Bring on 2018

It has been quite a year, this 2017!

Here in Houston we had a hurricane with an epic flood of 50+ inches of rain. That was the end of August, just days after a total eclipse across the continent (we only got a partial eclipse here, though). We’re still working on recovery from the flooding here, four months later. But in the meantime a couple more hurricanes made landfall, harming Florida, and then serious damage to Puerto Rico. And fires started burning in the West, everywhere from California to Montana.

Less disastrous for Houston was having the Astros win the World Series, and we had an actual snowstorm a couple of weeks ago. In Houston, that brings on a sort of spontaneous celebration.

In the larger nation, there has also been good news this year. We got a Supreme Court justice, Neil Gorsuch, who actually reads and understands the Constitution. We got a healthy number of other judges appointed that we think will adjudicate according to the law. (One third of all sitting circuit judges were Obama appointees, so there's a ways to go.) We have an ambassador to the UN, Nikki Haley, who is standing up to that corrupt body of miscreants. ISIS has lost nearly all of its territory. Illegal immigration is down, even without a wall, which is at least an improvement. Unemployment is down, and incomes are beginning to rise.

I don’t know that we can credit President Trump with all of this, but having him in office makes all of those pieces of good news possible, whereas having a Democrat—any Democrat—in office this past year would have meant we would have none of that good news, and probably a lot more bad news that we don’t want to imagine.

A piece from American Thinker, “Trump’s Momentous First Year,” lists Trump’s first year accomplishments, if you’d like something more complete. I’m sure there will be other similar lists as we approach the new year, or the anniversary of inauguration in a few weeks.

But the big good news lately has been about Congress finally passing a tax reform bill, officially called the Tax Cuts and Jobs Act. 

Speaker Paul Ryan, after the passing of the Tax Cuts and Jobs Act
photo by Kevin Dietsch/UPI/Newscom, found here

News surrounding that—because news comes mostly through distorted sources—has been fear-mongering, at best. Nancy Pelosi called it Armageddon. Apparently, Democrats think people will be dying in the streets if they have a little more of their money in their own hands, instead of in government’s clutches. And it’s on the backs of the middle class, they claim. But almost everybody will be getting a tax cut. Those few that aren’t are all above the middle class.

Business Insider offers this estimate, showing what happens in 2018 (and it gets better in 2025): 

   

·         Bottom quintile (Incomes less than $25,000 a year): On average, this group would receive a tax break of $60, increasing after tax incomes by 0.4%. This would account for 1% of the federal tax change. 1.2% of tax units would see an increase in their tax burden, while 53.9% would receive a cut.

·         Middle quintile (Incomes from $49,000 to $86,000): On average, this group would receive a tax break of $930, increasing after-tax incomes by 2.9%. This would account for 11.2% of the federal tax change. 7.3% of tax units would see an increase in their tax burden, while 91.3% would receive a cut.

·         Top quintile (Income of $149,400 and above): On average, this group would receive a tax break of $7,640, increasing after-tax incomes by 1.6%. This would account for 65.3% of the federal tax change. 6.2% of tax units would see an increase in their tax burden, while 93.7% would receive a cut.

·         95th to 99th percentiles (Incomes from $308,000 to $733,000): On average, this group would receive a tax break of $13,480, increasing after-tax incomes by 4.1%. This would account for 22.1% of the federal tax change. 9.3% of tax units would see an increase in their tax burden, while 90.7% would receive a cut.

It’s hard to give tax cuts to people who aren’t paying taxes, so, naturally, people who are paying higher taxes are going to benefit more from a tax cut. Unless you’re really into coveting, that’s understandable and fine with everybody.

So, for the sake of those opposing tax cuts, and the media, and anyone else worried about lessening government’s stranglehold over people’s lives, maybe we need to do a little mini lesson on the related economics of tax cuts.

Taxes are money that the government confiscates by force from its citizens—preferably with the approval of the citizens, to be used for essential government services. Taxes, are, then, the people’s money that has been entrusted to government.

