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December 22nd 2017 print

Peter Smith

Mistletoe or Not, Trump Deserves a Kiss

Lowering taxes, as presidents Kennedy and Reagan demonstrated, boosts economic growth. What is important is not that some rich people get richer, but that the vast majority of people benefit. How many Americans who despise Trump will revel in the extra wealth he has now allowed them to retain?

taxIn Australia, and I suspect the UK and in Western Europe more generally, Donald Trump is widely despised. I try to cajole people. OK, I say, you don’t and never will like him, but can you at least look to see whether you like any or some of his policies. It is a forlorn endeavour. I will tell you why.

The vast majority of people get their news and views from the mainstream media or, if younger, from social media. Thus, the tax-reduction Christmas present that he and the US Congress are delivering to the American people (alas we are not getting one) is portrayed as benefiting the rich at the expense of the poor. That this is complete and utter tendentious drivel is by the way. Repeated often enough, it is a factoid in the making.

In fact, all but a few American taxpayers will benefit. Some with very high deductions which have now been removed or capped might not but, in the main, this will affect only the well-heeled. But here comes the rub. Those now paying most tax will on the whole gain the most benefit in absolute dollar terms. That’s the awesome power of arithmetic which so befuddles leftist minds.

In the United States, according to the Tax Policy Centre, 45% of households pay no federal income tax and, therefore, will not benefit from rate reductions. To illustrate the picture differently, the top 20% of individual income earners pay 87 percent of federal income taxes while the next 20 percent pay the rest. The bottom 60% pay a net zero percent.

For the edification of the left, halving taxes for those who pay little gives them little. Taking just five percent off taxes for those who pay an awful lot gives them much more. Democrats being Democrats, leftists being leftists, resist this unavoidable outcome with as much sanctimony as they can muster.

The real problem, of course, is that those on the left live in a static world of haves and have-nots, within which the division of the pie is the be-all and end-all. Once you are stuck in this world; as, say, is Bill Shorten, there is no exit point and around and around in circles you go preoccupied with inequality. In the end result, forcing more equal outcomes undermines market forces. The pie never grows to its potential.

The prime purpose of lowering taxes, as presidents Kennedy and Reagan argued, is to boost economic growth. What is important is not that some rich people get a lot richer out of this, but that the vast majority of people benefit.

Business taxes fall on owners or shareholders, on employees, and on customers. The incidence of benefit for any reduction in such taxes is hard to gauge. But rich and not-so-rich owners and shareholders are likely to benefit as are customers. Importantly, workers will potentially benefit though the creation of more jobs and higher pay. This is the main game. When it comes to lowering business taxes, the only question worth asking is how much lift will it likely give to jobs and economic growth. Unless you detest Trump, of course.

In conversation the other day I mentioned that the US was lowering its corporate tax rate from 35 per cent to 21 per cent. The retort was that Trump was doing this to benefit his own commercial interests. Help me, I pray, to live in love and charity with my neighbours at this festive time, however predictable, baseless, prejudiced, and irritating are their views.

Tax reductions are not on an equal footing. Tax reductions paid for by reduced government expenditure are best. Second best are those paid for by unexpected surges in revenue – think Howard and Costello. Unfortunately, the US is stuck with the third best circumstances, as are we, in which deficits and debt prevail. In such circumstances, there is a risk that lowering taxes will end up dampening growth by increasing the budget deficit, thus putting upward pressure on interest rates and on future rates of taxation.

Against this unpromising scenario, supply-side economics offers the prospect that lowering taxes – particularly business taxes – will generate sufficient revenue from economic growth to pay, or more than pay, for tax reductions. This is a brave call. However, it becomes less brave when lowering business taxes is combined, as in the US under Trump, with extensive and substantive deregulation. In my view, this strategy has a fighting chance of lifting growth sufficiently to reduce the budget deficit.

Let’s face it, the option of staggering along, growing insipidly, while trying to reduce deficits and debt by controlling entitlement spending is the very epitome of tilting at windmills. That’s what is happening in Australia. It is depressing. And all the while the much-maligned Trump is trying his best to create the conditions for dynamic growth and Merry Christmases in the United States. What a bad Santa is he?

