The Dividend Cafe - David Bahnsen On SiriusXM POTUS

Episode Date: October 19, 2017

David Bahnsen On SiriusXM POTUS by The Bahnsen Group

Well, President Trump has been talking about tax reform. He's been talking about trying to make the tax code more fair, trying to make it simpler, and trying to give people a tax cut. Can he pull all this off? How can he do it? Well, we can discuss that with David Bonson. He is the founder, managing director, and CIO of the Bonson Group of Hightower Advisors. He's written a piece in the National Review titled, A Fairer Tax Code is a More Efficient Tax Code. And you can find him on Twitter at David Bonson. Bonson is B-A-H-N-S-E-N. And David, thank you for joining us today. My pleasure. Good to be with you. So let's start off by asking you, what is your idea of a fair tax code? Well, obviously on the individual side, I think that there's a consensus that we want to see flatter tax rates and a simpler code. And I think that the proposed plan goes a long way to do that, that we reduce the number of tax brackets substantially and provide a lot of tax relief, particularly on the lower end of the wage spectrum. relief, particularly on the lower end of the wage spectrum. I think that the increased child tax credit, the increased standard deduction, and the lower rates in the middle brackets are going to be

really stimulative and useful to middle class American families. But the bigger piece, I think, is where there are flat out inefficiencies in the tax code. And this is heightened in our business tax code, the corporate side with an egregiously high rate that is then filled with an abundance of loopholes and deductions that only the very large and powerful are able to take advantage of. So by eliminating a good portion of those, lowering the rate, I think we go a long way towards eliminating inefficiencies. The elephant in the room is the deductibility of state tax deduction for individuals. That is an area in which it strikes a lot of people as being potentially problematic. problematic. And the argument I make in the article is that it is a vital part of reform because we have no business having the federal government essentially be subsidized,

the South Dakota, Texas taxpayers subsidizing the taxpayers of New York and California. So what you're criticizing here is the idea that people get a tax exemption for having paid state taxes. Correct. So in present tax code, the state taxes and local taxes, which is really a euphemism primarily for property taxes, are deductible against one's federal return. And unless you're hitting AMT, alternative minimum tax, where those deductions go away, taxpayers have enjoyed that deduction. What the proposed plan from the Trump administration does that I like a great deal is it lowers the rates across the board for all taxpayers,

but then eliminates some of those deductions. So the exact specific math on a case-by-case basis is impossible to do right now. Everyone's going to be in a somewhat different situation at their level of income, and we don't know exactly where the rates are for particular levels of income. But what we know is we have a lower tax liability. But then on the other side, the pay for, as it's called, is the loss of this deduction. My argument is that loss of deduction is not a takeaway from taxpayers. It's a reform. It's an improvement in the tax code that right now is allowing low-tax states that run their state competitively and effectively and responsibly, it's allowing those states to subsidize states that are being, shall we say, less competitive and less reasonable in their own fiscal management. Talking with David Bonson from the Bonson Group of Hightower Advisors. In your view, how does the Trump tax plan affect the federal deficit? Is that going to cause resolutions and then attach to this as a uh the

tax reform as a part of the reconciliation process is limited in how much impact it can even be projected to have to the deficit by statute they cannot go about this via budget reconciliation um if it's going to exceed the Senate parliamentary rules, unless they're going to make it a temporary tax cut, like President Bush's 2001 plan were, if you recall. So essentially, the impact in terms of the front end projection is going to have to be quite minimal. However, I believe that if everything that we see, this really significant reform in corporate tax code, repatriation of foreign profits, massive reduction of our egregiously high corporate tax rate, and then the reform across the individual tax rates. If all of those things happen, I don't believe they have a mechanism to dynamically score how pro-growth and how revenue-creating it will be. The legacy of President Reagan and President Kennedy in this regard is that you get more of something when you tax less of it.

And so am I preaching a basic supply-side gospel here? You bet I am. am I preaching a basic supply-side gospel here? You bet I am. Well, presidents have been talking for decades about trying to simplify the tax code, and President Trump talked just a short time ago about having people, most people, fill out their taxes on just one sheet of paper. Can he pull this off? I don't believe that the ultimate simplification that I think all of us sort of envision and dream for can ever really happen. I don't know if we'll really get to a single postcard. Certainly for those who itemize, that's not going to happen. I think it'll be a big step in the right direction. And when it comes to government, I think that's the best we can hope for is incremental progress. But I'll tell you what I think the biggest hindrance is to total tax reform and to getting a far, far more simplified tax plan. And it is crony capitalism. It is special interests that benefit from some of the complexities that are in the tax code, the loopholes and special arrangements and tax credits and things of that nature.

There are too many people over the years and years and years of these tax laws changing, evolving and tweaking and so forth that benefit from the complexity. That total simplification of tax code becomes very difficult. But what the Trump administration is doing with this plan is a big step in the right direction. David Bonson is the founder, managing director, and chief investment officer of the Bonson Group of Hightower Advisors, a private wealth management boutique. It's got more than a billion dollars in assets. Mr. Bonson, thank you for sharing your thoughts today. Pleasure to be with you. Appreciate it. And you can find him on Twitter, by the way, at David Bonson, B-A-H-N.