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How to Repeal Investment Income Taxes, Avoid a Value-Added Tax, and Still Balance the Budget

Archive for October, 2016

Sausage Politics & Salacious Journalism Undermine Tax Policy Debate

Two weeks ago it looked as though the tax revelations about Donald Trump published by the NY Times might actually stimulate a meaningful discussion of why America needs radical structural tax reform. But the opportunity was buried amidst the firestorm over his misogyny. Before the moment entirely passes it is worth some examination.

Donald’s defenses have been, as always, so convoluted as to be blackly comical. He defends his use of the tax code as “brilliant,” proof of his business acumen. Simultaneously, he decries the tax code as grossly unfair, blames it on Hillary personally and politicians in general, and insists that “only he can fix it.” Hardly anyone comments on the fact he has set forth no policy proposals suggesting any intent to fix it. Indeed, his published policy proposals promise to make it massively worse.

For her part, Mrs. Clinton offers little better. She maligns Donald for paying no federal tax, but offers no policy discussion about the NOL Carryforward (or other tax preferences offered to real estate investors) which resulted in that outcome. Remember, as far as we know, Trump did not in fact engage in any illegal actions. He didn’t need to; the most egregious inequities in our tax code are designed features, quietly supported by both parties. They disagree about top marginal rates; but they jointly support structural preferences that facilitate suppression of taxable income.

Thus, Trump’s offensive ten-year-old braggadocio provided cover for both sides of the aisle; diverting attention from the substantial policy issues that ought to be driving voter decisions: taxes, health care, foreign policy, and the ingrained cronyism of our political class. While Defenders of the status quo salaciously revel in examination of Trump’s appalling personal morals they turn a blind eye to the political norms which make some 40% of the population want to storm Washington, pitchforks carried high. When Wikileaks posted Hillary Clinton expressly acknowledging she had “both a public position and a private position” the establishment shrugged and said, “so what” – which explains in a nutshell why a narcissistic bigot has gotten so close to occupying the oval office.

A large portion of mainstream Americans are longing for principled leaders. We know that the sausage makers in Washington have rigged the game. We know that well-heeled campaign contributors receive preferential policies in return for their financial support. We know that the massive rise in inequality is inextricably linked to the backroom trades of money and influence – conducted with a wink and a nod from politicians in both parties. We know that money buys access and access is power.

Unfortunately, neither Clinton nor Trump come close to offering the principled leadership we crave and desire. Thus, those most angered by the status quo seem prepared to forgive Trump’s glaring flaws; and those most frightened by Trump’s erratic, abusive and unprincipled behavior seem resigned to accept the dismal status quo.

At the last debate we heard Clinton and Trump agree on one thing: the fact Trump escapes federal tax liability, while middle and low-income wage earners do not, is evidence of indefensibly inequitable treatment under our tax code. So why have neither offered proposals to solve that inequity? Because the political process we rely upon is so deeply broken that the electorate is faced with the choice between a man who thinks with his sausage and a woman who believes duplicity is the grease that shapes public policy.

For those keeping score – America is the clear loser in this presidential race.