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General John Kelly was Right Failure to Negotiate Taxes Led to the Civil War

Vera Gilford, J.D. Speaker and Author

JOHN KELLY WAS RIGHT FAILURE TO NEGOTIATE LED TO THE CIVIL WAR

My account of history reflects that White House chief of staff, General John Kelly was right. The Civil War resulted from a failure to negotiate. TO TAX OR NOT TO TAX  SLAVES as property, how to calculate value on slaves, how to APPORTION FAIR TAXES and REPRESENTATION became hotly contested issues. Fierce debates involving these issues pitted southern states against northern and western states.

Since slaves could be used as collateral on loans, they were considered as property and therefore taxed. This was a disadvantage to southern states who had to pay taxes. It benefited northern industrial states that no longer needed slaves. They did not pay taxes until after their industrial goods had been manufactured and sold. Unlike southern  states, they collected income before taxes were due.

A second issue that could not be negotiated involved REPRESENTATION. When it came down to the question of representation in the Capitol, it was based on the population within the various states. Under the U.S. Constitution for purpose of calculating representation, slaves were counted as 3/5 of a person. This calculation gave slave owning states greater representation. The northern industrial states and western agricultural states contested that they were unfairly  treated.

White House chief of staff, General John Kelly was right. Because of a failure to negotiate, bullets of the civil war shot down the American economy and left a huge financial strain on all the states. Taxes on everyone were increased to cover the cost of war and the debt that arose. It took years to repay that debt.

While some things have changed since that time, many things have remained the same. Slaves gained some freedom, but along with it came an obligation to pay various taxes. There was a cost to freedom back then, just like the cost  today. Unfortunately, on issues of revenues generated through taxes and spending that generates massive deficits, lawmakers who do not understand numbers fail to keep accurate score. With regard to the finances, they seem to operate in an unconscious state.

A deficit occurs when you have spent more money than you have. You borrow to make up  the difference. Low interest rates over the last decade have fueled credit card spending. Borrowing nearly “free money” seems like a good deal, but, at some point the bill will come due.

Throughout history,  the cost of wars have always resulted in a need for additional revenue. That revenue comes from the American taxpayer in the form of taxes and more taxes. As a result of World War I,  additional revenue was needed to pay for its cost. The Internal Revenue Code was established in 1916. It added taxes on individuals to cover that cost.

The difference in wars of the past and wars of today is that historically Americans were always given an accounting reflecting the costs of each war.  An accurate accounting lets all Americans know how their money was spent. In some years, refunds were issued back to taxpayers, when the cost was less than anticipated. In addition, their representatives in Washington were caretakers for how that money was spent.

Americans today do not receive refunds for the costs of war, in fact, they do not received any itemized accounting for the costs of individual wars since 911.

ARGUMENTS OVER TAXES CONTINUE TODAY

Today’s tax debates concerning the Trump-GOP 2017 tax plan, fuel similar but less flammable debates. Arguments that the tax plan adds 1.5 trillion dollars to the deficit over ten years is fake news. This argument is ludicrous and
camouflages the real issue of how and why the U.S. spending has caused the U.S. deficit to increase to nearly 20 trillion dollars today. During this time American taxpayers have received no detailed accounting from their representatives
to show the costs of wars and how their tax dollars have been spent.

History reflects how tax increases were directly related to the costs of war. Since 911 American taxpayers have received no accounting, yet, they remain responsible for the mushrooming costs of these wars. A sixteen year period with no accounting would make most businesses become insolvent. Bernie Madoff went to jail for engaging in similar vague accounting.

While the appropriations office has never stopped appropriating funds and the budget office can calculate numbers for the costs of a tax plan or a healthcare bill, neither has provided the American taxpayer with detailed accounting for each war for which the American taxpayer has paid taxes to fund. Americans should know where and why additional revenue was spent to increase the deficit to 20 trillion dollars.

Do the Appropriations Office, the Budget Office or The Library of Congress have these figures? In all fairness and moral decency American Taxpayers have a right to see the costs that have strained their bank accounts.

GOP SENATE AND HOUSE TAX PLANS REDUCE CORPORATE TAXES

The GOP Senate and House plans, seek to reduce the corporate tax rate from 35 to 20 percent. One plan makes it effective immediately, the other delays the effective date until 2018. History has shown how reducing the corporate tax rate benefits the economy.  Why delay this benefit? When the economy is stimulated it benefits all Americans.

ELIMINATING ALTERNATIVE MINIMUM TAX

Under the Trump/GOP Tax Plan, the alternative minimum tax is eliminated. The alternative minimum tax was initially introduced as a tax intended only for wealthy taxpayers. Because that figure was never indexed for inflation, it remained fixed, however,  incomes continued to rise. As a result, the alternative minimum tax now applies to millions of taxpayers that were never intended to pay it. The Trump/GOP Tax Plan finally rights this wrong by relieving the
middle class taxpayer from this tax. High income taxpayers also benefit in this area, however, they also pay the highest tax rate (39.6%) for other income.

An interesting question is who is contesting this provision? The high income and middle income taxpayers benefit so why would they contest it? It does not apply to the lower income taxpayer so why would they contest it? Could it be that whoever is contesting this provision is not a taxpaying American? Or, is it politically motivated such that failure of any tax plan is the real motivation?

