A week ago (Jan 8, 2020), the New York Times described Michael Bloomberg's plan1 for addressing the income and wealth inequality in the United States that has been a constant topic of discussion by Democratic candidates. Briefly, as with the robber barons of Teddy Roosevelt's age, the wealth of the global commerce titans and particularly the private equity fund buyers and sellers of companies (and layers off of employees) has exploded over the last four decades in the US, beginning in earnest with Ronald Reagan's presidency. Most of the benefits of productivity gains have gone to a very few people at the top, and the bottom 50% of the wealth distribution actually owns a smaller share of the nation's wealth than 40 years ago. The top 1% have gained enormously, and the top 0.5% have been even more enriched. We have ultra multibillionaires like Jeff Bezos who can pay $9 billion to his wife in a divorce settlement and still be the wealthiest man in the world with more than $130 billion in net worth. He earns about $78.5 billion a year (counting value of his Amazon shares) or more than $6.5 billion a month2 and thus exemplifies this new "gilded age" of ultrawealthy tycoons. This exists at the same time that the Trump administration proposes work requirements that will eliminate food stamp aid for 700,000 of hungry Americans and, with other initiatives, will take food stamps from 3.7 million beneficiaries who simply cannot get work that pays well enough to fund a sustainable lifestyle for themselves and their families.3 This will "save" the U.S. about $5.5 billion over five years--less than Bezos 'earns' in a month. This disparity--$5.5 billion to feed 3.5 million hungry Americans versus provide a month's additional wealth for a person already wallowing in wealth like Jeff Bezos--is why it is clear that the US needs to figure out how to respond to the inequality crisis in order to protect American democracy and ensure Americans have a decent standard of living.
Bloomberg's plan seems to be a moderate stance like Obama and Biden that attempts to focus on factors other than the wealth gap and the accompanying power gap that wealth provides. As the NY Times reports, he "frames the economic divide primarily in regional terms--and not along ... rich-versus-everyone-else class lines."1 The Times article notes that his plan is not unlike the charge Obama gave to Joe Biden for the Middle Class Task Force.1
Bloomberg's proposals for addressing the problem are similarly centered on things long discussed and tried that are difficult to do at a large enough scale to make any inroads into the inequality problem or the power gap problem. He is most definitely not proposing a wealth tax. His proposals include a focus on education and skills training, infrastructure projects, and entrepreneurial training centers. Although the GI Bill was a significant part of the post-WWII economic boom because it allowed vast numbers of returning veterans to get a college education, Bloomberg seems to be thinking more of apprenticeships and community colleges (training for a job) rather than university (training for a career and an approach to learning throughout life). The Times notes his interest in raising the minimum wage to $15 an hour, expanding the Earned Income Tax Credit, and encouraging unions while disallowing noncompetes for low- and middle-income jobs.
All those are minimal steps that any progressive candidate should take, but while they may have marginal impact on middle class mobility, they will not do much at all to ease the income and wealth gap that has been caused by technology, globalization, and financialization of the economy together that has measured success almost solely from stock market numbers and thus allowed corporate and private equity tycoons to garner the major gains in productivity over decades while paying their workers too little (or moving offshore to pay even less), combined with a tax system that privileges wealth, including, among a host of others, extremely favorable corporate tax provisions after the 2017 tax legislation, ridiculously low maximum rates on ordinary income, carried interest provision, section 1031 exchanges, section 1202 exclusion for gains on original issue small business stock, capital gains preference, and an absurdly low flat estate tax above a too-high exemption amount with a step-up in basis for heirs.
Bloomberg is a billionaire who is at least aware that the inequality in this country is problematic and needs to be addressed. But like most of the "have-so-much" class, he shows little interest in what is truly required--a shift in the direction of redistribution to balance the distorted seesaw of billionaires getting all the height and the rest sitting at the bottom. FDR's New Deal is said to have worked because the robber barons were scared that the proletariat would rise up in support of communism--the so-called 'red scare' behind the success of social security enactment. There may not be a red scare now (though the Trump campaigners try to paint democratic socialist programs as communism), but there is a real likelihood that the contrast--and possibly real class warfare-- between the squalor and despair of poor families who work hard but cannot fend for themselves and rich kids with silver spoons that only grow bigger and bigger may eventually threaten the global nation of the plutocrats.4
3 Phil McCausland, Trump administration proposals could cause millions to lose food stamps, NBC News (Nov. 30, 2019) (discussing proposed changes to SNAP program that would impose stricter work requirements, cap deductions for utility allowances and 'reform' the way states automatically enroll families when they receive other aid). See also
4. See, e.g., Chrystia Freeland, Plutocrats: The Rise of the New Global Super-Rich (2012) (described in The Guardian book review as "a necessary and at times depressing book about the staggeringly wealthy"). Freeland is neither Marxist nor socialist, and as I am reading the book, not evenappropriately skeptical of the amount of merit behind the plutocrats' self-claimed meritocracy.
When right-wing Roy Moore said that the time when America was great was during slavery, he revealed something key to the current GOP members of Congress and state legislatures--their primary goal is to return to a time when owners of property held all the keys to the kingdom and workers were just serfs expected to do as told and whose lives didn't really matter much to the boss capitalists.
Historian Nancy MacLean suggests that this is the reason for the tax bill's largesse to corporatists and the wealthy, the reason the GOP wants to undo Medicaid, Medicare, Social Security and essentially all the progressive programs introduced in the twentieth century to form the basis for a thriving middle class and surging democratic union. See Cahuncey DeVega, Historian Nancy MacLean on the right's ultimate goal: rolling back the 20th century, Salon.com (Dec. 13, 2017).
Here are some key points from the article.
1) "[T]he Democratic Party is terrible at translating complex questions of public policy into simple narratives that evoke emotion and, in turn, action from the American people." Id.
Indeed, having an able, sympathetic messenger who can translate the issues that truly matter into terms that make sense to ordinary people is something the Democratic Party lacked in the last election. The tone deafness of Debbie Wasserman Schultz and, much of the time, Hillary Clinton, meant that ordinary people didn't understand that Trump is merely a blowhard capitalist who doesn't care if he cheats or lies or exploits other people so long as he gets notoriety and money, while the Democrats have been the party working for a decent sustainable economy, environmental protection and preservation, protection from pollution and diseases, and working wages for ordinary folk.
The GOP, on the other hand, has mastered the art of lying to the point that they can pat themselves on the back for fooling the majority of the people the majority of the time, while blaming anything that goes wrong on Democrats (even when it is--most of the time--entirely GOP policy that the 'wrong' occur). So a tax bill that enriches the oligarchs and ultimately raises taxes on the ordinary people is exactly what they have in mind, but they rush it through without any public hearings and discussion because they don't want people to realize it.
2) The GOP tax "reform" bill is intended to create a deficit that will justify "huge automatic cuts to Medicare, Social Security and Medicaid", to be followed by a "push for a constitutional convention, at which the No. 1 agenda item will be a balanced budget amendment" with the goal ultimately of privatizing Social Security.
MacLean calls this Ayn Rand-brand of hateful thinking followed by GOP House majority leader Paul Ryan "economic eugenics". Since the GOP right-wing libertarians believe that only people who are successful have any merit, they are comfortable "inflict[ing] harm on other people. At its most basic, this libertarian moral system says that it would be better for people to die than to get health care financed by government from taxes paid by others."
3)The GOP emphasis on voter fraud (and consequent efforts across the country to make it harder for people to register to vote or to actually vote) allows the oligarch-led anti-democratic movement to disregard the will of the people because they have "gamed the system to maintain power."
The majority of Americans opposed the tax bill that almost every single Republican representative and senator voted for (no Democrat voted in either house of Congress to support the GOP tax scam). But the GOP legislators think they can ignore what the voters want, because they have held discussions behind closed doors, and are "using the power of national government to prevent voters in more progressive lcoalities and states from being able to choose more progressive policies" by enacting a bill that penalizes voters living in high-tax, progressive states that actually already send more money to low-tax, economically suffering "red" states.
MacLean notes that George Mason University's Mercatus Center, funded by Charles Koch, has been leveraging universities for their political project of undoing progressiivism for decades. They think people will be "absorbed with Facebook and binge-watching Netflix" so will disregard the way that the GOP and their oligarchic allies are using the national government to return to the late 19th century when oligarchs with property had all the power. That's what is the "stealth nature of this tax bill." Returning to a world where "only the wealthy were doing well and everybody else was screwed", a world preferred by James Buchanana, who "devised the playbook that the Koch network is using."
This tax legislation is, indeed, class warfare. It represents a huge blow in favor of wealthy corporatists though creation of a gaping $1.5 trillion deficit hole that will be used by the GOP to decimate New Deal and Great Society programs on which most ordinary Americans depend --Medicaid to pay for nursing homes in the last years of life, Medicare to help afford needed medical care, Social Security to make up for the gap between the meager savings in retirement plans and the increasing costs of living after retirement. These wealthy people in Congress just don't give a damn for ordinary working Americans, whether black or white, rural or urban, "conservative" or "liberal". All they care about is making sure that people with property have even more property. It has nothing to do with creating or promoting a sustainable economy that will lift ordinary workers stagnated wages. It has everything to do with appeasing the top one percent.
