Mrs. Clinton wants to raise federal income tax rates. Mr. Trump wants to lower them. Mrs. Clinton claims Mr. Trump's plan will increase annual deficits, and increase the national debt -- the total of our annual deficit -- which as I write has exceeded $22 trillion. Mr. Trump believes lowering tax rates will, paradoxically, raise government revenues.
Why?
His first premise is that when personal and corporate incomes rise, those individuals and corporations pay more in federal income taxes. For purposes of illustration, ignore Mr. Trump's tax plan, and consider what happens when an individual's income doubles under the present tax code.
Last year, if you were a single woman and your taxable income was $100,000, you paid $21,064 in federal income tax. If you were single and your taxable income was $200,000, you paid a federal income tax of $46,606.25. You paid that much because once your taxable income reached $189,300, your tax rate increased from 28 percent to 33 percent. (At a net income of $411,500, the tax rate increased to 35 percent; at $413,200 the tax rate increased to 39.6 percent -- the highest rate.)
Mr. Trump's second premise is that it is impossible for a nation to be prosperous unless its taxpayers are also prosperous. The corollary to that is a taxpayer's prosperity is reduced in direct proportion to the amount of taxes paid. A taxpayer with a $200,000 per year net income who pays a federal income tax of $46,606.25 will be less prosperous if you increase his taxes by $10,000 (and the government will be $10,000 more prosperous).
Mr. Trump looks at the American economy, and he accurately sees wage stagnation. A Dec. 9, 2015, Pew Research Center study confirms his belief.
According to that study, the median income, in 2014 dollars, scaled to reflect a family of three in the year 2000 was: Lower class, $26,496; middle class, $76,819; upper class, $180,769. The median income for the same family in 2014 was: Lower class, $24,474; middle class, $73,392; upper class, $174,626.
Mr. Trump would contend that the vaunted "Obama recovery," is a recovery in name only -- political spin. And given wage stagnation, he sees that increasing the tax rates on "the rich," as Mrs. Clinton proposes, won't eliminate the deficit. There simply are not enough rich people.
You could tax "the rich" at a rate of 100 percent, and rather than eliminating the deficit, you might well push the country from recession to depression.
Accordingly, Mr. Trump's third premise is that the only way to cure the deficit and pay down the national debt is by raising the earnings of rich, middle class and poor alike.
When incomes go up, tax collections go up. If our single woman's income increases from $100,000 to $110,000, she pays an extra $2,800 in taxes. If a person on welfare gets a job that pays enough for him to have a taxable income, that also increases tax revenues. And when the rich and corporations have more income, they historically expand their businesses and hire.
In December of 1962, John F. Kennedy addressed the Economic Club of New York and said:
"The final and best means of strengthening demand among consumers and business is to reduce the burden on private income and the deterrents to private initiative which are imposed by our present tax system. This administration pledged itself ... to an across-the-board, top-to-bottom cut in personal and corporate income taxes. ...
"Our present tax system ... exerts too heavy a drag on growth ... It siphons out of the private economy too large a share of personal and business purchasing power; it reduces the financial incentives for personal effort, investment, and risk-taking. ... To increase demand and lift the economy, the federal government's most useful role is not to rush into a program of excessive increases in public expenditures, but to expand the incentives and opportunities for private expenditures."
If Jack Kennedy was right, Trump is right and Hillary is wrong.
Posted: QCOline.com October 14, 2016
Copyright 2016, John Donald O'Shea
