Traveling The Narrow Road

President Trump has referred to the tax relief plan he signed into law yesterday as “a giant Christmas present” for the American people. I’m convinced he really believes it is.

It certainly looks like one. I don’t know anyone who will refuse the hundreds or thousands of dollars this tax bill affords them. Yet we need to ask this question—who is this present really from?

Democrats oppose the plan because they believe the tax plan favors the rich and increases the deficit (like they really care about the deficit). Republicans support the plan because they believe it will create jobs and stimulate economic growth. Both, as usual, ignore the real problem with this bill—it fails to reduce the size of government.

Democrats always want big government. Republicans claim to want reduced government spending, but when push comes to shove they settle for what looks like economic freedom, but in actuality is enslavement.

The rich rule over the poor and the borrower is slave to the lender. (Proverbs 22:7)

This “tax relief” is no such thing. Tax deferment is more accurate. The government will still be spending the same amount of money. Since government produces nothing, whenever government spends, it taxes. The American people will pay for it through the “invisible” tax of inflation or when they pay off the increased national debt.

This continued game of “kick the can down the road” ought to tell us whom President Trump’s Christmas gift is from. It’s from future taxpayers.

This is what we should expect from a president who says, “I love debt.”

Magical Thinking

Whenever we believe an action will result in a certain outcome without a plausible link of causation, we engage in magical thinking. In other words, correlation does not imply causality.

In my opinion, supporters of this new tax bill employ magical thinking when they understate or dismiss any notion of increased national debt because of it. The Congressional Budget Office estimates the tax plan will reduce government tax revenue by $1.4 trillion. The Joint Committee on Taxation estimates a $1 trillion increase in the deficit after accounting for economic growth. Even if this latter number is true, $1 trillion is a lot of money.

Furthermore, research shows that existing public debt in excess of 90 percent of GDP places a drag on economic growth. The ratio for the U.S. is over 100 percent. If the U.S. does experience slower growth due to debt overhang, it is unlikely the tax bill will have its intended effect. Of course, critics could raise the causation/correlation question for this research. Quantifying complex economic systems is a difficult task.

Common Sense

A recent survey by Yale University of over one hundred business leaders from Fortune 500 companies revealed that only 14 percent of CEOs planned to make significant investment in capital projects in the near future with money from tax cuts. Since capital expenditure leads to job creation, this does not bode well for President Trump’s declaration that the tax cuts will lead to more jobs. However, the same survey found that 43 percent of CEOs plan to ramp up hiring in the next six months. So, it seems that jobs may be created in the short-term, but the long-term outlook is not so rosy.

Recent corporate behavior indicates that they use excess cash to buy back stock rather than make capital investment. This benefits stockholders but does not provide jobs. Should we believe that corporations will use differently the extra money provided by tax relief?

Common sense should warn us that increasing our already dangerously high national debt is folly. It should tell us that placing government expenditures on a “credit card” only delays the day of reckoning and makes our economic problems worse.

Common sense tells me Trump’s tax relief bill is not a giant Christmas present to America. It tells me we got a giant lump of coal in our stocking. Maybe Congress doesn’t think very highly of the American people.