Tag: Honesty in Discussion of Taxes

Monday Wake Up Call – November 20, 2017

The Daily Escape:

El Ateneo Grand Splendid bookstore in Buenos Aires, which has more bookstores per person than any other city in the world – photo by Alamy

One of the arguments that Republicans use to support their tax bill is that it will unleash investment, but the data say otherwise. Currently, most US economic sectors are operating far below maximum capacity utilization. Here is a Federal Reserve chart showing current industrial utilization/capacity:

The left axis shows the percentage of utilization across both durable and non-durable goods. The US is currently tracking at about 75% utilization, which is about as low as it gets in non-recession times. What that implies is corporations have no need to invest in additional capacity in the US. They have plenty of spare capacity to meet any spike in demand, should it arise. So, today, it makes far more sense for companies to bring unused capacity back online rather than to buy new equipment.

So, what would corporations do with a windfall tax cut that they didn’t need to invest in the US? Won’t they just invest it outside the US in order to keep expanding their global markets? There would be no increased revenues or jobs from investment at home, so why would they keep the windfall at home? That wouldn’t be smart, and those guys and their tax lawyers are pretty smart.

What corporations might do with increased after-tax income:

  • Buy back more of their own stock
  • Update their factories in Mexico, China or elsewhere around the world
  • Invest in companies working on artificial intelligence or robots with human-like dexterity. You know, something on the bleeding edge!

The corporates will ask the question: What do Americans need that they do not have? More self-driving cars?

American consumers simply do not earn enough money to purchase the products that are already available. Total household debt now exceeds the previous peak in the 3rd quarter of 2008. You know, the peak driven by the housing bubble and the accompanying refinancing of debt.

So if a corporation does come up with some product for which there is a genuine need, who will have the money to buy it? What products (or services) would Americans stop purchasing so that they could use their borrowed money to buy this new product?

And given that the tax cuts will not accrue to anyone who makes under $75k the way the GOP has designed their tax cuts, there won’t be any more money in the pockets of the middle class to add jobs and GDP growth here at home. Here is a chart from David Leonhardt in the Sunday NYT, showing what everyone who will gain from their discredited trickle down tax plan, once it is fully implemented:

Notice that it doesn’t go to the people who really need it.

The Republican’s belief in tax cuts and supply side economics is a cult religion. They just don’t care about evidence.

So, time to wake up! We have broken subways, broken bridges, and stagnant wages. Why not spend the money on infrastructure instead of giving it away in tax cuts to be used offshore?

That might actually do some good. This could be the final opportunity for the Senate (the House is a lost cause) to do the right thing and actually represent the interests of the middle class in the US. It is way past time for this 100-member body to set aside the petty complaints of their corporate benefactors and the rich, and offer something real to the ordinary tax-paying citizens who try to pay their bills and put a little aside for retirement.

Time to wake up Senators! We need you to escape your cognitive dissonance, and think about what you are doing. To help you wake up, here is U2 with “Stuck in a Moment” from their 2000 album, “All That You Can’t Leave Behind”:

Takeaway Lyric:

You’ve got to get yourself together

You’ve got stuck in a moment

And now you can’t get out of it

Don’t say that later will be better

Now you’re stuck in a moment

And you can’t get out of it

Those who read the Wrongologist in email can view the video here.

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Here’s Who Benefits From Trump’s Tax Cuts

The Daily Escape:

Floating Village in Lan Ha Bay, North Vietnam – photo by Son Tong

Nobody knows what the final shape of the GOP tax plan will be, but we can see the financial implications of the current bill. Jill Schlesinger has a handy quick and dirty look at who benefits from the proposed cuts posted on her web site. Of the expected $1.5 trillion in tax cuts, only 15.2% will be for individuals. Schlesinger’s conclusion is that Republicans mainly want to help corporations:

  • $1 trillion will accrue to Corporations and Pass-through businesses
  • $228 billion accrues to Individuals
  • $172 billion accrues to Estates

Of the GOP’s $1.5 trillion government handout, corporations get two-thirds. Pass-through businesses are S-Corporations, LLCs, partnerships and sole proprietors. About 95% of businesses fall into this category. Many of these are professional service organizations (lawyers, doctors, accountants, consultants and architects) who otherwise are wealthy individuals, and those infamous hedge funds.

