The Republican tax bill (which passed 227-203 in the House and 51-48 in the Senate) marks the first reform of the tax code since the 1980s. President Donald Trump and congressional Republicans have some justification for celebration, but even during the holiday season the people should not imagine that the bill actually gives them anything.
The bill lowers the corporate rate from 35 to 21 percent and reduces rates in five of the seven tax brackets. Its nothing approaching a flat tax, but according to the New York Times it will cut taxes for about 75 percent of filers in 2018.
This means that government will withhold from workers paychecks less of the money they have already earned through labor. That money is proper to them but in the current system the government gets it before the worker does. The new tax bill does nothing to change that practice, a relic of World War II.
As Robert Higgs (Crisis and Leviathan) notes, before World War II individuals who owed federal tax on their income paid the tax during the following year in quarterly installments. In 1943, economist Milton Friedman helped launch the practice of grabbing the workers money right off the top.
All the money in workers paycheck is theirs, but now they got only their take-home pay. This was supposed to be a temporary measure, but government likes getting workers money before they do and kept withholding in place.
As Charlotte Twight observed in Dependent on D.C.: The Rise of Federal Control Over the Lives of Ordinary Americans, Withholding is the paramount administrative mechanism that since 1943 has enabled the federal government to collect, without significant protest, sufficient private resources to fund a vastly expanded welfare state.
The new tax bill does not change that reality, and the Trump administration has yet to trim the welfare state in any significant way. Neither has the administration eliminated redundant federal agencies such as the Consumer Finance Protection Bureau, which is funded by the Federal Reserve and not accountable to Congress.
The new tax bill will enable most Americans to keep more of their own money, but when the government takes less of workers money that does not constitute a gift. The government does, however, take their money and give it to others, all part of the federal trickle-down process.
Even with the new bill, American workers still face property taxes, sales taxes, gasoline taxes, and a multitude of taxes disguised as fees and such. And some states also impose income tax.
Californias top marginal income tax rate is 13.3 percent, highest of the 50 states. Likewise, the base sales tax rate of 7.5 percent is the highest in the nation. California has recently imposed a $5.2 billion gasoline tax supposedly to fix the states disastrous roads. This happened on the watch of recurring governor Jerry Brown, who once proclaimed himself a born-again tax cutter. Like many politicians, hes anything but.
In California and across the country, taxes remain a huge expense for the workers and their families. Government remains wasteful, unaccountable and expansionist. Workers now have some reason to celebrate, but the government still gets their money before they do. And if they get some back in April, that is not a gift from the government.
Happy holidays, everybody!