The Problem with Trump’s New Tax Plan

Tax haven, financial or wealth evasion on a dollar shaped island. A luxury boat is sailing to the island.

Little change in the markets yesterday.

We are in the middle of vacation season. Who wants to think too much about the stock market?

Not us!

Fake money, fake capital

Yesterday, Republican presidential candidate Donald Trump promised to reform the US tax system.

His proposals are nothing new — simplification…fewer brackets…eliminate loopholes for rich people.

But he also targeted the ‘carried interest’ exemption.

‘Carried interest’ — or ‘carry’ — is a term used in the financial industry to refer to what is essentially a performance bonus.

The exemption allows Wall Street money managers to count earnings as capital gains. This helps them keep more money in their pockets. (Capital gains are taxed at a rate of 23.8%. Labour income is taxed at a rate of 39.6%.)

‘Carry’ is a compliment to the whole figmented system.

The capitalist financial world functions largely on credit, not capital. The earnings represented by ‘carry’ take it one step further.

They are usually earnings on fake money, borrowed by speculators who think they are investors, and invested in gambles only made possible by the fake money system. Then the managers earn a bonus and treat it as though it were a capital gain.

Fake money. Fake savings. Fake interest rates. Fake capital. Fake capital gains.

Special treatment

Mr Trump’s proposal rests on the idea of fairness.

If a plumber or an accountant has to pay income tax on a bonus, shouldn’t a private equity fund manager, too?

On the other hand, the system is riddled with special treatment.

One man gets a break because he invests in solar power. Another gets a break because he decides to retire. Still another uses a loophole to avoid paying taxes on his grandchildren’s college expenses.

But even with their loopholes, generally speaking, rich people pay more taxes than poor people. One person pays millions of dollars in taxes; another pays nothing at all.

Mr Trump says many Americans will pay ‘zero’ under his plan.


Depends on what you mean by ‘fair’.

If ‘fair’ means treating all people the same, the tax system is unfair. But if ‘fair’ means treating people differently according to whatever cockamamie scheme presidential hopefuls and the Parasitocracy come up with, ‘carry’ is no more unfair than anything else.

But the tax system is duct tape for the Parasitocrats: With it they can fix almost anything.

Clinton Cash

Two things have appeared recently that help us understand how it works.

One is a documentary called Clinton Cash. It describes how the Clinton Foundation is used to funnel cash to the Clintons and their cronies.

The insiders make tax-free contributions to the Clinton Foundation. The foundation returns the favour. It sponsors a feel-good media campaign and, say, a visit to the Congo — both ostensibly to help rid Africa of poverty.

Former Secretary of State Hillary Clinton arranges talks with the local potentates. Then former president Bill Clinton is paid as much as $750,000 — the highest speaking fee we’ve ever heard of — to give a platitude-packed talk.

Backs are mutually scratched. And the insiders — often in the mining or construction business — end up with a very rich deal in a very poor country.

We know one of these insiders personally. Nice guy. Smart guy. He knows how the game is played and plays it well.

News = propaganda

Meanwhile, the New York Times reports that private, tax-exempt ‘think tanks’ are also part of the Parasitocracy.

They are supposed to be independent; that’s why contributions are usually tax-free. But there is nothing shocking about the examples the Times presents. In fact, they are just what you’d expect.

A corporation makes a contribution to a think tank. The thinkers then prepare research…organise an event…provide ‘expert’ testimony — all designed to help the insiders get what they want.

Want to do a development project on government property…?

Want to sell drones to the feds…or to foreign governments…?

Want to build more aircraft carriers even though Navy strategists and private analysts regard them as unnecessary or obsolete…?

Hey, you need a think tank on your side. And if you can’t buy one…start one yourself.

Journalists are too lazy and too dull to bend over and look under the propaganda. In any case, it is the last thing readers want.

So, the next thing you know, you’ll see headlines in the newspapers: ‘Brookings Experts Say Development Plan Would Aid City’… ‘US Needs More Aircraft Carriers, Say Experts’… ‘Israel, Saudi Arabia to Get More US Drones’…

The public has no other point of reference. Propaganda is the same as ‘news’. Self-interested opinion cannot be distinguished from fact.

And the Parasitocracy — as far as the casual observer can tell — may as well be Hillary Clinton’s description of the government.

It is ‘all of us’.


Bill Bonner,
For The Daily Reckoning, Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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