You want to know how wrong the Trump tax cut is? Read this, written by someone with the economic chops to know.
NYTimes.com: The Trump Tax Cut: Even Worse Than You’ve Heard
You want to know how wrong the Trump tax cut is? Read this, written by someone with the economic chops to know.
NYTimes.com: The Trump Tax Cut: Even Worse Than You’ve Heard
Over the past two weeks my favorite Keynsean has been very busy posting responses to the republican tax scam. Here are links to the posts followed by a lead-in paragraph:
Dec 7, 2017 The Republican War on Children
Let me ask you a question; take your time in answering it. Would you be willing to take health care away from a thousand children with the bad luck to have been born into low-income families so that you could give millions of extra dollars to just one wealthy heir?
Dec 8, 2016 Facts Have a Well-Known Liberal Bias
There are two central facts about 21st-century U.S. politics. First, we suffer from asymmetric polarization: the Republican Party has become an extremist institution with little respect for traditional norms of any kind. Second, mainstream media – still the source of most political information for the great majority of Americans – haven’t been able to come to grips with this reality. Even in the age of Trump, they try desperately to be “balanced”, which in practice means bending over backwards to say undeserved nice things about Republicans and take undeserved swipes at Democrats.
The latest job report was very good, except for one thing: wage growth is still much lower than it was before the financial crisis. And this reminds me of a controversy that raged around four or five years ago, during what now seems like a golden age – an era when it seemed as if facts and reasoned debate might actually matter for policy.
Dec 11, 2017 Steve Mnuchin Pulls a Paul Ryan
On Monday the Treasury Department released a one-page report claiming that tax cuts would pay for themselves. The document was a shameless attempt to fool the public — carefully worded to imply that economic experts at Treasury (they’re still in there somewhere, maybe locked in a closet) had actually done an analysis to that effect, without explicitly saying so. In fact, there was no economic analysis; Trump officials just made up numbers that would give them the result they wanted.
Dec 12, 2017 What Happens if the Tax Bill Is a Revenue Disaster?
Jonathan Chait raises a good point, which many of us were already thinking about: for all the debate about whether the tax bill will partially pay for itself, it’s actually more likely that it will end up worsening the deficit by far more than most estimates suggest. The reason is simple: the bill is junk, hastily drafted and full of exploitable loopholes. Once the tax lawyers and accountants get to work, they will probably find ways for their clients to avoid hundreds of billions in taxes that even the JCT estimates still assume will be paid.
Suppose this is indeed what happens. I’ve been trying to think through the next step: What effect will a ballooning deficit have on markets and the political climate?
So, it seems that Republicans are responding to the devastating defeat in Alabama – which is part of a sustained pattern of underperformance in special elections, demonstrating that bad polls reflect reality, not bad polling, by … doubling down on a massively unpopular tax plan, whose main focus is on cutting corporate taxes.
Dec 14, 2017 Republicans Despise the Working Class
You can always count on Republicans to do two things: try to cut taxes for the rich and try to weaken the safety net for the poor and the middle class. That was true under George W. Bush, who sharply cut tax rates on the top 1 percent and tried to privatize Social Security. It has been equally true under President Trump; G.O.P. legislative proposals show not a hint of the populism Trump espoused on the campaign trail.
For those who weren’t reading my blog before it was folded into the column page, “wonkish” posts were written with economists or highly economics-fluent readers in mind, not the broader public. I put up the “wonkish” as a warning to normal human beings. So here’s one of those on the topic of the day; if funny diagrams and economese aren’t your thing, feel free to skip.
Dec 18, 2017 Passing Through to Corruption
The question is, why are they doing this? For this bill isn’t just a policy crime; it also seems to be a political mistake. It will, however, be good, one way or another, for the bank accounts of quite a few Republican members of Congress. Is that why it will pass?