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics

Comments [14]

  1. Warty says:

    I must apologise to Peter Smith for using this ‘space’ to comment on today’s Quadrant ‘editorial’, which seemed to quote Christopher Heathcote who said: ‘I had to respond to Quadrant Online’s reference to the costly ignorance of defamation law at Fairfax Media mentioned in passing in your most recent Essential Reading . . . ‘. As there is no provision for a response to what looks like an editorial column, I have posited it here. Again, I must apologise.
    Christopher Heathcote’s concerns about defamation, may indeed be well-founded, and he may indeed have been a stalwart for rectitude, when working for The Age, but he seems to have abandoned the high standards he claims to have adhered to.
    In the article, published in QOL three days ago, (‘The Struggle with Confederate Statues’) he has not only been swayed by a veritable barrage of fake news spewing out of the US MSM, in adopting a highly partisan view of the statue issue, he also felt compelled to use immoderate language regarding James Field Jr, the twenty one year old he calls a ‘youth’. As I pointed out in my response, Field has only gone through a ‘committal’ hearing and has not as yet stood trial, far less been found guilty of anything, and yet Heathcote claims he ‘deliberately ran his car’ into a crowd of ‘counter protestors’, killing a woman. He claimed this was a ‘wicked’ act.
    We have in this country, as they do in America, a presumption of innocence, but Heathcote has tried and convicted a young man based purely on video evidence, and even there he was unable to report it accurately: James Field frantically REVERSED out of a life-threatening situation, after BLM and AntiFa protestors began to smash his car with baseball bats. He quotes an Eleanor Harvey, who refers to ‘white nationalists and neo Nazis’ at Charlottesville, and Heathcote himself refers to ‘white supremacists’, all of which are ‘trigger words’, or highly inflammatory, partisan language.
    I would like to suggest Christopher Heathcote may well have retreated from the high standards of professionalism he once adhered to. I could offer a number of ‘alternative’ perspectives, should Heathcote so require (perspectives Field’s defence attorney will no doubt be presenting in court).
    If QOL made provision for editorial responses, I would not have responded here. My apologies again.

  2. Trump is a rude, crude, lewd, bombastic buffoon, but he is/was still worth the risk, even if only to see all the leftists in the ABC and the commercial MSM here in Australia, the MSM in the USA, all the Hollywood elites and all the sinecured academics in the Ivy league universities go into apoplexy at the mention of his name.

    • Mohsen says:

      [email protected],

      I remember that a couple of years ago Andrew Bolt referred to Trump as a buffoon, talking about his running as a candidate, as did one article (don’t remember by whom) here on Quadrant. Can you tell me please what makes you believe that he’s a buffoon; a rude, crude, lewd, bombastic buffoon? (rudeness, crudeness, lewdness, and bombast?). Reason for it is that I haven’t seen him to be any of them, honestly!

      Also, what risk is it that he is worth? What are the risks that are present or looming only because he is the president and especially him being him?

      Thank you.

  3. Bran Dee says:

    Peter you write of Trump and indeed we love him . What other personality could endure and be victorious over the Hollywood elites and others as listed by den and sel.
    Remember that mild mannered, successful businessman, squeaky clean, book-of-Mormon-carrying Mit Romney? Remember he lost to the media boosted weak-as-water Barack Obama. Recall that Romney often opposes Trump.

    Now that Major General Jim Molan is in the Senate we have a potential leader as impressive as a NY Trump tower.

    • Peter Sandery says:

      Whilst I would admit that Jim Molan has demonstrated an effectiveness doing what he was trained and paid to do, a not insignificant feather in his cap, it is a long distance from being an effective soldier to being an effective political leader – not too many that I can think of have actually made the grade.

      • en passant says:

        Peter,
        Try the following soldier statesmen (off the top of my head):
        1. Napoleon
        2. Churchill
        3. Eisenhower
        4. De Gaulle
        5. Suharto
        6. Franco
        7. Attaturk
        8. Sharon
        9. Nasser, Mubarak, Al-Sisi
        10. …

        • whitelaughter says:

          1. Napoleon
          gained power by coup.

          2. Churchill
          voted out of power the moment WWII ended; given his multiple cock ups (frex Gallipoli) not surprisingly.