Here's something about the GOP House and the GOP Senate: they each passed tax bills (supposed to come out in a "conference" agreement sometime today) that diss the United States' working class taxpayers. White or black, Christian or Jew or other, citizen by birth or naturalized citizen--workers are treated as an inferior "taker" class and owners are treated as a superior "maker" class--the same old GOP class warfare that has been evidenced in Republican-driven tax legislation for decades. That shows in the provisions that have been discussed quite a bit already, even though there is no official distributional analysis and even though the Treasury Department put out a one-pager claiming to provide an analysis showing huge economic growth would eliminate any deficits (based on both the tax "reform" legislation and promised cost-cutting "reforms" to Medicare and Social Security):
the significant reduction in impact of the estate tax,
the huge reduction in the statutory corporate tax rate of most benefit to officers/shareholders (it was 35%, it will be 21% under the conference agreement, apparently, even though the "effective" corporate tax rate ranged from negative to around 24-25%--essentially more favorable than many of our fellow advanced economies' corporate tax rates);
the territoriality of the corporate tax (generally, zero tax on foreign earnings of U.S. companies);
immediate expensing of company investments (a five year provision that allows companies huge tax benefits for those five years);
the elimination of the corporate alternative minimum tax (AMT), at a cost of about $250 billion in revenues.
the reduction in the top rate for wealthy individuals (from 39.6% to 37%),
the substantial reduction in the State and Local Tax Deduction for workers (thus changing entirely the economics of paying for a house already purchased, while allowing sole proprietors, partnerships and other "owners" of equity in businesses the ability to deduct such State and Local Taxes in full);
a larger standard deduction but the elimination of personal exemptions;
a larger child tax credit that only becomes refundable over time (limiting how much it helps the poor) but is available to wealthy households (starting to phase out at half-a-million of income!);
the only slight reduction in the ability of wealthy individuals to take advantage of the mortgage interest deduction (reducing the debt limit to $750,000 instead of $1,100,000)
the elimination of the corporate AMT (which cuts taxes for wealthy shareholders/owners/managers) but the retention of the individual AMT (which primarily affects the upper middle class and not the wealthiest taxpayers under the current rate bracket system);
the elimination of the Affordable Care Act mandate and penalty (which reduces the amount of Medicaid and insurance subsidy funds for poor and middle-income taxpayers, as well as guaranteeing the deconstruction of the health care system for 13 million or more Americans by 2027 and increasing insurance premiums for upper-middle-class taxpayers); and
the opening of the Arctic National Wildlife Refuge to rape by fossil fuel oligarchies (a piddling amount of revenue, but sufficient to buy off the principle-less Sen. Lisa Murkowski from Alaska );
making the corporate tax changes permanent (and effective without any transition period) while making the individual tax cuts other than benefits for the wealthy like the estate tax changes temporary.
(just to name a few).
When the health care mandate removal is combined with the other provisions, "On net, the poor would actually lose out in all years once this effect is taken into account." Dylan Matthews, The Republican tax bill that could actually become law, explained, Vox.com (Dec. 14, 2017). The following Tax Policy Center graph from the Vox article (using the Urban-Brookings Microsimulation Model) shows that by 2027 the top 0.1% end up doing much better (average tax cut for the top 0.1 percent is $221,550 a year). The bottom 20% do worse while the middle--the second and third quintiles--have a very insignificant plus (average tax cut of the third quintile is $490). Within the third or middle quintile, more than 62% of taxpayers that earn between $54,700 and $93,200 would see their taxes go up, "[b]ut only about 0.1% of the very richest one-thousandth of Americans would see a tax hike." Id. Early gains--though small, intended perhaps to benefit the GOP in earlier votes--don't last because the individual cuts aren't permanent. A change to chained CPI for indexing brackets amounts to a tax increase on individuals, while the permanent corporate tax cuts mean rich and very rich do well while middle and upper-middle lose out.
Maybe the most damnable characteristic of these House and Senate provisions, other than the sheer favoritism for the already wealthy, is the favorable treatment in determining the rate at which income is taxed for "owners" compared to the disfavored treatment for taxation of workers' wages. As the Tax Policy Center notes, the Senate version of the tax bill "would reduce taxes on business owners, on average, about three times as much as it would reduce taxes on those whose primary source of income is wages or salaries." Paul Krugman, Republicans Despise the Working Class, NY Times (Dec. 15, 2017), at A27. And this dissing of the working class goes along with treating partners in real-estate partnerships (like the Trump family and many other real estate developers) with kid gloves: "a partner in a real estate development firm might get a far bigger tax cut than a surgeon employed by a hospital, even though their income is the same." Krugman, Republicans Despise the Working Class, NY Times (Dec. 15, 2017) (quoting Howard Gleckman at the Tax Policy Center).
The Vox article describes the pass-through provision as part of its "here's who would be better off" section:
Pass-through companies, like the Trump Organization, which get a new deduction reducing their tax burden. The House-Senate compromise bill allows people with pass-through income to deduct a portion of that income from their taxes; the deduction is reportedly for 20 percent of pass-through income, less than the 23 percent under the Senate-passed bill. Dylan Matthews, The Republican tax bill that could actually become law, explained, Vox.com (Dec. 14, 2017).
Note that this is an off-the-top reduction of what would otherwise be personal taxable income taxed at the taxpayer's individual tax rate. Workers who are paid wages get no such break. And wealthy people will use good lawyering and tax planning to organize their businesses so that their income is counted as pass-through income rather than wages. This is just a continuation of a trend of favoring passive ownership of capital in this country. See, e.g., the Berkeley Blog, Wealthy investors to win bigly with Republican tax plan ( Nov. 9, 2017).
Imagine a company where two siblings as owners and a third sibling is the principal employee. They all receive about the same income from the company--for the worker bee, as wages and for the other two, as a profit share. The worker bee does all the creative thinking and working. So the two owners pay tax under this provision on 20% less income than the worker bee. And this is true in an economy in which economists are generally agreed that pass-throughs are currently taxed favorably, taking everything into consideration, and "don't need another break". Dylan Matthews, The Republican tax bill that could actually become law, explained, Vox.com (Dec. 14, 2017). This pass-through provision is as clear a snubbed nose to all those who work hard to earn a decent living as one can imagine. Fact is, the "owners" are often the takers, and the "workers" are the makers.
PS. The Vox article suggests that the corporate tax break is justifiable, based on the GOP "economic theory" that claims that a lower corporate tax rate will "spark so much additional investment in the United States that it would bid up wages and leave the middle class better off through its indirect effects." Id. This is just another way to state the "supply-side" "trickle-down" theory that has been relied on for decades by right-wingers but has never been shown to be justified empirically. In 2004, the GOP made the same claim for its "repatriation tax holiday" for multinational corporations, claiming that the low tax would allow those corporations to invest and expand, leading to job creation. It didn't. It led, instead, to share buybacks and more money for the shareholders. In fact, a large number of repatriating corporations that did share buybacks with the money also laid off thousands of workers.
PSS. The Vox article also suggests that the limitation of the state and local tax deduction for individual taxpayers (but not for businesses) has a "reasonable case" supporting it. Sure, the benefit of the state and local tax deduction is regressive, in that higher income taxpayers in larger houses with larger property taxes and larger incomes get more of a deduction. And yes, it tends to benefit those states with higher state income taxes that are used to develop infrastructure and education. But that misses several points in response. First, for people at the upper-middle income bracket, the Alternative Minimum Tax generally limits the availability of the state and local tax deduction. Second, people who currently own homes and are paying taxes on those homes and living in states with higher taxes likely took the availability of a property tax deduction into account in determining what they could pay for their home: the bill does nothing to provide a reasonable transition for these folks that takes their expectations into account. Third, when the GOP is trying to counter a Democratic president, it always makes the argument that it makes more sense to support states in allowing them to experiment with different ways of raising revenues and supporting their economics. That's what the "blue" states have done: they have recognized that having higher taxes allows development of infrastructure, support for education, funding for research and other priorities, and these expenditures have created a more sustainable economy and better standard of living in those states--exactly what the "state experimentation" is supposed to do. Yet the GOP provision on state and local taxes is now justified as a way to undo the benefit for "rich" states without doing anything to help the "poor" states. (In fact, Ryan and McConnell have made it clear that their goal is to harm the poor states by reducing funding for Medicaid, Medicare and Social Security on which those states in particular depend.)
The Republicans' proposed tax legislation--whether the House or Senate version--is despicable. It will exacerbate the already devastating income and wealth inequality in this country, leave the federal government without adequate funds for real infrastructure and social safety net needs, and place in almost inviolable power the wealthiest oligarchs of the country (and even the good ones exert a power that no one should possess in a democracy).
My previous posts on this so-called "tax reform" "simplification" package (it is neither) have outlined a number of pernicious provisions in the bills. There are a few I haven't mentioned, such as the likely inclusion of taxation of tuition benefits to undergraduate and graduate students. That will have an immediate impact on education and on basic scientific research. Not surprising, given Paul Ryan, Donald Trump, and Mitch McConnell's aversion to fact-based science and intellectuals, but nonetheless devastatingly harmful to the country in loss of prestige for our universities, loss of the top minds to other countries, and loss of entrepreneurial and innovational thinking that will hamstring commerce and productivity. Another is the "new" talk in the House of lowering the tax rate on the weathiest bracket by as much as two and a half percentage points--adding to the largesse for the wealthy otherwise larding the legislation and making it even more obvious that the only Americans the Republican Party sees itself as serving are those with at least millions and probably billions of net worth. The Republican charade of right-wing "alternative facts" (shown most clearly by the Treasury Secretary's inability to provide a supported rationale for the absurd corporate and oligarch-favoring tax cuts) would have a destructive impact on the entire U.S. economy. And it is not simplification--it is a huge complication that is ripe for tax abusers to abuse the complicated categories of differently taxed income.
But today there is a ray of hope that this tax scam might just not get passed --or might get turned around very quickly if it does get passed. Doug Jones' defeat of constitutional scofflaw and likely multiple-sexual-predator Roy Moore should cause any thinking Republican in the House and Senate to take a step back and listen to the views of constituents across the country, where dislike of this tax legislation is the majority view. The #MeToo movement and its impact on powerful media and other industry harassers, together with the fact that Democrats and Independents got out the vote in Alabama and defeated Roy Moore -- and another 20,000 likely lifelong Republicans decided to write-in another Republican name other than Roy Moore--should tell current GOP congresspeople that "the times they are a changin' ". Reaganomics--trickle-down, supply-side tax policies--don't work. Kansas proved that, if anybody actually had any doubt before. If the Republican majorities in the House and Senate pass this " Class War" tax legislation--written and argued and honed to a tee to serve the wealthiest multinational corporations and individual campaign donors while stabbing the middle and low-income classes in the back--they will potentially pay a big price at the polls in 2018 and 2020. They will pay that price because their tax legislation will send the U.S. economy into another tailspin that will lead to cuts in the standard of living of ordinary people so people like the Trumps can have even more gaudy gold faucets in their many mansions.
