The sorta big, somewhat beautiful tax and spending bill
Everything is relative. The bill smears lipstick on the pig of our corrupt taxation system.
“Giving money and power to government is like giving whiskey and car keys to teenage boys.” - P.J. O’Rourke
H.R. 1, the One Big Beautiful Bill, is now law. There’s many positive aspects of this tax and spending bill. But it’s far from representing a reasonable facsimile of a sustainable revenue collection system. It’s what Trump could obtain from a Congress of, by, and for corruption and special interests. It isn’t engineered to maximize revenue while minimizing economic damage. “Economic damage” essentially equates to a loss of freedom. The more of your wealth the government confiscates, the more your freedom is reduced. After 112 years of the income tax, none of us today have any idea what it must have been like before then, and the subsequent loss of freedom we’ve experienced. Government is necessary, therefore taxation is necessary. But beyond a certain level, taxation becomes oppressive and stifles economic growth. We are long past that point.
Much of what follows is a discussion of the sort of taxation system Trump and future presidents will be able to implement once congressional corruption is removed from the equation. The BBB helps reduce an oppressive system but is far from where the nation needs to be.
THE GOOD
Decades-long Trump advisor Roger Stone points out what’s right about the bill:
"The nonpartisan Congressional Budget Office projects Trump's reconciliation bill would add $3.3 trillion to the national debt over the next decade by extending the president's tax cuts that he first implemented in 2017."
In fact federal revenues spiked after the 2017 Trump tax cuts just like they did after Reagan and JFK implemented across-the-board tax cuts. The deficit is caused by excess spending which the administration is addressing in a series of rescission bills. PS the CBO is always wrong.
As will be explored below, the dynamic impact of tax cuts is never taken into consideration by the CBO or establishment economists. Cutting taxes, taking money out of the government’s hands and into yours, generates increased economic activity when you spend it, and when the businesses you spend it at turn around and spend it and invest it. If the government taxed 99% of the nation’s income, how much money to fuel economic activity would be left? Conversely, if the government taxed 1% of the nation’s income, wouldn’t that lead to far more money for people to spend and invest in productive uses?
THE VERY BAD
Nobody would ever start from scratch and create a tax code monstrosity such as we are stuck with. The federal tax code runs 6,781 pages, and climbing. IRS interpretations of the mother of all codes add another 75,000 pages, 150 reams of paper. With a ream costing about $5.77 at Walmart, that comes to $865.50, plus sales tax, for the paper alone to print it out. It’s a monument to congressional corruption by special interests’ lobbyists. The Big Boys exploit the system to purchase carve outs, to limit their taxes and engineer ways to penalize small businesses.
Those with a vested interest in keeping the tax code complex and onerous include:
politicians who shake down special interests for carve outs,
the accounting profession,
corporations using the tax code to suppress smaller competitors, and
attorneys kept busy helping clients navigate labyrinthine legalities.
Peter Schiff (whose tax protester father died in prison) points out that the tax code is so hopelessly complex that “Only a small part of the tax code can be enforced, and the subjective choice about what part that is, allows a lot of room for corruption and uncertainty.”
This article explores one example: why attorneys find inheritance taxes as attractive as flies find manure. If inheritance taxes only apply to a few exceptionally wealthy taxpayers, attorneys who structure clients’ assets to avoid the death tax will have much less business. Their objective is to increase the number of taxpayers it applies to.
The same forces which plague our tax code also are behind our convoluted immigration system. Corporate lobbyists and Silicon Valley tech titans (including Elon Musk) descended like vultures on draft legislation when changes to the H1-B visa regime were proposed. These people made billions by importing lower-cost foreign workers to undermine American workers’ salaries.
America is rapidly transitioning to one party rule, thanks to Democrats’ ongoing self-destruction. They’ve been practicing for a long time and are finally approaching perfection. Which means the end of congressional independence. Once Republicans capture sufficient congressional seats, this means Trump and his successors can ignore a handful of GOP holdouts and draft legislation in the White House, then send bills across town to be rubber-stamped. We will switch from lobbyists drafting bills and handing them off to corrupt congressional leadership for passage. No more needing to pass bills to learn what's in them. The welfare of special interests will give way to the national interest.
One party rule will in turn soon give way to the practical decline of the Republican party as well. Which is why Trump faces two opponents in the 2026 midterms, Democrats and establishment Republicans. With the current-razor thin majority in the House (and practically in the Senate too), a handful of Republican holdouts can derail legislation the administration supports. Republican senators have been extorting concessions from Trump on behalf of their corporate patrons. This is why, for example, Trump ordered ICE to cool it on farm worker deportations. If the GOP majority in both chambers expands sufficiently, and hold-out legislators no longer possess leverage, Trump doesn’t need to kiss congressional ass. He can draft bills and send them over to be ratified. Said differently, the greater the number of Republican seat gains (which will be filled largely by MAGA newcomers), the less power establishment Republican members retain. The less their power, the less graft they have access to. Don’t think establishment Republicans haven’t done this simple math. If many appear less than enthusiastic about gaining seats in 2026, it will be no surprise.
The Republican party will remain as window dressing, but as a practical matter members of Congress will serve as rubber stamps for executive branch legislation. Freshman Senator Jim Justice of West Virginia, a reformed Democrat, gets it. He sees his role as supporting Trump’s agenda, with occasional input to protect his home state’s interests. Opportunities for corruption will greatly diminish (but not disappear) under the evolving reality. No one can argue that the two political parties are not monuments to corruption, sophisticated crime syndicates.
It’s no surprise that a majority of Congress is on the take. But this will change once one-party rule takes hold. Remove the ability of Congress to write laws, and its potential for graft goes away. We are already seeing retirement announcements from Democrats and certain RINOs (e.g., Senator Thom Tillis). This trend will only accelerate in the near term. A number of Republicans (including Your Favorite President) have forfeited prosperous business careers to patriotically contribute to reform. This holds true for much of Trump’s cabinet, the DOGE volunteers, and the billionaires and centimillionaires Trump has enlisted. People who earned fortunes the old-fashioned way, such as Wilbur Ross, Betsy DeVos, Steven Witkoff, Scott Bessent, Linda McMahon, Howard Lutnick, and Elon Musk.