          3. Eisenhower
          abandoned the Hungarians, ruined ties with France and the UK

          4. De Gaulle
          Maniac

          5. Suharto
          genocidal maniac

          6. Franco
          snap

          7. Attaturk
          are you noticing the pattern? The Armenians will.

          8. Sharon
          OK, best so far, but did give us that failed state of Palestine.

          9. Nasser, Mubarak, Al-Sisi
          Coup leader, jaibird and has given absolute power to the military, respectively.

          • Mohsen says:

            en passant has listed the names of those who came the “long distance from being EFFECTIVE soldiers to being EFFECTIVE political leaders” as a reply to Peter Sandery’s comment who seems to believes otherwise.
            My understanding is that en passant is correct!

            …Or perhaps one could say Peter Sandery’s correct, since he says he can think of “NOT TOO MANY that have actually made the grade”. :-)

          • en passant says:

            Whitelaughter,
            Let me counter your throwaway lines before you tell me about the greatness of professional politicians such as:
            a. Whitlam – Abandoned -East Timor
            b. Curtin – weak and unable to control MacArthur or Blamey, or deal with his union base – to the detriment of his military in WW2
            c. Gillard or Rudd – your cal on their ‘greatness’
            d. Turnbull – I am at a loss to describe his character or leadership
            Let’s go overseas:
            e. Kim Jung Un
            f. Theresa May
            g. Angela Merkel
            h. Macron
            i. Trudeau
            The CAPITALS are just to separate my comments, not to emphasise:
            1. Napoleon
            gained power by coup. I DON’T REMEMBER MANY ELECTIONS IN THOSE DAYS. DID YOU KNOW THAT EGYPT STILL USES THE NAPOLEONIC LEGAL CODE? HE WAS A GREAT STATESMAN, BUT HAD AMBITIONS THAT BROUGHT HIM UNDONE. THE PROBLEM WAS THAT EVEN AFTER DEFEATING HIS ENEMIES THEY SIMPLY REFORMED AND TRIED AGAIN, SO HIS WARFARE WAS ENDLESS.

            2. Churchill
            voted out of power the moment WWII ended; CHURCHILL WAS RESOLUTE WHEN RESOLUTION WAS NECESSARY. YES, I TOO AM NO ADMIRER OF HIS STRATEGIC MISTAKES [SUCH AS GREECE], BUT THERE WAS NOBODY ELSE IN ENGLAND WHO HAD THE PERSONAL STEEL AND DRIVE TO DO WHAT HE DID. IF YOU KNOW OF SOMEBODY, NAME THEM FOR ME. given his multiple cock ups (frex Gallipoli UMM, DID YOU KNOW THAT WAS WW1, WHEN HE WAS FIRST LORD OF THE ADMIRALTY. IT WAS A BAD PLAN, BY BAD GENERALS AND EXECUTED BY GREAT SOLDIERS AT GREAT COST) not surprisingly. NAME THE POLITICIAN WHO NEVER HAD A ‘COCK UP’ OR MADE A BAD DECISION. I CAN WAIT ….

            3. Eisenhower
            abandoned the Hungarians, BECAUSE HE REALISED THAT WOULD MEAN A NUCLEAR WW3 [YOUR PREFERRED SOLUTION?] ruined ties with France and the UK. I AM UNAWARE OF WHT YOU MEAN BY ‘RUINED’.

            4. De Gaulle
            Maniac AT LEAST YOU ARE CONCISE. DE GAULLE WAS AN EXTREME FRENCH NATIONALIST WHO WANTED TO REESTABLISH FRANCE TO ITS ‘GLORY’ DESPITE LOSING WARS TO EVERYBODY. HOWEVER, HE EVENTUALLY HAD THE SENSE TO PULL OUT OF VIET NAM, ALGERIA AND DE-COLONISE. NAME TWO PROFESSIONAL FRENCH POLITICIANS WHO WERE BETTER.

