Budgets and Taxes

One of the more complex and mind-bending issues in government today (and arguably at any time) are the processes of budgeting and tax reform. In the minutia of numbers that even CPAs are afraid to tread, the budget and tax reform issues are a playground for the wealthy to create a lot of mischief. Until President Obama took office, the budget process was at least open in Congress, with the normal process of hearings acting as a kind of opaque openness. Sure, closed committee hearings, backroom deals with lobbyists and pork-barrel deals kept the process of making the budget sausage from public scrutiny, but at least a few elected officials knew what was happening and could alert taxpayers.

The GOP decided that they would no longer operate with normal procedure when they obtained the majority in the House and no budget has been approved since then. It’s been a destructive process, creating crises of impending government shutdowns, and it is especially threatening now since tax reform is also on the agenda at the same time.

Can Congress create a budget and reform taxes at the same time without risking profound financial problems for future generations? It scares a lot of people. Republicans who under Obama warned darkly of our impending doom because of budget deficits, are now openly advocating tax reductions that will nearly triple the deficit by radically reducing revenues from the richest 10 percent of Americans, and all corporations. An estimated 90 percent of tax reductions will benefit less than 10 percent of Americans, resulting in an exploding deficit. Republicans hoped to resolve health care before the tax and budget decisions since nearly one-sixth of the economy is health care related and, with the end of Obamacare, the costs of delivering health care and obtaining health care insurance will skyrocket. That will only add onto an already catastrophic increase in the deficit if their plans succeed, unless Medicaid is ended.

How do Republicans justify the Trump tax plan? They say increased profits will trickle down to create an economic boom, resulting in higher tax revenues. That has already proven to be consistently untrue, but one need only look at the record profits of corporations the last 3 years without any discernable increase in re-investment to understand how ridiculous the argument is. If American corporations and the richest Americans are already flush with cash and not investing in American job creation, why would they change with even more profits?

The economic reality is that the richest Americans invest in financial markets, not in new businesses. American corporations invest in foreign markets where labor costs are half of what they are in the U.S. That makes American middle-class families double losers: higher overall tax rates and lower wages. Some Conservatives who railed against deficits, are so cynical to use exploding the deficit as a way of eliminating spending on social programs such as Social Security and Medicaid/Medicare – you know, turning us into a Third World society.

What we really need is a tax increase on upper income levels – a modest 3% on the top 1% of American incomes would nearly erase the deficit, even while lowering rates for the middle class. Clinton raised taxes on the richest Americans and the result was the biggest economic boom in our lifetime and a budget surplus. We need to eliminate tax loopholes for corporations, and create a low, flat tax rate (possibly with incentives only for job creations or wage increases). Start taxing Wall Street trades currently exempted. Don’t bet on that happening. Republicans are intent on rewarding the rich and Trump desperately needs to sign some kind of legislation.