Government only spends money; it does not create wealth. Any “revenue” government generates is actually collecting taxes and tariffs—taking money from the people. So, when we’re talking about a budget, we want it large enough to cover the proper role of government—protecting life, liberty, and property—but not so large that our money is wasted. Early on it was assumed about $20 a year ought to do. Really.

I’ve written a number of times about government overspending [here and here]. We do not have a problem with not bringing in enough tax dollars; we have an overspending problem.

The Laffer Curve
from "The Laffer Curve: Past, Present, and Future," 2004

This tax bill doesn’t address that underlying problem. But cutting taxes is likely to raise government revenue. That’s because of a thing we call the Laffer Curve. [I wrote about it here and here.] According to Laffer’s theory, there’s a sweet spot for getting maximum revenue. Too high or too low and you don’t get that maximum amount. If revenue goes up after a tax cut, then you know taxes were too high.

In complete ignorance of the Laffer Curve, there’s this weird rule requiring any tax cuts to be offset, or “paid for.” The purpose is to keep from increasing the deficit, but it doesn’t really do that. And it’s a futile exercise, since we know from experience what happens when taxes are lowered. Here’s how Philip Bump at the WashingtonPost put it: 

[Speaker Paul] Ryan on Wednesday morning offered his nebulous assessment: “Nobody knows” if the cuts will pay for themselves. That’s true, given the uncertainty that surrounds the models. But that’s a bit like saying “nobody knows” if it’s going to rain when the forecasters say there’s a 90 percent chance: You still will probably grab an umbrella.

So even big government spenders ought to be in favor of lower taxes in order to increase revenue. It’s odd that they don’t; it makes it look like they would rather control larger portions of each individual’s money than have more money to work with.

It has been a rough week for Democrats, who stood against tax cuts for the American people. Afterward, what can they say? “We tried to save you from having more of your own money to spend as you see fit”? Well, they’ve been saying the tax cuts aren’t enough (even though they were against any at all). And they’re complaining that they’re not permanent (they sunset in 10 years, as the Bush tax cuts did, but only if Democrats are in power when the sunset comes).

Bernie Sanders, for example, admitted on CNN that tax cuts for nearly all middle-class American taxpayers “is a very good thing.” But then he added, “That’s why we should have made the tax cuts for the middle class permanent.” Of course, it was the refusal of Democrats to discuss any tax cuts at all that led to the ten-year sunset compromise. So Ted Cruz reached out to Bernie by Twitter, saying, 

I agree, @BernieSanders -- let's make the middle-class tax cuts permanent. Join me, we'll co-sponsor legislation (I've already got it drafted) that does exactly that, and we'll get it passed in January!

One happy detail in the tax cut bill is the elimination of the Obamacare mandate, which, we can hope, will lead to the demise of that monstrosity, hopefully before the demise of the health care sector of our economy.

The best news is that business taxes, which have been the highest in the developed world, were lowered from around 35% to 20%. That’s still quite a lot higher than Ireland (11%) or Russia (12%), where lower business taxes have spurred growth, and would have been a good example to follow, but it’s a good improvement.

There has been some concern that businesses won’t invest the money—that they’re already flush with cash that they’re not putting to use. That isn’t likely true. The Great Recession has gone on too long to keep holding onto money. But there is a hesitation to invest in business when there’s uncertainty—such as regulations being added on that they couldn’t have planned for. But regulatory reform is going pretty well under this administration, so there’s less uncertainty.

Ed Fuelner, at the Heritage Foundation, spread this good news: 

AT&T said it plans to give a $1000 bonus to more than 200,000 employees, and to invest $1 billion in the economy. Boeing announced a $300 million investment. FedEx said it’ll hire more workers, as did CVS—3,000, to be specific. Comcast reacted to the tax bill and to the repeal of net neutrality by saying that 100,000 of its employees will get a $1,000 bonus.

There were others—and more to come, you can be sure. “This is just the first wave of many such stories,” tax expert Adam Michel told The Daily Signal. “These announcements show that businesses across America will put their tax cut to good use.”

We’ll have to wait and see, to know for sure. But, instead of dread going into 2018, we might as well enjoy some hopeful anticipation for a change.