Tax Reform: The Good, the Bad, and the Ugly – Part One

Vizzini: He didn’t fall?! Inconceivable!
Inigo Montoya: You keep using that word. I do not think it means what you think it means.
– From The Princess Bride
‘A tariff is a scale of taxes on imports, designed to protect the domestic producer against the greed of his consumer.’
– Ambrose Bierce
‘Vast possibilities matured into realities before their very eyes. Nevertheless, they saw nothing but cramped economies struggling with ever-decreasing success for their daily bread.’
– Joseph Schumpeter on the Industrial Revolution
The usual thrust of this letter is economics, finance, and investing. Lately, however, the political process has been invading my normal domain – sometimes to the dismay of some of my readers. I get that politics comes with the territory; and I think everyone, no matter their political persuasion, will agree that taxes, which are political in nature, have a major impact on economics, finance, and investment. And thus commenting on taxes is fair game.
My original intention for this letter was to do an analysis of the Republican tax reform proposals. My associate Patrick Watson and I spent two weeks doing a really deep dive into the proposed reforms. I had the privilege of talking taxes with the chairman of the House Ways and Means Committee, fellow Texan Kevin Brady, as well as his staff. The chairman was kind enough to allow his remarks to be on the record – but his staff made it clear that they were to be on background. We have also talked with numerous think tanks and other experts across the political spectrum. We’ve actually been able to get information on some of the proposed reforms that, as far as we can tell, isn’t available in anything that’s already out there on the Internet.
A few observations from 30,000 feet –
1. This is a far more sweeping proposed tax reform than Reagan’s. Not even in the same league. When I tell you that it touches everything, I mean that it touches EVERYTHING. And not just in the US. When you begin to think it through, the global implications are truly staggering. If you think you can be in Europe, Asia, or Africa and just be an unaffected observer of these changes, you are not paying attention. They will have profound implications for currency valuations and global trade.
Thus what I have for you today is not a one-and-done letter on the proposed tax reform. This is the first part of a series (my guess is that it will run to at least three parts) on the implications of the proposed reform. I keep using the word proposed, as there is a great deal of contention around this legislation. What actually comes out of the sausage-making machine otherwise known as Congress is still hard to predict. But we’re going to explore the key proposals coming out of the Ways and Means Committee, which are what will be debated on the floor.

This post was published at Mauldin Economics on FEBRUARY 7, 2017.