I call on everyone who can to write and call Jeff Flake (Arizona)--ask him to stand on principle and vote against the end of the Obamacare mandate, the giveaway to the wealthy and big corporations, the ridiculous scammable complication of different rates for the same income depending on what job the taxpayer worked at or whether the taxpayer owned the business or was an employee. Ask him to vote down this despicable tax legislation for the good of the country and ALL the people. Do the same for Susan Collins (Maine), who already has expressed real concerns about the impact of the elimination of the health insurance mandate. Even her 'bargained for' (but not actually promised) two-year patch wouldn't do much good: millions of people, the most vulnerable amongst us, will lose health insurance and therefore health care if this tax legislation passes. And let Bob Corker (Tennessee) know how much we all respect him for actually standing firm against this tax legislation travesty--and ask him to stand even taller by resisting the pleas to compromise principles 'just to get a win for Trump'. Let's push our Senators and Representatives to stand tall for a sustainable economy based on fiscal responsibility (don't create a $1.5 trillion dollar deficit) and distributive justice (don't push the middle class into dead-end living conditions) and end the giveaways to the wealthy oligarchs.
I predict that if this bill passes the expected accounting for the Republican Party will come even sooner and with even more strength against those who supported Trump's daily vitriol of falsehoods and the Trump Administration's filling the DC swamp with those who put pollution, despoiling the environment, destruction of the wilderness and national public lands foremost on their agenda.
The Republicans in the House and Senate continue on their downhill rush to pass their so-called "tax reform" plan before the holiday break. It's a mad rush to nowhere, a corrupt process of "please the oligarch" that will cause a huge deficit increase (on the scale of $1 to $1.5 TRILLION over ten years) and be used by the Ryan, McConnell and Trump cadre of liars to justify a domino effect of Medicare, Medicaid, and Social Security cuts. It is class warfare of the one percent against everyone else. And it is being sold to the American people with a litany of falsehoods.
Almost all the provisions in the bill are designed to be generous to the ultra wealthy and stingy to the middle class and poor.
Corporations and their owners and managers--among the wealthiest people in the country--get the only permanent tax breaks. It's done in the name of competitiveness, but that's bunk. It essentially encourages corporations to continue to move profits out of the US because foreign profits are taxed at zero while US profits are taxed at 20%. It pretends that the multiple tax breaks for big corporations are necessary (under disproven trickle-down and supply-side theories) to lead to more investment in business in the US and to more jobs and higher pay for workers. But in fact corporations are enjoying record profits under current law and they aren't using those record profits to pay their workers more or to create more jobs or even necessarily to invest in the US. Mostly they are just doing share buybacks for shareholders (ie, owners/managers and other shareholders) that include the wealthiest people who own the most corporate stock. That's because it is demand, not capital, that determines what business expansion is needed and results in labor shortages that give workers leverage to demand more pay. Tax cuts for corporations just add to the already existing capital glut.
The estate tax cut (elimination in the House bill; doubling the exemption to levels that only the very few multi-billionaires will pay any at all in the Senate) ensures that the wealthy will pay almost no tax at all. They borrow against their wealth while alive. Their estates pay no tax on the accumulated wealth when they die. Their children inherit with a "step up" in basis so they get a huge windfall. And their children can pay off the parents' debt by selling a few items (because of the basis step-up, with no taxes either) and live on their windfall without ever lifting a finger to do any real work.
Individual workers really lose out in these bills. Under the House bill, the rate on the lowest wage earners is INCREASED 20%--from 10% to 12%. And all of the 'tax cuts' for ordinary taxpayers sunset after a few years, while the corporate cuts are permanent. Shows where the GOP loyalties lie--not to the worker base that put them in office, but to the wealthy oligarchs like the Koch Brothers who donate to the GOP political campaign chests.
The pass-through provisions (a 23% "deduction" from income before tax is one version)--along with the ability of businesses but not individuals to deduct state and local taxes--are a great boon for wealthy owners of real estate partnership interests, like the Trump family. But they make no sense at all. The more different kinds of income categories that are created with different rates, the more you empower the wealthy to gamesmanship with the tax system. That's what this legislation does in spades.
And after the American people spoke up in Town Hall after Town Hall that they wanted the Affordable Care Act health insurance system protected, the Senate's version of the so-called "tax reform" bill (developed in utter secrecy by Republicans bargaining with Republicans as though nobody else counts) eliminates the individual health insurance mandate (and accompanying penalty). Without that, the entire idea of affordable insurance through government-operated exchanges fails, because the only people on those exchanges will be those who are sick enough or old enough or vulnerable enough to realize that they will need health insurance soon. Insurance works by diversification of risk--that's why the Republican insurance plan in Massachusetts, the model for Obamacare, called for an individual mandate and penalty. Without that core feature, the exchanges can't work because the risk isn't sufficiently diversified. The Republicans who are trying to gut Obamacare know that, and apparently they don't care that this particular "tax cut" will in fact cost more than 8 million Americans the possibility of having affordable health care, likely leading to early deaths for a large number of that group. They don't care, I guess, because "those people" are less likely to be wealthy and less likely to vote Republican. If you are so blinded by partisan fealty that you no longer care about legislating for the good of the nation, you descend to the garbage dump level of this Republican tax bill.
Of course, the elimination of the individual tax cuts, the expansion of the real-estate-industry favorable tax cuts, the inclusion of what can only be called a 'mock' provision to deal with carried interest (it doesn't), the elimination of the medical expense deduction (in the House bill) that will leave the disabled, the injured, and the elderly in dire straits, the decimation of the casualty loss provision that helps ordinary people recover from natural disasters, the huge cutback to the state and local tax deduction for individuals (while continuing to allow it for all businesses)--all these provisions prove that Republicans don't care a fig about ordinary people. We won't be spending money on basic scientific research (needed to be competitive in a global marketplace and needed to save lives from cancer and other diseases). We won't be spending money on infrastructure (needed to have safe roads, trains, airports. etc). We won't be spending money on education (other than Betsy DeVos's favored religious charter schools that teach falsehoods on a daily basis). We won't be creating a sustainable economy that serves all of our citizens.
Oh, but we will be decimating the environment, as Trump's lineup of industry trolls continues to reduce wilderness areas, as Lisa Murkowski sells her tax and healthcare vote to get to open pristine and irreplaceable Arctic wildlife refuge to the oil and gas fossils that have grown obese off 200 years of government subsidies (see The tax bill is bringing drilling in the Arctic National Wildlife Refuge closer than ever, Vox.com (Nov. 28, 2017)), as Zinke reduces FOR THE FIRST TIME EVER national monuments set aside by other presidents so that those obese coal and oil and gas guys can get even wealthier (see Zinke backs shrinking more national monuments and shifting management of 10, Washington Post (Dec. 5, 2017)), as Pruitt ensures that nobody at the EPA does anything to protect the air, water and land from industry pollution, see Goodby science, hello industry, LA Times editorial board (Nov. 6, 2017). .....
The passage of a tax bill that will create an additional one-to one-point-five trillion-dollar deficit is proof that the Republicans don't care if they destroy this country in their effort to return to the Gilded Age of the past (or, in Roy Moore's definition of the time that America was great, the slavery era when (white) families stayed together and were able to sell black babies away from their black mothers (or half white babies away from their raped black mothers)).
What is the Republican response to the deficit and mal-distribution problems created by such a huge tax cut for the already wealthy?
1) The tax cut will pay for itself. This is trickle-down gobbledy-gook. The vast majority of economists and tax experts are quite clear that this is simply not a supportable claim. It's pie-in-the-sky ideology with no basis in fact when there have been a number of attempts to find such a basis. It wasn't true for Reagan, back in an economy for which tax cuts held much more promise of economic stimulus than they do for our current situation. The Kansas experiment shows this trickle-down reasoning is without foundation. Russell Berman, You Better Learn Our Lesson: Kansas Republicans say they are worried that Congress and the Trump administration will repeat the mistake they made in enacting budget-busting tax cuts, The Atlantic (Oct. 11, 2017). But Treasury has now put out a one-page analysis--compared to the careful, extensive, fact-based analyses usually prepared to support well-researched tax proposals--saying that the GOP plan would produce record growth and that growth would pay for the tax cuts. See Alan Rappeport and Jim Tankersley, Treasury Defends Tax Plan Cost with One-Page Analysis (Dec. 11, 2017). Event the speculative Treasury 'defense' assumes away half of the deficit with legislative cuts that aren't even on paper yet. It's pure fiction.
2) Medicare, Social Security, Medicaid (the "entitlement" programs) will have to be cut to make up for any deficits. That, of course, is the underlying plan. See Jeff Stein, Ryan says Republicans to target welfare, Medicare, Medicaid spending in 2018, New York Times (Dec. 5, 2017). Create a deficit and use it to 'starve the government' to justify cutting any programs that don't serve the oligarchs. Most of that minority of people who voted Trump into the presidency (assuming there wasn't a good bit of ballot falsification, which I think went on in Detroit to not count everyone's ballot) will suffer from this--they depend on Social Security when they retire and on Medicaid when they become incapacitated in their old age and need nursing home or assisted living care. Under the Republicans, we'll return to the "good old days" of the Great Depression when old folks became homeless and the government didn't have to bother with caring about the vulnerable.
We all should be hitting the phones and telling every GOP member of Congress that they are not there to protect their wealthy donors: they are there to protect us and ensure that the economy is sustainable and viable for all of us. This tax legislation stinks. Tell Congress to ditch it in the sewers where it belongs.
