although what they principally want to motivate people to do is to vote for the provider of said benefit). Many people consider these benefits good things and most of them are well intended. But all these incentives and benefits stuffed into the tax code ignore the people’s obligation to fund the government.

The proposed GOP tax reform goes a long way to reduce the gobbledygook of incentive programs but still retains some of the most egregious abusers such as the mortgage interest deduction (although with some limits). But the fervor of Republicans to reduce taxes is almost equal to the eagerness of Democrats to increase government expenses. Republicans say that we need tax cuts to spur economic growth.

Why the ardent desire to goose the economy? GDP growth is around 3% and the official unemployment rate is down to 4.1%, considered by many to be full employment (although workforce participation is low by historical standards and there are many part-time employees that would prefer a fulltime job). The economy could be a bit better but it is chugging along right now and has been slowly improving. Many economists believe that this slow improvement is the best that the economy can do (the so-called "new normal" as dubbed by Larry Summers) because of changing demographics as baby boomers begin to retire and to the unintended consequences of expanded welfare benefits.

The other great howl about the tax reform package (in addition who is laughing all the way to the bank and who is getting screwed) is how much will it cost. The right-leaning Tax Foundation states that the proposed bill would add $516 billion dollars to the deficit over ten years while other estimates put the bill at one to two trillion dollars. But keep in mind that the optimistic cost of around a half a trillion dollars is over and above the nine and a half trillion dollar accumulated deficit over the next ten years as estimated by the Congressional Budget Office.

This is the elephant in the room. A big ten trillion dollar elephant sized increase in our already enormous twenty trillion dollar public debt. This is the thing about costly tax cuts and costly welfare programs. Ultimately, you have to pay for them. In our case we are passing that payment down to our children and grandchildren. The largesse we enjoy for not paying for our current expenses will be a burden on future generations. We are stealing our children’s future instead of providing them a better future as our parents and grandparents did for us.

Truth be told we either need to reform Medicare/Obamacare and Social Security or we need to pay for these programs out of current income as well as pay down existing debt. With an expected budget deficit of $487 billion for 2018, that’s about $1,500 for every man, woman and child in America. So your typical four-person household owes $6,000 to eliminate the deficit. Pay up. And if we want to reduce the national by half over the next twenty years, that’s another $1,500 per person (or $6,000 per family of four). That’s not just for 2018. That’s every year for the next twenty years. Our grandparents got through the Depression through thrift and we repay that sacrifice with spendthrift.

The one thing that is not mentioned in all this jabber about taxes is whether the country is better for it. The United States will be facing mounting challenges in the coming years and must be militarily strong, financially sound and firm in our commitment to America’s Founding Principles in order to be able to meet these challenges. It’s time to step up. Call your congressman or woman.