As the Trump administration continues to try to figure where it wants to go with healthcare, his team at the Treasury is readying tax reform. Unfortunately, much like the Secretary Steve Mnuchin’s film Suicide Squad, initial optimism is facing the bitter reality of horrible early reviews.
After all, during the campaign there was much to like from Candidate Trump. He campaigned on cutting both income and corporate taxes while eliminating the estate tax all together He frequently bragged that it was going to be the “biggest tax cut since Reagan” (reality of the Gipper’s record aside). Trump focused more on economic growth than the deficit and even though he wrongly supported tariff increases in order to “win on trade,” he frequently rejected the creation of new revenue mechanisms.
Of course, on the campaign trail Candidate Trump also was quick to rightly bash the Federal Reserve, their partners on Wall Street, and the political establishment festering in the Washington swamp. After his election, he began to quickly partner with these very same forces. Most concerning was his leasing the US Treasury to Goldman Sachs with the appointment of Mnuchin and tapping Gary Cohn, who previously served as the bank’s COO, to chair the National Economic Council. While Trump’s economic team had largely stayed behind the scenes as the administration focused on healthcare, details are now emerging about what a Trump tax plan may look like.
The Washington Post is reporting that early discussions of tax reform include the possibilities of a carbon tax or a Value Added Tax (VAT). Of course, few publications have done more to diminish their credibility in recent history than The Post and the administration has repeatedly denied interest in a carbon tax. Let’s hope this holds up to be true because, as Robert Murphy’s in-depth analysis on the subject has shown, “imposing any carbon tax … would make society worse off.”
Unfortunately there does seem more traction for a VAT. Last month, during an interview with Axios.com, Mnuchin seemed open to the concept. Of course, a VAT has obvious appeal for ambitious technocrats, by adding a relatively small sales tax to every stage of production, it allows for the government to collect a large sum of money without putting too much pain on payers at any one time.
The idea has been a dream in the Beltway for decades. When the idea was brought up during the Nixon administration, Murray Rothbard warned:
[A VAT] allows the government to extract many more funds from the public — to bring about higher prices, lower production, and lower incomes — and yet totally escape the blame, which can easily be loaded on business, unions, or the consumer as the particular administration sees fit.
The VAT is, in short, a looming gigantic swindle upon the American public, and it is therefore vitally important that it not pass. For if it does, the encroaching menace of Big Government will get another, and prolonged, lease on life.
Of course this hunt for new sources of revenue is simply part of the Beltway desire for “revenue neutral” tax reform. Mnuchin made it very clear during his confirmation that he believes any Trump tax plan should contribute nothing to the deficit, even gleefully describing his commitment as “the Mnuchin rule.” It’s fair to question how Gary Cohn feels about the name, as he too has taken a vow of revenue neutrality.
Trump would be much better off ignoring the guys from Goldman Sachs and instead listen to Ron Paul. As he wrote earlier this year:
The revenue loss from ending the income tax should be “offset” with spending cuts. All federal spending, whether financed by taxes or by debt, forcibly removes resources from the private sector. Thus, all government spending is in essence a form of taxation.
Instead of trying to fleece the voters that put him into office, Trump should instead turn his attention to cutting government spending — starting by reversing his desire to increase the Pentagon budget. This, along with following through on his desire to cut corporate and income taxes, would bring back the American jobs he loves to talk about. It would also go a long way in getting his economic reviews to bear a greater resemblance to Lego Batman than Suicide Squad.
