I started publishing these commentaries almost eight years ago because I wanted to express my opinions on things that were currently in the news. Today I’m going to do something completely different. I’m going to try to present some information in a completely objective way, uncolored by my personal opinion.
I’m going to try.
The reason I’m going to do that is that I’m retired, which means I have time available every day to do research on whatever topics interest me. Over the past few weeks I’ve devoted many hours to researching the economic proposals of both presidential candidates. Knowing that most of my readers don’t have the time to do that kind of in-depth research, I’m going to share with you what I’ve learned.
This information can be broken down into three categories: Trump’s plan, Hillary’s plan, and shared objectives.
Personal income tax reform. Trump proposes a three-tiered income-tax structure, with rate brackets of 12%, 25%, and 33%. He would cap deductions for the wealthy and close special-interest loopholes to eliminate those situations like Warren Buffet bragged about in 2012, when his secretary paid a higher percentage of her $40,000 salary than he did on his multi-million dollar income.
Under Trump’s plan, middle-income earners (nominally $80,000 to $150,000 a year) would benefit the most.
Business taxes. As individuals, we’re most interested in how much of our income we’re going to have to pay in taxes. But the key to getting our economy moving again, returning it to 4.0% or 4.5% annual growth instead of the anemic 1.9% it’s grown under Obama (that’s fact, not opinion) is the business-to-government relationship, in terms of both taxes and regulations.
The corporate equivalent of our individual income tax is simply called the business tax. The U.S. rate of 35% is the third-highest in the world. That makes it easy to understand why companies prefer to have their manufacturing facilities in places like Ireland (12.5%) or Paraguay (10%).
Trump proposes to reduce the U.S. business tax to 15%.
Repatriation tax. There are presently an estimated $2.5 trillion dollars and dollar-equivalents sitting in foreign banks all over the world. Why are they there instead of being in this country, contributing to our economy? Because the U.S. government insists that companies must pay the 35% business tax if that money is brought back to this country. So multi-national companies do the obvious thing and use the money to build plants and hire workers in those foreign countries instead of in the U.S.
Trump proposes a one-time “repatriation tax” of 10% on any of that money that companies return to the U.S.
Immediate expensing of new investment. Under existing tax codes, any corporate investment in plants, equipment, or technology must be depreciated over the design life of the item. If a company spends $1 million on a new piece of equipment with a design life of twenty years, they can only deduct 1/20 of that amount, or $50,000 a year, from their profits. They’re paying the 35% business tax on the undepreciated balance every year, which makes the net cost of the equipment several million dollars over its lifetime.
Trump proposes that for a limited time, maybe two or three years, companies will be allowed to deduct the full cost of any new investment in plants, equipment, or technology. Spend $1 million, deduct $1 million. Combined with the cut in the business tax from 35% to 15%, Trump believes that will create a boom in manufacturing and construction, as well as creating tens of thousands of jobs.
Roll back regulations. Under Obama, the various departments and agencies of the federal government have issued more than 2,200 new regulations, and it’s estimated that between now and next Jan 20 they will issue another 600.
You might want to be sitting down for this next info. It’s estimated that just the 2,200 regulations passed in the past 7.7 years are costing U.S. businesses $8 trillion a year in compliance costs. Needless to say, that cost is passed on to the consumer in the form of higher prices.
It’s important to understand that these are not laws, passed by elected representatives who can be voted out of office. They’re rules written by career bureaucrats who answer only to the President.
Trump has promised an in-depth review of all rules and regulations, and cancellation of any that don’t serve a legitimate function.
Energy independence. In Commentaries No. 7 and 8 of this series, issued back in 2011, I made the point that the U.S. has more proven reserves of oil, gas, and coal than any nation in the world. It’s our own government’s regulations, not the lack of resources, that keeps us dependent on OPEC, Mexico, and Canada.
I also made the point that the technology for large-scale, economical production of renewable energy, such as wind and solar, doesn’t exist and isn’t even on the distant horizon. That’s still true five years later.
Trump has promised an energy plan very similar to what I proposed in Commentary No. 8. I claim no credit for that. Mine was simply a common-sense plan based on existing technologies. Trump’s is, too.
