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Will Tax Reform Increase or Limit Liberty?
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President Trump and the congressional Republican leadership recently unveiled a tax reform “framework.” The framework has a number of provisions that will lower taxes on middle-class Americans. For example, the framework doubles the standard deduction and increases the child care tax credit. It also eliminates the alternative minimum tax (AMT). Created in the 1960s, the AMT was designed to ensure the “wealthy” did not use “loopholes” to “get out of” paying taxes. Today the AMT is mostly a means to increase taxes on the middle class.

The framework eliminates the “death tax,” thus enabling family-owned small businesses and farms to remain family owned. It also helps the economy by lowering the corporate tax rate to 20 percent, reducing taxes on small businesses. The framework also adopts a territorial tax system, which means US companies would only pay tax on profits earned in the United States.

However, the framework is far from a total victory for liberty. Concerns have been raised that, depending on what income levels are assigned to what tax brackets, the plan could increase taxes on many middle- and lower-income Americans! This is largely due to the framework’s elimination of most tax deductions.

The framework also contains a stealth tax increase imposed via the chained consumer price index (chained CPI). Supporters of chained CPI clam the government is currently overstating inflation. The truth is exactly the opposite: government statistics are manipulated to understate inflation.

Chained CPI enhances the government’s ability to lie about inflation. One way it does so is by claiming that inflation does not lower our standard of living if we can substitute cheaper goods for goods made unaffordable by inflation. So inflation does not harm you if you can’t afford a steak dinner as long as you can still buy a cheeseburger.

Chained CPI allows the government to take maximum advantage of “bracket creep,” where individuals are pushed into higher tax brackets not because they are actually earning more money, but because inflation creates the illusion they are wealthier. In fact, by decreasing their purchasing power, inflation makes most people poorer. The inflation tax thus raises taxes on declining incomes. It is hidden and regressive, making it the most insidious of all taxes.

Most of the framework’s problems stem from Congress’ continued refusal to offset tax cuts with spending cuts. Instead, Congress continues to increase spending, with the only real debate over whether the government should spend more on welfare or warfare.

Pairing tax cuts with increases in federal spending and debt — and the drafters of the framework admit their plan will increase the debt by at least $2.2 trillion — means that the economic benefit from the tax cuts will be outweighed by the economic harm caused by the increase in debt. Increasing the debt also means the Federal Reserve will further devalue the dollar in order to monetize that debt. While the Republican tax and budget plans predict uninterrupted economic growth, the US economy is far more likely to undergo a major economic crisis caused by a rejection of the dollar’s world reserve currency status.

While all supporters of individual liberty and sound economics should support tax cuts, the Republicans’ failure to cut spending means that their tax plan will do little to increase liberty or prosperity. Instead of increasing debt, eliminating deductions, and relying on the inflation tax to “pay for tax cuts,” Congress should cut two dollars in spending on the military-industrial complex and other forms of corporate welfare for every dollar in tax cuts. Cutting both taxes and spending is the only way to protect prosperity and liberty.

(Republished from The Ron Paul Institute by permission of author or representative)
• Category: Economics • Tags: Tax Cuts 
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  1. c matt says:

    As a representative member of the middle class, i have yet to experience a “middle class tax relief” plan that actually provided any tax relief. It has only ever resulted in an increase in the taxes paid. I expect this “tax relief plan” to be no different.

  2. Well, we can hope, Dr. Paul. That costs nothing.

  3. alexander says:

    Actually Dr. Paul,

    Incarcerating our “war of aggression” elites, for lying us into war, and seizing all their assets to pay down the heinous debt their lies created… is the absolute BEST way to return a modicum of solvency to our national balance sheet . It would also go a long way to restore our reputation as a law abiding nation,both at home and abroad.

    Defrauding us into spending trillions upon trillions of our taxpayer dollars to murder millions of people who never attacked us and never intended to…is an abomination to moral decency and a supreme international crime.

