"Reform"

One of the top items on the agenda of both Donald Trump and the Republican Congress is what they call tax reform. There is of course no such thing. There is tax change. One person's reform is another person's unrepentant boondoggle. What each plan, vague as they are, has in common are massive tax cuts for corporations and wealthy individuals. There is, for instance, no discussion of making social security income tax-free. Donald Trump's original tax plan was calculated to create approximately and $11 trillion deficit. His new plan has apparently cut that in about half. However, if one uses" Dynamic" analysis according to Donald Trump's nominee Mnuchin, the deficit starts to magically disappear. This is the same swindle that Paul Ryan has attempted to use in his proposals, all of which have been most charitably described as implausible. As we learned during the Reagan years, tax revenues do not magically increase as a result of tax cuts. Historically, sometimes tax cuts can be a beneficial stimulus and sometimes not. It depends on the situation and who receives the tax cuts and what they do with the money. The tax cuts for major corporations go to recipients that are already awash in cash. They can expected to be used for stock buybacks and perhaps acquisitions. If tax cuts are to be given to these entities, they should being required to devote the increased revenues to Capital expenditures, R&D and wage hikes or the employees. The same should be true of any tax holidays or tax breaks given to the repatriation of overseas funds.

Trump has also stated he is going to repeal about seventy five percent of existing regulations. It is generally expected that if there is to be growth it will be in the small business sector. If that sector is encumbered by excess regulation, it is typically imposed by state and local governments. Most small businesses do not pay corporate taxes. If there be small businesses, however small is defined, that do not have access to capital, tax cuts could be beneficial if the amount of the cuts was used for Capital expenditures or wages. Again, there will be no such requirement.

Apparently Trump and his advisers do not believe in comparative advantage. He seems to be arguing for the essentially a closed economy. He today backed the United States out of the transpacific agreement. During the campaign and now there has never been a discussion of the terms and effects of that agreement. Those who know something about it, believe it to be beneficial to the United States. There is nothing wrong with jawboning business entities and seeking to persuade them to produce more in the United States. But if Trump wants to decrease trade deficits and increase exports, he is going to have to have a much more thoughtful plan. He also needs to understand that the people he purports to care about, the middle-class, need inexpensive imports. It continues to appear that as far as economic policy is concerned, magic and fantasy will rule the day.