Beyond the Cusp

October 2, 2017

Donald Trump Has a Tax Plan


Yep, you have heard it right, President Donald Trump has a tax plan and it consists of one main point; simplify the tax code and lower taxes. Of course, if you are going to listen to the media or the Democrats, often, if not always, the same thing, then you are running around screaming how it is a tax cut for the rich and leaves the bottom half of the people with nothing. That is dumb on one level and completely wrong on another. It is dumb because any income tax reduction has absolutely no way of helping the bottom forty-eight percent of wage earners because they do not pay income taxes, only Social Security tax or FICA. Tax cuts will never assist them unless your idea of a tax cut is everybody gets an extra thousand dollar tax return whether they pay taxes or not, which is the same as handing everybody a thousand dollars and is not much of a plan about taxes, it is welfare. So, why not just forget everything you have heard and thus allow us instead of refuting stupid comments aimed at the uninformed to actually talk about something substantive, the heart and soul of Trump’s tax plans.


First, President Trump hopes to get rid of most of the deductions which plague the system. I hear squealing about, but I want my child credit which may join the mortgage credit in extinction. Fine, keep those and a higher tax rate plus hundreds of other special tax credits and deductions and even higher tax rates because for every deduction the tax rate stays higher to cover those costs. It really is simple, if you want tax attorneys and accountants raking in money every year around tax time, keep a thousand different ways to cheat on your taxes in the system and have a high tax rate and that will help make taxes a headache. The other choice is to leave the tax attorneys and accountants quietly on the sidelines and get rid of those complications and drop the taxes accordingly as everybody now pays a lower rate and nobody is squirreling away money in the Cayman Island accounts. The main place where these different and complicated deductions exist are actually in the taxes paid by companies and corporations who have successfully bought the seat of a Congress critter and had them slip a deduction which works in their favor into the corporate tax code allowing their industry in general or their company in particular to not have all of their profits taxable or many of their costs deductible multiple times reducing their tax payment while leaving the rate high, very high. The United States has the highest corporate tax rate in the world by a comfortable margin, much, much higher than anybody else. This cripples industry and companies who have found their way around this rate by hiding their profits, getting ridiculous tax breaks or simply moving their entire company to a foreign country. Many of the people lobbying to not change the system are lobbying for these foreign interests who like having American companies move to their little corner of the world. (Below is President Trump’s actual speech to the National Association of Manufacturers 9/29/17 on his tax plan.)



President Trump wants to get rid of the complicated, five to fifty page tax filing which all but the first page are about deductions and tax write offs and other items which most of us do not understand nor do we make enough to worry about and we just file the short form which allows a few deductions and we pay our taxes. The super wealthy have all these tax avoidance laws placed into the tax codes and their lawyers and accountants use them such that they pay fewer taxes than do you. The simplification of getting rid of the two or three deductions, maybe you are lucky and found five or six deductions, while ridding the system of hundreds of tailored deductions and credits by which the super wealthy get around income taxes, one big one is as long as they keep their profits placed nicely in investments, then they do not count them as income and pay no taxes on them. So you only take a small amount of your investments out each year which neatly come out of your principle and thus are not interest. The next year all the interest you had the previous year are not principle and thus you now can use that money while you leave all the equivalent of the new interests as invested. That is an oversimplification and not totally accurate, but their exemptions allow them to live off of some amount of their wealth tax free while making a huge profit which remains untaxable until they spend it, which is never. They also place their wealth they pass to their children in trust funds which pay the children a small fortune annually tax free and thus no death taxes are ever paid. Are you starting to see how this system works yet? The little guy pays taxes because they are the suckers who cannot tailor the code to their benefit sufficiently to hide their profits from all taxes.


