With Trump and the Republican’s failure to repeal Obamacare, they have moved on to tax reform.  I could say tax cuts, but that might be misleading, as there are also tax hikes in the plan too.

For a libertarian, there are things to cheer, and there are things to denounce.  We should cheer virtually any reduction in taxes, especially when it comes to tax rates.  I do not count tax credits in which some people actually receive money for the year, as this is another form of welfare.

We should denounce tax hikes, but this should also generally apply to the removal of tax deductions and most tax credits.  While the complicated tax code is far from ideal, it is better to have most deductions than to not have them, as it ultimately results in some people paying less in taxes by having these deductions available.

If we could have a law that would just raise taxes on bureaucrats and politicians, then maybe I could make an exception, but even here I would just assume that the law would be written so as to result in the exact opposite of its stated intention.

Here are a few things to cheer about the Trump/ Republican tax proposal:

• Reduces corporate tax rates
• Reduces corporate taxes through a change in how companies can claim depreciation
• Reduces the tax on S corporations, partnerships, and sole proprietorships
• Eliminates the federal estate tax
• Eliminates the alternative minimum tax
• Possible repeal of the 3.8% investment tax through Obamacare
• Possible opportunity for companies to repatriate money from overseas and pay a one-time tax

Unfortunately, we don’t know all of the details yet.  It is possible a few of these things could end up being negative too.  We all know that once the legislators, lobbyists, and administrators get going, there is some crazy language in these bills.

For example, while S corporations, partnerships, and sole proprietors may end paying a lower tax instead of the top marginal tax rate of 39.6%, the proposal also says that measures will be taken to prevent the reclassifying of personal income to business income so that wealthy individuals do not avoid paying the high marginal tax rate.  You can see where this thing could get messy quickly.

For the overall tax rates, we also can’t really say whether this will be positive or negative.  Unfortunately, while we have been told that the reform will contain three rates of 12%, 25%, and 35%, we have no idea what the income thresholds are.

It is rather foolish, if not devious, of Trump to lay out this proposal without identifying the income thresholds for the different tax brackets.  There isn’t much point on telling us the different rates if we don’t know how they apply.  If the top rate of 35% kicks in after you make just $50,000, then this would be a horrible plan.  It would be a massive tax hike.  On the other hand, if the 25% rate didn’t kick in until an individual makes over $100,000, then this would be great, as most middle income people would be looking at a big reduction in overall taxes.

One of the big negatives about this plan that we do know about is the reduction in deductions.  While the mortgage interest deduction would still be there, more people would not be claiming it because the standard deduction would go up significantly.  And while we should seemingly cheer for the increase in the standard deduction, we don’t know if this will be much of a benefit because we have no idea about the income thresholds for the various rates (see paragraph above).

We do know that deductions for state taxes are likely to go away if this plan becomes reality.  This has a lot of people upset, especially those in “blue” states.  It seems that Trump is trying to get his revenge on those who live in states that did not hand him electoral votes in November.  While it is not a perfect correlation, the blue states tend to be states that have higher living costs, higher incomes, and also higher taxes.  By eliminating deductions for state taxes on the federal income tax return, it will disproportionately hurt those in the blue states.

Of course, for conservatives, and even libertarians, it is tempting to cheer this on, especially for those living in red states.  After all, if the blue state people don’t like it, then they should lower their taxes.  They are the ones who cheer for higher taxes, especially on the wealthy, so that is what they are getting.

Both sides can make the argument that the other side is being subsidized. On the one hand, the high tax states are being subsidized because they get to claim more deductions on their federal tax returns, which could come at the expense of lower tax states.

On the other hand, low tax states are being subsidized because they tend to also be states with overall lower incomes.  Therefore, the people in these states are paying lower taxes than those with higher incomes.

With all of that said, there are still many people living in New York, California, and other high tax states who did not vote for Hillary Clinton.  They already have my sympathy because they live in these high tax states, and now they may be paying even more if this tax proposal passes as it is.  Of course, if it really bothers them, they could always move to a different state.

Overall, there is no question that this tax plan would tend to help those in lower income and lower tax states, while doing the opposite for higher income and higher tax states.

The cut in corporate taxes would be very positive for almost everyone.  It has been needed for a long time.  While people don’t see it directly benefitting them, it will help them in the long run.  It will mean more competition, more products coming to market, and ultimately higher wages and cheaper prices, all else being equal.

If I could pick one tax to cut or eliminate, I think it would be the employer portion of the payroll tax.  This is rarely discussed because people want to live under the illusion that Medicare and Social Security are like insurance programs in which you pay premiums.

The employer portion of the payroll tax is highly burdensome on independent contractors and small business owners.  In addition, by eliminating this tax, it would help increase wages, as the cost of hiring for employers would drop.  Unfortunately, I think we are a long way off from this tax even being reduced.

There is one more key thing to discuss in all of this.  It is something that even most conservatives ignore.  This tax plan, whether or not it is supposedly “revenue neutral” (I really don’t like that term), is not addressing the fundamental financial problem that we have.

Our problem is that we are highly regulated and highly taxed.  We also deal with a central bank that distorts the price of money.

But this tax proposal does not really deal with our high tax burden.  The reason is because it doesn’t address spending.  Regardless of whether this thing passes, the federal government will still be spending about $4 trillion this year.  This is money coming out of our pockets one way or another.

I know the whole theory about the Laffer Curve and how tax reductions can lead to higher tax collections.  If taxes are burdensome enough, this can certainly be true.

But again, the government is still spending $4 trillion per year.  These are resources being consumed and allocated that are not in accordance with consumer demand.  Government spending is typically a misallocation of resources.  Almost all spending that is not being used strictly to enforce contracts or protect property rights is spending that is misallocating resources.  Therefore, most government spending makes us poorer.

If we really want to increase our living standards, we should be calling for massive cuts in spending by Congress.  Unfortunately, there aren’t many calls for this.  Instead, we get more tinkering with the tax code.

Even though some people lose more than others with this tax plan, most Americans lose because the federal government keeps spending $4 trillion per year.