Political parties are anachronisms, remnants of a failed structure and rapidly losing relevance. Washington was virulently opposed to them. He realized their corrupting potential. Trump engineered a hostile takeover of the GOP in 2016. Simultaneously, Bernie Sanders (an independent who has never been a registered Democrat) did the same with the Democrats, but Hillary Clinton’s machinations pried the nomination away from Sanders. The world’s oldest political party, the Democrats, turns 200 in three years — if it makes it. Americans are tired of politics and disagreements. They want politicians to do their jobs of making the systems function. Americans — and the world in general — are tired of wars and seek peace. Trump recognizes this more than anyone. Decades of heading in the wrong direction are quickly being reversed.
Stating the obvious
Elon Musk points out the obvious, it’s a “massive spending bill, frankly, which increases the budget deficit, not decrease it and undermines the work the DOGE team is doing.” Which is an understatement. However, Musk’s gripes with Trump are disingenuous and speak poorly for him. The bill is not what Trump would produce if he had unfettered power. Musk’s real target should be Congress, the current makeup of which we are stuck with, at least until the 2026 midterms. A fair analysis of the difficult dynamics of drafting a tax bill in a late-stage democracy when the ruling party has a razor-thin majority can be found here.
Musk’s recent comments, decrying the successful elimination of green energy subsidies in the bill, are another subject. He obviously has a vested interest in continuing subsidies for expensive green energy scams. His recent talk of forming a third party is childish and doomed to fail. Trump essentially beat him to it. We essentially now have three political parties. Only the MAGA party is ascendant.
This bill is one of the small number of pieces of legislation produced in the current stalemated session. Congress has forfeited its legislative role to presidential executive orders. (Temporarily a good thing, until Trump can achieve a sufficient congressional majority — hopefully in the 2026 midterms — to be able to draft legislation and send it to Congress for ratification.) Congresswoman Harriet Hageman, a trial litigator in real life, offers her perspective on how the sausage was made and its ingredients, which is considerably different from what most of us have been led to believe. As she points out, this is a strange creature, a budget reconciliation bill. The budget reconciliation process was used to avoid the Senate filibuster. Her transcript is below.
Hello, this is Congresswoman Harriet Hageman here to speak with you about the One Big Beautiful Bill Act, or OBBBA, which recently passed the House of Representatives. There seems to be quite a bit of incorrect information floating around out there as well as questions as to what is and what isn't included in the bill, and I thought it was important to set the record straight It is important to keep in mind that this should not be considered a spending bill and it is not part of the annual federal budgeting process. The big beautiful bill is instead what we refer to as a budget reconciliation bill. The reconciliation process which was adopted in 1974 allows Congress to expedite consideration of certain tax, spending, and debt limit legislation. Expedited consideration means the bill avoids the Senate filibuster and it is therefore one of the first opportunities for the Republican trifecta to deliver on the promises that we made, including providing the funds to secure our border and prevent the largest tax increase in the history of our country. The bill may only be expedited if we follow a series of fairly strict rules that are outlined in the [1974] law. These rules limit what we can achieve through this process.
The American people spoke clearly last November. They want us to change course and we need to go in a new direction, particularly when it comes to federal spending, securing the border, unleashing American energy, and promoting prosperity. The One Big Beautiful Bill Act delivers a $1.6 trillion cut in federal spending, the largest in 30 years. It also makes permanent the 2017 Trump tax cuts, thereby delivering tax relief to all Americans. Our taxes are currently scheduled to dramatically increase as of December 31st of this year unless we pass the One Big Beautiful Bill Act rather than facing a 24% tax hike at the end of the year. And by passing the OBBBA the average Wyoming family will continue to save $1,449. We have also extended and expanded the death tax exemption and child tax credit, provided numerous tax breaks for small businesses, while including President Trump's promise of no tax on tips, no tax on overtime, and tax relief to our Social Security recipients.
In order to raise federal revenues the Natural Resources Committee on which I serve was tasked with unleashing our American energy industry and Wyoming will play a key role in that endeavor. This bill eliminates the coal moratorium, mandates action on coal lease applications, reinstates quarterly oil and gas lease sales in our state, and reduces the royalty on coal to pre-pandemic levels, thereby allowing our companies to reinvest funds in their operations and employees.
After decades of underfunding and misdirection of assets, our immigration system has become overburdened — a situation made exponentially worse by the Biden border crisis. The OBBBA creates a new fee-based system to ensure that Americans are not footing the bill for others to come here and requires that foreign individuals who seek to come to our country pay for the services they seek, including fees for processing of applications and the like. It also provides resources and personnel to catch and remove at least 1 million illegal aliens, increase detention capacity, and complete the border wall.
Medicaid was created for low-income children, pregnant women, parents of dependent children, individuals 65 years of age and older, and individuals with disabilities. It was never intended as a welfare program for individuals who simply choose not to work. Thanks to Obamacare and Biden era policies the Medicaid program has been shifted away from providing medical care for these traditional populations and today Washington DC spends 7 times more money for able-bodied working age adults enrolled on Medicaid than it does for our young single mothers and those with physical or mental challenges, which is actually the target population for which the program was created in the first place. This misdirection of resources has been combined with other waste, fraud, and abuse, such as states providing Medicaid coverage to illegal aliens to create a fiscal nightmare that threatens the long-term health and well-being of the program.
Medicaid has been growing exponentially and overspending taxpayer dollars, while the quality and availability of care for our traditional populations has declined. The situation is unacceptable and unsustainable. The Big Beautiful Bill does not cut $880 billion from Medicaid. It does not take back previously allocated money for American communities, and it does not cut aid to traditional Medicaid populations. In fact, Wyoming will be rewarded with higher state-directed payment rates for not having expanded Medicaid to cover able-bodied adults. Our Wyoming legislature rightfully refused to expand Medicaid, and the OBBBA will provide additional benefits as a result. It is clear that Americans do not believe that illegal aliens or able-bodied adults should be added to the Medicaid rolls. The OBBBA thus removes funding for illegal aliens and fraudulent payments and imposes work requirements on able-bodied adults who do not have dependents. These are common sense reforms that everyone should agree are overdue.
