How to Make Tax Cuts Work is Child’s Play & “We’re Not Broke”

While there’s a lot going on these days—or you might say coming at us every day—in the interest of sanity and clarity, I’ve been trying to focus on health care and taxes. This month, taxes.

While live politics, accusations and now legal activity may give television dramas rating challenges, I could see I wasn’t really learning anything other than how little following the laws and Constitution mean to too many people who take an oath to uphold both.

Looking at taxes made me question the accepted “givens” underlying tax cuts, see where the money does and doesn’t come from and changed my perception of our common assumptions about the rich and where/if money is available.

I realized first that I learned very early on about what doesn’t work about tax cuts—and what does.

For half of my elementary school years I was faced with mowing a large lawn. At that time my dad was working on the Air Force budget at the Pentagon. I’d like to tell you that the great insights he learned there were brought home to me and I am about to reveal those government secrets, but he didn’t.

For that to be true I’d have to tell you that he decided to give me a weekly allowance—as an incentive—to mow the lawn.

When it comes to job creation, isn’t that what tax policy people in DC think? Give the rich tax cuts—as an incentive—and that “creates” jobs. Really?

My father knew better. Mow the lawn and you get an allowance. Not, “I’ll pay you and maybe you’ll decide to mow the lawn and maybe you won’t, but here’s the money. You decide. Hope you get to it.”

If incentives worked that way, all the government would have to do is pass a clean water act and then watch as both industry and citizens worked to fulfill the intent of the law.

They’d say, “Hey, The People have spoken. They want clean water for personal and agricultural and recreational use. Let’s make sure they get it!”

I’m sure I heard someone in Flint Michigan say that somewhere, some time.

Why not ensure that incentives work?

I can appreciate not wanting to deal with the details of legislation. I mean it’s probably a religious thing given the devil is in those details and so many in Congress tell us their deep faith guides them. Details are not easy for them to deal with, which is probably why they rely on lobbyists to write the laws for them.

A “create the incentive, and they will come” philosophy might be consistent with capitalism’s “the invisible hand will fix it” theory, but the truth is that not everyone has that level of trust.

Why not give tax cuts/breaks based on the number of jobs actually created? Allow them to deduct the actual taxes paid by those they hire before paying them incentive money? Maybe we can go so far as to say that jobs that go to family members of those in our three branches of government—and new lobbyists, of course—should be excluded.

That would require a yearly accounting and mean a whole new page of data but, ideally, they are already paying taxes and used to it.

We’re Not Broke, a 2012 documentary (now on Netflix by Onshore Productions) shows how some have made themselves incentive-free enterprises, with no need for tax breaks.

In 2010, for instance, our largest family, Exxon-Mobile, had $19 billion in profits and paid no taxes. Chevron made $10 B in 2009 and paid no taxes. GE made only $39 million in 2010, but got a one-trillion-dollar bailout and paid no taxes. That same year Citigroup made $4 billion in profits, received a $2.5-trillion bailout and paid no taxes.

I had no idea bailouts were tax deductible. Will have to remember that in April.

Except for the bailouts, this is not unique. Since 1961 the total percentage of federal tax collected from corporate families has been cut in half. Figures from 2015 (see Politico.com online videos) say that percentage is now 10% of all federal taxes collected.

Almost half of federal revenues come from income tax on individuals and one-third from payroll taxes, again on individuals. The rest, about 9% comes comes from customs/duties and gas taxes.

When you hear how broke we are, watch We’re Not Broke.

One challenge with looking at figures like these is that 90% of businesses file individual returns. Some look at all income generated, some just consider income taxes then give us “meaningful” percentages that are easy to skew to support their opinion.

You can look at tax income (individual, business and customs/excise tax income) or at trust-fund income (Social Security, Medicare taxes and, again, other types of customs/excise taxes), or you can look at the total income, as above.

When it’s spent it’s either mandatory spending (unemployment, Social Security, health, to name a few) or discretionary spending (the military, education, housing, energy, environment, transportation, and other things we fight about). About 30% is discretionary and debatable. That was $1.1 Trillion in 2015. Interest costs 6%.

Another source, the National Priorities Project, has a great a look at what we are debating now—tax breaks—the money not collected, which also totals almost a trillion dollars.

Those deductions include employer-sponsored health care, employer-sponsored retirement, home mortgage interest, the reduced rate on capital gains income, imputed rental income, charitable contributions, state and local taxes and bonds (indefinite), deferral of corporate income abroad and exclusion of capital gains on home sales.

A couple of these benefit a wide range of incomes—home mortgage deduction and health plans, but the bottom line is the top 1% of earners receive 17% of the top tax break benefits. Not a bad place to consider changes if we want another half-trillion in tax revenue.

Maybe we should just face it: Those of us with the most money know how to handle having money—why spread it around and cause new problems for people not used to having it? Right now an estimated 78% of us/Us live paycheck to paycheck. Think of the chaos and the traffic if all those people were out spending money.

When you have $10 million sitting around and can’t think of a business to start or anything else to do with it except put it in the bank, even then a 1% return brings you $100,000 in income. A billion in the back brings you $10 million.

That to me is one of the most amazing perspectives I did not have before looking at this closer. If you make $50,000 a year and have a $50 dinner, that’s the same percentage of your income as someone making $500,000 paying $500 for dinner. A million = $1,000 and a billion = one million.

Of course, they pay more taxes. They can, and often very easily. They may have also robbed their children and the following seven generations of the incentive to discover their abilities and worth caused by the need to get out and interact with people and make a living. There’s something backward about this. Capitalism is great because of the competition it triggers, we hear, yet the goal is accumulating so much you don’t have to? Another topic.

There is a lot of money out there—we’re not broke. Maybe it’s time to consider whether or not the right to make money is an unlimited one.

Are any or our guaranteed rights absolute and unlimited? If so, why not tanks for personal protection and a speaker system that hourly announces the time of day 24 hours a day if we want.
There’s a lot to consider, but at least we have experienced people we can trust to steer us. Take the leaders of the House and Senate, and the top senator and congressman leading us on these issues. We included notes on who their largest contributors are, which seems more relevant that the state they are in, from, or used to live in.

There’s Sen. Mitch McConnell (R-from securities and investment firms, retired individuals), Rep. Paul Ryan (R-retired individuals, securities/investment, gas/oil), Sen. Orrin Hatch (R-pharmaceuticals/health products, securities/investments) and Rep. Kevin Brady (R-insurance, securities/investments, gas/oil, pharma).

We all have to come from somewhere, I guess. Perhaps this even brings us back to true incentives. The contributions they receive can’t be anything other than incentives or they’d be illegal, right?

Have a great month.