    Allowing our “elites” who are guilty of this crime, to walk free, only condones more criminal behavior and more pilfering of our collective wealth.

    They lied us into war….let THEM pay the bill that is due….the WHOLE way.

    Completing this task of accountability is certainly the highest priority among every American I have ever spoken to…..

    Ten thousand times more important than …….”tax reform”.


    • Replies: @jacques sheete
  4. While the “chained’ inflation rate is bogus, the rate based on the CPI itself is already bogus according to most measures. Last year I received an additional single dollar per month on my social security check based on this “unchained” measure of the cost of living. According to the more accurate shadowstats, using the statistical basis the government used prior to 1990, inflation has been several per cent higher each year and, therefore, in real terms, the economy has been contracting almost every year in the 21st century. Soviet style statistics are used to mask the bankruptcy of the US economy. While I do not share many of Mr. Paul’s views, I consider him a hero based on his sound foreign policy views and commend his obvious good sense in much of what he puts out there. I also agree with him in practice re the US government, since it is so corrupt, dangerous and hostile to the public welfare it purportedly is there to defend that it does not deserve any resources whatever.

    • Replies: @Achmed E. Newman
  5. @exiled off mainstreet

    After having read your comment, E.O.M., I can’t imagine what the particular views are of Dr. Paul’s that you don’t share. You covered a lot of what he stands for.

    I am just curious and not trying to be argumentative.

  6. It also helps the economy by lowering the corporate tax rate to 20 percent, reducing taxes on small businesses.

    i think this is the only time I’ve ever disagreed with RP.

    I disagree because anything that helps corporations does not, in the net, help the economy. Notice that I said, “net.”

    The reason is that corporations, as we’re talking about them here, are abominations both in theory and in practice.

    They are abominations because they socialize risk while privatizing profits. They increase moral hazard by dint of the fact that they relieve the profiteers from personal responsibility and anything that reduces personal responsibility is flat out wrong.

    They are also abominations because they tend towards monopolies and monopolies tend to undermine freedom.

    They are abominations because they are government protected and pampered entities, Government grants them special privileges and favors and that’s antithetical to liberty.

    They are abominations because, due to their unfair advantages, they put people out of work by destroying jobs of some and destroying others’ ability to earn a living without holding a job.

    They are abominations because they invariably use their ill gained profits to undermine moral government and further tilt the tables in their favor.

    Please note that this is only a partial list of corporate abominations.

    As a way of illustrating one of my points, below is what Herbert Spencer had to say about one of the mothers of all corporations, and he points out that despite all their advantages they still tend toward bankruptcy. Please not that they not only tend toward fiscal bankruptcy but moral bankruptcy as well.

    What an astounding illustration of the defeat of dishonesty by the eternal laws of things we have in the history of the East India Company! Selfish, unscrupulous, worldly-wise in policy, and with unlimited force to back it, this oligarchy, year by year, perseveringly carried out its schemes of aggrandisement. It subjugated province upon province; it laid one prince after another under tribute; it made exorbitant demands upon adjacent rulers, and construed refusal into a pretext for aggression; it became sole proprietor of the land, claiming nearly one-half the produce as rent; and it entirely monopolized commerce: thus uniting in itself the character of conqueror, ruler, landowner, and merchant. With all these resources, what could it be but prosperous? From the spoils of victorious war, the rent of millions of acres, the tribute of dependent monarchs, the profits of an exclusive trade, what untold wealth must have poured in upon it! what revenues! what a bursting exchequer! Alas! the Company is some 50,000,000l. in debt.⚓✪

    Protected trades, too, have afforded many proofs of the impolicy of injustice.

    Herbert Spencer, Social Statics [1851]

    • Replies: @jtgw
  7. @alexander

    Well said, Sir!!

    (I already used my “Agree” button.)

  8. jtgw says:
    @jacques sheete

    The East India Company is a poor example because it was granted its monopoly by the government. To support your claim that companies always end up as monopolies without government regulation preventing them you need a monopoly that arose with no government support whatsoever.

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