Anyone decrying these reforms is showing their true colors. Their real intent is to impose universal health care — a one-size-fits-all approach whereby the federal government is in control of all aspects of our medical care and they have been using Medicaid as the mechanism to realize this goal. Many have asked why codification of DOGE cuts was not included in the bill. Again, our ability to cut spending is determined by the reconciliation rules and many of the DOGE cuts simply don't qualify. DOGE has been focused on discretionary spending which is provided for in the annual spending bills and includes funding for grants, agencies, and more. Reconciliation, in contrast, is addressed to mandatory spending like Medicaid and food stamps, which is why reform to target waste, fraud, and abuse in these programs is prioritized in the One Big Beautiful Bill Act. We are not ignoring the need to make the DOGE cuts permanent and we will be doing so through budgetary recisions, a separate legal process whereby President Trump sends a letter to Congress identifying which programs and funding streams should be cut. We will then pass a resolution doing so.
Just this week the White House sent a letter to Congress requesting recision of $9.4 billion and we are working to swiftly pass these cuts into law, as well as prioritizing further cuts in the fiscal year 2026 appropriations bills that are under development. Our Medicaid program is not just filled with tremendous waste, fraud, and abuse, but like so many of our institutions it has been used to advance the radical woke agenda. The OBBBA includes such reforms as prohibiting taxpayer funds being paid to abortion providers — such as Planned Parenthood — and disallows use of our hard-earned taxpayer dollars from being used to pay for transgender surgeries for both minors and adults. I am also happy to report that this bill takes significant steps towards repealing the harmful so-called “Inflation Reduction Act” by repealing and rescinding climate change and greenhouse gas slush funds and phasing out the subsidies that propped up EVs and wind and solar projects that otherwise couldn't stand on their own. And finally, the OBBBA provides much-needed deregulation by repealing funding associated with Biden era rules while providing additional monetary resources to support the deregulatory efforts undertaken by the Trump administration. There is no denying that much is broken in Washington DC. We must recognize, however, that our reconciliation process is constrained by law and political realities.
I am proud of what the House achieved and look forward to working to deliver the reforms that are desperately needed. I will also continue to work diligently on behalf of the state of Wyoming to pursue other needed reforms through our traditional legislative process. I am still pursuing the delisting of the grizzly bear, taking power away from sanctuary cities, reforming our regulatory regime, protecting our legacy industries, reforming our education system, and protecting our water infrastructure. Among other items, all of these are still on my agenda. Passing the One Big Beautiful Bill act is one win for the Republican-led House of Representatives in 2025. I know that there will be many more after this. Thank you for listening and staying engaged.
If this keeps up we may get tired of winning again. If you think Hageman would be a good choice as our first female president, you will get no argument here. Adult supervision is gradually returning to Washington. Hageman left out the treatment of overtime earnings in the bill. The bill allows employees to deduct 100% of “qualified overtime compensation” (those earning less than $160,000 annually) they receive in their 2025-2028 tax years. Overtime pay and tip income will remain subject to Social Security and Medicare payroll taxes. The bill also adjusts the lowest six tax brackets for inflation, benefiting those taxpayers.
Trump isn’t allowing the perfect to get in the way of the good in this bill. The political reality is that with such a narrow House majority, and wholesale corruption in the Senate, Trump’s hands are tied in how much he can wring out of Congress until the 2026 midterms. Hopefully, that election will provide pleasant surprises.
The Big Beautiful Bill includes funding for 10,000 additional ICE staffers. If each of them accounts for 1,000 additional deportations (beyond what current staffers will accomplish) this is an additional 10 million removals. If, as Hageman stated, those 10,000 workers will deport an additional minimum 1,000,000 illegals, that would amount to only 100 each. Regardless of whether her estimate is far too low, the pace of deportations is about to accelerate and Tom Homan is getting reinforcements. There goes Democrats’ chances of ever regaining control of the House. There may be as many as 50 million illegals here, certainly at least 20 million. Trump obviously won’t try deporting them all. We’ll have to wait to see how this plays out. Every 700,000 illegals deported from blue states equates to an additional congressional seat that will transfer to red states after the 2030 census (if the current nonsensical system of counting illegals for congressional representation continues, which it may not).
Also included in the BBB is funding for 250 additional immigration court judges, a fraction of what’s needed.
The direction we need to head
What follows is speculation on what sort of tax code Trump (and his Treasury and Commerce secretaries, among his other economic advisors) could produce if given the freedom to start from scratch. There’s no question that in future years our tax code will be moving toward such a structure. The reason we are stuck with such a turkey is congressional corruption. The entire thrust of political reform in the years immediately ahead will be congressional neutering, with the balance of power shifting away from the courts and Congress to the executive. This is beginning with reductions in the number of Democrats, the party of big government. The 2030 census is key, unless the Supreme Court rules that illegal immigrants can’t be counted toward congressional computation calculations, which would allow reforms to kick in sooner. This is why California’s elected officials are so strongly resisting deportations. At a minimum, not counting illegal immigrants toward congressional representation would shift 10 House seats to Republican control. Perhaps 20 or more of that number might be more accurate.
Singapore as role model
Contrast our tax regime with Singapore’s, unequivocally the world’s most efficient (i.e., least injurious to economic activity) nation. Over 70 years its rate of GDP per capita growth has continued to literally rise off the chart. Singapore is littered with millionaires and billionaires. According to Wikipedia:
Personal income taxes in Singapore range from 0% to 22% for incomes above S$320,000. There are no capital gains or inheritance taxes in Singapore. Singapore's corporate tax rate is 17% with exemptions and incentives for smaller businesses. Singapore has a single-tier corporate income tax system, which means there is no double-taxation for shareholders.
Singapore grew its economy organically, not through debt. Its government has zero net debt. America chose the opposite course. National deficit spending is a temporary solution which soon turns into an addiction. Similar to any other addiction, the only way to break the cycle is to go cold turkey, something neither our politicians or public has on their radar. Which means financial markets will enforce discipline by shutting off purchases of federal debt.
