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IntelDigest
LAW – POLICY – FINANCE – MARKETS
INFORMATION FOR THE ENTERPRISE AND INVESTOR
MARCH 15 , 2017
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To complete our recent discussion of the Debt Ceiling, the recent “suspension” of the Debt Ceiling (negotiated 17 months ago) ends today. So, the hard work begins between the Congress and the Trump Administration. The Republican President intends to spur the American economy by way of a massive federal stimulus program aimed at rebuilding the U.S. infrastructure. However, there are significant numbers of Republicans in Congress who would oppose raising the federal Debt Ceiling in order to provide the funds for such a program.
We will see this issue increasingly in the news as Winter turns into Spring … the conflict is likely to come to a head by sometime in June. So, look for early “fireworks” this year.
In other news, The Federal Reserve raised short-term interest rates this afternoon by another 25 basis points (0.25%). Tomorrow, the Trump Administration will release its first Budget Proposal, which contains significant cuts to federal spending across the board, but particularly at the State Department and Environmental Protection Agency. And, elections in The Netherlands have taken place today. By tomorrow, we’ll know whether the far-right candidate … referred to as the “Dutch Trump” … has succeeded in gaining power in that country.
Keep in mind that the Netherlands vote is the first major European election of the year, to be followed by elections in France and Germany. Later in the year, we will take stock of developments in the European Union, movement on the Brexit from the E.U., and determine if the wave of populism in Western nations is growing or petering out.
This week in IntelDigest, we turn to Tax Reform … the discussion will begin in this issue and continue over the next two weeks. Tax Reform is so important because it is a vital factor in allowing the U.S. to “grow” its way out of our Debt quagmire. Even if the government is successful in doing so, it will certainly take ten years to accomplish. But, it simply will NOT happen unless the American tax system provides the impetus to kick-start the economy.
In the December 7 issue of IntelDigest, we published our own line-by-line policy recommendations to the incoming administration. Congressional Republicans have recently put out their first draft of a Tax Reform program, which we begin to review, below. Some provisions are in line with our thinking. However, as we wrote three months ago, at the very least …
“The new administration MUST prioritize getting the national debt and annual deficit under control. It doesn’t have to be done immediately; the process can stretch over several years or even a decade. But, there must be a process in place to show The American People that this dangerous situation is being addressed ….
Allowing the Debt to grow further will just make it harder for our economy to grow out of the problem. Since the Financial Panic of 2008, the American economy has been growing at a rate of 2% per year (after inflation); but, the Debt increase has grown at DOUBLE the rate of the economy! These trends must be reversed, at minimum.”
Difficulties of Tax Reform
Government is a necessary instrument for maintaining a civilized society. Some of you may disagree with that basic premise, but we believe that an orderly government is the middle ground between totalitarianism and anarchy. So, for the sake of argument, let’s agree that an orderly Government is Necessary. And, Taxation is the price we have to pay in order to pay for Government.
Everyone has reason to complain about the American tax system, but we all get something out of it. Most people have apprehensions about making significant changes to the system … fear of losing whatever tax benefits currently accrue to them, or a more general fear of the unknown. As a result, Tax Reform is extremely difficult to accomplish, so most Reform efforts fail.
The basic goal of any policy of taxation should be to simply raise sufficient revenue to make Government work. But, the American Government … as it has developed over approximately 230 years … has become enormously complicated. As has the system of taxation used to fund Government.
Some will say that our Federal Government is too large, trying to accomplish too many varied goals, with fingers in too many different pies. If that is your view, or even if you believe that Big Government is necessary, we should all acknowledge that our tax system has evolved to the point where tax policy is used to encourage/reward certain behaviors and interests, and discourage/punish others.
As a result, the tax system has become obese, unwieldy, incomprehensible. It creates incentives which may be counterproductive and/or out-of-alignment with rational, reasonable policies and practices. Overbearing taxation, on one hand, or generous tax incentives, on the other, actually determine whether certain industries can exist in our society.
Tax Reform is so difficult because Tax Policy is interwoven with decades and decades of economic, social, environmental, and political initiatives, promulgated by liberals and conservatives, Democrats and Republicans alike. One may argue that the ideal tax system would be neutral, providing a level playing field for all citizens … businesses and individuals … to deliver their goods and services, to seek their own prosperity. But, we don’t have that … our starting point is a complex, convoluted mass called the Internal Revenue Code (Tax Code).
It would take decades for Congress to walk-back a significant amount of the Tax Code. Constant, incremental reform should be required of our legislators. However, an absolutely necessary first step … in the current financial circumstances … would be adopting a basic level of Tax Reform, certain measures which would help to kick-start the economy.
Both Congress and the Administration have acknowledged as much.
The Republican Plan – A Better Way?
In the next two installments of IntelDigest, we will analyze the tax proposals of the House Republicans. The Republican Agenda, issued by House Speaker Paul Ryan, is titled “A Better Way.” Although it addresses a number of policy areas, we will spend the next two issues solely on the tax proposals.
So, we will end here, and dive into the plan next week.