Dec 20, 2017 Republicans Despise the Working Class, Continued
The GOP tax plan is remarkably unpopular. According to the latest NBC poll, only 24% of the public thinks it’s a good idea; 63% believe that it’s mainly for the rich and corporations [editor: it is], while only 7% think it’s aimed at the middle class. Republicans think it will become more popular over time; that’s not what happened with previous tax cuts, and as Drew Altman of Kaiser Family Foundation notes, everyone – even Republicans – hates the idea of cutting major social programs to pay for tax cuts, which is exactly what the GOP plans to do.
Dec 21, 2017 Tax-Cut Santa Is Coming to Town
It’s that time of year again. Some of us will get nice gifts, while others will get lumps of coal.
But the rules have changed a bit this time, at least as far as the federal government is concerned. The St. Nick you knew is on vacation, possibly permanently. In his place we have Republican Tax-Cut Santa, who has different priorities.
“You all just got a lot richer,” Trump reportedly told guests at Mar-a-Lago. But Republicans will nonetheless keep insisting that the corporate tax cut that is the main item in the tax bill is really for the benefit of workers. They will be aided in this claim by some recent corporate announcements of bonuses or wage hikes that they attribute to the tax cut. …It’s nonsense, of course.
There is a lot wrong with the republican tax bill – a gift to large corporations and the rich; punishment of blue states, unequal taxing based on how income is earned; cutting medical benefits for those who need benefits; cutting the safety net for those less fortunate. The list goes on. It is a cruel bill.
Justification is “trickle down.” This is a myth and a bold-faced lie. Robert Reich explains The True Path to Prosperity. Below are his key points:
Democrats are the party of economic growth and fairness. Republicans are the party of neither.
The only way to grow the economy is by investing in the education, healthcare, and infrastructure that average Americans need in order to be more productive. Growth doesn’t “trickle down.” It rises up.
Republicans say their tax overhaul will promote growth by increasing the profits of American corporations and investors. This is trickle-down nonsense.
Every major study (including Congress’s own Congressional Budget Office and Joint Committee on Taxation) finds that its benefits would go mainly to big corporations and the wealthy.
Share prices may rise for a time. They’re already at record highs in anticipation of the tax cut. But higher share prices don’t trickle down, either. The richest 1 percent owns almost 38 percent of the stock market. Eighty percent of Americans together own just 8 percent of all shares of stock.
This won’t fuel growth. Corporations expand and invest only when customers are eager to buy what they produce. And most of these customers are middle-income and below, who spend just about all they earn. The rich spend only a small fraction.
After the Bush tax cuts of 2001 and 2003, economic growth stalled and then dissolved in recession. After the 2004 corporate tax holiday for bringing foreign profits home, corporations didn’t invest or expand. The Reagan tax cut of 1981 didn’t cause wages to rise; they flattened.
What’s the real formula for growth? Better access to education, healthcare, and transportation, all of which make workers more productive.
These more productive workers command higher wages. With higher wages, they purchase more goods and services. These purchases motivate companies to expand and invest, and create more and better jobs.
The Trump-Republican tax overhaul would take us in the opposite direction. It raises taxes on the middle class, which would reduce their purchasing power. The Senate version would cut the Affordable Care Act, causing millions to lose coverage.
It also explodes the federal debt, which will stymie growth. Debt service itself would likely require cuts in other programs such as Medicare, Medicaid, education, and transportation.
For years, Republicans have been selling tax cuts by lying that they spur growth, which trickles down to average Americans.
For just as long, Democrats have been selling fairness, but without explaining why a fairer economy is also more productive and prosperous.
It’s time for Democrats to make the case. It has the virtue of being true.
William D. Cohan’s chilling distillation of the financial time bomb buried in Trump’s tax plan—a boneheaded assault on the housing market that could precipitate a 2007-style apocalypse.
“Will this be the first tax cut in American history that actually results in a recession?”
Check out Cohan’s economic logic. Is the Republican Congress Insane?
Paul Krugman explains why the republicans are pushing a tax plan that would be bad for the economy and most that participate in the economy. “we’re talking about government of the people, not by the people, but by wealthy donors, for wealthy donors. Everyone else hates this plan — and they should.”
Key Points: [The republican] claim is that cutting taxes on corporate profits would lead to an explosion in private investment and faster economic growth.