In a positive step, Trump cut corporate rates from 35% to 21% in 2017, which is still 23.5% higher than Singapore’s. But we also have state and local corporate taxes, except in two states. The federal corporate rate reached 52.8% in 1968. Everyone would agree that was ridiculously counterproductive, but 21% is still excessive. For perspective on how excessive that is, the corporate rate began at 1% in 1909. It’s in the interest of Congress to keep rates at excessive levels because they can extort their corporate patrons for cash (campaign “contributions”) in exchange for providing them special exemptions. Lobbyists (such as Susie Wiles and Pam Bondi) laugh all the way to the bank whenever Congress fiddles with the tax code monster.
The data in the chart below cuts off at 2020. Singapore enjoys the world’s highest per capita GDP. Due to inflation, by 2023 it had risen to $86,616. That year America ranked 9th in the world, at $80,706 per capita.
Singapore GDP growth through 2020.
Where do you suppose the cost of living is higher, Singapore or the U.S.? It’s far lower in Singapore. Per capita, Singapore citizens can purchase about $146,000 annually compared to our $80,000 per capita. Higher taxes increase the cost of living. Consider California vs. Florida. Or Manhattan vs. rural upstate New York. Where does a dollar go further? Higher taxes fund larger bureaucracies, which in turn find ways to make our lives miserable, expensive, and less safe.
The Singapore system is slanted in favor of taxpayers and entrepreneurialism. The American system is a casino in which the house always wins. How so? A house is purchased then steadily depreciates while aging. When eventually sold, its owner gets a fat tax bill thanks to inflation. The house’s actual value (not price) has diminished in value, as has the dollar. Because inflation is a ponzi scheme doomed to eventually collapse, the government must generate revenues to keep the music playing. It borrows in current dollars, then eventually pays off its bonds with depreciated ones. If you have a capital loss of $1,000,000 in year 1, the most you can deduct from your future income is $3,000 annually in subsequent years. 333 years later you would theoretically be made whole, but the million you cumulatively deducted would be essentially worthless in future dollars at that date. Corporate stockholders are taxed twice, first at the corporate level and again on their personal taxes.
If you win $1,000,000 at a casino on New Year’s Eve before the clock strikes midnight, the casino withholds 24% of that amount, as the IRS requires. If you continue testing your luck past midnight, and end up losing $1,000,000 before dawn, tough luck. Within less than 24 hours you will be out $240,000, now deposited in the U.S. Treasury. Even though you gained nothing at the casino. To break even on next year’s income taxes you would need to lose another $1,000,000. Total cost to you: $1,240,000 in the new year.
Democracies self-destruct through inflation
Inflations have proven one of the surest ways to destroy a society. The horrific German inflation of the 1920s paved the way for the Nazis. Historian Paul Johnson:
The banks were charging 35% interest a day on loans while paying depositors only 18% a year. …Small depositors and holders of government bonds lost everything. The big gainers, apart from the government itself, were the landowners, who redeemed all their mortgages, and the industrialists, who repaid their debts in worthless paper and became the owners of all the fixed capital. It was one of the biggest and crudest transfers of wealth in history.
Much of the MAGA base results from the creation of a nation composed of 50% debt slaves and renters, living paycheck to paycheck.
Detroit functions as the poster child for erosion of American wealth by foreign nations and corporate oligarchs. When its population peaked in 1950 at 1.85 million, it had risen to become the fourth-largest American city, a position it had held since 1920 as a result of the booming auto industry. It was considered the world’s most prosperous city. Its population has since fallen by over 65%. Detroit’s leading export today is fraudulent votes. Tens of thousands of blighted homes have been demolished. What happened? WWII. After the war, to enable Europe’s and Japan’s rebuilding, as part of the Marshall Plan for Europe (and similar assistance to Japan) these nations were allowed to export to America without being tariffed, but American goods shipped overseas were slapped with often steep tariffs. The intent was to encourage Germany and Japan to prosper in the hope they would become housebroken of their belligerence. Now Germany and its neighbors are back at it again, supporting the Ukraine conflict. Except this time, under Biden, they got the United States to subsidize their military adventures.
As we learned during COVID, exporting manufacturing means America abandoned the ability to exist independently of foreign goods. We learned the same lesson during the 1970s oil crisis when OPEC had America cornered. This poses a huge national security issue, particularly in relation to China. Hence Trump’s focus on reshoring manufacturing, Greenland and its rare earths, along with domestic energy production and making deals with Persian Gulf exporters.
80 years after WWII, the only surprising thing is that no American leader before Trump unbuckled this tariff straightjacket on our manufacturers. Once the 1960s arrived and foreign manufacturing capacity began coming online, America’s Detroits began their race to the bottom. Our last trade surplus was in 1975, 50 years ago. You know why America’s leadership kept the post-WWII tariff system in place: because the oligarchs who profited from it controlled affairs. (If you are curious lately as a result of Musk’s meltdown: about 22% of Tesla’s revenue comes from China, while 51% of its cars are manufactured in Shanghai. Musk has lost tens of billions in the value of his Tesla shares since volunteering to lead DOGE.)
Higher tax rates yield lower revenue
The notion that the higher income the tax rate, the greater the tax revenues, fails scrutiny. If true, a 99% rate would generate the most revenue. Reagan inherited a top marginal rate of 73% and managed to get it down (in multiple steps) to 28% by 1988 before Congress began inching it higher. He unleashed prosperity sufficient to goose the economy into this century. Trump's top marginal rate of 37% is 32% higher than Reagan’s. It was 39.6% when Trump arrived in Washington in 2017, which was 41% higher than under Reagan. The 2017 cuts were baby steps. This bill extends those cuts, but big deal. 28% was far too high, but still unleashed prosperity continuing into this century.
The history of America’s top rate is depicted below. It peaked at 94% in 1944. Thanks to college president Dr. Woodrow Wilson, in 1913 we were bequeathed both the Federal Reserve System and the income tax in 2013, setting America on the road to national bankruptcy. Which becomes increasingly imminent as trillions in debt accumulate ever faster. It’s not our children and grandchildren who will endure the consequences. It’s us.
