Tax Reform is Here

First time in a long time it looks like we have real tax reform….or do we?

Whatever your opinion about the proposed tax reform, if what is proposed or not is dependent on which interpretation you believe. On one hand, Democrats make these claims: the GOP tax proposed tax reform bill will increase taxes on the middle class, take health insurance away from 15 million Americans, will increase taxes on the poor, will cut Medicare and Medicaid, and will explode the deficit, and will make the rich richer. Let’s look at those claims one by one:

The Republican Tax Reform Bill will……
  1. Increase taxes on the Middle Class. False. The standard deduction — used by around two-thirds of households — would be nearly doubled to $12,000 for individuals and $24,000 for married couples. The final package would also double the basic per-child tax credit for families making up to $400,000 a year from $1,000 to $2,000.
  2. Take Health Insurance away from 15 million Americans. False. The repeal of the mandate could result in an estimated 15 million more people without insurance within 10 years, but not because health insurance will be “TAKEN” from them, but because they don’t need or want the insurance and choose to not have it.  The penalty they have paid for not having insurance will be money that goes directly back into their pockets under the GOP tax reform bill. That may potentially lead to federal savings of $338 billion over 10 years.
  3. Will increase taxes on the poor. False. The poor do not pay any taxes at all currently. That should not change. In addition, the bill includes a $2000 direct tax credit for childcare of which $1400 is a direct credit to those who are poor. (That means an actual “refund” — which is a misnomer since they would not pay any taxes from which to receive a literal “refund”)
  4. Will cut Medicare and Medicaid. False. There is NO mention of either Medicare or Medicaid funding changes in the bill. The same block grants from the federal government to states for Medicaid will remain in place. Medicare funding by payroll deductions that has been in place for decades will continue. The reason for this claim by Democrats is the same reason they always raise Medicare and Medicaid (and Social Security) cuts when Republicans promote tax cuts — to scare Americans into believing the Government is more capable of taking care of Americans than Americans themselves, and should therefore surrender hard-earned cash as taxes to the government to fund these and other programs.
  5. Will explode the deficit. False. It should not shock me about the deficit cries from the Left, but it always does. Why? If Democrats were concerned about the ballooning federal deficit, they would not have allowed the previous President in his 8 years in office to double the debt from massive deficits — actually at his departure from the White House eclipsing the total debt amassed by every American president COMBINED since George Washington! Experts do say the deficit will naturally go up for a while, but that will be a temporary thing. The reason? If the U.S. economy continues its climb as it has since Obama’s departure, the natural increase in revenue to the government will more than take care of any deficit. And forecasts based on the financial sector performances in the last year are that government revenue will far surpass the cost of tax reductions.
  6. Will make the rich get richer. False. Let’s be honest: the wealthiest Americans under this plan will receive a slight tax decrease — from 39% to 37%. But think about that for a moment. Who deserves tax cuts — just the middle class? Those wealthiest 30% of Americans pay more than 70% of ALL the taxes paid. Should they not get a break, too? And why are the wealthy better off than others? Most wealthy people build their own wealth by starting businesses and building their value over years. In doing so they EMPLOY PEOPLE WHO ENJOY THE FRUITS OF THOSE BUSINESSES AT THE SAME TIME THE WEALTHY DO.

Summary

There are several things that are really made apparent to me in all the hoopla about this tax reform push by President Trump and the GOP. First, why would any member of Congress oppose tax cuts? Think about this: whose money is it? Not theirs. In fact through the IRS, hard working Americans watch as a large portion of their income is actually confiscated by the government. Taxpayers do not voluntarily write checks to Uncle Sam. Taxes are deducted from paychecks or paid by employers and individuals because they are forced to by law. IT’S OUR MONEY…NOT THEIRS!

When Democrats and Republicans alike scream about increasing deficits, they do so to mask what is really going on. They deflect from the facts about deficits. Certainly you know that budget deficits are a product of the government spending more money than what it takes in. There are two ways to increase the bottom line of companies, your household, AND the federal government. The first is what we are watching right now in 2017: the increase of tax revenue, corporate profits, and the income for many companies and individuals. Increasing money coming in is the first way to improve the bottom line. The second is to cut spending.

Any time cutting federal spending is mentioned, Democrats immediately start scaring Americans by saying Republicans because they want spending cuts will cut Medicare and Medicaid, Social Security, Welfare, Disability, insurance for children (CHIPS), etc. They never talk about the one real thing that needs to happen immediately and will balance the budget more effectively and quicker than raising taxes, which is what all Democrats want and tell Americans needs to happen: cutting “GOVERNMENT” spending. How could they do that without cutting services for Americans? Let’s look.

I reported this November 28th this year: “An $85 million loan for a hotel complex in Kabul, a billion dollars in missing equipment for Iraqi forces and a $30,000 grant to stage ‘Doggie Hamlet’ are just a few examples of the ‘Federal Fumbles’ a Republican senator has flagged in a new report on wasteful government spending. The 86-page report from Sen. James Lankford identified $437.6 billion in ‘wasteful and inefficient’ federal spending. ‘We’ve got every variety — from very small to very, very large areas of waste and areas where the federal government just dropped the ball,’ the Oklahoma lawmaker and fiscal hawk reported today.”

$437.6 billion dollars of identified wasted spending by Congress in 2016. This tax reform plan is a 10 year plan. If Congress would follow through on this plan, and while doing so, simply stop the stupid spending every year that always total $400 billion or more, in that 10 year period, the United States bottom line would increase almost $5 trillion dollars!

