My Turn: Tax reform — the next food fight?

Nothing seems to happen in Washington, D.C., without a political food fight. We have issues, such as tax reform, that require adult debate and discussion.

The November 2016 election was about the economy. Lack of adequate skills and education holds many people back but anemic economic growth can be improved with better tax policy. Where do we think wealth comes from? It certainly isn’t the government.

The state and federal corporate tax rate in the U.S. is about 39 percent, one of the highest in the world. A lower tax rate would encourage more investment in the U.S. But the progressives see this as a gift to fat-cat corporations. There are approximately 1.7 million “C” corporations in America but there are only 500 companies in the Fortune 500. More than a million “C” corporations are small businesses organized as corporations for liability reasons. Most of these companies pay the 39 percent income tax. That reduces the money they have to grow their companies.

The top 1 percent of taxpayers pay 50 percent of federal income taxes. The media reports that highly paid CEOs are raping and pillaging our country and need to pay more of the tax burden. That is the tip of the iceberg. There are more than 7.4 million partnerships, “S” corporations and LLCs and 23 million sole proprietorships in the U.S. Many of these company owners are in the top 1 percent. Ah, the progressives say, we need to tax these people to get more money to redistribute. But these people are employers and invest their money into growing their businesses. Taking their money to feed more government programs will not create more jobs.

Another progressive argument is that lower taxes will drive up the deficit. Dr. Tom Sowell recently wrote an article refuting this argument. In fact, after the Reagan tax cuts, revenue grew every year from 1986 to 1990 but spending grew faster. If spending had been held to 2 percent per year growth, the budget would have been balanced in 1990.

Multinational corporations like Apple hold more than $2.5 trillion overseas. The U.S. government has not taxed this money due to our regressive tax policies. Companies that have large foreign cash reserves have every reason to expand overseas rather than invest in the U.S. Why pay a trillion dollars in taxes to repatriate cash to the U.S. when you can build factories in foreign countries with pretax dollars? The federal government should give these companies a big incentive to repatriate these cash reserves and invest in the U.S.

Our profligate government has incurred a $20 trillion debt. Interest on this debt was about $240 billion in 2016 and will increase with rising interest rates. Our budget deficits are about $500 billion per year and the economy is only growing about 1.5 percent per year. These numbers probably are unsustainable.  The progressive solution is to raise more taxes, but that can cause a downward spiral as many South American countries have recently discovered. A more investment friendly tax code and fewer regulations can invigorate the economy.

Sixty-four percent of federal spending in 2016 was for Social Security, Medicare, Medicaid and healthcare. The popular belief is that taxpayers have already paid for these “entitlements” but that is not true. Taxpayers that don’t get the benefits are subsidizing these programs through their taxes. These social programs that everyone wants but doesn’t want to pay for will not be possible without higher economic growth. We could probably balance the budget in five years with a 2.5 percent increase in economic growth if the Congress and the voters can control their appetites for more spending.

We are fortunate in El Dorado County to have a congressional representative, Tom McClintock, who is a deficit hawk. Congressman McClintock is on the congressional budget committee. We should all hope that he can help adopt higher economic growth policies over the tax-and-spend policies of the past two administrations. Otherwise, this republic will come tumbling down. We’ve seen this movie before in Venezuela, Argentina, Brazil, Greece and many other countries. We need to put our fiscal house in order.

Darwin Throne is a resident of El Dorado Hills.

Special to Village Life


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