The Congressional Budget Office fails to factor in dynamic responses to lower tax rates. Thus they score tax cuts as revenue reductions. Which might have some small truth initially. But very quickly will produce increases in tax revenues. Trump’s budget, with increased income from tariffs, spurring economic growth, and trillions in foreign investments, is in much better shape than the CBO admits. The tens of millions of illegal immigrants cost federal, state, and local taxpayers dearly to educate, feed, house, and provide healthcare. Those expenses depart with them. This is all positive in the immediate future, but the looming debt cliff means we’re in trouble in the end, which approaches rapidly.
The CBO and establishment economists view tax cuts as negatives because the government has less of our money to squander. The public holds the opposition opinion.
Where is the goldilocks level of income taxation?
There’s no definitive answer to when the tax rate increases to the point where it begins inhibiting initiative and decreases revenues. That point would appear to be around 10%. Post-Soviet Russia initially had graduated rates of 12%, 20%, and 30%. Then it switched to a 13% flat rate in 2001. A year later revenue increased by 26%. Strong GDP growth ranged from 6% to 8% annually from 2003-2007. Hong Kong’s extraordinary economic success was in large part due to its 16% flat tax rate until the CCP takeover.
There was a movement, now decades old, for various nations to move to a flat tax. This will revive and spread in coming decades as nations begin to follow the MAGA model which is emerging. When America starts becoming more prosperous as tax rates are reduced, politicians in other nations will be forced by their citizens to replicate that success. This process is already underway.
The higher the income tax rate, the greater incentives to cheat and the greater disincentives to earn more. If Russia dropped its rate further, say to 10%, would revenue increase further? Probably. Tax policy should promote economic growth (or at least not get in its way any more than is necessary). It shouldn't function as a social welfare program or for wealth distribution. There’s one way we can be certain a flat tax system makes too much sense. In the 1990s a wave of nations began going this route, especially former Soviet republics. The usual suspects, including the United Nations and the International Monetary Fund, then began to warn that the sky was about to fall. That’s all we need to know.
Why are Russian tax rates so much lower than ours? Because the Politburo died with the Soviet Union. We are still dragged down by Congress. America is evidence of why democracies are temporary structures in every civilization, enduring for a couple of centuries before being superseded by imperial administrations. Democracies have positives and negatives. Fiscal discipline isn’t among the positives. Nor are legislators on the take. Trump is beginning the process of replacing bipartisan governance with a ruling party serving the people, rather than itself. Consider what this means: we are drifting toward the administration drafting bills, then sending them to Congress to tweak. Instead of authorship by special interest lobbyists. When Nancy Pelosi said legislators would have to pass the bill to learn what was in it, she wasn’t kidding. There’s plenty of reform remaining ahead. Harriet Hageman is an example of our future. Somehow, a handful of Republican representatives and senators have found reasons to “stand on principle” to oppose the BBB. Politics is about compromise and not allowing the perfect to get in the way of the good.
If those Republicans “standing on principle” were sincere they would propose immediately shutting down large portions of the federal government and cutting Social Security and Medicare. But they don’t. They only propose relatively modest cuts to make themselves look good while not solving anything. Republicans would get slaughtered in future elections if the budget was instantly balanced. Trump is in a race against looming federal bankruptcy due to the compounding debt. If Republicans lose control in the midterms, only bad outcomes will result.
The big picture
History occasionally provides examples of what could be if control over our tax regime was removed from the greasy hands of Congress. Russia enjoyed strong GDP growth throughout the 2000s, ranging from 6 to 8 percent from 2003-07. American supporters of a flat tax celebrated its success. A 2005 Wall Street Journal editorial declared that "the world is flat." The Cato Institute libertarian think tank declared a "global flat tax revolution." After learning the consequences of communism, where the government has what amounts to a 100% tax rate, Russians went in the opposite direction.
The USSR collapsed on December 26, 1991. At that date our top marginal rate was 31%. A third of a century later, if the BBB didn’t pass we would be at 39.6% As it is, we are at 37%. Big deal. As the Beatles long ago noted, we’re “back in the USSR.” As Russians gained freedom, our has been reduced by 6% over the intervening years.
Congress celebrated the peace dividend we should have enjoyed after the Soviet collapse by voting to raise taxes the following year. It has required waiting until Trump arrived for that peace dividend to loom over the horizon. We’ve lost count of how many expensive wars have occurred in the intervening third of a century, including the ongoing Ukraine fiasco. Trump proposes that the U.S., Russia, and China agree to slash defense spending in half. All three have little choice and must agree because their budgets are so stressed. In the coming decades our military spending will be drastically lower than today.
BBB’s numbers
Allowing clueless Congressional Budget Office economists to underestimate projected tax revenues because they can’t conceive that behaviors change with altered tax rates means whenever Congress considers tax reductions the bean counters predict lost revenues, never factoring in the increased economic activity that would result. Consider what would have happened had Trump fulfilled his fantasy of eliminating taxes for those earning less than $150,000 (far above the $42,200 2023 median income). Or what will happen by eliminating taxes on tips and overtime. (The provisions in this regard are sufficiently complex to constitute a gift to the accounting industry. Social Security and Medicare taxes will still be due on both, and there are certain limitations, depending on income levels. Up to $25,000 in tip income can be deducted from other income.) Those individuals will have extra money to spend, rather than the government confiscating it. This extra money has a multiplier effect every time it’s spent. An estimated 4 million workers will be impacted by the tips income provision. If each claims the $25,000 deduction, that amounts to $100 billion not subjected to income taxes. If the average tips worker is in the 12% bracket, that amounts to and extra $12 billion annually available to be spent in the economy, which isn’t much. To put this amount into context, it’s about four days of interest on the federal debt.
The CBO approaches analysis from a Marxist perspective, the false belief that wealth is finite. Wealth is infinite, bounded only by ingenuity and industriousness. Elon Musk didn’t become the wealthiest person in the world by taking it from others, he created it. High taxes discourage industriousness.