…so where does the money for that increase in capital expenditure come from? Nothing in the bill would make Americans consume less and save more. So the money would have to come from abroad — from selling stocks, bonds and other assets to foreigners, on a massive scale. … this inflow of foreign money would drive up the value of the dollar and lead to huge trade deficits, more than $6 trillion in deficits over the next decade.
… about that economic growth: Foreign investors would be earning profits and taking them home. So much — probably most — of any growth we would get from cutting corporate taxes would accrue to the benefit of foreigners, not Americans.
Most serious economic analyses agree with those C.E.O.s who disappointed Gary Cohn: Corporate tax cuts wouldn’t actually do much to raise investment. They would, however, explode the budget deficit.
So in an attempt to limit that deficit blowout, Senate Republicans are proposing significant tax increases on working families. In fact, according to Congress’s own Joint Committee on Taxation, taxes would rise on average for every group with incomes under $75,000 a year, and would surely rise for many families even in higher-income groups. The only significant winners would be those making more than $1 million a year. Populism!
… this doesn’t even take account of the health care sabotage that’s an integral part of the Senate plan. By repealing the mandate — the requirement that people purchase insurance — the plan would, as I said, cause 13 million to lose coverage
[in addition to all of this] tax-cut-induced deficits would, by law, trigger cuts in Medicare, and this would just be the start of a G.O.P. assault on programs like disability insurance that provide a crucial safety net for millions of working-class Americans.
All of which raises the question, why are Republicans even trying to do this? It’s bad policy and bad politics, and the politics will get worse as voters learn more about the facts. [the answer] donors are basically saying get it done or don’t ever call me again. [we are becoming] ”a government of the people, not by the people, but by wealthy donors, for wealthy donors. Everyone else hates this plan — and they should.”
In my post Stop Dealing Trump I assert that the objective of congressional republicans is to “funnel money to rich friends and to hell with the rest of the world.” This is personified in E.J. Dionne’s piece titled Stop obsessing about tax cuts
To paraphrase Dionne, It is a victory for Republicans that the political conversation is all about taxes. This is entirely wrong, and it’s essential to challenge the whole premise of the debate.
Here are some exerts:
The United States does not need tax cuts now. Reducing government revenue at this moment will do far more harm than good. Conservatives are proving definitively that they don’t care in the least about deficits. And their claims that tax cuts will unleash some sort of economic miracle have been proved false again and again and again.
But there is an even bigger objection: The opportunity costs of this obsession are enormous because it keeps us from grappling with the problems we really do need to solve.
Ever since Trump’s election, discussion of the vast divides in our nation between prosperous regions and those battered by economic change have filled our newspapers, websites and airwaves. There is simply no way that shoveling out $2.6 trillion in business tax cuts over 10 years (and in a largely undifferentiated fashion) does anything to help places that are ailing.
On the contrary, this farrago of corporate goodies — along with the absurd repeal of the estate tax and various other benefits showered on the well-off — would only aggravate existing inequalities. And by depleting the government’s coffers, it would make it much harder to finance public initiatives in education, job training and other spheres to promote mobility for Americans who are lagging behind.
There is more good stuff. Read it!
Concerning media reporting on the republican tax bill, I am appalled by the lack of homework especially by television media. For the most part they seem to be parroting press releases. That is what motivates this post. I plan to update this post as information becomes available,
1. For a good summary read Robert Reich, The Huge Tax Heist.
2. A NYT Nov 2 Editorial, A Tax Plan for a New Gilded Age. My summary follows:
A. The primary goal of this bill is to slash taxes on corporate profits to 20 percent, from 35 percent.
Credible economists believe the benefits of the cuts would accrue nearly exclusively to shareholders and executives.
about $70 billion a year, or 35 percent of the benefits, would flow to foreign investors who own shares in American companies, according to Steven Rosenthal at the Urban-Brookings Tax Policy Center.
B. The bill would also lavish benefits on real estate partnerships, hedge funds and other pass-through businesses, which send their profits directly to their owners without taxes being withheld
Republicans want those business owners to pay taxes of just 25 percent on that income, rather than ordinary rates, which go up to 39.6 percent. Republicans argue that this will benefit small businesses. In fact, a large majority of small-business owners already have personal tax rates below 25 percent.
