George Gilder on Tax Reform

Bill WaltonCulture, Economics, Investing

If it were up to George Gilder, the tax reform debate would take on an entirely different tone.  

It would be about pouring less money into government and leaving far more in the productive private sector. The phrase ‘revenue neutral’ would not be uttered in polite company. The goal of tax policy would not be a giant settling of scores and more redistribution but one that least distorts private investment decisions. 

“I think it’s just maddening that both parties” share “this obsession with paying for tax cuts,” Gilder said on a visit to “The Bill Walton Show.” “As soon as you agree you have to pay for tax cuts, you deny that you need them.  

“And you confess that tax cutting is a matter of taking something from one tax group and giving it to another group of taxpayers … that it’s a zero-sum game. The fact is that all tax rate reductions yield more revenue. That’s why you do them. They spur economic growth and opportunity for everybody, and thus they yield vastly more revenues in the long run than high tax rates do.” 

And while we’re at it, Gilder says we should quit talking about creating incentives with tax policy. Our economy is not an incentives system, he says, but a knowledge and information system.  

“You don’t want the price signals issued by the tax system distorting entrepreneurial investment decisions. Private capital allocation is the way to increase wealth, jobs and opportunities for everyone,” he says. “But if you say you have to pay for cutting tax rates, you’re implying that cutting tax rates costs the economy something. And it doesn’t. Cutting tax rates expands knowledge, spurs growth and opens up opportunity.” 

Gilder also says we should quit worrying about whether tax cuts disproportionately benefit the rich. Of course they will, because the top 1 percent pay nearly half of all federal taxes and the top fifth pay 84 percent.  

Besides, Gilder says, it makes more sense to have capital in the hands of those who best understand what to do with it, “who’ve proven by previous experience of successful investment and management of capital that they can expand wealth.” 

The only bright spot Gilder sees in the current debate over tax reform is that corporate taxes might be lowered from 35 percent to 20.  

“The corporate rate currently keeps several trillion dollars overseas,” Gilder says. “I mean, we have one of the highest corporate rates in the world, the highest corporate rate of major economies.” The money “is held by companies such as Google and Apple and it will be reinvested in various ways in the U.S. economy. It will become part of the capital structure of the U.S. economy.”  

And if it is accompanied by the Administration’s deregulation initiatives, there truly is no end to the economic growth it might stimulate.