Mark's Quill

Donald Trump's Tax Plan and Trench Economics

No doubt you've heard party-machine pundits, and talking heads on both the left, and right, condemning Donald Trump's tax plan. Some condemn it because they're opposed to Liberty, and other oppose it because they don't understand it. One can easily dismiss the foolishness of the leftists who oppose anything that even remotely resembles Liberty, let alone economic empowerment of the individual; thus, in this post we're only going to look at the arguments that at least have the appearance of reasonable concern.

Based on what I've heard in the media, the most prevalent argument against Trump's plan concerns the “zero percent bracket” for individuals making under $25,000 or $50,000 for married. People who oppose this fail to understand that these low-income people are not currently paying any income taxes, yet the majority are getting refunds of money they never paid. Therefore, under Trump's zero percent bracket, these people would no longer be getting refunds, they will just be allowed to keep what they make.

The biggest problem demonstrated by the opposition is that they simply do not understand how economics work down here in the trenches, because they have never built a business from the ground up. No one can build a successful business from nothing, without understanding what I call “trench economics”. Trench Economics are how things work down here in the trenches of day to day life for the majority of society. The trenches are where you find the primary producers, the butchers, the bakers, the candlestick makers, and everyone else who plays a part in making society function as a unit.

The second most prevalent opposition argument is that the zero percent bracket limits will be an incentive for people to not exceed the income limits. While this argument may sound nice, reality proves that it is complete nonsense. No matter what the incentives, or disincentives, every society is going to have a slacker class. All societies that have come before ours, and all societies that come after ours, are all going to have a slacker class. There is no amount of incentive you can give a slacker to cause them to have the desire to be productive; they will only do what is necessary, and no more. People in the slacker class will always have below average income, and most will not even consider the consequences if they exceed the limits, because they're typically more interested in watching TV or playing a video game.

Trench Economics 101:
The more money the slacker class has in it's pockets, the more money they will spend on goods and services. The slacker class does not consider economics, nor much of anything else for that matter. Most live paycheck to paycheck, and the vast majority typically have a whole lot of month left at the end of the money. The slacker class hasn't changed in thousands of years, and these people are never going to change until society as we know it comes to an end. If you give them all the money withheld from their paychecks at the end of the year, they're going to blow it as soon as possible. If the slacker class does any thinking at all, the only thing they're going to think about is what they're going to buy with their tax refund money. While they're not going to pay any income taxes either way, under Trump's zero percent plan, all of that money is going right back into the economy.

In certain circumstances, a small minority of people may benefit by not exceeding the income limit for a particular year, but people in this category will typically exceed the limits in subsequent years. Simple fact of the matter is that anyone having the intelligence to apply such careful consideration to tax law, will certainly have the intelligence and drive to better themselves by being more productive. Even if these people carefully plan to remain under the tax liability limit, history shows that they're going to either save or spend what money they have. If they save it, they'll usually invest it and therefore lessen the future burden on the taxpayers because there's less people trying to get a handout from the government.

Trench Economics 102:
The up and coming class may play the tax liability avoidance game for a time for a year, or even a few years, but in the end they're not going to deny themselves any longer than is necessary. They're going to want the fancy car, fancy house, and other things that feed their lust of social status more than they want to avoid a tax liability. Greed and lust are very powerful economically motivating factors; people will pay whatever it costs to feed these addictions.

Trench Economics 103:

Applying taxation as a penalty does nothing more than increase people's desire to avoid paying all taxes as much as possible. Things like the Alternative Minimum Tax, Marriage Penalty, Death Tax, Capital Gains, and so forth, are all looked upon as “punishments”. When a tax is viewed as a punishment, it gives people more incentive to avoid the taxes altogether. If you want to increase tax revenue, don't use taxes as fines.

Trench Economics 104:

Business pays no tax. That's right, when you hear about government sticking it to a corporation, understand that the tax liability is added to the price of the product or service. No matter if it's the local craftsman working alone in his own shop, or the mega corporation, their tax liability is viewed as any other businesses expense and added to the consumer cost. Politicians try to hide behind the smoke and mirrors, but despite the attempted deception, consumers are paying for all the taxes levied on businesses.

Trench Economics 105:
The more money people have, the more money they will spend. The more money they spend, the more products and services they purchase. More demand, creates more jobs. More jobs reduces the number of available workers, which makes businesses offer higher wages in order to get the best employees. The lower the combined tax liability, the more the economy grows. Tax revenues will necessary increase proportionally to economic growth. This is a vicious cycle we call “capitalism”, and it works every time it's tried.

At this point I must digress to comment on a key point that is not currently a part of Trump's plan, and that is the necessity of eliminating the rewards and punishments associated with one's marital status. If we must insist on punishing achievement by fining people for productivity, then all such taxation should be applied equally. Married or single, taxation should be applied exactly the same to every individual such that even married people will file individual returns. Give people a standard deduction for themselves, and each dependent they support. Simple enough plan whereby people are not punished for being single, and they are rewarded for supporting someone else rather than making the dependent, along with a host of bureaucrats, a giant burden on all the other taxpayers. Rewards should be giving to one who is single, but chooses to support a child in an orphanage, or foster home. Rewards are a great productivity incentive, while punishments stifle productivity.

The ideal tax system would be based purely on consumption. All people would be free to make as much as they desire with being punished, because the more money they make, the more money they want to spend. Thus, if one chooses to be frugal, they can put a whole lot of money into savings or investments, either way, they're going to be self-supporting rather then becoming a burden on the producers. Others will choose to buy things and pay the sales tax. Just the same as an income-base tax, the playing field of a consumption-base tax system must also be level via a fixed rate. Under the current sales tax system, the higher the cost of a product, the lower the percentage of tax; therefore, the lowest income brackets are paying the highest percentage of consumption taxes. Under a flat-rate consumption tax system, one buying a two-million dollar yacht, would pay the same percentage as one buying a two-thousand dollar bass boat.

What with all the fuss these days over 'equality' … isn't it about time we have equality in the tax system?

Blessings!