First a couple of disclaimers.
1. This is almost entirely about taxes not spending.[1]
2. This does not address taxing and spending for social insurance [See: https://thomaslhutcheson.substack.com/p/social-security-again and https://thomaslhutcheson.substack.com/p/socia-insurance-20]
3. Clearly Donald Trump, president of the United States himself has little to do with the specific policies here discussed.
4. A am judging the budget mainly from the standpoint of does it shift resources toward or away from consumption but also the deadweight loss of the taxation. Not all way of shifting resources from consumption to investment are equally good. In effect I am judging these proposals from the standpoint of a tax on personal consumption (income minus savings and any “good” consumption) with higher rates on higher consumption.
5. The list is from “Committee for a Responsible Federal Budget” through Matt Yglesias,
1. Extend the “Tax Cuts and Jobs Act”
No. It is a multitrillion dollar increase in the deficit and the borrowing entailed comes almost exclusively from resources that woud otherwise go into private investment.
The only positive provision of the better named, “Tax Cuts for the Rich and Deficits Act” (fiscal actions do not create “jobs”) was the modest reduction in corporate income taxes. That was not a temporary change like the rest of the Act and does not need extending. Provided the revenue loss were recovered with personal taxation, the rates could well be further reduced for two reasons. a) The corporate income tax is not uniform between activities and so distorts incentives from higher to lower Net Present Value investments. b) The tax does not fall on the consumption of owners in proportion to their consumption and so cannot tax that consumption progressively.
2. Provide SALT relief
Yes. Payment of state and local government taxes is not personal consumption and should be fully deductible. In addition limiting the differentially impacts taxpayers living in states with differing rates of taxation and in particular progressive taxation. The “relief” should go farther to return to full deductibility.
3. Cut Taxes on Tips
No. Even accepting that only consumption, not income should be progressively taxed, there is no reason to tax income arising from a tip different from a wage payment. And the proposal applies only to the income tax, not the “payroll” tax. What could be the logic of that?
"No Tax on Tips" Is NOT Good, Actually
Both ex-President Trump and VP Harris have proposed exempting tipped income from federal income tax. Jonathan Last writing in BulwarkThanks for reading Radical Centrist! Subscribe for free to receive new posts and tell others
4. Cut taxes on overtime pay:
No. This is even less desirable than not taxing tip income which at least is mainly earned by low income (consumption) taxpayers. Overtime can be earned by worker at any income (consumption) level. In fact most low wage jobs are optimized not to become subject to overtime.
5. Cut taxes on Social Security:
No. Sorry if it is getting tiresome to read, but it is not desirable to tax income (consumption) differently according to its source. Like not taxing tip income, this would benefit only a relative few higher- income (consumption) taxpayers.
6. Cutting taxes for domestic production:
No. Who knows what this could mean, anyway? We do not tax “production” so how can a non-existent tax be cut? Presumably it means some kind of a corporate income tax credit for domestic “production.” Measured how? Value of gross output? Value added? Profit? Production of all goods and services? Only from corporations? We should not be taxing business income at all but when we do the revenue lost should be recouped with the progressive personal consumption tax. This is, as we say in Spanish, “Salido por los cabellos!” <Came out from the ends of their hair!>
7. Close carried interest loophole
Yes. “Carried interest” should be taxed like any other kind of income not at all until consumed but pending that reform tax it like ordinary income along with other capital gains and “capital income.
Summary
Policy Trump Low Trump High Radical Centrist
(billions)
Extend the Tax Cuts for the Rich
and Deficits Act 3,900 4,800 0
SALT Relief 200 1,200 200
Cut Taxes on Tips 100 500 0
Cut Taxes on Overtime 250 3000 0
Cut taxes on Social Security 550 1500 0
Cut Taxes for Domestic Production 100 200 0
Close Carrie Interest Loophole -100 0 -100
Total 5,000 11,200 100[2]
Bear in mind that the Trump policies are about _increasing_ the annual deficits by from $500 billion to $1,1200 billion per year when we need to be _reducing_ them by ~$1900 billion, the FY 2026 deficit minus government investment of … ?
[Standard bleg: Although my style is know-it-all-ism, I am aware that could be mistaken or overstate my points. I would, therefore, welcome comments on these views.]
Image Prompt Worried man at a desk with a stack of bills to be paid and someone at the door with another stack.
[1] Yes, there is much room for reducing expenditures that have a Net Present Value less than zero, but how MUCH less than zero is very activity specific and depends as well on whether the expenditure is an effective Pigou subsidy (some measures aimed at reducing net CO2 emissions) or achieves what one thinks is desirable consumption redistribution (Medicaid, SNAP).
In principle DOGE might be searching for such expenditures or regulations that cause private persons to undertake such activities or prevent them from undertaking activities with Net Present Value greater than zero. So far, that does not appear to be DOGE’s principal focus. [On the Internet, nobody knows when you are being ironic! :)]
[2] Radical Centrist promises to find at lest $100 billion of expenditures with Net Present Value less than zero between ethanol subsidies, farm price supports and excessive subsidy for CO2 emissions reductions so and not to be responsible for ANY of the increased deficit resulting from these proposals.
I could be dead wrong, but the first thing that comes to mind are some of the really draconian exemptions, deductions, and credits within our plethora of tax expenditures. Could be missing the mark though, that’s why I’m asking.
What are the top expenditures that have a NPV < 0?