American Intelligence Test: You’ll Know Tax Reform By Its Fruits

Tax Reform is in the offing with the Senate’s passage of its version of the House’s “Tax Cuts and Jobs Act” bill. The title is not an unimportant or irrelevant set of words, particularly the word ‘Jobs’. Embedded in the justification for Tax Reform is the objective, goal, ‘Promise’ of Jobs. The reason this is salient is that there must be underlying reasons that the Tax System needs to be changed, else why is it important to change it? With Republican control of the government, they are positioned to accomplish what their ideology and policies are founded upon. So, it can be expected that the new Tax System will align with, support and deliver upon those principles; and the reasons that Republicans promised will come forth as the “Fruits of their labor”.

Conveniently, the nation can and should take this opportunity to test and validate the reasons and results promised by the Republicans, the ‘Cause and Effect’ of their ideology, judgement and intelligence. Now to derive the value from this opportunity it is essential that we know what it is that can be expected from the Republican tax plan. This may not be obvious to everyone, or even most people, but if you don’t know what to expect then you won’t know if you achieved it. This doesn’t mean that everyone will agree on what to expect or how it should be measured; but without attempting to define it, we relinquish our dignity and the honor we would rightfully claim from fulfilling our duty to our American values.

What then are the outcomes, the results and expectations that are to be delivered by the Tax Reform effort? Since the House and Senate have passed their versions of the bill, it should be very easy to know what to expect. There may be some variations in the absolute values from some facets of the bills until they are reconciled and ultimately passed and signed into law; but there should be little room for misunderstanding of what direction and types of outcomes will come.

Shall we see how well you do in defining these, and how aligned you and your Congress are in the world to come? This may be the most important test you ever take. Choose wisely.

 Question A:   What are reasons it’s important to pass tax bill? Select all that apply.

(1). Reduce size of government

(2). Reduce taxes on lower income wage earners

(3). Increase wages

(4). Reduce taxes on middle income wage earners

(5). Increase tax revenues

(6). Reduce taxed on higher income wage earners

(7). Increase corporate investments in domestic production

(8). Recover tax revenues from overseas profits of US corporations

(9). Increase domestic employment

(10). Reduce National Debt

(11). Grow Small Businesses

(12). Increase portion of overall wealth held by lower and middle-class families

(13). Improve American competitiveness

(14). Increase the US’s Gross Domestic Product (GDP) level

(15). All the above

Question B:   Which reasons for tax bill can be quantified and measured? Select all that apply.

(1). Use Items from Question A as Choices for this question.

Question C:   How would you know Jobs improved because of Tax Reform?

(1). There would be more jobs

(2). Total taxable wages from jobs would be higher

(3). The rate of jobs growth would increase for a sustained interval

(4). Employment level would be higher

(5). Average wages in each tax bracket would increase

Question D:   Will your personal taxes and individual economic situation improve?

(1). Yes

(2). No

(3). Yes at first, but then No

(4). Not at first, but then Yes

(5). I don’t know

Question E:    Who benefits under new Tax Code?

(1). Everyone

(2). Wage earners under $50K

(3). Wage earners under $100K

(4). Wage Earners under $500K

(5). Wage Earners under $1M

(6). Wage Earners over $1M

(7). Corporations

(8). Small Businesses

(9). Non-wage incomes under $100K

(10). Non-wage incomes under $1M

(11). Non-wage incomes over $1M

(12). Estates under $11M

(13). Estates over $11M

(14). No One

Question F:    How would you know wages improved because of Tax Reform?           

(1). Your paystub would be higher

(2). Your level of personal debt would be lower

(3). Your cost-of-living would be lower

(4). Wages would increase above average rates that have occurred over last 5 years in each tax bracket

Question G:   Would your personal wealth increase because of Tax Reform?

(1). Decrease

(2). Increase

(3). Stay the same

(4). I don’t know

Question H:   How would you know the Economy improved because of Tax Reform?

(1). Gross Domestic Product would be higher

(2). National Debt would be lower

(3). Inflation stays below 3%

(4). Gross Domestic Product increases at a higher rate than last 8 years

(5). Wages are higher

(6). Trade Deficits are declining

Question I:      How would the distribution of wealth change in US under Tax Reform?