There's been a good bit written about the Trump tax cut framework released just over a week ago. Most of it points out, as I have here and here, the absurdity of the claims by Trump and GOP spokespeople that this isn't a tax cut aimed at benefiting the ultra wealthy. After all, even with few details and no attempt to deal with the really tough issues that would face real tax reform considerations, it is awfully clear that almost everything in the package is designed to make the wealthy even wealthier.
Just a quick review of the way the proposed tax cuts exclusively or primarily benefit the ultra wealthy:
elimination of the estate tax, which taxes fewer than 2% of the estates, those that have in excess of $11 million (the couples' exempt amount) and haven't used the various trusts and family partnerships to let even more estate value escape tax through valuation gimmicks
Not waiting on the tax cut proposal, Trump's Treasury secretary Steve Mnuchin announced in "Second Report to the President on Identifying and Reducing Tax Regulatory Burdens" (Oct. 2, 2017) a current step to let wealthy people continue to use valuation gimmicks to avoid a fair estate tax, through withdrawal of the Obama Administration's proposed regulation under section 2704 that would disregard the purported restrictions on certain family-controlled entities in setting estate valuations--a regulation clearly merited because of the ridiculous scams of putting assets in family partnerships in order to claim that they are worth 1/3 of their actual value, even though the partnership can be dissolved afterwards with the full value magically returning. (I'll deal with the regulatory changes in my next post.)
elimination of the AMT, which imposes tax when the taxpayer would otherwise benefit from a surfeit of regular income tax subsidies (loopholes, tax expenditures, deductions, credits). For a thorough analysis of the AMT, see A Taxing Matter series of 6 posts, beginning here.
reduction of the statutory corporate tax rate for the largest corporations from 35% to 20%, which benefits primarily the highly compensated managers (who receive substantial amounts of stock options as part of their compensation) and big shareholders (who tend to be mainly the ultra wealthy who own most of the financial assets) and does little or nothing to help small businesses, that already pay tax rates of 25% or less
creation of a single 25% rate for recipients of all business pass-through income (i.e., from partnerships), which benefits almost exclusively the ultra rich, since small business income is already taxed at 25% or less, while wealthy partners in real estate firms would be taxed at the highest individual rate under current law on their pass-through income, and
creation of full, upfront expensing, resulting in a non-economic windfall to businesses that will, again, mainly just increase profits passed on to their wealthy owners. (Although this is purportedly a five-year provision, everybody knows that is just a gimmick to pretend that its impact on the deficit is less than would be admitted if it were permanent. Everybody also knows that the intent is to make it permanent.)
But there are always journalists who try a little too hard to give obviously bad tax ideas a surface claim to reasonableness. Apparently, even James Stewart, who writes "common sense" entries for the business section of the New York Times, suffers this vulnerability. See, for example, his "Tax Cuts are Easy, but a Tax Overhaul? Three Proposals to Make the Math Work," New York Times (Oct. 6, 2017), at B1 (digitally titled "Tax Reform that doesn't bust the budget? I've got a Few Ideas, Oct 5, 2017).
I like the print title better, since the Trump Plan has clearly already ditched any real idea of "tax reform" for a wholesale attempt at trillions of dollars of tax cuts mostly benefiting the rich. There are other things that aren't so good about the article.
1) Stewart calls the Trump giveaway to the rich "the most ambitious attempt at tax reform in over 40 years." That's simply not correct, because it isn't an attempt at tax reform and it isn't really ambitious.
Ambitious? How can Stewart call a grab-bag of all the old GOP cuts-for-the-rich gimmicks "ambitious." Unless he thinks that conning typical Americans who don't understand much about taxes into thinking that this is a populist tax reform intended to help the middle and lower income classes and not drop more riches on the already rich makes it 'ambitious'.....
Tax reform? This isn't tax reform; it's just a series of tax cuts. The framework leaves any thinking about tax reform for somebody else to do--which means it really isn't intended to happen at all. Later in the article Stewart quotes Holtz-Eakin (right-wing tax cut advocate) and Kevin Brady (same) about the "ambitious" framework. They're gung ho. Brady says it's ambitious because they are trying to do what the 1986 reform effort did in several years in only a few months. Nope--they are not trying to do what the 1986 reform did. The 1986 reform was a fully bipartisan effort in both the House and Senate, with Packwood in the Senate and Rostenkowski in the House leading lengthy hearings and in-depth study of issues, along with a responsible and active Treasury and CBO providing in-depth analysis of impacts. Trump and the GOP now intend to pass a tax cut for the rich with only GOP support (unless Trump can bully some election-vulnerable Democrats into going along with the travesty). And they don't intend the kind of exhaustive study and consideration that would provide real information on who would benefit and who would be hurt. We've already heard that some GOP want to pay an outside (GOP-friendly) consultant to do the "dynamic scoring" and not the CBO, because they want to be sure that it predicts plenty of growth (a number that is easily manipulable, which is why 'single score dynamic scoring' is utterly absurd).
Tax reformwould look at the wasteful expenditures we make through the tax system to support old technologies that are clearly part of human-caused climate change, such as our continuing century-long subsidy of fossil fuel extraction, coal-based mountainside destruction, and environmental wildlands-destroying oil, gas, mineral and cattle leases.
Tax reformwould consider who has benefited most from the many loopholes and tax expenditures that we've riddled the original 1986 tax reform act with in the years of money-smoothed lobbying since--such as the reinstatement of the preferential capital gains rate within 2 years of the 1986 tax reform's well-considered removal of the preference, or the reinstatement of the absurd R&D credit when thorough study and consideration showed that it did not result in more research but merely more money (fungibly located, to the advantage of IP-intensive industries like pharmaceuticals and digital software firms).
Tax reform would have a target amount of revenue to raise with taxes, based on social, infrastructure, and other important spending and the debt service needs of the already incurred federal debt, rather than a mere pie-in-the-sky idea of a "dynamic scoring" that would "show" that trillions of dollars of tax cuts over ten years would magically pay for themselves through turbo-charged economic growth that none of the top economists think possible.
2) Stewart acknowledges that the framework appears to be a tax cut for the rich and that it appears to recklessly drive up the deficit and that it leaves the hard part for Congress to figure out (which loopholes to close and how to do it) while claiming huge benefits from corporate and business tax cuts that add to the huge corporate and business tax cuts enacted under Bush 2, many of which were made permanent under Obama. But he excuses all that with the cop-out phrase "this plan is just the opening salvo."
Opening salvo? Something that comes after years of GOP planning and saying they wanted to cut taxes on corporations, eliminate the estate tax, eliminate the AMT, cut taxes on high earners, move to a rate structure with fewer and lower rates, and move to much lower tax revenues by eliminating world wide taxation and adopting a territorial system --i.e., do all the things that this 'framework' does? That's just an "opening salvo"? I think that term casts what is going on here in much too friendly a light.
Opening salvo? when these planners have already said that they are convinced that dynamic scoring (i.e., counting your chickens (economic growth) before they hatch, even before there are any eggs to count) will solve all their problems because they ALWAYS assume that tax cuts to wealthy people will trickle down to everybody else and make the economy grow, even when every bit of evidence from history suggests that simply isn't the case, including the recent Kansas disaster?
3) Stewart claims that "substantial aspects" of the framework already have bipartisan support, by which he means the idea that "global competition" demands that we cut corporate tax rates and everybody agrees that companies should not be able to stash earnings overseas tax-free.
Bipartisan support? Of course, while there are various 'free-market' economists who make the argument that we need to cut corporate rates for competitive reasons, it can be argued that when 75% of corporations pay no federal income taxes whatsoever and when highly profitable companies have been able to increase their profits and when U.S. corporations pay a smaller amount of taxes as a portion of GDP than corporations in other advanced countries, global competition does not seem to be a problem. The problem is the loopholes in our system that allow multinational firms--especially those that depend on intangible intellectual property rights--to pretend to move those rights around and thereby claim that the profits from that intellectual property created here are earned abroad and not subject to U.S. taxation. We could deal with that, but the GOP in House and Senate aren't interested in asking those questions in ways that lead to effective answers. Democrats tend to be more interested in considering what the root problems are. So "bipartisan support" that appears on the surface is likely only skin deep.
Global competition? Right now, we already allow U.S. companies to move active businesses abroad tax free. We facilitate their ability to take advantage of low-tax jurisdictions to compete with U.S.-based companies! We give financial institutions a pass on the 'subpart F' provisions of the Code through the "active financing" exception. And the Mnuchin report on regulatory "burdens" indicated that the Trump administration will pull back on the anti-inversion regulations. We know things we can do to stop the way quasi-sovereign U.S. multinationals play various tax jurisdictions against each other. We could deal with that with a renewed emphasis on something other than the old 'transfer pricing' methodologies and with full taxation on taking business assets out of the country. We could clamp down on transfer of technology to China in exchange for China letting our multinationals into the markets there. So it is not really "global competition" but failure of this administration or this congress to focus on addressing remedies to problems.
4) Stewart claims that the framework's "doubling" of the standard deduction will allow "many more individual taxpayers ... to file a simple short-form return."
Doubling of the standard deduction? Looked at alone, it sounds good. But doubling the deduction while eliminating the personal exemption actually puts a cap on the amount of income exempt for low-income families, rather than increasing it. A family of 5 might well end up paying more in taxes out of an income already inadequate to provide a decent standard of living, especially when coupled with the 20% increase in the lowest rate, from 10% to 12%. Why does Stewart just repeat the (not necessarily correct) selling points for the framework without taking these issues into account?