            5. Suharto
            genocidal maniac UMM, SO WHEN THE COMMUNIST COUP FAILED AND HE WREAKED REVENGE ON THOSE WHO TRIED TO KILL HIM AND HIS FELLOW GENERALS, HE IS A ‘GENOCIDAL MANIAC’? HOW LIBERAL OF YOU. THAT VIEW IS WHY AFGHANS IN MELBOURNE MOWING DOWN PEOPLE IS NOT CONSIDERED TERRORISM, BUT A MENTAL HEALTH ISSUE. I WAS LIVING IN SUMATRA NOT LONG AFTER THE MASSACRES AND MET SOME OF THE MILITARY PARTICIPANTS. I KNOW [SECOND HAND] THE CHAOS THAT WAS AVERTED BY STRONG ACTION.

            6. Franco
            snap HAVING JUST FOUGHT A BRUTAL WAR PERHAPS FRANCO SHOULD HAVE SUNG A PETER, PAUL AND MARY SONG AND FORGIVEN EVERYONE? HE KEPT SPAIN OUT OF WW2, AND STABILISED THE ECONOMY AND THE SOCIAL STRUCTURE. YOU PREFER VENEZUELA OR CUBA, OR THE NEW SPAIN WRACKED BY BARBARIAN IMMIGRATION AND UNEMPLOYMENT?

            7. Attaturk
            are you noticing the pattern? The Armenians will. THE ARMENIAN MASSACRES TOOK PLACE WHILE ATTATURK WAS FIGHTING IN GALLIPOLI AND YEARS BEFORE HE BECAME PRESIDENT. HE BROUGHT TURKEY INTO THE MODERN WORLD AND MADE IT A GOOD PLACE TO LIVE AND A SAFE PLACE TO VISIT. YOU PREFER EDROGAN AND THE ISLAMIC DARK AGE BEFALLING TURKEY A CENTURY LATER??

            8. Sharon
            OK, best so far, but did give us that failed state of Palestine. ONE ERROR TO TRY FOR PEACE WHEN UNDER IMMENSE INTERNATIONAL PRESSURE. AT LEAST HE COULD SAY: ‘TOLD YOU SO!’

            9. Nasser, Mubarak, Al-Sisi
            Coup leader, jaibird and has given absolute power to the military, respectively. AND THE ALTERNATIVE IS? OH, YES, THE MUSLIM BROTHERHOOD AND THE NEW ISLAMIC DARK AGE – AS MELBOURNE DEMONSTRATED RECENTLY. THEY ARE EXACTLY WHAT THAT TYPE OF SOCIETY NEEDS. I LIVED IN THE M.E. FOR OVER THREE YEARS AND OBSERVED THEIR MINDSET CLOSELY.

            I THINK A MOLAN WOULD BE A BETTER CHOICE THAN A SHORTEN, TURNBULL, BISHOP OR MORRISON

  4. Keith Kennelly says:

    Moshed

    Yours is a rhetorical question, isn’t it

    • Mohsen says:

      Yes, Keith. I truly can’t see how he can be described any of the above. And the same about the idea of risk, since I haven’t seen him to have said and done anything-of-significance wrong as a “politician”.

      But no, since I understand I may be mistaken in my understanding of him, his character and his presidency.

  5. Len says:

    More apologies to Peter for being off topic other than with his title. Trump was also attacked for apportioning responsibility to both sides in the Charlottesville riots. My reading of some of the American media (but not the Washington Post and the New York Times) at the time suggested that he was correct. This is a link to an article at American Renaissance about a report commissioned by the city of Charlottesville which also seems to support Trump’s opinion as well as showing that various Charlottesville authorities were complicit in causing what happened:

    https://www.amren.com/commentary/2017/12/what-happened-in-charlottesville/

    As a bonus, the report itself:

    https://docs.wixstatic.com/ugd/c869fb_a573de9ad4f04b0491b927ca9d48252c.pdf

  6. Keith Kennelly says:

    En

    All those leaders came from conventional military and governed during crises involving conventional wars.

    Today we have an unconventional war fought by terrorists, and enemies within who are trying to bring us down

    I doubt a conventional military background would be sufficient to a overcome those.