The Glory of Tax Reform

For those of us with a bit of awareness, it’s clear our nation has numerous problems that afflict us. In general, we look to our political leaders for guidance in resolving whatever ails us. Let’s focus in briefly on one such individual, Janice Hahn, newly elected to the Los Angeles County Board of Supervisors, whose political roots go back to the prior century where her father, Kenneth Hahn, occupied the same post for the 40-year period 1952 through 1992.
 
With a background including ten years as a Los Angeles City Councilwoman and five years as a member of congress, Ms. Hahn is an old hand at addressing her constituents’ needs. With this prodigious wealth of experience, she should know instinctively what America most needs to become a more exemplary nation.
 
And so when asked what two things the newly formed Trump administration can do to improve things, she said it should “fix the infrastructure in this country, like the 70,000 deficient bridges that exist, as well as take on tax reform.”
 
If there actually are a lot of defective bridges, I suppose fixing the really bad ones is a good idea … though mobilizing our resources to fix 70,000 of them seems like overkill when there are so many other projects to be tackled.
 
However, the other suggestion concerning tax reform raises a lot of questions which aren’t easily answered. By Merriam-Webster’s definition, reform is “putting an end to an evil by enforcing or introducing a better method or course of action.”
 
Why would Ms. Hahn, a Democrat, encourage President Trump, a Republican, to begin eradicating those tax policies favored by her party and replacing them with programs favored by his party? Irrespective of Merriam-Webster, if you believe I’m misconstruing the intent of tax reform, please read on.
 
The following comments were made by President George W. Bush in his 2006 State of the Union Address: “The tax relief you passed has left $880 billion in the hands of the American people. And they have used it to help produce more than four years of uninterrupted economic growth. Yet the tax relief is set to expire in the next few years. If we do nothing, American families will face a massive tax increase they do not expect and will not welcome. Because America needs more than a temporary expansion, we need more than temporary tax relief. I urge the Congress to make the tax cuts permanent.”
 
You may contrast the Bush remarks with the following lines delivered by presidential candidate Barack Obama’s during his 2008 campaign for the presidency: “We heard the President (Bush) say he wants to make tax cuts for the wealthiest Americans permanent, when we know that at a time of war and economic hardship, the last thing we need is a permanent tax cut for Americans who don’t need them and weren’t even asking for them. What we need is a middle class tax cut, and that’s exactly what I will provide as President.”
 
For an even more partisan view of tax reform, consider the statement made by House Minority Leader Nancy Pelosi before the House Ways and Means Committee on Feb. 26, 2014: “The Republican tax proposal must be judged by its impact on the middle class, its consequences for working families, and its effect on our nation’s deficit. Any tax reform plan must grow the economy, encourage job creation, and strengthen the middle class. However, this Republican measure must be reviewed as part of a broader discussion on action to build an economy that works for everyone, for as presently proposed, the Republican plan is a massive tax giveaway to millionaires and billionaires on the backs of hard-working American families.”
 
If it’s a more comprehensive and less factional approach to tax reform you desire, perhaps you’ll welcome the following lines from the Feb. 16, 2016 semiannual Monetary Policy Report by Fed Reserve Chairman Janet Yellen: “There is no economic sense in targeting one of the most vibrant sectors of our economy. In fact, this is a sector of the economy that supports millions of jobs and invests billions of dollars in domestic capital spending. Higher taxes, whether in budget proposals or legislation, are never the route to true tax reform. Nor is singling out industries, no matter which industry.
 
“It is easy to fall into the tempting rhetorical trap of ‘oil tax’ and ‘subsidies.’ It’s a convenient soundbite that sounds great on the Senate floor or campaign stage. But it won’t help Americans working hard to provide for their families or American businesses struggling to compete globally and here at home. What will help is Congress coming together and passing simplified, uniform comprehensive tax reform. The American people deserve nothing less.” Although Chairman Yellen steers clear of the political wrangling, you’ll not easily figure out exactly what she views as tax reform.
 
Let me now zero in on the practicalities of taxation. At this point we’ll wade into the center of what government is all about. It can be summed up in one word: Taxes. Regardless of location, party denomination or political structure, just as an army reputedly “travels on its stomach,” a bureaucracy travels on its citizens’ billfolds, and everyone who enters government service sooner or later comes to share this attitude.
 
Left to the devices of the officials, there is no limit to the amount to be collected, and any attempt by the payors to minimize the tribute will be met with the usual warnings of dire consequences that never end. In California, home of the famous (or infamous) Proposition 13, the initiative measure which in 1978 cut property taxes by half and limited future increases to two percent per year, the tax beneficiaries to this day blame every malady except the sinking of the Titanic on the passage of that proposition. The fact the state and all its political subdivisions are literally awash in money does not dampen the enthusiasm of many to rescind the law.
 
As the intent of the various collectors to shear the public is clear, so is the attitude of the shorn. It requires no great awareness to understand your money is taken. For this reason, the politicians must regularly genuflect to the concept of tax relief, and an endless variety of proposals are periodically floated to convince the citizens their best interests are uppermost in the minds of their leaders.
 
Think back, if you will, to the spectacle of Congress and the president falling all over themselves with conflicting tax reduction plans prior to the 2000 national elections. The called-for relief stressed the conventional palliatives including marital deduction reform, capital gains revision, and general rate reduction. As predictable, the sound and fury following the election came to mostly nothing, short of ballyhoo over how each citizen might best spend a $300 per head governmental gift.
 
I’ll conclude this tirade with a simple observation on the subject of tax reform: Whenever a politician can think of nothing in particular to say, you may expect the term “tax reform” to be uttered. A more meaningless phrase was never coined.
 
Al Jacobs, a professional investor for nearly a half-century, distributes a monthly newsletter in which he shares his financial knowledge and experience. You may view it on www.roadwaytoprosperity.com/
 
al@beachcomber.news