Simple short-form return? having 4 rates instead of 7 and doubling the deduction while eliminating the personal exemptions is simplification on an inconsequential scale. The real complications are character of income (that nasty preferential capital gains rate, again), and whether something counts as income or not. The people on the low-income of the scale don't have simple returns because they have an Earned Income Tax Credit to calculate. People in the middle may have pensions, capital gains, income from investments of varying types, rental income, mortgage interest deductions, and various other items that requires a little more work. Many provisions have exceptions designed to aid certain kinds of businesses or small businesses, all of which add to complications while filling an important function. But let's also remember that tax preparation software has already made even complicated tax returns fairly "simple" to figure out--just enter the right numbers into the right places in the software. We don't need tax cuts for the rich to have a fairly simple tax return process for the majority of the people of this country. Most already claim no itemized deductions (nearly 70%, a fairly consistent number). Most can easily do their tax returns with cheap software. Most don't need tax cuts for the rich to facilitate their tax returns.
5) Stewart claims that "a lower rate for small businesses and pass-through entities, while more controversial, should promote economic growth." And he thinks that is the most important thing this framework does.
Lower rate for small businesses? Who is kidding who. Most small businesses are just that--they are SMALL in assets and in revenues, and they are NOT taxed at the 35% statutory rate that applies to corporations that have more than $18 million in taxable income (note--taxable income of 18 million means gross revenues of many more millions). Most small businesses are taxed at 25% or less already!
Lower rate for pass-through entities? The main pass-through entity is a partnership, and there is no current rate for partnerships to pay tax, because their income, gain, loss, deduction and credit items pass-through to the partners, who take them into account on their tax returns and pay at whatever rate the partners pay based on their total taxable income 'picture'. Creating a flat rate of 25% for pass-through income won't benefit small business proprietors, who already pay a lower rate in most cases. But it will hugely benefit wealthy partners in real estate development partnerships and similar companies that would have otherwise been paying tax at the 39.6% rate and under this would pay tax at only 25%.
Promote economic growth? What about this is in any way empirically supported as promoting economic growth--especially the broad-based, raising- all-boats type of economic growth that actually goes to the middle and lower classes and has a multiplying effect on growth because of the increased demand that creates more business that creates more jobs, etc.? There's really no support for these long-term GOP tax cut proposals to actually do anything about creating jobs and creating sustained economic growth that will actually help the middle and lower income groups. Cutting corporate taxes mainly puts more money into the pockets of corporate managers already paid in 12-15 million a year and more. Cutting the tax on recipients of partnership pass-through income mainly puts more money into the pockets of the real estate developers and hedge fund managers and joint venture capitalists who already earn tens or hundreds of millions annually. None of those profits will necessarily remain in this country (they are likely to be used to expand in China). And again, Kansas. The Kansas "experiment" in drastic cutting of business taxes was supposed to prove, once and for all, that the GOP ideology of tax cuts that pay for themselves was not an Arthurian legend based on Arthur Laffer's absurd napkin theory but a real, empirically provable, workable way to jumpstart huge economic growth. After finding the state swamped in deficits and facing reduced growth from the predictable decline in state services, even the GOP members of the Kansas legislature recognized that taxes had to be raised. And they did it over Gov. Brownback's veto.....That says a whole lot about cutting taxes that the Trump framework people will, of course, call 'fake news' (their favorite term for dissing any facts they find inconvenient).
OKAY, I know. I've already got 5 items picked for discussion and I've not even gotten to Stewart's three ideas for making the absurd Trump tax framework "add up mathematically." That's because he assumes away many of the problems with the framework, making it easier to claim he's found a solution to the deficit issues.
6) Stewart takes the framework at its word but disregards the state and local tax deduction (likely to be heavily lobbied against) and the expensing (costs $220 billion for just 5 years and would be much more costly than that when made permanent). He's willing to buy the idea of a budget resolution that says it is okay if the tax cuts result in a $1.5 trillion revenue shortfall over ten years (i.e.,, okay if tax cuts for the rich create an additional $1.5 trillion deficit), on the assumption that drastically faster economic growth will make up much of the difference. As he puts it, "that's a debatable proposition, but for purposes of this discussion, let's accept it."
A budget resolution for a $1.5 trillion cost over ten years to tax cutsthat likely will cost $3 trillion to $7 trillion? How is just "accepting" that reasonable, or common sense? Sounds nutty to me. Especially in light of the arguments that the GOP has made in the past (and can be expected to make again in the near future, in part justified by the deficits created by their tax cuts for the rich) for decreasing funding for Medicaid, Medicare, Social Security and any other programs for the vulnerable based on their "worry" about deficits and debt.
Accepting an assumption of economic growth at sustained high rates that are much higher than experienced even during periods of economic stimulus from federal spending? Not just "debatable" but outright "unreasonable."
7) Finally, Stewart gets to his "three ideas". Based on his conclusions in item 6, he assumes that he needs to find just $1.1 trillion over 10 years to make the framework workable. (You already know that I think that it is ridiculous to assume away huge portions of the problems with the framework, so I won't reiterate more than in this sentence.) How does he propose bridging the gap and raising the $1.1 trillion? With some ideas that progressives have been proposing for the last 40 years.
A tax bracket of 44% on the top 0.1% of taxpayers who have more than $2.1 million of adjusted gross income would raise about $300 billion over 10 years.
This wouldn't be near enough to compensate for the huge tax breaks that go mostly to these same taxpayers, but it is something that should be added to at least clawback some of the largess to the rich. The rich received tax cuts from Reagan and Bush 2 that have drastically lowered their share of taxes paid. They would receive another wallopingly huge gift of tax reduction from the Trump framework. Probably the rate ought to be higher (a number of rates at 40%, 44%, 48% and 55% rate, for example, for various levels of income).
Stewart says raising rates would "raise issues of fairness" by penalizing earned income (i.e., for those CEOs and hedge fund managers who make $300 million or $700 million annually in compensation) while leaving passive investment income that is subject to a capital gains preferential rate untouched. Yeah, that's a problem, but it is easily solved. Eliminate the preferential capital gains rate, which just favors the very rich anyway, isn't justifiable under any of the reasons put forward for it, and was eliminated in the well-considered 1986 reforms (before the lobbyists got to Congress and got them to un-eliminate it). Even Holtz-Eakin acknowledges that raising capital gains rates to the same as ordinary income rates would be reasonable.
Tax capital gains at death, he says, because they are taxed preferentially (if at all) during the owner's life and there is no justification for allowing them to pass from generation to generation without ever being taxed.
Hard to disagree with this idea. There is no justification for allowing appreciation to pass untaxed to heirs, with or without an estate tax. This is something that should be enacted (without the elimination of the estate tax) because most estates haven't been taxed at all, and most estates of the ultra wealthy have huge appreciation that horribly exacerbates inequality when it passes to heirs (who did nothing to earn it, in many if not most cases) with bump up in basis and no taxation of the gains. Combine that with the way such assets permit borrowing during life, to be paid off by sale of a few assets at death at no taxable gain, and you have the ability of the ultra-wealthy to live off their assets with almost no taxation during their lives or in their estates (especially if the estate tax is eliminated) or in the hands of their heirs. As Steve Rosenthal puts it in commentary to Stewart in the article, "to take away the backstop of the estate tax without a tax on capital gains at death is crazy." Couldn't say it better myself.
Stewart says Congress could exempt "family owned farms and small businesses." Yeah, it could. But it shouldn't. Those family-owned farms may be huge corporate entities, not 'small' in any sense of the word. They can afford to pay tax on gains that haven't been taxed in a lifetime. Any exemption should be minimal (maybe exempting gains on assets of $1 million or less, like the pre-Bush estate tax exemption amount).
Curb the deduction for corporate interest expense. This is another workable idea, since debt remains one of the ways that corporations finagle where income goes and where deductions are generated, in spite of the various existing provisions for limiting deductibility of corporate interest payments.
Most GOP proposals, as Stewart notes, couple reductions in interest deductions with elimination of taxes on interest income. That is not necessarily a sound approach, and you can bet that the real estate industry (among others) would huff and puff and blow the straw house of limitations away in no time. Just look at the "at risk" rules under section 465, which were intended to prevent taxpayers from using nonrecourse debt to create basis to allow utilization of phantom losses, as originally enacted in 1976. It just took another session of Congress to get a loophole that essentially swallowed the rule, allowing "at risk" treatment of "qualified nonrecourse financing" for real estate projects. So any reductions to the deficit here would likely be temporary at best. And there are other real estate tax expenditures that should be attacked, too, like the section 1031 like-kind exchange rules that favor in particular real estate developers by allowing deferral of gain when trading properties (even when it is actually getting cash that a middleman holds, and then buying another--a far cry from the original intent of the section).
Stewart, at the end, takes a victory lap, because these three provisions, if enacted, could conceivably raise enough revenues to close the (assumed) $1.1 trillion gap. The problem --this is very misleading for typical readers. It looks like he is presenting the "tax cuts for the rich" framework as a workable plan that can be easily paid for and that is promising in terms of economic growth potential. As you can see from my analysis, I think the framework itself is not a workable plan, it cannot be easily paid for, and it does not hold out a real promise of economic growth.
Marcus Ryu, a self-described Silicon Valley entrepreneur who created, with others, a company now worth $5 billion on the New York Stock Exchange, argues in today's Op-Ed section of the New York Times that "Tax Cuts Won't Create Jobs", NY Times (Oct. 9, 2017), at A23 (the title in the digital edition is different from the print title: Why Corporate Tax Cuts Won't Create Jobs). He is right.
The tax cuts proposed in the framework set out by the Trump administration and Republican leaders in Congress claims to be pursuing economic growth that will benefit ordinary people (Trump's purported base). These claims are based in part on claims that U.S. taxpayers (individual, corporate and individual who owns businesses through partnerships) are much more heavily taxed than taxpayers in other advanced countries. Trump often points to the statutory tax rate for corporations (35%), which is higher than the statutory rate in most other advanced countries. But Trump usually ignores the fact that the vast majority of corporations (including very profitable U.S. multinationals) pay no or much lower taxes, in part because of the many loopholes and deductions that reduce the income that is taxed. When one considers the nation's GDP and the percentage of GDP paid in taxes, it is quite clear that the U.S. is actually one of the lowest taxed of developed countries, which often have income taxes, corproate income taxes and value-added taxes (which the U.S. does not have), as well as specialty taxes such as financial transaction taxes (which the U.S. does not have). See, e.g., Business Insider, Is the U.S. the highest taxed country? (Sept. 6, 2017).
