Tax, Trade, Social Security, and Welfare Reform: An Economic Framework To Make America Great

​The US economy needs to be recalibrated to better serve the economic interests of the American People.  US President Donald Trump has attempted to do this by adopting tariffs and pressuring US trade partners to renegotiate trade deals.  He has also facilitated the passage of massive tax cuts, which included an embrace of a territorial tax system.  Although key changes to the personal tax code, such as the doubling of the standard deduction, were overdue and should have been permanent, tax relief mainly benefited wealthier individuals and corporations.  Not only did Trump’s territorial tax code create a perverse incentive for US companies to shift profits overseas, his incendiary negotiation tactics have resulted in politically-charged retaliatory tariffs that are unnecessarily hurting consumers and manufactures.  

With change comes growing pains.  The Trump Administration has tried to mitigate the pain of change by haphazardly issuing tariff exemptions despite the reality that it did not in preparation develop the bureaucratic infrastructure needed to handle such requests along with a massive diplomatic effort to renegotiate most of America’s trade arrangements.  Instead of a strategic and mutually beneficial recalibration of US trade relations, Trump has started a trade war based on special interests-driven policies that are hurting US businesses and consumers.  While China, which Trump branded as the greatest economic threat to US manufacturing, has been able to essentially court the favor of the Trump Administration, America’s allies have been alienated.  Instead of a constructive tax reform, which simplifies the US tax code and eases the burden on those who can least afford it, Trump opted for special interest giveaways.  To boot, Trump has turned his attention to depriving vulnerable Americans of the social welfare system they rely upon.
 
The American People need their political leadership to address their economic interests.  To do this, these leaders need to embrace a policy framework that will facilitate a strategic restructuring of how the US economy distributes wealth.  It starts with a fundamental shift in how political leaders look at economic policies.  Instead of simply embracing policies that directly benefit their constituents, their benefactors, and preferred special interest groups, political leaders need to look at economic policies in terms of the human impact.  Clearly, businesses and economies do not work based on how people feel they should work, but the economy does exist to provide for the needs of the People, government exists to address the needs of the People, businesses exist to solve problems for people.   As such, economic policies need to be formulated based on how they impact people in the real world.  Economic policies need to address the needs of average people.
 
Social welfare programs, for example, are purely government attempts to address the needs of the people that the “free market“ has failed to address.  Today, an inescapable dependence on poverty relief programs, alongside negative public perceptions against public assistance, are fueling the transformation of social welfare programs.  While modern Republicans hope to simply slash funding and benefits, mainly by creating hurdles like work requirements and tightening other eligibility requirements, the1996 welfare reform effort successfully used a work requirement to transform Food Stamps from a budget relieving program to a budget enhancing program.  Food Stamp recipients who worked more began to receive more food aid, even though they received less cash assistance.  
 
Although this policy shift perversely eased the pressure on employers to raise the wages of low-income workers, it removed the punitive nature of getting a low-income job.  Public assistance programs were created for those who are essentially destitute and remain destitute, thus they foster perpetual destitution for those who cannot find employment that offers a living wage.  If the goal is to encourage more people to find more work, public assistance programs need to be less punitive to those who find low-income work and their children, who often cannot save money or work without harming their family’s eligibility for public assistance.  Means testing, for example, needs to be smarter.  In turn, assistance programs need to help more recipients get the help they need to find better jobs.  This can mean robust education assistance, more strategic on-the-job apprentice programs, which do not perpetually give employers cheap labor, and/or increased access to the mental healthcare needed to address the dysfunctions that prevent people from pursuing viable jobs.
 
On the other end of the social welfare spectrum, Social Security and Medicare are prime examples of government avoiding major economic problems.  The Social Security trust fund is set to run out of money by the mid-2030’s while Medicare will likely become insolvent by 2026.  Social Security and Medicaid are a problem today, because the US Federal government spent too much, did not tax enough, and borrowed from the Social Security trust fund to pay for both.  How we got into this predicament does not, however, change the fact that there is a problem.  It must be addressed sooner rather than later or Social Security will collapse, along with the Federal Budget.  The good news is that both programs will continue to be able to pay out most of the benefits owned to beneficiaries without devastating the US National Budget.  Converting the program to a need-based insurance plan, as well as taking other measures, can help avert a major economic and Fiscal disaster without simply placing the burden solely on younger generations.  The real problem, however, is the National Debt and growing income inequality.
 
The only way to address the US National Debt, unless enough people and political leaders agree to embrace a radical Libertarian government, is to increase government revenue, which likely means raising taxes and tarrifs.  Doing so must, however, be done strategically.  The tax code should place a near equal tax burden on all individuals.  There should be a progressive tax code that minimizes the burden on poorer individuals by levying a higher tax rate on wealthier individuals while tax rates should be kept as low as possible for everyone.  Government should avoid discouraging or punishing pro-social behavior, which is why the charitable tax deduction is popular and should be preserved.  This is the only way to minimize the adverse impact government has on the incomes of the American People.  Taxation is not, however, so not straightforward.  Taxes and tariffs, after all, impact job creators, i.e. businesses.
 
Too great of a tax or tariff burden will suppress business development and growth, which will deprive workers of jobs and consumers of the products they need at the prices they can afford.  Like the individual tax code, the business tax code should, therefore, be progressive.  The small and low-income businesses that create the majority of jobs in the US should pay less in taxes than wealthier and larger businesses.  Although proponents of a low business tax rightfully criticized America’s relatively high corporate income before Trump’s reforms, the problem has always been that wealthier and larger businesses are often able to take advantage of tax deductions and loopholes that smaller and lower-income businesses cannot.  As such, wealthier and larger businesses have been able to dodge the taxes they should be paying.  The US needs this tax revenue to relief the US National Debt and, ultimately, relief the tax burden on all, thereby helping the economy grow.  Although Trump empowered “pass-through” businesses by allowing their owners to take advantage of a lower-tax corporate rate, it may be time to consider an alternative minimum tax for corporations and tax brackets in order to ensure businesses pay their fair share without hurting job creators.  
 
Unless businesses are expanding operations, growing their workforce, or increasing employee compensation inside the United States, they should not receive tax breaks, because the US has no interest in giving them tax breaks.    To that end, policymakers should embrace and cap the benefits of a reduced capital gains tax rate, so it can act primarily as an incentive for middle-income households to invest.  In turn, governments might consider subsidizing another type of capital through tax cuts that would drive growth where it is most needed, i.e. intellectual capital.  Innovations and the spread of new technology can create good paying jobs by sparking novel industries.  Coupled with improved patent laws, offering a tax discount on par with current capital gains tax deductions for royalty payments on novel technologies and other innovations would make them far more valuable.  By making patents and other intellectual property more valuable, financial capital would be steered toward innovation, thereby ultimately cultivating new industries and jobs.
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