There was a great response to last week’s article on Trump’s Bold Tax-Reform Initiatives. I appreciate you taking the time to weigh in.
But Trump’s tax initiatives are changing as we speak. Here’s what we know …
The proposed tax-reform measures aim to simplify the tax code, cut the corporate tax rate from 35% to 15% and double the standard deduction to $25,000.
Other initiatives include…
- Foreign income would no longer be taxed by the U.S.
- Repeal the minimum Alternative Minimum Tax.
- Repeal the 3.8% surcharge on capital gains and dividends to fund Obamacare.
- Repeal the estate tax.
- Remove most major personal income-tax deductions except for mortgage interest, retirement contributions and charitable donations.
Well that’s a bold plan for sure. Now what? And who’s going to pay for all this?
In a nutshell: You.
Treasury Secretary Steven Mnuchin says the tax cuts will be paid for with faster economic growth – something in the range of 3% sustained economic growth in the coming years.
But a very rough guess from the Committee for a Responsible Federal Budget (CRFB) puts the price tag at $5.5 trillion over 10 years – or about $550 billion per year.
No two ways about it: That’s a ton of cash needed to pay for tax cuts.
But the plot thickens: There’s growing discontent on both sides of the political debate.
Advocates for President Trump’s proposal point to previous administrations that cut taxes and boosted tax revenues at the same time.
And if you want confirmation of tax cuts boosting revenues, look no further than the chart below of the U.S. Treasury Federal Budget Yearly income from tax receipts:
The above chart shows clearly that tax cuts boosted tax revenues during the Kennedy, Reagan and George W. Bush administrations.
And that’s because cutting tax rates stimulates spending and leads to stronger economic growth – ultimately lifting tax receipts in the process.
Will it work this time? No one knows for sure.
What we do know is that for governments to save themselves, they have to do several things: They have to raise taxes. They have to print money. And, ultimately, they also have to confiscate wealth.
And that’s why it’s more important than ever to protect your wealth, by accumulating precious metals on weakness and owning the best-of-breed blue-chip companies.
Good investing,
Mike Burnick
Patsy Robinson May 16, 2017
What is described is called the Laffer Curve. I read an article last week that the Laffer Curve never produced enough revenue to replace what was lost in the tax cuts, even in Regan administration. Ask David Stockman.
Judy Mulheirn May 10, 2017
It won’t work as prescribed by this administration. We are near full employment now, employers are having difficulty filling positions they have open, somewhere around 5 million openings. Jobs will continue to be replaced by technology and efficiencies in manufacturing. The huge class of baby boomers are retiring, you can’t tax robots or technologies, which will continue to take jobs from the lower educated classes, so it will be a net zero gain. What will most likely happen is the economy will be overrun by the interest on the deficit and the deficit itself. And like every other time in our history since the 1900’s when the Republicans have had control of all branches, the economy will be a wreck when they are replaced. Taxes will have to go up.
jack scholl May 9, 2017
I don’t see it. Presumably where the chart shows that tax receipts went REALLY REALLY UP, was when taxes were increased?
m3jonny May 8, 2017
Really disappointed in your analysis, clearly in your chart the 2 greatest periods of revenue increases were during the Clinton and Obama administrations. while there were some general increases during the Kennedy years it was modest and more related to the over all growth in the economy as a whole. Those were years still in the ‘Glory’ days while Europe was still under reconstruction from WWII, as was Japan. And China was nonexistent in the Global trade equation. Reagan did get growth, but the sweet spot in Global trade bringing in really cheap goods from China and others was not displacing American jobs at an alarming rate yet, so the best of both worlds were at work. The real increases in revenue came during the Clinton years when yes tax rates did increase as the beneficiaries of the economy were asked to shoulder a fair share of the costs of running the govt. And it worked well until deregulation’s in the banking world crashed the economy Big Time. Obama inherited a real mess but the growth in revenues were striking though the ‘fix’ against workers, ZIRP and no wage growth, has restrained overall GDP growth and probably will until there is some form of balance restored for consumers and workers.