C. On personal income taxes, Republicans say they are simplifying and cutting taxes for most people. But that is not really true. They propose reducing the number of tax brackets to four, from seven, while raising the lowest bracket to 12 percent, from 10 percent. They want to double the standard deduction but eliminate personal exemptions. One new benefit that could help many families would be a $300 tax credit for tax filers and their dependents who are over 17, like an aged parent. Strangely, it would end after five years. By contrast, the bill’s cuts to corporate and other business taxes would be permanent.
The changes that could affect middle-class families the hardest include the elimination of the deduction for state and local income taxes. And the property-tax deductible would be capped at $10,000. Many people in high-tax states, like California, New Jersey and New York, would be especially hard hit.
One particularly hardhearted change would eliminate the deduction for medical expenses, which is primarily used by people with serious and chronic illnesses. Gone, too, would be important tax credits and deductions for college tuition and interest on student loans.
D. Unsurprisingly, the tax bill contains a couple of provisions that are designed to benefit the Trumps and others like them. It would get rid of the alternative minimum tax, which is paid primarily by upper-income families with lots of deductions. This tax accounted for a vast majority of the income tax Mr. Trump paid in 2005, according to a leaked copy of his return. The Trumps would also benefit from the bill’s proposed estate tax changes. That tax currently applies to inherited wealth above $5.5 million. Republicans would exempt wealth up to $11 million starting next year and eliminate the tax after six years. That would benefit the heirs of just 0.2 percent of people who die every year, but cost the government $269 billion over a decade.
3. A NYT Editorial by Paul Krugman, Trump’s $700 Billion Gift to Wealthy Foreigners. My summary:
Why is Donald Trump planning to give away $700 billion — that’s billion, with a “b” — to foreigners, no strings attached? You probably didn’t know that he’s planning to do this. In fact, he himself almost surely has no idea that he’s planning to do this. But it would be one clearly predictable consequence of the tax “reform” he and his congressional allies are trying to pass.
… the benefits from cutting corporate taxes would overwhelmingly flow into after-tax profits rather than wages, especially in the first few years and probably for a decade or more. And this in turn means that the main beneficiaries would be stockholders, not workers.
[in addition] these days there’s a lot of cross-border investment. In particular, as Steven M. Rosenthal of the Tax Policy Center notes — in a paper I found revelatory — around 35 percent of U.S. equities are now owned by foreigners, triple the level during the Reagan years.
What this means is that around 35 percent of a tax cut from an administration that proudly uses the slogan “America first” — $700 billion over the next decade — wouldn’t even go to Americans. Instead, it would be a windfall to wealthy foreigners, who would probably gain a lot more from the tax cut than U.S. workers. Oh, and it makes all that talk about allies not paying their “fair share” sound kind of silly, doesn’t it?
4. The Atlantic: How Trump’s Corporate-Tax Plan Could Send American Jobs Overseas. My summary (read the Atlantic article for a detailed example):
The Trump-GOP plan will also propose a minimum tax rate on foreign income, according to multiple reports. But whereas Obama’s plan (which ultimately didn’t become law) assessed a company’s taxation in each country individually, the Trump framework would come up with an average for all foreign earnings combined, a so-called “global minimum.”
This might seem like a small difference, but the design of their global minimum tax creates perverse incentives for companies to offshore jobs and shift profits to tax havens—outcomes that a per-country minimum tax would avoid.
This is a big flaw in Trump’s plan: The more an American company moves its profitable [US] operations to countries that have tax rates of 20 percent or higher—often rich countries that are seen as America’s economic competitors—the more that company can shift profits to tax havens without paying taxes on those profits. And the more that U.S. companies already take advantage of tax havens, the bigger the incentive they will have to offshore operations to other advanced countries: This provision of the GOP plan encourages companies to blend income from low-tax countries with that from higher-tax countries, completely avoiding paying money to the U.S. government.