(1). Increase

(2). Decrease

(3). Stay the same

(4). Greater percentage of wealth is held by upper 1%

(5). Lower percentage of wealth is held by lower 99%

(6). There is no way to measure this

Question J:    Will the Nation’s Debt be higher or lower after 4 years, 8 years, 10 years? Assign each term to a category. Answer for each year range.

(1). Higher

(2). Lower

(3). Stay roughly the same

Question K:   Will Corporate investments require Government Infrastructure investments?

(1). Yes

(2). No

Question L:    If wages don’t meaningfully increase, employment rate doesn’t increase, wealth ownership for lower and middle-class doesn’t increase, and national debt doesn’t decrease will the Tax Reform bill have delivered on its “Promises”?

(1). Yes

(2). No

Question M:   How would you define “Failure” for the Tax Reform bill? Select all items that you would include.

(1). Wages versus Cost-of-Living is at or below where I am now (in 2017 dollars)

(2). Employment level is less than it is now

(3). National Debt is higher

(4). Average wages grew slower than Inflation

(5). Upper 1% control more of nation’s wealth

(6). Average personal taxes are higher as percent of income in each tax bracket except top

Now that the test is done, you may find solace in advice from the past.

Quote: My great concern is not whether you have failed, but whether you are content with your failure. – Abraham Lincoln

ANSWERS:

Answer - A:  Items 2 through 11, and 13, 14

Rationale - A:      These items are expectations, claims or promises that have been made about the results from the tax bill. It is by delivering upon these items that the nation will be better off under this governmental funding process. The needs of government will be funded as it is today via taxes. The Tax Reform is just changing how that will occur, and what must happen within the US’s economy for it to work.

This doesn’t mean that Item 1 won’t be required under the bill, but it isn’t directly cited as a reason to undertake the reform.

As to Item 12 – wealth distribution, it isn’t discussed or accounted for. This doesn’t mean that the new tax policy won’t have an impact, only that it is not a stated objective or goal against which to measure or assess the results.

Answer - B:  Items 2 through 11, and 13.   Note: 1, 12 and 14 are also measurable.

Rationale - B:      Every item in Question 1 can be measured in one or more ways, including those that aren’t implicitly claimed by proponents of Tax Reform bill. The ability to measure them should be properly understood as not inherently demonstrating a causal improvement from the tax bill without having a proper reference for what are normal rates of change in those factors. If for example GDP were to increase going forward, to assess the causal impact of the tax bill you must know how it has been changing previously to say the ‘rate of change’ changed.

Answer - C:  3

Rationale - C:      Since jobs have been increasing for over 8 years, just the fact that there are more in the future isn’t attributable to the tax reform bill. Likewise, if there are more jobs there ought to be more taxable wages going forward. This is why Item 3 is the right answer. Tax Reform to have an impact has to demonstrate a change in direction or amount relative to the run-rate that has been delivered for the past 8 years.

The above explains why Item 4 need not be caused by the Tax Reform unless it is a meaningful change above what has been already occurring in the economy. Likewise, Item 5 needs a quantifiable gain above the ‘norm’ or it’s just more ‘business as usual’ and not caused by the tax bill.

Answer - D:  5 - In the context of this test, the most informed (or uninformed) answer is 5.

Rationale - D:      I have no idea what the new tax code will do to or for you personally; hence the ‘uninformed’ qualifier in the answer above.

You probably have your own view of what the outcome will be; but it’s more a hope or expectation than a known quantity. If the answer were considered in the context of the whole nation, where that perspective is important in the total impact relative to everyone then you surely can’t know but only hope. Other questions in this test offer insight into how you would define the conditions that ought to be a basis for making that determination.

Answer - E:  Some of the people in Items 2 through 13 for at least some period of time.

