Trump's Fiscal Strategy: A Nod to the 19th Century
As the campaign enters its final weeks, Donald Trump is proposing significant changes to the Federal income tax. He has suggested extending the lower rates, family tax credits, and investment incentives of the 2017 Tax Act beyond their 2025 expiration date. He also plans to exempt tips, Social Security benefits, and overtime wages from the Federal income tax.
These proposals alone could result in a revenue loss of $9 trillion over the next decade. Additionally, Trump has proposed exempting firefighters, police officers, military personnel, and veterans from the Federal income tax, which could lead to a further $2.5 trillion in revenue loss over 10 years.
In total, Trump's proposed income tax cuts could lead to a loss of $11.5 trillion over the next 10-year budget window. This would amount to around 34% of the Congressional Budget Office's (CBO) estimated baseline income tax revenue of $33.7 trillion over the same period.
Trump's Proposal: A Shift Towards Consumption Tax
Trump has suggested a radical shift in the taxation system, proposing to scrap the income tax entirely and replace it with taxes on imported goods and merchandise. This system was used in the 1890s when the country relied on tariffs to fund the government.
In 1900, total Federal spending was just 3.5% of GDP, as America had no significant standing army and the Welfare State had not yet been invented. The revenue tariffs of the 19th century met the Federal government's income needs and even allowed for the payment of most of the Civil War debt.
However, today's Federal budget is much larger, accounting for 25% of GDP due to the Warfare State, Welfare State, and Washington pork barrels. Despite this, Trump has proposed a 21st-century version of the revenue tariff, pledging to impose a 20% universal tariff on all imports from all countries, with a specific 60% rate for Chinese imports. This would generate about $900 billion of receipts per year.
Who Pays for the Tariffs?
Contrary to Trump's claims, tariffs are not paid by foreign countries but by consumers. This means that the cost of government would be borne by current citizens rather than being passed on to future generations through debt.
Trump's proposed tariffs would generate about $9 trillion over the next decade, covering nearly 80% of the $11.5 trillion revenue loss from his proposed income tax cuts. This is a significant step towards fiscal solvency.
The Impact of Trump's Proposals
Even with Trump's proposed tariffs and income tax cuts, the 10-year revenues would only amount to $60 trillion, compared to built-in spending of $85 trillion per the CBO baseline. This means that Trump's budget plan would still generate $25 trillion of debt over the next decade.
Furthermore, Trump has promised to protect 82% of the budget from any cuts. This means that even if non-exempt programs and agencies were reduced by one-third, deficits would still exceed $20 trillion over the next decade.
Bottom Line
Trump's proposed changes to the taxation system are bold and could potentially lead to a significant shift in the country's fiscal policy. However, they also highlight the challenges of financing the Federal budget and the potential impact on the economy and financial markets.
What do you think about Trump's proposed changes to the taxation system? Would they lead to a more sustainable fiscal policy, or would they simply exacerbate the country's financial challenges? Share your thoughts and discuss this article with your friends.
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Trump's Fiscal Strategy: A Nod to the 19th Century
As the campaign enters its final weeks, Donald Trump is proposing significant changes to the Federal income tax. He has suggested extending the lower rates, family tax credits, and investment incentives of the 2017 Tax Act beyond their 2025 expiration date. He also plans to exempt tips, Social Security benefits, and overtime wages from the Federal income tax.
These proposals alone could result in a revenue loss of $9 trillion over the next decade. Additionally, Trump has proposed exempting firefighters, police officers, military personnel, and veterans from the Federal income tax, which could lead to a further $2.5 trillion in revenue loss over 10 years.
In total, Trump's proposed income tax cuts could lead to a loss of $11.5 trillion over the next 10-year budget window. This would amount to around 34% of the Congressional Budget Office's (CBO) estimated baseline income tax revenue of $33.7 trillion over the same period.
