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May 10, 2017

Trump's Success Hinges on Tax Reform

 

Candidate Trump made a number of promises during the campaign, and while his administration is still in its early days, President Trump is finding it is more difficult to get things done in politics than in a privately held business.

On the border wall, for instance, the Trump administration secured additional funds for border security in the recent spending bill, but none for the wall. Given the extreme difficulty of obtaining federal ownership of the necessary land through eminent domain, there is a very good chance that the wall will never be built, or at least not during Trump’s tenure.

Trump also promised to slash spending and get debt and deficits under control. But again, in the recent spending bill, there was no significant spending reduction, even in the executive branch agencies the Trump administration directly controls.

On repealing and replacing Obamacare, well, Republicans could barely get a partial repeal bill though a House of Representatives they control. Who knows what is going to come out of the Senate, if anything? Repeal and replace is turning out to be anything but a slam-dunk.

And while these backtracks on Trump’s promises may frustrate his voters, none of them doom his administration. But there is one failure that would undermine everything Trump’s supporters are counting on from him, and that would be failure on tax reform.

It’s always “the economy, stupid,” and without tax reform, the Trump administration will have done little or nothing to change the slow-growth trends of the last decade. New job creation through increased economic growth is the heart of Trump’s promise of more and better jobs through economic growth.

Tax reform is the key to bringing jobs back to the US from overseas, creating new jobs for those displaced from trade, and even mitigating the harmful effects of Obamacare.

The real problem with displacement from trade, for instance, is that economic growth is needed to create new opportunities for displaced workers. Free trade coupled with healthy economic growth is a win-win, but without economic growth, free trade can easily become the “enemy.”

New jobs also mean health care consumers moving from the individual health insurance market to the employer-based market, which will reduce the need for subsidies, as well as reducing the number of uninsured as they become employed or find better employment.

A growing economy will generate more federal revenue, which can help pay for border security and a functioning, reformed immigration system.

And tax reform can remove the incentives for US companies to move overseas, or to concentrate their investments overseas.

Trump may not be able to keep many of his campaign promises, but tax reform is the most important, and will actually make it easier to solve other problems.


 

  • TaxBytes-New

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