- Repeal the draconian EPA rules that have made it impossible for the U.S. to build a new refinery since 1976, and made it impossible to maintain many existing refineries.
- Repeal the prohibitions against drilling off the West Coast, the East Coast, and the eastern Gulf of Mexico (off the west coast of Florida).
- Relax the restrictions against drilling in the western Gulf of Mexico that have been in place since the Deepwater Horizon incident in 2010.
- Relax the restrictions against drilling in the Alaska National Wildlife Reservation (ANWR).
- Repeal the prohibitions against drilling on federal lands in Colorado, Montana, New Mexico, North Dakota, Utah, and Wyoming.
- Relax the draconian restrictions that make in economically unfeasible to drill in the Beaufort Sea, off the north coast of Alaska. Shell and ExxonMobil have spent hundreds of millions of dollars there and finally suspended operations because of the ridiculous restrictions.
- Start building facilities to extract the 800 billion barrels of oil from the oil shale in the Green River Formation in Colorado, Utah, and Wyoming. The first facility might not even be completed during Trump’s first term but the effects on our economy in terms of jobs and production would still be enormous.
- Repeal the EPA regulations passed during Obama’s second term that make it impossible to generate electricity in coal-burning power plants without quadrupling the cost of the electricity. Those same regulations threaten to shut down the entire U.S. coal industry and put thousands of miners out of work.
- Remember the Keystone XL Pipeline? It could still be built. It wouldn’t give us as many benefits as it would have in 2010-11, but we’d still get some benefits (and a few thousand jobs) out of it.
Trump’s energy plan would result in millions of good-paying, permanent jobs and billions of dollars poured into the economy for wages, equipment, and supplies.
It would also free us—and the world—from the energy rollercoaster of high prices-low prices-shortages-surpluses that OPEC has kept the world on for half a century. With the U.S. as the world’s principal energy supplier we could give ourselves and the world a steady, reliable source of energy at reasonable prices until the solar, nuclear, or wind technology reaches a point of being reliable and economical.
Now let’s look at HILLARY’S PLAN:
Personal income tax reform. Hillary would raise income taxes across the board. The greatest increase would be on taxpayers with incomes of $200,000 or more ($300,000 for a family), but middle-income earners ($80,000 to $150,000) would also see an increase. She doesn’t want to add any caps or close any loopholes, so Warren Buffet may still pay a smaller percentage than his secretary.
Business taxes. Hillary wants to retain the present 35% business tax rate and add several new taxes on businesses. She wants a tax on “high-frequency trading,” whatever that is. She also wants to impose an “exit tax” on companies that move their operations offshore.
Reduce education costs. She wants to make state and community colleges “tuition-free” for middle-income families. She also wants to allow debt-burdened graduates to refinance their student-loan debt at lower interest rates.
Raise the estate tax. She wants to raise the “death tax” from its present 40% of any estate over $5,450,000. Under her plan, estates between $5,450,000 and $10,000,000 will pay 45%.Estates over $10 million will pay 50%. Estates over $50 million will pay 55%, and estates over $500 million will pay 65%.
Since few of us “working-class folks” will be affected by this, we might think it’s not a big deal. Here’s why it can be. There are many family farms in the U.S. that have thousands of acres under cultivation. That land is worth millions of dollars, but farming is such a low-margin enterprise that many of those farms make less than $100,000 a year.
When the parents die and the tax man tells the children they owe the government a million or two in estate taxes, the children may be forced to sell a farm that has been in the family for generations. If the land is sold to a developer and turned into a shopping mall or a residential subdivision, those thousands of acres will have been removed from our ability to produce food.
Raise the minimum wage. Hillary wants to raise the federal minimum wage from its present $7.25 an hour to $12.00 an hour in several incremental steps.
Then we have several SHARED OBJECTIVES. In most cases these are not detailed plans with budgets and timetables attached. They’re just talking points of the “we also need to do this” variety.
Crack down on trade violations.
Increase infrastructure spending.
Provide workers paid family and medical leave.
Offer a tax credit for childcare expenses.