Rationale - E:      That some will benefit in the initial year or two of the plan is assured if for no other reason than even politicians can’t find a way to insure only those they need to benefit will benefit. Now as to what happens over time, that will depend upon many things. The new tax code doesn’t and can’t insure anything unless the underlying factors that determine the results to the economy, the public and the nation are delivered in ways that accomplish those ‘promises’, expectations and beliefs. Such results rely upon the laws of physics, principles of economic, societal reactions to those outcomes, and unfortunately decisions made by politicians.

Answer - F:  4

Rationale - F:      Your wages only increase if valued against a measure to places your wages in the proper comparative context. If your wages double but everyone else’s triples, I doubt you would find your wages actually increased.

So, just more money in your pay isn’t necessary an improvement; nor is lower personal debt necessarily tied to better wages (you may have had to file for bankruptcy). As to whether your wages are higher if the cost-of-living is lower is an item for discussion. It may be lower cost-of-living does equate to a higher wage equivalent, but you may or may not agree.

Answer - G:  4 - You might be able to answer this for yourself, but for the majority of tax-payers it depends upon how it works out over time.

Rationale - G:     For example, if you are wealthier off in the first four years by $X dollars, but are worse off in the last 6 years by $Y dollars the it will depend upon how X compares to Y.

This will be true for Corporations and Small Businesses just as much as it does for individuals. The lower Corporate tax rate doesn’t guarantee that a company will be better off; that depends upon the impact that the new Tax Code has across the entire economy. If it screws up the consumer markets it may really hurt Corporations that are directly dependent upon consumers. It will be easier for a company to make a profit with a lower rate but that doesn’t’ mean the company will.

Answer - H:  2, 4, 6

Rationale - H:      For the options given 2, 4 and 6 would be positive indicators of an improving Economy. There are conditions where a declining 2 - National Debt may not be, but that requires some severe circumstances so should that happen our National Debt is probably the least of our problems. A lower National Debt would generally be economically good news.

Items 4 and 6 are fairly good and reliable measures of economic growth, so as a measure they should be expected. Now how much they change depends upon what is normal and thus if Tax Reform has an impact then it has to increase more than that normal level of change at least over some time. It would also be expected to retain the increased level of normal improvement once any effect of the Tax-Reform effect ceased.

Answer - I:  4 – The rich will get richer (by rich, it’s the very rich {top 0.1%} that will get richer).

Rationale - I:        There’s nothing in the Tax Reform Act that is oriented to address the question or issue of wealth distribution within the nation. Add to this the changes which will occur will do little to nothing to alter the current dynamics that drive the manner in which wealth is accumulated differentially over the population.

This does raise the question of how the middle-class’s improvement is defined within the ideology behind the new Tax System.

Answer - J:  4-Years: 1,  8-Years: 1,  10-Years:  1

Rationale - J:       The general assessment is that it will be higher. Now that in and of itself doesn’t tell you directly whether that is an improvement of, an erosion of, or no real difference to the nation’s economy. However, unless there is an unrealistically drastic increase in the broad measures of the economy higher national debt will not be good for the Economy.

Answer - K:  Yes

Rationale - K:      Given the degraded nature of much of the nation’s infrastructure, the expectation that Corporations and businesses will invest in their own infrastructure will necessitate some public investment in public infrastructure. Inadequate public infrastructure will present a risk and in many locations a barrier to corporate investment. So there is an unstated, but hopefully not unrecognized, imperative for government spending that will coincide with the private sector’s investments. This alone could be jeopardy to the expectations and the assessment of the to be delivered benefits from the Tax Reform Act.

Answer - L:  No

Rationale - L:      While you may want to argue that not all these items have to be delivered for the national economy to improve because of the tax bill, it’s highly improbable that it can do so without most improving and maybe one not losing ground. It is unlikely that the benefits required to justify the Tax Reform bill can be achieved without these measurable items being part of the outcome.

Answer - M:  1, 2, 4, 5, 6

Rationale - M:     All the items except 3 would indicators that the Tax Reform bill has failed. As noted in Questions H and J more debt is highly likely to be an economic sign of failed policy, but there can be conditions where it would be neutral to positive even if unlikely.

As for the other items, they reflect contradictory conditions which the Tax Reform was to deliver. So, if these items were to be improved under the bill and they didn’t or declined then a rational description of the outcome is ‘failure’.