Sunday, 01 October 2017 03:48

President Trumps Approach to Tax Reform is Wrong Headed

Written by 

Most budgeting and financial planning have two major components: Uses of Funds and Sources of funds. These components are also known as Ways and Means. The Ways are first considered before the Means. This approach would seem backwards to many people. But it is the right approach.

The reason we start with expenditures first is because no funds can be raised with any funder until one can express in detail what the sought funds would be used for and prove that recovery of the invested funds are highly probable. So in order to answer the question “what are you going to do with the funds you are looking for?” We start by taking a close look at the expenditures.

The goal of Trump’s tax reform is to lower taxes for the poor, the middle class and corporations. It is “feel good” approach but a close look at the expenditures would demand increases in tax payment by every class in the society.

Here are a few examples:

  1. A.  Defense Spending. There is a looming war with North Korea. If that war comes to fruition, it will add hundreds of billions (possibly a trillion dollars) to US defense budget.
  • The ongoing wars in Afghanistan, Iraq and Syria has called for increased US presence in the region and the commitment of additional resources. Additional resources means a possible $100 billion dollars.
  • Terrorist organizations are more determined to attack US and her allies. Fear of such attack means more preparedness to defend US and her allies. Add a few more billions.
  • The above items are increases in current spending which would suggest a tax increase.
  1. B.  Emergency Spending and Rebuilding. This section could be labeled as Climate Change. Harvey is estimated to cost $60 billion, Irma is estimated to cost $100 billion, Maria a possible $40 billion if we do the right thing by Puerto Rico. And counting other emergencies such as earth quakes, tornadoes, winter weather. These are increases to the FEMA budget.
  • Such huge increases in FEMA budget demands increases in taxes not tax reduction.
  1. C.  Securing our borders and other Election Promises. We are going to build the southern wall to prevent Mexicans and other South Americans from entering the US
  • We are going to cancel North American Free Trade Agreement (NAFTA) which would leave Mexico and Canada as the only signatories to the treaty. Both countries are the largest US trading partners. With the reduction in trades from these countries, US revenues would decline by huge amounts
  • There is consideration to withdraw from the treaty with Asian countries thus restricting and reducing commerce with Asian nations. China is the source of many cheap products sold in USA which means that our residents will spend their tax savings on higher priced products. Withdrawal from Asian trades will further reduce the revenues coming to US
  • Trade bans with Iran, and other so-called sponsors of terrorism countries will also reduce America’s commerce and influence.
  • Reduction of revenues would suggest tax increases which the Trump tax overhaul opposes.

ETC.

  1. D.  What is the idea behind the push for Tax Reduction? There are several explanations given:
  • US citizens already pay too much taxes.
  • A tax cut would result in tax savings for individuals and corporations and the savings would be reinvested and would spur rapid development and produce more jobs and a higher standard of living.
  • It is even suggested that the cuts would reduce budget deficits
  • ETC.
  1. E.   Almost everything in D. above is false. Take some of the expected savings. Mr. Cohn who is President Trumps Adviser explained that an average American family of four makes about $100,000 and would save $1,000. Such a family could buy a car or renovate their kitchen with the savings. The average American family only makes $55,000 and $1,000can neither buy a car nor renovate any kitchen.
  • Reductions in revenues and increased spending can only result in higher deficits which is what has been shown from the beginning of this essay. This idea demonstrates widespread misunderstanding of accounting and economics or a willingness to deceive American people.
  1. F.   What to Do?. There are only two options

Option number one. Revisit item A-C above and cancel projected spending on defense, emergencies (this is beyond our control) and the election promises or reduce all of them. Building the wall could be the starting point.

Option number two. Try to expand trades with other countries, cancel out trade bans and encourage immigration which brings in highly trained individuals that create jobs. Create an environment for world peace which would in turn decrease the need for terrorism and therefore decrease the increases in defense spending.

There might be option three which could be to come clear with the American people. This will be in the nature of saying that things are bad and we mush gird our loins and pay for the troubles we are in and ask them to accept tax increases. Or to say to them. We are suffering a lot already but must take the actions we are taking and we hope that our children and grandchildren would be able to bail us out. This American, has grandchildren, the youngest of them is a mere three months old. I will hate to leave Adanna a huge burden. Grandparents are supposed to smoothen the way for future generations; that is why we are trail blazers.

Mr. Trump has surrounded himself with a lot of Wall Street types. This will not be the first time Wall Street gambled with our money and lost. Those in the Main Street had to bail them out at a cost that nearly sunk everybody.

Can we let them pull this off again?

You be the judge.

 

Benjamin Obiajulu Aduba

Boston, Massachusetts

September 29, 2017

Read 92 times
Benjamin Obiajulu Aduba

Benjamin Obiajulu Aduba  currently lives in Medfield, Massachusetts.