"[T]he most comprehensive measure by which to judge Trump's claim, combining corporate and individual taxes paid, is tax burden as a percentage of gross domestic product. It compares how much money in a country is put toward taxes with the economic output of the country. By this measure, the US has the fourth-lowest tax burden of any OECD country, with only South Korea, Chile, and Mexico ranking lower." [emphasis added]
Trump has claimed that the proposed cuts in the Trump tax-cut "reform" framework don't benefit the wealthy and don't benefit him but are for the middle class and those with less wealth and income. The only way that claim would work would be if tax cuts that are clearly targeted at the rich (elimination of the estate tax, elimination of the AMT, drastic cut in the rate at which wealthy partners pay taxes on partnership income shares, drastic cut in the corporate tax rate when most of the benefit of tax cuts to corporations is used to pay dividends or do share buybacks for the wealthy managers and shareholders) had such a dramatic impact on overall economic growth and on sharing of the benefit of the tax cuts with ordinary workers that it made up for the fact that almost all of the benefit goes directly to the very wealthy and almost all of the negative impact (via additional borrowing and deficits) will result in fewer benefits from the poor. That positive balance is so unlikely from these tax-cuts-for-the-rich that they appear to be just another of the many Trump lies intended to mislead the American people. See, e.g., Business Insider, Trump tax reform plan just got its first brutal review showing how it would benefit the rich and almost no one else (Sept. 2017) (noting that "Americans among the top 1% of earners would see the bulk of the plan's benefits, while lower- and middle-class Americans — even most upper-class people — would see few benefits," citing the Tax Policy Center's study of the framework).
Marcus Rye sets out a number of key ideas in his op-ed.
First, "lower tax rates will not motivate more people to start companies." That is because most people who start a company do so because they have an idea, they want to strike out on their own, or they are ambitious for fame and fortune generally. Research on the 1986 significant changes to marginal tax rates shows that those changes did not induce higher-income people to work longer hours.
Second, existing companies won't shy away from a promising investment because of the tax rate on potential gain. Company leaders are motivated to expand if possible, and "lowering the corporate tax rate isn't going to make us create jobs any faster."
Third, tax cuts just "increase our post-tax profitability, which effectively transfers money from the federal government to our shareholders." The result is a bump in the share prices but no long-term impact on operations or employment plans. It doesn't even make it easier to raise cash for expansion, since companies are having no trouble getting capital now because of low interest rates.
Fourth, the tax-cut proposal demonstrates shoddy business reasoning. It "wish[es] away huge tax-revenue shortfalls with stupendous growth projections." No well-run business would do that kind of shoddy planning.
Fifth, "by 2027, when [the tax cuts] are fully phased in, four out of every five dollars ... will flow to the top 1 percent, an egregious wealth transfer to those who least need it."
Finally, "tax cuts that deepen our already severe inequality in income and wealth are not in the long-term interests of any citizens, not even the very wealthy. Extreme inequality is corroding our civil society, poisoning our politics, and undermining our effectiveness as a nation. This is an extremely hard problem to solve, but when you're in a deep ditch, the first thing to do is to stop digging."
There's no surprise here. The Institute for Policy Innovation (IPI) is a right-wing "think" (i.e., propaganda) tank that has consistently argued for tax policies that favor multinational corporations and the wealthy. So IPI has a posting on Sept 29 that is supportive of the so-called "tax reform framework" put out by the Trump administration.
As an earlier post on A Taxing Matter noted, the Trump framework is a wish list for the wealthy, providing one tax cut for the ultra rich after another:
elimination of the estate tax (that only affects the heirs of estates worth more than $11 million);
territoriality (that advantages multinational corporations that actually operate from the U.S. but claim headquarters in low-tax jurisdictions);
a flat 25% rate on "pass-through income" that gives almost a 15% rate cut to wealthy owners of partnerships in the real estate, joint venture, oil and gas and other businesses (and affects very few true small business owners whose effective tax rate is already no more than 25%, if that much);
elimination of the top rates on the progressive individual rate structure (reducing the top rate from 39.6% to 35% (or less));
reducing the statutory rate for corporations to a low 20%, when corporations already pay much much less in taxes than they have generally paid under the income tax system while making record profits and paying their key managerial personnel the kind of salaries and percs that have exacerbated the increasing income inequality gap in the U.S.;
elimination of the Alternative Minimum Tax (AMT), a provision that was enacted to ensure that wealthy taxpayers are not able to use so many loopholes and special provisions that they escape taxation altogether on their income (the elimination of the AMT being a pro-wealthy tax cut that ordinary folk in the lower two-thirds of the income distribution will benefit not one whit from); and
permitting immediate expensing for five years of equipment and similar expenditures by businesses (another provision that will allow mega corporations to make even more profits that can be shared--through bonuses, higher salaries, and share buybacks with the wealthy managers and shareholders of the enterprise and a provision that runs explicitly counter to the actual economics of the business, in which new equipment stays at close to original value in the early years with wear and tear actually economically backloaded onto the last years of the useful life).
As a result of these provisions, the wealthy who own the vast majority of financial assets (including stock in corporations and partnership interests in real estate and other partnerships) will enjoy hundreds of thousands of dollars of tax cuts. In fact, the major portion of the tax cuts will go to the very wealthy who need them least.
Meanwhile, the rate of taxation on the lowest income group in the country, the bottom percentile, would be increased by 20% (from a 10% rate to a 12% rate)--a truly significant and revealing increase for people who are struggling to make ends meet in an "as needed" worker environment where steady full-time jobs for a regular paycheck are vanishing as corporations call workers in when they want them and send them home sometimes after only a few hours. (This is of course accompanied by a continuing right-wing assault on worker rights and the attempt to shrink labor's power and ability to negotiate with extraordinarily powerful employers in unison rather than individually.) While the standard deduction (and possibly child care credits) will be increased, the personal exemptions will be eliminated, as well as perhaps other deductions that sometimes stave off disaster, such as the medical expense deduction. This means that many of the low to lower-middle income families with children will pay the much higher rate of tax on a larger portion of their income--i.e., their taxes will increase. For the rest of the lower income and middle income classes, tax relief will be minimal--a few hundred to a thousand dollars, most likely.
Note that the members of the Republican Party establishment who are pushing this framework have in the past said that they were very concerned about deficits. Their concern about deficits was the purported reason for limiting the infrastructure plan to jumpstart growth after the Great Recession. Their concern about deficits was the purported reason for nearly shutting the government down time after time over the decision to raise the debt limit for payment of debt obligations the United States government had already incurred. Their concern over deficits was a purported reason for wanting to "reform" Medicaid, Medicare and Social Security--the programs that exist to help the most vulnerable Americans. But now those same Republican Party establishment figures are saying they don't care at all about the deficits. They are willing to allow the deficit to mushroom in order to give yet another gigantic tax cut to the very wealthy. The budget resolution put forward by the Senate Budget Committee would allow a $1.5 trillion tax cut over 10 years, but this plan is likely to cost between $3 trillion and $7 trillion (or more). (Note that the $1.5 trillion figure already includes gimmicky thinking--instead of using the actual law as the baseline, the GOPers are assuming a baseline that assumes that expiring tax cuts don't expire, which gives them more room for additional cuts than if they had to account for actually extending those tax cuts too. So much for McConnell's pledge that any tax reform would have to be revenue neutral. See Tentative U.S. Budget-Tax Deal Gets Nod from Two Republicans, Bloomberg (Sept. 19, 2017). Republicans, as usual, claim dynamic scoring will work, because it will show that growth will make up for lost revenue. Toomey, a Pennsylvania Republican tax cut ideologue, claimed that tax-cut induced growth would actually reduce the federal deficit, and Wisconsin Senator Johnson agreed (especially with the aid of "dynamic scoring", maybe done outside the CBO). Id. Sadly, that is not supportable. This is utter hypocrisy.
And while Trump and various functionaries in his administration have explicitly said that their tax "reform" framework is meant to aid the middle class and not give a bunch of tax cuts to the wealthy, there's no evidence in support of that statement. Their program aids the wealthy and ignores or harms the middle class and poor. See, e.g., Trump Says His Tax Plan Won't Benefit the Rich--He's Exactly Wrong, The Atlantic.com (Sep. 29, 2017); Trump Proposes the Most Sweeping Tax Overhaul in Decades, NY Times (Sept. 27, 2017) (noting that Trump described the overhaul as "an economic imperative" for whom "the biggest winners will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labor and as wages start going up at levels that you haven't seen in many years" though there was scant detail on how working people would benefit from "a proposal that has explicit and substantial rewards for wealthy people and corporations"). Trump explicitly said in his Indianapolis speech that wealthy people like him would not benefit (see New YOrk Times article, cited above). And Mnunchin said the same thing months ago ("no absolute tax cut for the upper class"). See Trumps Tax Plan: Prioritize Cuts for the Rich. That statement is simply not true, since the estate tax, the AMT and the reduction of taxes on pass-through income and on corporate income would each directly benefit the Trump family. He also said the framework would "protect low-income and middle income households, not the wealthy and connected". See New York Times article on Indianapolis speech, above. Again, that statement is simply not true: it will provide huge tax breaks for the wealthy and connected and minimal tax breaks or even tax increases for the low and middle income households. And Steve Mnunchin effectively admitted that the plan will result in tax breaks for the rich, essentially by disingenuously claiming that you can't do a tax cut aimed at the middle class without also giving something to the rich. See, e.g., Eric Levitz, Trumps Tax Plan: Prioritize Cuts for the Rich, Say He Isn't, Daily Intelligencer, New York Mag.com (Sept. 27, 2017); Can't guarantee tax cut for entire middle class: Mnuchin, Reuters.com (Oct. 1, 2017) and by saying that the statement that there would be no tax cut for the rich "was never a promise. It was never a pledge...It was [just] what the president's objective was". Trumps Tax Plan, NYMag.com (Sept 27, 2017). And of course, Gary Cohn, similarly has refused to guarantee that no middle-class family would face a tax increase. See Cohn, Mnuchin Draw Line on Corporate Rate, Tease Debt Reduction, Tax Analysts.org (Sept. 29, 2017) (Mnunchin claiming $2 trillion of growth with a claim that the tax cuts would cause a 2.9 percent GDP growth rate over the decade and a cut in the deficit; Cohn claiming enough growth to pay for the entire tax cut). Note that one of the gimmicks that Mnunchin used to avoid the real effect was to separate the estate tax from the regular income tax cuts--so they admit that they are benefitting the wealthy with the estate and AMT taxes, and then claim they are not with the income taxes. In fact, the income tax cuts also are beneficial for the wealthy.