The reason the tax code is so complex is because it provides Congress opportunities to shake down special interests for carve outs. It’s a protection racket. Lobbyists serve as intermediaries and draft legislation. Why do Trump’s 2021 tax cuts expire this year, rather than having been made permanent? To allow Congress a quadrennial extortion operation. This is why the no-taxes-on-tips provision expires at the end of 2028.
“Every election is a sort of advance auction sale of stolen goods.”
― H.L. Mencken
Trump’s proposed elimination of taxes for those earning under $150,000 was probably never serious. Nor is there any attempt to slash spending to levels sufficient to prevent deficit financing. DOGE targeted savings of $1 trillion annually, half the deficit. Instead, only about $190 billion has been achieved to date, a rounding error in the total rapidly expanding debt. A debt which will never be repaid. It falls to financial markets to instill sanity. It won’t be pretty when this inevitability approaches. The myth is that we are creating a mess for our children and grandchildren to inherit. This is delusional — it is our generation which will face the fallout, much sooner than most anticipate. Much of the DOGE accomplishments consist of one-time savings. Each of our estimated 161 million individual taxpayers remains on the hook for about $225,000, and rising. The average Social Security monthly check is around $2,000. Thus every taxpayer is indebted for a decade’s worth of Social Security payments. This isn’t viable. With 30-year Treasury bonds now yielding close to 5%, the annual interest you are responsible for is about $11,250, almost $1,000/month, and rising.
Congress can’t eliminate the deficit, let alone the debt. Federal pensions, and programs such as Social Security and Medicare, are ponzi schemes. The numbers don’t work. For every Social Security recipient there’s now three workers supporting him. In 25 years it will be down to two workers, but the current form of the system will have collapsed long before them. Benefits will obviously need to be slashed, beginning with those at the top and with additional income. The same for Medicare.
Trump is in a race against the debt bomb explosion. He’s attempting to grow the economy to postpone the inevitable collapse. What he’s doing helps, but it's too late. The enemy of balanced budgets is us. Democracies are notorious for going bankrupt because the public resists slashing welfare promises which eventually prove unsupportable. Trump is scouring the globe for domestic investments, attempting to goose the economy one final time. Tariffs also boost revenues. But wholesale government downsizing is inevitable, far beyond what anyone is now considering.
The infinite nature of wealth
Much taxation chaos stems from the false, marxist notion that wealth is finite, if one gains it’s at another's expense. Wealth is infinite. If the converse were true, the same quantity of global wealth would currently exist as when Columbus hit the beach. Musk accumulated vast wealth by creating, not taking it. Reagan: “We have so many people who can’t see a fat man standing beside a thin one without coming to the conclusion the fat man got that way by taking advantage of the thin one.” Corporate oligarchs are as oblivious to this reality as AOC. Testosterone-laden oligarchs, intent upon amassing great wealth, too often drag down themselves and the rest of us with their anti-competitive efforts. Rather than a small pie, unfettered competition can produce a massive one. Monopolists seek to bend the rules in their favor. This was on full display during COVID lockdowns when the Big Guys were allowed to remain open while countless small businesses were forced to close. Many never reopened. “Thou shalt not covet …” is last among the 10 Commandments, to emphasize the chaos envy perpetrates.
Congress, a necessary democratic evil, created our horrendous taxation. Parliament's 1765 Stamp Act triggered the Revolution. Extraordinarily modest by today’s standards, it extracted only 27 pounds across the colonies before being repealed after four months. By then the damage had been done and it was then inevitable that the colonists would revolt. The crown’s agents, terrified of losing their properties and lives at the hands of mobs of irate Americans, feared enforcing their mandate. Congress makes Parliament look amateurish. We tolerate congressional malfeasance because it was gradually imposed on us frogs in a pot approaching a boil.
Nothing’s hidden about the Deep State the MAGA movement confronts. It manifests as Congress and the judiciary, alongside the bureaucracy. Considerable restructuring of each must (and will) occur before America enjoys renewed prosperity.
Consider Congress as terrorists seeking America’s destruction. (Democrats — the most radical congressional elements — constantly illustrate this. The RINO caucus often isn’t much better.) Slashing congressional budgets and their enabling tax code is analogous to Trump’s ongoing efforts targeting terrorism funding by Qatar, China, Russia, and Iran. The less Congress spends and extracts from our pockets, the more freedom and prosperity increases. The bloated budget funds congressional terrorism against taxpayers. The tax code is a major impediment to prosperity and freedom, “the pursuit of happiness.”
Trump’s hands are tied to the extent that the necessity of prevailing in the 2026 midterms takes precedence over balanced budgets. On the positive side, his efforts to take initial steps toward slashing the massive federal budget, raise revenue from tariffs, and attract trillions in foreign investment are encouraging. But they are too little too late and the trillions in investments will take time to have an impact. Trump is future-oriented. His tariffs and reshoring of manufacturing will place the economy on a firm footing for decades. But until that happy time is reached, national bankruptcy and subsequent restructuring must be endured.
We are in a contest between bond market vigilantes jacking up interest rates as the government’s default approaches, and the need to retain and expand GOP majorities in Congress next year. With the latest Treasury auctions yielding rates approaching 5% on 30-year bonds, the question is not whether we are reprising the experience from 1979 to 1981, but when that occurs. In that instance, rates on 30-year Treasury bonds rose to 15.21% in October 1981. 1-year Treasury bills reached a high of 17.31%. Rates rose to the point where the economy began shutting down. This time, rates are unlikely to rise to such levels because the economy is far weaker and overextended. Its current fragile nature will cause an economic shutdown from much lower interest rate levels. High interest rates are self-correcting. They kill economic activity, leading to a lack of demand for loans, and then deflation.
The dollar is in trouble, having declined over 10% during the first half of this year, meaning our imports will cost more. The lower the value of the dollar, the less willing foreign investors will be to purchase Treasury debt, forcing interest rates higher. This can quickly spin out of control and snowball.
