The Moral Dilemma of the Tax Bill

Opponents of the Republican Tax bill have roundly criticized it as favoring the rich and “unfair.” Unfortunately, they fail recognize the complex, and, yes, existential, moral dilemma they face with that outcry.

There is no question that any rich person with a little common sense and good financial and tax advisors will get richer under this plan. The plan should stimulate huge US economic growth, and everyone, including the rich, will benefit from it.

But the issue is far more complex than that. The huge reduction in corporate tax rates will benefit wealthy investors as corporate investment, sales, and profits grow. But corporations are not simply the playthings of the rich. 40% of all corporate stock in America is owned by pension plans and 401k investments. That means that the pensions of teachers, firemen, policemen, industrial workers, teamsters, miners, etc. become more secure under this plan. Combined with more good jobs, lower tax rates and higher standard deductions, that translates into a huge increase in the standard of living for the not-so-rich in America.

And this leads us to the crux of the true moral dilemma. The central paradox of Federal income tax policy has always been that LOWERING the tax rates INCREASES Federal tax revenue. President Kennedy, no stooge of the Right Wing, famously pointed this out as he lowed tax rates to stimulate growth.

The logic is pretty straightforward. Lower tax rates encourage corporate investment leading to higher productivity and growth of revenue and  profits.

This is especially true after an Obama Administration, suffering from political Tourette syndrome – uncontrollably blurting out the investment-killing phrases “higher taxes” and “income redistribution” at every opportunity – inevitably forced corporations to keep trillions of dollars of potential US investment income overseas to protect their shareholders.

The new tax bill will provide the incentives and protections to bring what is estimated to be $3 to $5 trillion of this American money home to invest in American companies. The result will be that all Americans will benefit and be richer. Richer through lower taxes, more and better jobs, and corporate profits, a large proportion of which benefits middle class and lower class Americans.

And the rich too, will, in fact, get richer.

And therein lies the moral quandary: would you prefer that All Americans get rich by lowering taxes, or is it more fair keep income and corporate taxes as is or even raise them more on the rich, even though it will keep the poor where they are or even make them poorer. President Obama in a moment of remarkable candor departed from President Kennedy and declared that it was more “fair” to raise taxes on the rich even though it might impede growth and penalize all Americans. The Democrats in Congress have unanimously adopted this view.

So, what the right sees as a sensible and pragmatic deal benefitting everyone, the left sees as an unfair Faustian bargain that they are not willing to accept. They would prefer the poor remain poor out of “fairness.” While the current bill lowers corporate tax rates and should generate much higher revenues for the Federal government, leading to a greater Paradise of “Fairness” to spread around than even the most ardent liberal in Congress can imagine, the left continues to brand it as benefitting only the rich. They advocate a world of “fairness” where everyone is poorer. The Left imagines a zero-sum game of winners and losers. The Right sees investment and growth where everyone benefits, some more than others.

In this context it is awfully hard to sort out regressive from progressive, but I suppose it depends upon which end of the telescope you’re looking through.

So I put it to you: would you prefer that the poor have greater opportunities and a higher standard of living, even if the “rich get richer;” or would you prefer to penalize the rich under the banner of “fairness,” even if it makes everyone poorer? It is not a false choice. It is the true decision faced by Americas in this highly competitive and unforgiving global economy. And, because it will also determine the success or decline of the American economy, it is, in fact, also an existential question for America.