Estates will receive a Republican tax handout that is nearly as large as that provided to individuals. Today, roughly 5,000 people pay estate taxes under current law, but about 3,200 Americans would not have to pay the estate tax next year if the Republican tax bill is passed.

Think about that: 5000 individuals will split up $172 billion in tax relief due to Trump’s largesse!! In 2000, 52,000 estates had to pay the tax. Now it is down to 5,000.

Individuals include everyone who files a tax return. But even here, the WaPo says that the wealthy will do better:

Households with annual incomes over $1 million would see their after-tax incomes increase by 3.2%, 16 times the percentage increase for any income group in the bottom half of the income distribution. . . . (The disparity in average tax cuts measured in dollars would be even larger.)

About 45% of cost of the bill’s tax cuts would go to households with incomes above $500,000 (fewer than 1% of filers). About 38% of the bill’s cost would go to tax cuts for households with incomes over $1 million (about 3 out of every 1,000 filers).

What should the response of Democrats be? Democrats are correct in saying that the Republican plan is tilted too much toward the ultra-wealthy. They propose tilting it more toward the middle class.

Bruce Bartlett was a domestic policy adviser to Ronald Reagan and a Treasury official under George H. W. Bush. Bartlett says that Dems:

Should counter with a $1.5 trillion infrastructure plan and no tax cuts for anyone.

Bartlett points out that since the Clinton administration, Dems have tried to show fiscal responsibility, supporting tax increases and spending cuts. Meanwhile, Republicans abandoned any pretense of concern for the deficit, as their new budget shows.

Bartlett argues that a big infrastructure program will provide a payback for decades to come, just as Eisenhower’s highway program did. Importantly, he points out that building infrastructure will create vastly more jobs than any kind of tax cut, especially given the Republican proposal that largely benefits the wealthy, while providing no incentives for job creation or investment.

The Congressional Budget Office (CBO) has routinely provided estimates to Congress showing that direct spending by government on infrastructure has a bigger multiplier effect on economic growth than any tax cut. Their February 2015 report showed that purchases of goods and services by the federal government raises GDP by as much as $2.50 for every $1 spent.

The report also says that a temporary tax cut for the wealthy, such as Republicans are now proposing, would create at most 60 cents of GDP for every $1 of foregone revenue. Corporate tax cuts are the worst, creating 40 cents of GDP for every $1 of revenue loss.

Our government is starved for revenue. This is not the time to even consider a tax cut for the wealthiest.

A true conservative tax policy would raise taxes to balance the budget, reduce deficits and debt, while investing in basic infrastructure, education, job training, research, technology and other drivers of growth.

That is the kind of conservatism we should get behind.

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Saturday Soother – November 4, 2017

The Daily Escape:

Grand Tetons early morning – 2011 photo by Wrongo

Two short thoughts for your Saturday. First, hidden in the language of the GOP’s Tax Bill  is a something that would change the Johnson Amendment, a provision in the tax code that prohibits churches, faith communities, and other non-profits from outright endorsing political candidates:

…The provision is not a complete repeal of the Johnson Amendment. As written, it would only free up religious communities—not all non-profits—to endorse candidates and appears to prohibit churches from going out of their way to campaign for a candidate outside of their normal religious activities.

The GOP wants to erode the separation of church and state. Let’s see who, if anyone, in Congress is willing to fight for the Constitution.

Second, the Democrats had a grenade go off inside the DNC when an excerpt from Donna Brazile’s new book was published by Politico. She claims that the Clinton administration assumed control over the Democratic National Committee (DNC) in exchange for keeping it solvent, then funneled most of the funds raised into her campaign, leaving the states with very little to support down-ballot races.

The states kept less than half of 1 percent of the $82 million they had garnered from the Hillary fund-raisers the campaign was holding to support state-level candidates. That’s about $4.1 million.

When Howard Dean was chair of the DNC he instituted a 50-state policy, saying the DNC would maintain full time workers in each state, to contest seats up and down the ballot from the county, to state legislature to house and senate races.

When Obama won, Dean was out, and the 50-state policy was dismantled. After that, the DNC was reorganized to serve only national level elections. And Obama For America took its place as the funds-raising vehicle for the presidential re-election. And Hillary did much the same with the Hillary Victory Fund, but she went further, as Brazile reveals: The DNC would covertly back Hillary in the primaries.

And now, through these efforts, the Democrats have lost the White House, the Senate and the House, in addition to most state governments.