REDUCING TAX RATES FROM SEVEN TO FOUR

The Trump/GOP tax plan simplifies the code from 7 tax rates (10, 15, 25, 28, 35, 39.6) to 4 rates (12%, 25%, 35%, 39.6%).  Over the years, many Americans have urged the Joint Committee on Taxation and Congress to simplify the tax code.  Along that same path, others including Libertarians, have argued for a flat tax which is the simplest of all.  This provision of the Trump/GOP Tax Plan negotiates a method of simplification without a flat tax.

INCREASING CHILD TAX CARE CREDIT

Some argue that the increase in the child tax credit is not enough. A credit is more valuable than a tax deduction because it directly reduces taxes dollar for dollar. This means that each dollar of tax credit reduces taxes by one dollar as opposed to a deduction that only reduces taxes by a percentage depending on your tax bracket. In addition, a portion of the credit allows a refund even if you do not owe taxes. Factoring in the child tax credit along with the increase in the standard deduction will make more entitled to this refund.

INCREASING THE STANDARD DEDUCTION FROM $6,300 TO $12,000

The standard deduction starts the bar for who has to file a return or pay any taxes at all. This benefits those with lower incomes and middle incomes taxpayers who do not itemize. They now gain an additional $6,000 for which they owe no taxes. This benefits all taxpayers who do not itemize.

REDUCED OR ELIMINATION OF MORTGAGE INTEREST DEDUCTION

Under the Trump/GOP tax plan, the deduction for interest on real estate is cut for properties valued over $500,000. Only about 5% of mortgages obtained between 2013 and 2015 were greater than $500,000.  A good majority (about 81%) of properties over $500,000 are located in ten states. 43.8% of these properties are located in 48 counties within those ten states.

Generally, mortgage interest and property taxes make up a good portion of itemized deductions for the average taxpayer. Thanks to the mortgage foreclosure crisis that started in 2004 and continues today,  at least 7 million homes have been foreclosed and over 5.5 million people have lost their homes. Many of these were middle income homeowners. A vast majority of middle class taxpayers who once itemized their deductions, now take the standard deduction after being forced out of their homes. For sure, the 5.5 million Americans who lost their homes no  longer have these itemized deductions.

Increasing the standard deduction to $12,000 gives them back, some of what they lost. And some dignity especially in cases where lost homes were not due to failure to pay the mortgage, but were lost due to mortgage scames like Ditech that continues today.

These scams refuse to give homeowners accurate accounting of their escrow balances, commingles figures for taxes, interest, and principle, adds vague fees that keep homeowners scrambling to pay more,  sells the mortgage every 90 days to a different mortgage company with the homeowner receiving notice 45 to 60 days later, fails to transfer proper balances to the new mortgage company, leaving homeowners behind on their payments to the new mortgage company, refuses to accept mortgage payments that are mailed, leaving homeowners behind on their payments, mails statements to the wrong address, claims they never received the mortgage checks that were mailed, requires mortgage payments to be paid online, then locks out access to online accounts, causing payments to be late, charges late fees that come out of the escrow leaving insufficient funds to pay property taxes or property insurance when they come due, then cancels  insurance and obtains forced placed insurance policies at much higher rates. All of these scams are done in an effort to put the homeowner behind on their mortgage. When the homeowner loses their property the mortgage company acquires it back then resells to the next homeowner and the process starts all over again.

Many middle class American taxpayers have lost their homes due to scams such as these. Eliminating or reducing mortgage interest and property tax deductions no longer applies to these 5.5 million Americans so they are not contesting this provision. Again, who is doing the complaining?

ELIMINATING DEDUCTION FOR STATE AND LOCAL TAXES

Eliminating portions or all of the deductions for state and local taxes applies mostly to the segment of taxpayers mentioned above in ten states. Increasing the standard deduction to $12,000 moves some in this group from itemizing to taking the standard deduction.

Taxpayers in this category whose taxes are not reduced are likely paying alternative minimum taxes. Eliminating the alternative minimum tax offsets what they lose in state and local tax and/or interest deductions.

State taxes, like federal taxes are paid to cover the costs of operating the government. Maybe an accountability issue applies to the states. The question is, how effective is your state or local government operating.

ELIMINATING DEDUCTION FOR INTEREST ON STUDENT LOANS

Many students have taken out student loans and sacrificed time in college in anticipation of getting a job. For those who have not been successful in gaining employment, this deduction would not apply since they have little, if any income. Even if they are making payments on their student loans, if they have less than the required income  they are not required to file a tax return. This provision would not affect them.

For those college graduates recently out of school who have jobs, they generally do not yet have a lot of deductions and therefore, tend not to itemize. The increase in the standard deduction to $12,000 will off-set some, if not all, of what they lose in student loan interest wiped out.

If the Senate or GOP Tax Plans do not pass due to failure to negotiate, no one gets a tax benefit. It certainly will not lead to a civil war, but it would be a tragedy not to give back to the American taxpayer some of what they have lost in taxes.

ELIMINATING THE HEALTH CARE TAX CREDIT TENDS TO INCREASE MEDICAID FRAUD

If taxpayers with incomes less than $10,000 get totally free healthcare, while those with incomes above $10,000 pay increased prices for healthcare premiums, the GOP tax plan will create a penalty for having income greater than $10,000. This  tends to promote what is already rampant Medicaid fraud.