One other note: I am sick and tired of hearing those on the Left complain about Wall Street banks and investment houses making all these major profits in the stock market this year. Yes, those Wall Street folks are making money, but they don’t own all that stock that is being bought and sold making billions of dollars in doing so. It’s the stock market! That means that stockholders are receiving those profits. Who are those stockholders? Insurance companies investing premiums, 401k’s, Simple IRA’s, Pension funds, Employee retirement funds, and mutual funds. Who owns those? AMERICANS LIKE YOU AND ME! Almost all those stock market profits flow through to you and me. And Democrats don’t like that. Why? Because it’s money they do not control!

It takes more than the three branches of the federal government to make America work and prosper. It takes American people who work hard, pay their fair share in taxes to take care of America’s needs and the needs of those who are unable to take care of themselves. And don’t forget: members of those three branches of government all work for us!

 

Budgeting

It’s that time of year when Congress gets to work to create a federal budget.  With a new President, all eyes will be watching to see how the Legislature responds to the proposed budget presented by President Trump.  The fur is already flying from the Left, so this week as the House gets down to crafting a budget it appears they will see different strategy for spending Americans’ tax dollars than has been normal in the past.

Almost all Americans watch in disbelief every year as the arguments escalate during the budget process, especially now that our federal debt is approaching $20 trillion, not counting unfunded liability, which many place as high as $75 trillion.  (that is comprised of Medicare, Social Security, government employee retirement benefits, etc.)   We all ask, “Why can’t the government treat their operating budget the same way we treat ours?”  Great question….never a good answer.  It is mystifying how any family, business, or government can possibly look favorably on a budget that always spends more money than  its total income, and does so purposely.  Yet every year Americans watch it happen.  Some economists have somehow found a way to endorse an annual budget deficit.  But all I can think about is how difficult deciding who to pay and who not to pay each month can be.  I guess the fact that Congress does not have to worry about running out of money allows them to sleep at night.  When the Treasury runs dry and they need some more money, they simply borrow some more.  After all, it’s no big deal to them — you and I will pay it back….along with our children, grandchildren, and great grandchildren.

President Trump’s budget proposal when released last week was met with loud boos — certainly from Democrats but there were some Republicans who chimed in.  Why?  Spending government money has for a long time been the holy grail of federal public service.  The mantra is, “get elected, go to Washington, find money to spend whether we need to spend it or not.”  Government budget cuts are actually unheard of, except “fake cuts.”  “Fake cuts?”  You bet.  Haven’t you already heard that President Trump has “cut the budget” for 2017?  First, a President cannot cut or increase a budget.  Congress determines the budget.  The President simply offers a budget.  Yes, there are actual budget cuts in his proposal.  But some of his suggested cuts are not cuts at all.  In fact many are not.  How is that so?  Because of magical budgeting that our government has done for many years:  Baseline Budgeting.

Here’s how Baseline Budgeting works:  last year’s budget items are the starting point.  But for next year, each item has an automatic INCREASE built in.  The baseline budgeting increase is a formula based on this:  the last year’s amount for that particular item is multiplied by the annual inflation rate times that year’s U.S. population growth rate.  Let’s say the 2016 budget amount was $1.00.  For 2017, that same item’s budget amount would be $1.00 x 1.7% (inflation rate) x .73% (population increase amount), or about $1.01.  That doesn’t seem to be much of an increase, but just remember in normal financial years, the U.S. inflation rate runs 3-6%.  The point is in the budget, there is a built in increase for each budget item.  So when cries come complaining about budget cuts, they almost always are untrue, because the complaint is actually about a cut in the automatic INCREASE and not an actual cut from last year’s amount.  I will not accuse government officials of trying to hide money from us, but honestly that is the only explanation I have for using baseline budgeting.  Why not just use actual numbers unless they want to keep spending increases quiet?

In the budget noise every year have you ever heard anyone talking about spending less than our income so we can pay down the $20 trillion debt?  Me either.  One encouragement to me having Donald Trump in the White House is that as a businessman, he understands real budgeting and real cash flow.  He knows firsthand that you cannot borrow your way to financial success, and doing so will literally bankrupt you.  That hold trues for the U.S.  Our debt is not nearly as desirable to debt holders as in previous years.  Don’t be surprised as we begin to see the desire for U.S. Treasury bonds gets less and less.  The Chinese hold most of our debt.  And if/when they feel we will be unable to honor that debt repayment, they’ll head for the hills.  Then what happens:  Bankruptcy.

The Trump budget proposal makes some significant and serious cuts in various government departments and programs.  Without questions those cuts will affect many people.  And that is unfortunate.  While all the arguments fly on Capitol Hill in the next weeks remember that we need to hold our national politicians accountable for spending.  Real budgeting is necessary to get real numbers to enable those officials to make good decisions.  Cuts must happen in D.C. just like they must happen at your house and mine.  Can you see a way to spend about 20% more than you make every year?  The only way that could be sustainable is if there is a favorite uncle in your life that plugs that 20% hole for you.  There aren’t a lot of those uncles around.  And even though the U.S. has an uncle — “Uncle Sam” — all his money comes from your pockets and mine.  Somebody is going to have to pull in the horns and bite some bullets and stop spending.  And it’s got to start this year.