It’s hard to decide what’s worse, that the party is run by incompetents, or that it is just hopelessly corrupt.

Time for a hostile takeover of the Democratic Party.

On to the weekend. You obviously need to go to a happy place that doesn’t include continual assaults by our national media. So brew up a cup of London-based Union Hand-Roasted Coffee’s El Topacio Microlot, El Salvador, available online for £8/200g.

Now kick back someplace you can see the natural world outside, and listen to Peter Mulvey playing his instrumental, “Black Rabbit”. Mulvey is known for his guitar chops and songwriting. He got started by playing in the Boston metro. This short acoustic gem is executed with ease, and pure musicality:

Those who read the Wrongologist in email can view the video here.

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Can We Have an Honest Discussion About The GOP Tax Plan?

The Daily Escape:

When the dog lies about his previous sheep-herding experience

A new set of tax policies have been proposed by the White House and the GOP. They involve both tax cuts, and some tax reforms. Here are the bullet points of the GOP’s sales pitch:

  • The tax cut won’t help the rich, and won’t help Donald Trump personally
  • The tax cut will generate enough growth to pay for itself
  • Most of the benefits of the tax cut will go to the middle class

Here are the NYT’s calculations on Trump not gaining anything:

Trump could save more than $1 billion under his new tax plan

And here is the Tax Policy Center’s take on the benefits to the wealthy:

  • The top 1 percent of households (those with incomes above $730,000) would get about 53% of the framework’s net tax cuts, or roughly $130,000 a year on average.
  • The top 0.1 percent of households (those with incomes above $3.4 million) would get roughly 30% of the framework’s net tax cuts, or about $720,000 a year, on average.

Turning to the statement that “tax cuts will pay for themselves”, Trump claimed in a talk with House Ways and Means Committee a few days ago, that his tax plan will produce more than 6% growth.

An economist once said that you don’t need to look at the details of a Republican tax plan. The higher the Republican growth forecast, the worse the actual deficit in their plan. That’s because they need greater revenue growth to cover the deficit hole they are creating. Given Trump’s 6% growth forecast, you just know the tax plan is going to be a budget buster.

We have learned from past GOP tax cuts that they won’t reduce deficits or balance budgets. Want proof?

  • The George W. Bush tax cuts made the deficit larger, while doing little or nothing to stimulate the economy
  • The income-tax cuts in Kansas caused the state’s deficit to accelerate significantly, while economic growth lagged the contiguous states
  • Even Ronald Reagan’s tax analysts, David Stockman and Bruce Bartlett, have acknowledged that unfunded tax cuts don’t create growth, they make for bigger deficits.

Regarding the point that most of the cuts will go to the middle class, it won’t happen. Since 83% of the plan’s cuts are going to the top brackets, there’s not much left for the middle class.

What they don’t talk about is their plan to get rid of personal exemptions, which is a key deduction for middle class families, especially those who itemize deductions. To determine whether middle-class families get a cut or an increase under the new plan, you need to calculate if the higher standard deduction, plus the proposed expansion in the child tax credit, (no details about that yet), is greater than the loss of personal exemptions.

Josh Barro at Business Insider crunched the numbers, and his conclusion is: (emphasis by the Wrongologist)

While there are still a lot of details to be filled in, the information we have available suggests the new Republican tax proposal would raise income taxes on many families who make just a bit more than the national average.

They are promising to eliminate the “alternative minimum tax”, (AMT) a tax provision designed to ensure that wealthy taxpayers (who can have accountants find deductions) would pay some modicum of taxes rather than get off scott-free. In fact, the GOP has it backwards: People who owe the AMT should be paying more tax than they would pay with the AMT. It serves its intended purpose. Elimination of the AMT is another tax break for the wealthy:  For example, Trump has had to pay the AMT, as have most real estate developers.

Now, ask yourself why should personal tax rates be less progressive in 2017 than they were in 1963? Shouldn’t progress towards a more equal society mean our rates would be MORE progressive, not less? It’s not as if we have less inequality, we have more.

The reason we should want to tax the rich (till it hurts) is to reduce their power and overwhelming choke hold on policy.

When will the GOP engage in an honest discussion about their tax plan?

Not soon. Maybe not ever.

Here’s First Aid Kit doing a cover of Simon & Garfunkel’s “America”, from 2014:

We all need to look for America, its getting very hard to find.

Those who read the Wrongologist in email can view the video here.

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