By the way, as a tax professional and tax academic, I can tell you many ways that you can provide tax cuts for the middle class and poor without providing tax cuts for the rich. Just to consider a few:
do not eliminate the estate tax--it only taxes the very wealthiest of the wealthy, so it can only benefit the very wealthiest of the wealthy. The claim that eliminating the estate tax "saves" small businesses and family farms has been debunked time after time.
do not eliminate the AMT--it only taxes the top quintiles of the income distribution. If you want to save the affluent rather than the real middle class, you can structure the AMT to hit only the top quintile.
do not cut the corporate tax rate to 20%--that primarily benefits the wealthy who own most of the financial assets and hold the high-paying managerial positions
do not cut the pass-through tax rate to 25%--that only benefits the ultra wealthy, since small businesses already pay a rate at or below 25%
do not move to a territorial tax system--that primarily benefits the wealthy and will do nothing to increase jobs;
do not increase the bottom rate paid by the low-income Americans from 10% to 12%--that only hurts those taxpayers.
do not eliminate the highest tax rates (the investment income tax, etc.) Consider adding a financial transaction tax.
eliminate the "carried interest" provision that allows wealthy managers of joint ventures to enjoy capital gains instead of ordinary income rates on their compensation along with, often deferral of any income inclusions.
eliminate the section 1031 like-kind exchange provision, that benefits real estate professionals like the Trump clan with near permanent deferral of income.
As Ron Wydon put it "if this [Trump/GOP] framework is all about the middle class, then Trump Tower is middle-class housing. It violates Trump's tax pledge that the rich would not gain at all under his plan by offering sweetheart deals for powerful C.E.O.s, giveaways for campaign coffers, and a new way to cheat taxes for Mar-a-Lago's loyal members." Id. In other words, saying it is for the middle class is a whopping fairy tale. And of course, it doesn't provide any particulars about the nitty gritty issues that would have to be addressed, like preventing abuse of the 25% pass-through rate, limiting the deductibility of interest expense, or phasing out the expensing write-off after 5 years. Anyone with any understanding of the history of tax provisions knows that lobbyists will start immediately with demands for 1 or 2 year extensions to the expensing elimination, and as soon as the public's awareness of the issue has ebbed, Congress will cave and make it permanent.
IPI likes the plan, nonetheless, because most of the things that IPI claims are "pro-growth" tax policies are actually "pro-wealthy" tax policies that have almost no evidence in support of helping to spur greater growth. IPI specifically mentions expensing (highly profitable for large corporations, since smaller companies can already expense most new investments); the move to territoriality (favors multinational corporations that have moved their key IP abroad); the elimination of the AMT (favors the wealthy); the elimination of the estate tax (favors the ultra wealthy); and the reduction of corporate tax rates from a statutory 35% rate (paid by almost no corporation) to a statutory 20% rate (lower than the statutory rate of our so-called "competitor" nations, that also have a VAT, which the US does not have).
There is no real evidence that any of these tax changes will spur economic growth, and Congress has never funded the research that would be necessary to show that they do or don't. It has depended on little more than Arthur Laffer's napkin drawn curve (not based in empirical evidence) and general Chicago School "free marketarian" and "trickle-down" theories. Oh, and gimmicks like using "dynamic scoring" that assumes a large rate of growth to justify tax cuts that otherwise clearly create huge deficits. Kansas's experiment in slashing taxes for businesses and wealthy was supposed to prove that cutting taxes was a great way to engender growth. It proved exactly the opposite. Reagan's 1981 tax cut was supposed to prove that big tax cuts cause huge economic growth--instead, deficits mushroomed and every other year of his term there were tax increases of one kind or another--mostly hitting little guys and not the wealthy. Similarly, Bush 2 cut taxes and saw a surplus turn to a deficit, and ended his term with a Great Recession because of a speculative boom fueled by loose money in banks and financial businesses.
In contrast, there is real evidence that public expenditures to improve infrastructure, protect the environment, support basic research not funded by corporations, and fund educational opportunities have real positive impacts on economic growth that is beneficial for the entire society.
Let's call a spade a spade. This plan for so-called tax "reform" is really just a smokescreen for shrinking government and making it even harder to protect the environment, enforce the laws, make polluters stop polluting, protect the vulnerable and do the other things that the people acting together through government can do but that the people each acting individually simply cannot do. Like Trump's typical lies (about how "great" his response to the Puerto Rican devastation has been, when he waited days to act, sent much fewer military personnel much later and otherwise treated Puerto Ricans like unimportant Americans compared to the way he treated Texas and Florida), the tax "reform" framework is a lie. It is a boon for the rich, a boondoggle for the poor and middle class, and a bad joke for the future economic growth of the country.
And that's why Trump has already started threatening Democrats that don't support his plan. In his Indiana address, he threatened to campaign against Democratic Senator Donnelly if he did not support the tax boon for the rich that will result in at least a $2 trillion increased deficit over a decade. (Of course, given his failures with Senator Strange in Alabama, maybe that threat, like so much else Trump does, is truly hollow.)
As most everyone is aware, Trump has refused to release his tax returns, breaking precedent with decades of presidential candidates and president's release of tax returns. Even Dick Cheney, grumpy corporatist veep, released his tax returns. I had fun using them as the raw material for an introductory course in federal income taxation where we looked at the returns to understand how the various "lines" correspond to items specified in the Code (like "adjusted gross income" and "miscellaneous deductions").
Trump, however, used various excuses, none of them particularly strong, to say he "couldn't" release his returns. The main excuse was that his returns were under audit. Of course, that makes no difference whatsoever. Any taxpayer can release returns, whether or not they are under audit, and other presidential candidates (Nixon comes to mind) have done so during an audit period. Trump most likely didn't want to release his tax returns because he didn't want to provide fodder to critics who would look at the relatively measly amounts of taxes that he had to pay, or find information about trusts and other entities set up to keep money of shore or, who knows, find information about connections to various Russian oligarchs. Another reason that Trump likely hasn't wanted to release his returns--he wants to be able to pretend that he is not a beneficiary of all those many loopholes in the Code that particularly benefit the ultra-wealthy.
That comes to the surface now, because of his claims, in an Indianapolis speech, that he would not receive any benefit from the so-called "reform" tax "framework" put out by Trump and the GOP leadership. We know from 2005 returns that he has, at least in that year, had to pay $31 million in Alternative Minimum Taxes (AMT) in a year when he would otherwise have paid very little in taxes. That is, in fact, the purpose of the AMT--to force wealthy taxpayers to pay some tax on their incomes when they otherwise have the ability to take advantage of so many loopholes that they would get off pretty much tax free. So we know that Trump lied when he said in Indianapolis that he would not get a benefit from his own tax proposal. His tax proposal would eliminate the AMT backstop for wealthy payment of at least some taxes. That would directly benefit Trump. He lied.
Trump would also directly benefit from the elimination of the Estate Tax. That is a tax that is very low at this point, because of decades of GOP whittling away at it to reduce it to zero on behalf of their wealthy donors. When a married couple with $11 million in assets die, their estate would not pay any estate tax, because there is an exemption for the first $11 million for a couple. On the rest of the estate above $11 million (a size of estate of those in the top 1% of the distribution), the tax rate is now exceedingly low--only 35%. Trump's plan would reduce it to zero. He said in the Indianapolis speech that eliminating the estate tax would help middle class people, small family farms, and small businesses. He lied. Only the wealthy pay any estate tax (see above). Very few small businesses and family farms are subject to the estate tax at all--estimates say there would be only about 80 in a given calendar year at this point. Of those that are subject to it, the amount subject to the estate tax is only the excess over the exemption amount. And family farms get 14 years to pay off any tax like that the heirs might owe, through a provision for installment payment intended to help preserve family farms and allow them to pay the tax due, if any, over time out of the operating profits of the business. So, again, Trump lied.
Trump also would likely benefit huugely from the reduction of rates on corporations, through getting more dividends out of the even higher corporate profits that would result (to the extent that he has investments in corporate stock, which are likely substantial, since most of the financial assets in this country are owned by those in the very tip-top of the income and wealth distribution). So, again, Trump lied.
Trump would also likely benefit bigly from the reduction of rates on pass-through income from real estate partnerships and hedge funds. The Trump empire is clearly in real estate, and there are likely quite a few partnerships in the structure of the Trump companies. Since otherwise passthrough income is currently taxed at the individual partner's personal income tax rate, a 25% rate on income that would currently be taxed at a 39.6% rate (including the tax on investment income), is a 14.6% lower rate or more than a 1/3 reduction in the tax rate on the income. So, again, Trump lied.
Given that Trump distorts so easily the actual effect on him personally of his tax proposals, it would clearly be helpful to the citizenry to have a chance to review Trump's tax returns (and to have had them before the election to take into account as he talked about taxes and wealth). Every president has done so since the 1970s. Seventy four percent of respondents in national polls think Trump should release his tax returns. See McGuire release.