Finally, I’d like to offer some LAF COMMENTS on some of these proposals. No, I haven’t forgotten my promise to present facts, not opinions. I’ll try to keep it objective.
First, and I consider this very important. We need to remember that the President, despite the oft-heard title of “the most powerful man in the world,” can’t unilaterally make laws. He can order federal agencies not to enforce laws, but laws have to be written and approved by the Congress.
Think about what that means. A Presidential candidate can promise literally anything. When the Congress refuses to pass the necessary laws, the President can simply shrug and say, “Oh, well. I tried to keep my promise.”
That means two things. First, it means that all campaign promises from all candidates need to be taken with the proverbial “grain of salt.”
Second, it means that our votes for members of the Congress are as important as our votes for the Presidency. Every election I’m astounded at the number of states that will give a majority vote to one of the Presidential candidates, then elect a majority of their Senators and Representatives from the opposition party. Those states are voting for another four years of stalemate at the federal level.
On the topic of reducing education costs. The idea of making state and community colleges “tuition-free” sounds, on the surface, like a wonderful idea. Personally, I think the idea of making bread free at the grocery store is an even better idea. The problem is, the grocery store doesn’t want to stock that bread for free. The baker who baked it doesn’t want to work for free. The farmer who grew the grain wants to be paid for his time and effort.
My point, I think, is obvious. In order for that bread to appear on the grocery store shelf, someone has to pay for it. No pay, no bread.
The same thing is true about education. Someone has to pay for those buildings—construction companies aren’t going to build them for free. Someone has to pay the professors—they’re not going to work for free, either.
So if we make colleges “tuition-free,” they’re not really going to be tuition-free. We’re simply saying that someone other than the students are going to pay the costs. Who’s going to pay those bills? The taxpayers.
Besides, I would argue that we need fewer people in college and more people in vocational training programs. Good accountants are fairly easy to find, but have you tried to find a good auto mechanic lately? Or a good plumber? Good luck with that.
On the topic of raising the minimum wage. Minimum-wage laws were first passed in the U.S. in 1938. The assumption at that time was that they would apply to entry-level jobs for which there were no educational or experience requirements. Many of those jobs were part-time, held by high school or college students looking to “get their foot in the door” of some company or industry.
The legislators who passed those laws in 1938 never intended those jobs to become permanent jobs. They saw no need for them to pay a “living wage,” because most of the people who held them were young, unmarried, and still lived with their parents or other family members.
They never conceived that someday those jobs would be held by single mothers who dropped out of school in the eighth grade and were trying to support four or five children. They never conceived they would be held by a man who had a wife and several children.
The current argument that minimum-wage jobs should pay a “living wage” is a lose-lose situation. In order to stay competitive and not raise prices, businesses that employ a lot of minimum-wage people will either layoff some of their workers or reduce their hours. That, in turn, will require the workers to work harder, do more in the same amount of time.
One of the purposes of passing minimum-wage laws in 1938 was to end the practice of “sweatshops” that had existed in the early part of the century. The current push to raise minimum wages is gradually pushing us back toward the days of the sweatshops.
The other factor hurting minimum-wage workers today is technology. Bank tellers are being replaced by ATMs. The guys who used to fill your tank at the service station have been replaced by self-service gas pumps. Grocery-store checkers are being replaced by self-service checkout machines.
The next wave (which has already started) will be automated kiosks in restaurants and fast-food places. Instead of giving your order to a kid behind the counter, you’ll walk up to a computer display with a touch screen. You’ll touch the button that says “Big Mac,” the button that says “fries,” and the button that says “Coke.” You’ll pay right there at the kiosk, and in a few minutes your order will appear on the counter.
Those high-school kids that used to work behind the counter will be unemployed. Why? Because that kiosk is there every day. It’s never sick, it’s never late to work, and it never leaves early. Its maintenance contract is cheaper than Obamacare, and it doesn’t cost the business owner twelve or fifteen dollars an hour.
If I go on, I’m going to start edging into the area of personal opinion, and for once, I’m trying not to do that. The only thing I’ll add is that I’ve discovered that writing opinion is a lot more fun than just presenting facts.