So, President Trump wants to greatly, if not entirely, rid the tax code of these tax loopholes and deductions and simply have people pay a straight lesser rate through write-offs (as for who benefits from write-offs, see chart below). There will still be a general deduction so if you currently are considered too poor to pay taxes, you will continue to be too poor to pay taxes or very little in taxes. But the wealthy and the very rich, and trust they are not the same, will both be paying taxes but at a lower rate. The media and those who love the code as is, will claim this is a tax cut for the rich, those in the top half of the pay scale. They are correct, as those are who pay the vast majority of the taxes, some ninety-five percent of the taxes, will continue to pay that majority but they will pay taxes on all their income and hide less of their money in loopholes and off shore. In the end the tax payment will be more fairly distributed and the forms shorter with less ways to get around paying taxes. The extremely wealthy will not find it less expensive to pay taxes than to pay tax attorneys and accountants. They will still pay these people, they will simply pay them less and the government part of what they will be saving. But the genius of President Trump’s tax reform is not about personal income tax, though that does improve, it is about corporate and business taxes. Here he desires to do something truly radical and unheard of. President Trump wants to rid the code of nearly all deductions other than investment in new equipment, which he desires giving a direct tax cut for the full amount as that permits expansion of business and improved production methods which increase profits, and a one time credit for moving your production back into the United States which has what we would hope is an obvious advantage. He also will retain some of the R&D (research and development) write-offs as that pays for advances and improvements which also creates new industries and streamlines existing industries leading to higher profits which are taxed. Everything else he will try to have stripped away leaving just the tax rate itself.


Who Receives the Benefits From Tax Write-offs?


President Trump desired to lower the tax rate from thirty-five percent or something almost as ludicrous to fifteen percent but the Congress balked at that and they have agreed to twenty percent. To be honest, fifteen would work better but twenty will suffice for now. This has been claimed by investment bankers and others as a move that will incentivize development like nobody has seen in decades if ever. But what this also does is give a tax cut to those people whose salaries place them in the bottom forty-eight percent who do not pay taxes. This lower tax rate will mean that prices of products made in the United States will be lowered. Made in the USA will cost less both for export and for sales within the United States. This means housing and cars will cost less and all of this while the companies get to have higher profits while paying taxes rather than investing in getting around taxes. What has been proven time and again is that lower taxes lead to more taxes being paid and higher revenues for the government within the first decade. The first year or two taxes paid goes down and then start to rise as the investment pays dividends and thus salaries become higher, prices drop and profits increase all of which lead to more tax income for the government and more money for the people themselves. By drastically lowering the corporate tax rate, President Trump is granting everybody a tax credit which will come in the form of lower priced goods and higher salaries for workers. It will also create jobs and employ more people as we move forward.


President Trump hopes to sweep the system of taxes free of the cobwebs and maze of different tax breaks and ways of hiding profit and other items which actually rob the companies of profit over time and reduce wages and numbers of people employed as well as costing the government and further makes American goods more expensive and thus American companies far less competitive in the international markets. This will allow made in America to be exported at a more competitive price and thus competitive in the world markets, as the tax code has hampered the “Made in the USA” products will be smashed and replaced with a streamlined code which is transparent and a lower rate which means less money moved overseas to hide it from taxes. Sure, some moneys will remain placed overseas and presumably beyond taxation, but there will be less incentive to take such steps and with deductions disappearing, more profits will become visible to taxation but at such a rate as not to be punitive. So, more taxes paid despite lower rate and lower prices, higher salaries and more jobs yet the media will attack the plan with the same tired routine of tax breaks for the wealthy. Answer yourself a simple question and it will reveal the lie of their campaign of calling it tax breaks for the wealthy. The companies which have hired you and given you a job from that first job sweeping out a Mom and Pop store and doing stocking and other simple chores after school and in the summer to your job as different as a high priced lawyer or skilled worker or whatever job you have today, was the person who employed you more or less wealthy or were they dirt poor. They obviously have enough money to pay your salary and have enough for themselves, so they had more cash to spend than did you. The corporation you work for or the firm make far more money than they pay you, their employee unless you are on the Board of Directors or the CEO or other officer but then you are doing the hiring, or overseeing the hiring as you even pay people to do your hiring which is definitely a sign you have made it and will enjoy the President’s tax plan. But your whole life has mostly been being paid by those who make more money and not from those who pay no taxes, so giving them more money will help everyone, and that is giving you a piece of their tax beak.


Beyond the Cusp


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