Sticks, Carrots and Trump's Tax Plans

Why you need 3 lawyers at $800 per hour. Each...

WE ARE ON the 8:34 a.m. train from Baltimore, creaking through some of the junkiest parts of America on our way to New York City, writes Bill Bonner in his Diary of a Rogue Economist.

The Northeast Corridor is a sad relic of the Industrial Age. It is now like a burial ground where old refrigerators, abandoned houses, and derelict factories come home to die.

Why are we going to New York?

Glad you asked...

We're going to meet with colleague David Stockman, who was Director of the Office of Management and Budget in President Reagan's first cabinet.

"What gives with this tax reform plan?" we're going to ask.

Right now, all across America, people are asking the same question. And making plans. We're among them.

To help us – at $800 an hour, each – we had three lawyers in our office on Friday. They were experts on taxes, estates, and trusts.

When you reach a certain age, you have no choice. Voices speak to you as though from a skull: "What you are, I once was," goes the memento mori. "What I am, you shall become."

"Keep it to yourself," we whisper back.

We don't like the message. But we can't argue with it.

"You can't take it with you," say sages and estate planners.

That's all right with us. We'd prefer not to go anywhere we can't take it. But that's not the way of the world. When it's your time to go...you go. And if you don't make careful plans, your fortune goes, too.

Not that there's anything wrong with that. But we hate the thought of the feds feeding on our carcass, like vultures on roadkill.

And so it was that three of the brightest lawyers in Baltimore were working on a plan.

"We don't think you should count on the House Republicans' tax bill," said one, dressed in a blue suit. "They're going to realize they can't afford it."

"Most likely, they'll end up going with the Senate version," said another, also dressed in a blue suit. "It just increases the exemption, but it doesn't do away with the inheritance tax."

"It will save you some money," said the third blue suit. "But it won't change anything much for you. Your heirs will still have to pay a 40% tax on the amount above the exemption. And Congress could raise it."

One of the myths of the US federal government is that it hasn't grown much because government spending as a proportion of GDP is about the same as it has been for a long time.

But although the tree is no taller, compared with the size of the economy, it casts a much bigger shadow.

In addition to direct government spending, the branches have spread in every direction. There are rules and regulations that give the feds vast, indirect, and immeasurable power.

The feds do not directly control, for example, where you live. But zoning rules, building codes, road access, public transportation, and energy prices (as influenced by subsidies and penalties to the energy industry) will have a big impact on your decision.

Nor do they directly control what food you eat or what drugs you take. But the medical, drug, and food industries are so heavily regulated – and have such powerful lobbies in Washington – that whatever choices you may have left are heavily channeled by the authorities.

 Since the 1960s, rule-making, regulation-writing apparatchiks – on and off the federal payroll – have become bolder and more prolific.

Although it is impossible to accurately measure how much control over the US economy and your private life these rules impose, we can look at the pages of the Internal Revenue Code for an indication.

The tax code is little more than a system of sticks and carrots. Given a choice, we'd rather not spend two hours with lawyers working on an estate plan. But the feds intend to whack us hard...even when we are dead.

After World War II, a citizen faced fewer than 10,000 pages of tax code. Now it is more than 73,000 pages of rules, regulations, and interpretations.

These allow the feds to direct money, time, and resources hither and yon – far beyond the actual federal budget or payroll.

One activity is more heavily taxed than another. The difference is either a penalty or a subsidy, depending on whose lobbyists have succeeded. You are given a credit carrot for doing one thing; you are beaten with a stick for doing another.

Every industry is affected. Every business is alert to changes. Every accountant must keep up, lest he miss a deduction.

The money to run government, to reward its cronies and support its zombies, has to come from somewhere. As always, one group gains, another loses.

If the House version of the tax bill is passed (we don't expect it will be), we will be ungrateful recipients of the feds' generosity.

We will win – big. Thank you very much.

It is all very well to give us a break. But we can't take much pleasure in it. With no cut to government spending, our win will be someone else's loss.

This is the big fraud of "stimulus." It stimulates one person...but it depresses another.

And that is the real meaning of the Republican's tax reform: It prunes off a branch here and there so that favored groups can enjoy the sunlight. It shakes the leaves...but the shadow of the Deep State is darker than ever.

And we, always selfless, think of our poor grieving children after we are no longer around to give them our sartorial advice.

"Dad is gone...boo-hoo. We will miss him...boo-hoo. And now we have to write a giant check to the feds...BOO-HOO!

"How did he let that happen?"