Senate Rearranges the Deck Chairs – Ep. 300

No Real Tax Relief

Yesterday the Senate released their version of the Tax Cut and Jobs Act, and it is not that different from the House version.  There are some differences, some of which I will get into, but the main problem is not the difference, but the similarity.  The plans don’t deliver any kind of substantial tax relief, in the manner that President Trump refers to as, “the biggest tax cuts ever”. It’s not even close. For most people, there will be minor tax cuts and for other people there are actually minor tax increases.

Democrats: “I’ll Give You Something You Did Not Earn!”

The real problem, again, is that Republicans can’t really be Republicans, given how much debt we have.  They like to talk about lower taxes – that’s how they get elected: “We’re going to lower your taxes!”. The Democrats are generally the party of, “I’m going to increase your benefits! Vote for me and I will give you something you did not earn.”  What the Republicans used to say is, “Vote for me and I’ll let you keep more of what you did earn.” That was really the difference between the Democrats and the Republicans. The Democrats were about taking things from other people and the Republicans were about keeping your stuff.

You Can’t Take Away an Entitlement

The problem is, too many Republicans are really Democrats or they’re afraid to cut any government spending. At this point, the deficits are so big that you can’t really have big tax cuts unless you’re willing to cut government spending. Most Republicans are not willing to do that. Sometimes they will vote not to create a new government entitlement, but they will never vote to take something away, which is why they didn’t really want to take away Obamacare. A lot of Republicans didn’t vote for it, but they are not going to vote to kill it.

Small Government Everywhere but in the Military

The problem is, if you really want to cut spending so you can have tax cuts, where’s the money? The defense budget is big, and most Republicans don’t want to cut defense – that’ s the only place they like big government (in theory) is defense. They want small government everywhere except in the military. So there are not very many Republicans who are willing to cut defense to enable the tax cuts.

So What’s Left for Republicans to Cut?

Now you got Social Security and Medicare, but a lot of Social Security recipients vote Republican. So the Republicans don’t want to cut Social Security and don’t want to cut Medicare because they are afraid of how the voters will react. So that’s off the table. You can’t cut interest on the debt, unless you’re going to default on the debt; nobody wants to do that. In fact, interest on the debt is going to go up as interest rates go up.  So what’s left that Republicans (in theory) can cut?  They are afraid of being labeled mean, heartless, taking away programs for the poor, the needy – so there’s really nothing that the Republicans are willing to cut, so they can’t give any tax cuts. They don’t want to level with their constituents and say that they can’t cut your taxes because then, what’s the point of voting Republican?


Peter Schiff is an economist, financial broker/dealer, author, frequent guest on national news, and host of the Peter Schiff Show Podcast.



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