Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Policies President-Elect Trump Needs to Reconsider
There are several policies that President-Elect Donald Trump appears to have failed to think through. The following are some of those that we believe he has not given sufficient thought. These need to be brought to his and his advisors' attention.
First, the U.S. trade deficits need to be reduced, not by "deals" with each country or by threats to American manufacturers re-locating their factories abroad but by the simple expedient of single-country-trade-balancing tariffs. China and all other countries want to grow their economies. It is not up to the U.S. or the World Trade Organization to mandate the policies they should pursue. Free trade is nonsense except where there is a common currency, no impediments to the flow of capital and labor, and no barriers to trade. Governments, even international agencies have no right to force independent nations into a single mold. Countries may adopt mercantilist policies such as tariffs and artificial barriers to imports, subsidies to exports, and currency manipulation but the remedy is not to go to great expense of time and money to prove and litigate such practices and mandate their elimination as the WTO was created to do or to negotiate their elimination as the president-elect wants to do. Every country has the right which is authorized by all multi-lateral international trade agreements to impose a trade-deficit-balancing- tariff. The tariff should be on all goods coming from the trade-surplus country not merely on imports of U.S. companies that have re-located factories there. The mechanism is simple as described in our book Balanced Trade (Lexington Books, 2014). Trade deficit countries have little to fear from such trade-balancing; trade- surplus countries are at an extreme disadvantage and their threats of a trade war hardly worth considering. An argument frequently made is that consumers will suffer which is hardly worth considering given that American workers suffer unemployment from the trade deficits as we have shown time and time again in our publications and the U.S. has become the world's leading debtor while only a few decades ago we were the world's leading creditor.
Second, President-elect Trump has proposed lowering the rates of the corporate income tax to make U.S. corporations more competitive. Unfortunately, the ownership of the shares of corporations is highly concentrated so cutting the corporate income tax will worsen the distribution of income and wealth. There is a simple solution. Eliminate the corporate income tax entirely and tax corporate earnings as personal income. Even with a cut in personal income tax rates, proposed by Mr. Trump, total revenues will be unaffected.
Third, the president-elect proposes to reduce the rates of the personal income tax as well. The highly progressive income tax goes a long way to reducing personal income inequality. Under the personal income tax, the upper ten percent of income-earners pay most of the tax and the lower 50 percent pay hardly any income tax at all. Keep it that way. A virtue of the personal income tax beside its progressivity is that it has very little disincentive to work and save and invest. The only disincentive it has is at the lowest levels of income where it deters people on welfare from leaving welfare to work and dissuades persons on welfare from marrying. This can be avoided easily by eliminating the personal income tax from applying to income below $100,000 and imposing a value-added tax, which is inexpensive to administer and comply with and is more or less equivalent to a proportional personal income tax. Most of the countries of the world impose a value-added tax whic under international law may be imposed on imports and rebated to exporters without violating trade agreements. The U.S. is currently at a disadvantage in international trade since nearly all of our competitors impose the value-added tax. A value-added tax would also permit a reduction in the rates of personal income tax.
Fourth, excise taxes except those based on the benefit principle should be avoided. Motor fuel taxes whose revenues are used to build and maintain roads and bridges and motor safety infrastructure are justified by the well-known benefit principle of taxation. Fees and charges for particular government services may also be justified. It is hard to justify excise taxes simply as a revenue source.
Fifth, government subsidies in the form of tax credits should be avoided. Subsidies to individuals and businesses should appear in the federal budget as expenditures so that citizens will know how much the subsidy is costing the taxpayer. Among the worst examples of such subsidies are those given to solar and wind producers of electricity, and producers and consumers of electric and hybrid vehicles. When these so-called tax expenditures are revealed, they show that only rich people enjoy these subsidies. The subsidies to manufacturers are an example of crony capitalism at work, the party in power benefiting its political supporters.
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