Taxes Have Consequences

Tax revenues sometimes don't fall, and in this case, they didn't. The tax cuts paid for themselves and did so within the first two years. How's that for egg in your beer? And even better, state and local tax revenues rose as well. Over the same time period, total government receipts increased by 8%, or $428 billion. The sum total of my tax bill was a win-win-win for everyone. Taxes Have Consequences uses in-depth research to tell the real tax history of the United States. My administration built on this history when we cut taxes in 2017. Here is the full story from over a century of our American past. The Honorable Donald J. Trump. Chapter 1. Whatever. Probably the broadest and most serious charge is that the law has close to its heart something very much like a lie. That is, it provides for taxing incomes at steeply progressive rates, and then goes on to supply an array of escape hatches so convenient that hardly anyone, no matter how rich, need pay the top rates or anything like them. John Brooks on American Tax Law in Business Adventures, 1969. Taxes have consequences. A tax applied to a good or a service or to income or property changes how people conduct themselves in the economy. A basic principle is that if something is taxed, the price people have to pay goes up. With a price rise, the demand for any item that is taxed necessarily goes down. In addition, a tax is a cost, reducing the amount of money suppliers receive from sale of a product. This necessarily makes supply go down. A tax lowers a buyer's interest in buying, and the squeeze on profit margins from a tax makes producers sour on their own enterprises. As we indicated in the quote from John Brooks, in the case of the income tax, buyers and sellers will also be incentivized to circumvent the tax if they can. Income taxes started for good in the United States a hundred-some years ago in 1913, on the ratification of the 16th Amendment to the Constitution. The universal income tax works no differently from taxes on any product in the economy. Income earners facing a tax will spend less, earn less, and search for ways to avoid paying the tax. And high-income earners will do this the most. The extent of their wherewithal gives them options. High earners can readily change the location of where they earn their income, the timing as to when they receive that income, and the forms in which they receive their income, not to mention how much income they choose to earn. The history of taxation brings these points to light at every turn. In the American experience, taxes on income have provided copious examples. The practical implications of the economics of income taxation are enormous. In 1979, we used a striking example of such implications in striving to persuade presidential candidate Ronald Reagan of the power of incentives. The example we called on concerned a tax reform we were implementing at the behest of the government in Puerto Rico. We imagined a case in which two Hilton Hotels managers merited after-tax bonuses of $50,000 each. One was the manager of the Caribe Hilton in San Juan, Puerto Rico, and the other was the manager of the Miami Hilton in Florida. The total cost to the Hilton organization in pre-tax dollars was, before the tax reform, $385,000 for the Caribe Hilton manager in Puerto Rico, where the highest tax rate was 87%. The total cost to the organization was $100,000 to the manager of the Miami Hilton in Florida, where the top tax rate was 50%. It cost Hilton a little less than four-fold more to bonus the manager in San Juan compared with the manager in Miami. Taxes have consequences. After our tax reform in Puerto Rico, the tax rate in Puerto Rico was $10,000 more than in San Juan. The tax rate in Puerto Rico was $10,000 more than in San Juan. The tax rate in Puerto Rico was $10,000 more than in San Juan.