Carter’s single term was his last. Trump shares with him the fate of having inherited a budget mess decades in the making. The wheels began coming off the inflation bus in earnest in 1971 when Nixon — who had no other practical options — declared the dollar would no longer be convertible into gold in foreign exchange. [None of the charts in the link above are apparently more recent than 2021; some are even older. In many cases the subsequent deterioration in these variables has been substantial since these charts were updated.] By 1971 it was already 38 years after FDR canceled domestic convertibility of dollars into gold. Nixon’s action was in response to already accelerating inflation. LBJ’s Great Society programs had significantly contributed to the problem during the previous administration. The problems began in 1913 when a liberal Ivy League academic, Dr. Woodrow Wilson — in cahoots with the bankers, gained power and gave us the IRS and Federal Reserve System. Prior to that, Americans had enjoyed price stability (and even modest deflation) since the founding. JFK held the line against inflation. During the decade after Kennedy’s death was when inflation began to shoot for the moon, in part due to the Vietnam war along with President Johnson’s Great Society spending.
As Treasury Secretary Bessent recently pointed out, there are no benefits to taxpayers if their states have an income tax, a refreshing change in outlook from his predecessors. High income tax states such as New York or California are driving out taxpayers, while no-tax states such as Florida or New Hampshire welcome refugees. State bureaucracies not only consume income revenue, but end up degrading the quality of life for their citizens. This isn’t an esoteric theoretical discussion about negative impacts from excessive income taxation. We can see clear evidence within our states, without having to seek examples such as Singapore. The many billions that New York or California taxpayers have been forced into forking over to their states have done more harm than good. They’ve been wasted on high speed railroads to nowhere, offshore wind, subsidizing homeless druggies, and renting out most of Manhattan’s hotel space to house illegal immigrants and provide them free education, food, cash, and medical care. The point is that high income taxes are fellow travelers with destructive public policies. Kickbacks are rife in such situations. All these phenomena are symptoms of what are nothing more than organized crime organizations funded by captive taxpayers. We are serfs, toiling much of the year to satisfy our government lords.
As economist Art Laffer (the theorist behind Reagan’s tax cuts) points out, in 2016 Tennessee had a $2 billion surplus. But no income tax. In 2021 the state went further and repealed its tax on income from dividends and interest. It has a 6.5% corporate income tax and combined state and local sales taxes average 9.56%, second highest in the nation. In FY 2024 the state had a $1.6 billion surplus. The state is anticipated to have a multi-billion dollar surplus in the coming fiscal year, some of which will go toward reducing taxes. The state’s economy is doing fine, with an influx of refugees from high tax jurisdictions. California has a state 7.25% sales tax, and with local additions this can go as high as 10.75%, on top of its ridiculous income taxes. Laffer’s point is that there’s no such thing as a society that taxed itself into prosperity. There’s plenty that taxed themselves out of business.
DOGE has revealed the tip of the federal iceberg of waste and corruption accompanying excessive income taxation. If the government has sufficient money to bestow billions on the world’s wealthiest universities, forget the nonsense this has funded. The larger issue is that this is indicative of excessive taxation rates. The reason we have insurmountable debt isn’t because our taxes are too low. Taxes and debt are too high for the same reasons.
We’ve become conditioned to accept outrageous levels of taxation. Historically, people have revolted when rates reach levels far lower than what we tolerate. When state and local property, sales, income, gasoline, etc. taxes are included, it’s substantial. Tax Freedom Day is calculated on the percentage of the year we must work to pay our taxes. It peaked in 2000 at 33% of a year and has since declined marginally. Its calculation was apparently abandoned after 2019, when it showed improvement due to Trump’s 2017 tax cuts. What wasn’t incorporated into the calculation was government debt, making it largely meaningless.
While the BBB is relatively a big improvement, it’s far from ideal. The federal debt (exclusive of the ominous levels of state, local, corporate, and private debts) can’t be honored. At best, its rate of increase could be slowed. There’s no way to satisfy it through taxation. Trump is seeking to grow our way out of it. This is why he’s traveling abroad to raise investment funds, first in the Persian Gulf where more accumulated wealth resides than anywhere else. Again, this will prove to be too little, too late.
At the lower end of the economic scale, the more those individuals are taxed, the more their income is confiscated, the less remains in private hands to contribute to economic activity, which will contract. Eliminating taxes on tips and overtime will show a revenue loss on paper. But that extra money in taxpayers’ pockets will have a multiplier effect as it goes back into the economy through increased purchases. Most on the lower end spend 100% (sometimes more) of what they earn. If lower taxes increase their potential spending, it has a multiplier effect on the overall economy. These tax cuts should pay for themselves, and will likely produce more tax revenue.
At the upper end of the income scale, if those individuals’ taxes are increased at a proportionately higher rate, the more ways will be found to avoid it. More importantly, those with excess capital to invest in future growth are discouraged from doing so. Thus any revenue increases coming from them are temporary, and the economy soon contracts without steady (or increasing) investments to fund new growth. Which explains in large part what has been going on for decades. If Trump had to travel to the Middle East to obtain investment financing, that tells us there’s a deficit of domestic funds available for such purposes.
Also not factored into federal, state, and local government budgets are ongoing reforms, yielding positives. Deportation of millions of illegal immigrants means billions spent on giving them a free ride, or covering law enforcement costs associated with their criminal activities, depart with them. DOGE reforms, including software upgrades, are real and lasting. If sufficient numbers of MAGA-aligned members are elected to Congress in 2026, Trump will be enabled to enact far more substantial budget and tax cuts. Tariff income is substantial. As recently announced investments begin occurring, employment will increase, followed by production output from these facilities.
Yet the trillions of debt remain. A century’s compounded debt (including unfunded liabilities such as federal pensions, Medicare, and Social Security) can’t be erased overnight. Except by default. Financial markets are beginning to wrest control from politicians. This will soon become far more apparent.
Do we even need an income tax?
As the preeminent global importer, one question is whether we can survive just on tariffs as we did quite well prior to 1913. The answer appears to be no. Only an income or national sales tax could produce sufficient revenue. There's also a question of whether we would be better off with a national sales tax, or a value-added tax, which 170 countries use. A VAT tax, assesses levies all along the manufacturing and production pipeline. Including at the final sale to consumers. It’s essentially a combined income and sales tax. It would seem to possess no benefits, and additional burdens, over our current system.
Would a regressive income tax be better?
Progressive income tax rates are one of the Communist Manifesto’s 10 planks, intended to penalize wealth creation. This is based on the notion that one individual only needs so much money and the “excess” should disproportionately go to the public treasury. Jealousy looms large in this formulation. None of these concerns answers the question as to what system yields the highest tax revenues while doing the least to inhibit economic activity..
Let's consider a two-tax-bracket system. If the lowest tax bracket pays 10% on income under $1 million, and the upper bracket is at 90%, how would that work? Upper bracket individuals would have incentives to cheat and disincentives to earn more. This experiment was already tried, from the 1940s to the 1960s. It didn't work. As the upper rate declined, revenues and national prosperity increased, especially with Reagan's massive reductions to the top rate.
There's every reason to believe a regressive scheme would be better. If there were three brackets, 10% below $1 million, 5% below $10 million, and 2.5% thereafter, how would that work out? And what about if the top two rates would apply to ALL your income. Once you reached $1 million your tax bill on everything below that would drop to the 5% rate. Instead of owing $100,000, you would owe $50,000 on the first million. Rather than hesitancy to move up in brackets, people would work harder and smarter to ensure they did. Instead of penalizing wealth creation, we would reward it. People would cheat on their tax returns to report higher than actual incomes. The IRS would require taxpayers to prove incomes were as high as reported, not as low. Individuals could pass payments back and forth between each other, making it appear on paper that each had more income than in actuality. Think of the fun. This obviously has problems, but is a worthwhile thought experiment.
A regressive tax structure would work if it didn’t reduce your tax rate on the first $1 million or $5 million of income in the example above. If the wealthiest Americans were incentivized to produce additional wealth, that money then becomes available to fuel overall national economic growth. The notion that the wealthy have somehow taken it from others is false because wealth isn’t finite. We can either all grow wealthier or poorer together. For too many decades the latter has been the case.
What about if alleged capital gains due to inflation were eliminated? If you buy a house for $200,000, and 10 years later sell it for $300,000 thanks to inflation, there shouldn’t be any tax due because you didn’t profit. The only party to profit was the government which created inflation, causing $300,000 of their dollars to be required to purchase what used to cost $200,000. Instead, you should keep the entire $100k “gain.” This is among the tax code's greatest inequities.
These are thought experiments to illustrate a point, and more than three brackets would probably be used in actuality. The point is to incentivize wealth creation, not discourage it. The more you make, the more you should be allowed to retain. Which is what a regressive tax schedule would foster. It would also produce additional tax revenues. Trump's 2017 tax bill provided for 100% depreciation for certain capital expenditures in the first year. No more depreciation schedules and record keeping for investments such as vehicles and machinery. That made too much sense and could only have come from a businessman, not a politician.
Trump’s four Treasury and Commerce secretaries in his two administrations all share something in common with him: they are centi-millionaires and billionaires. Unlike the government-grifting bozos under Biden. Does first-year 100% capital investment depreciation promote capital investments? Do capital investments in turn accelerate economic growth and future personal income and tax revenues? Did having the wealthiest man in history coordinate government efficiency place us in a far better position for the coming decades? Trump's administrations are unfolding like a movie script based on an Ayn Rand novel. We finally have adults with business acumen in charge.
Tariffs
Tariffs represent probably the best means of taxation and were the principal source of federal revenue before the income tax. Taxing income inhibits income-producing activity. It’s a lose/lose situation. The government and the individual are both diminished when income tax rates are raised. Taxing sales inhibits purchases, suppressing overall economic activity. Both these taxes place the government sovereign to the individual. Tariffs basically invert that dynamic. If the overall economy prospers to the extent that imports increase, only then does the government receive revenues. The government is incentivized to encourage economic growth, the opposite of what occurs now. Individual taxpayers, as a group, are not penalized by tariffs, only those purchasing foreign goods will pay more. This encourages domestic manufacturing and overall national prosperity. A principal driver of the MAGA movement was globalists offshoring America’s manufacturing base, gutting the communities where domestic manufacturing was formerly located, with Detroit the poster child for this process.
Tariffs also work to keep the government honest in terms of inflation. The current situation, with the value of the dollar dropping relative to other currencies, means America can afford less imports, lowering tariff revenues. If the value of the dollar increases, we can import more and the government will prosper.
The definition of populism/patriotism is what benefits the nation as a whole, rather than certain individuals. Tariffs are a populist tax. Taxing income or sales is anti-populist and pro-government, at the expense of the individual citizens. The greater the percentage of tax revenue coming from tariffs, the better we will be.
For what it’s worth (which isn’t much) the CBO estimates Trump’s tariffs will save a net $2.8 trillion in the next decade, offsetting their $2.4 trillion estimate of how much tax cuts will allegedly “cost” the government (but remain in taxpayers’ pockets). The laughable part of the CBO analysis is that no consideration is given to the impact of onshoring manufacturing, one of the principal motivations for imposing tariffs. They actually have it backwards: “Reductions in investment and productivity stemming from higher tariffs…” Investments in America will dramatically increase as a result of tariffs, a process already underway as a result of trillions in Asian and Middle Eastern investments Trump has already secured.
Trump’s individual national tariffs are calibrated by the magnitude of our trade deficits with individual countries, a very good thing. Those with the largest trade deficits will pay more, encouraging onshoring of manufacturing facilities without our borders.
Back in the present, GOP senators essentially blackmailed Trump to obtain concessions allowing them to continue their grafts, in exchange for passage of the BBB. If establishment Republicans don’t appear enthusiastic about accomplishing a massive victory in the 2026 midterms, it’s because it would remove their leverage over Trump. They prefer a Liz Chaney to a Harriet Hageman. If sufficient newly-elected (i.e., MAGA-aligned) Republicans populate the next Congress, Trump will have enough of a vote cushion to exercise total legislative control. Once Trump (or his successors) enjoy a sufficiently large cushion of MAGA congressional seats, we can dispense with congressional corruption and draft a functional tax code.