The California legislature has decided that if Congress won't act to do something about this, than it will. As Democratic Senator Mike McGuire, a proposer of the bill, noted in a June 1, 2017 release about the bill:
"Everyone knows that President Trump used the birth certificate issue against President Obama as a dog whistle to white supremacist groups,” Senator McGuire said. “The truth is that we have never elected a president who was not a citizen. That has never been a problem and does not require a solution. But we have elected a president – and he is currently in office – who has serious conflicts of interest that are endangering our national security and who is consistently violating ethical norms to enrich himself and his family. That’s a very serious problem which does require a solution – and the solution is SB 149.”
The legislature has passed a bill (Senate Bill 149, titled Presidential Tax Transparency bill), now apparently awaiting Governor Jerry Brown's action, that adds a ballot-eligibility disclosure provision requiring presidential candidates to release 5 years of tax returns. See Brandon Carter, California legislature passes bill requiring presidential candidates to release tax returns, The Hill (Sept. 14, 2017); CNN Wire & John Fenoglio, California passes bill requiring presidential candidates to release tax returns; Trump could be impacted in 2020, KTLA News (Sept. 16, 2017). The California secretary of state would make the returns public (with redactions as necessary) on the state website. Although it was mostly Democrats who supported the measure, the bill was bipartisan: some Republican members in both chambers supported the effort.
Expect a court challenge to the bill if Governor Brown does sign it into law. The challengers would argue that any additional restriction--even a ballot eligibility requirement--is unconstitutional, since it would add to the eligibility requirements in the Constitution. But the supporters would ably demonstrate that's a specious argument: every state has requirements that candidates must comply with to get on the ballot--mode for getting signatures, mode for making requests, timelines within which to comply, fee payments, etc. This tax return release provision is more similar to those (i.e., a disclosure requirement that is procedural in nature) than it is to the eligibility requirements of age, citizenship, residency set forth in the Constitution ("achievement" requirements that are substantive in nature). The substance on the tax return isn't relevant to whether a candidate can be on the ballot; just the procedural element of complying with the disclosure requirement. Constitutional scholar Laurence Tribe agrees with me that a disclosure requirement isn't an additional qualification (see KTLA News article for quote). And other states--New Jersey, Connecticut, Massachusetts, New York, for example-- are considering or have passed similar action.
National GOP leaders on Wednesday released a 9-page document that they called a tax "framework" (available here on the Washington Post site) describing in vague terms how they intend to cut taxes for the nation's wealthiest people while doing very little that serves the government needs. Overall, the GOP framework would amount to about $2.2 TRILLION in less revenue to support federal programs (like protecting the environment from corporate pollutants, supporting higher education loans for students, funding basic university research) (assuming $5.8 trillion loss to lowering rates and shift to territorial system and maybe $3.6 trillion recouped by eliminating as yet unspecified deductions). See GOP proposes deep tax cuts, provides few details on how to pay for them, Washington Post (Sept. 27, 2017).
They promise 3 rates (12%, 25% and 35%, without stating what the applicable income brackets for those rates should be). That lowering of rates is primarily beneficial to the wealthiest, since the people who just barely get by on their wages (especially with the new corporate regime of calling people in for short shifts, as needed, rather than paying them a regular full-time job) are hit hardest by the payroll taxes that won't be lowered at all under this plan. That is, ordinary wage-earners in the middle and lower classes are generally already taxed on a consumption basis--they spend what they earn and have little left for saving for the future. They pay relative low income taxes but pay significant payroll taxes through withholding on their wages (with no deferral). This is another excursion into the current GOP's 'alternative fact' universe, where huge tax cuts mainly benefiting the wealthy are sold as a 'simplifying' reform that will benefit ordinary people.
Although the lowest rate is higher than the poorest wage-earning taxpayers pay now, the planners claim that this is still a tax cut because of the "doubling" of the standard deduction for those taxpayers that do not itemize. However, the personal exemptions are eliminated, so that the combination of the standard deduction and the higher rate is likely to be at best a minimal cut for small families and an actual tax increase for larger families. See, e.g., this article.
They promise to eliminate the "alternative minimum tax", a tax provision that was enacted as a safety provision to ensure that wealthy taxpayers who can afford tax planning and generally can most easily benefit from the various loopholes and tax subsidies written into the code would pay some modicum of taxes rather than get off scott-free from any tax burden. The "framework" (page 5) claims that "it no longer serves its intended purpose and creates significant complexity." It is admittedly somewhat complex, but not unduly so with modern tax preparation software which makes that complexity a minimal problem. I have been required to pay the AMT, and it hasn't made my life or tax return filing more complex. In fact, the people who owe the AMT should be paying more tax than they would pay without the AMT, and that means it is in fact serving its intended purpose of ensuring that taxpayers cannot aggregate too many of the various haphazard subsidies in the Code to permit them to essentially escape a reasonable tax burden on their economic income. Elimination of the AMT is a tax break for the well-to-do: Trump, for example, has had to pay the AMT (real estate developers are one of the much-favored groups in terms of various tax expenditures in the Code that benefit them).
They plan to eliminate the estate tax--a tax that ONLY applies a low 35% rate to individuals who leave estates worth more than 5.5 million dollars or couples that leave estates more than 11 million dollars, and even then is often the only tax that the assets in those estates have ever been subject to, since these wealthy Americans are the ones most able to take advantages of various trusts and other loopholes and borrowing to ensure that they live as tax-free as possible off their assets during their lifetimes and pass them almost wholly intact to their heirs with stepped up basis to start the game all over again. This is a tax break for the very wealthy and their silver-spooned heirs--especially lucrative for the multibillionaires who own (and live off of) most of the financial assets.
They plan to give corporations an exceeding low statutory rate of 20%, even though the primary beneficiaries will be the owners and managers who already have enjoyed a hugely disproportionate share of corporate gains (compared to their workers) that has resulted in the cascading inequality of distribution of resources in this country, in part because the wealthy typically own most of the countries' financial assets and get a very low preferential capital gains rate on their income compared to the higher rate on wages paid by ordinary, non-wealthy wage-earners. It is claimed that low corporate tax rates are necessary to allow corporations to be competitive, based on the statement that our statutory rate (the rate provided in section 11 of the Income Tax Code) reaches a maximum of 35% for the biggest companies. But the majority of corporations--even highly profitable ones-- pay no income tax at all. And those that do pay a corporate income tax pay an average effective tax rate (actual tax as a percentage of actual economic income) around 24% , at best, and that is not substantially higher than the corporate tax rates in other developed countries. Further, most of those other developed countries do not depend solely on the income tax--they generally have some kind of value-added tax (a VAT) in addition to income taxes and often have various other taxes (such as a financial transaction tax). Making claims about competitiveness based solely on the corporate income tax is, in other words, foolishly incommensurate and really says nothing whatsoever about ability to compete.
Further, they plan to allow corporations to expense all investments, at least for the next 5 years, even though the economic reality is that expensing is an upfront subsidy since wear and tear is most significant at the back end of an investment, not the front end. Expensing (see page 7 of the framework) will cost huge amounts of tax revenues. It is just a way to reduce corporate taxable income (not economic income) even further, making the 20% rate on a lower amount of income produce even less tax revenues from corporations, which already pay a ridiculously low amount and are enjoying record high profits.
The framework calls for changing to a territorial system (at a time when most U.S. multinationals have already used various gimmicks to 'offshore' their main profit-making IP) and lower taxes on U.S. multinationals. The result will likely be significantly lower corporate tax payments from U.S. multinationals. Further, unless the reorganization provisions and ability of U.S. multinationals to move active businesses overseas on a tax free basis is curtailed, these rules will likely encourage other companies to offshore even more of their active business assets. It will favor multinationals over domestic corporations, pushing even more companies to move businesses overseas.
And they intend to preserve the R&D credit (see page 8 of the framework) -which was eliminated in the 1986 tax reform and then reinstated on a piecemeal basis over multiple years due to pressures from corporate lobbyists. There is no evidence that the R&D credit, rather than the more legitimate business deduction or capitalization for research expenses, produces more research. And Congress has done nothing--in spite of years of pushing for making the R&D credit permanent--to establish that it provides any actual economic growth benefit. It just provides an upfront dollar for dollar reduction in taxes compared to the deduction's lesser benefit. And there is no evidence that the credit has resulted in more money being put into research. Research intensive businesses with good leadership invest in research whether or not they get a special tax benefit because otherwise their busienss will die. (Of course, businesses with no attention to anything other than the bottom line may make bad decisions: one reason the pharmacology industry has been lagging is that they have tried to merely buy others' research rather than doing it themselves, and like the infamous purchaser of Epipen, they have simply gorged themselves on exploitative prices because of their monopoly on a particular drug.)
They plan to have income from "pass-through" entities like partnerships taxed at very low rates to the individuals, who already enjoy exceedingly low rates on their gains from corporate stocks and other financial assets (the preferential capital gain rates) and will receive even more cash out of their corporate stock ownership with the even lower proposed statutory rate on corporate stock. This plan for pass-throughs, by the way, will continue to lavish tax benefits on an already super-coddled wealthy class--those who run real estate development businesses through partnership structures (the Trump empire, for one), those who run hedge funds (some of the wealthiest individuals in the country) and those who run master limited partnerships (fossil fuel tycoons).
They say they will "simplify" taxes--which should mean eliminating most or all of those absurd provisions that have grown over the years to clutter the tax statute with special subsidies (that, again, mostly benefit the wealthy). But there is no indication that the GOP has any intent to eliminate any of the special giveaways. With real simplification that made economic sense, the framework would call for things such as
eliminating the preferential capital gain rate (that benefits the wealthy who own the vast majority of the capital assets)
eliminating the section 1031 "like kind exchange" rules (that allow wealthy real estate developers to trade properties for significant gains but defer tax on those gains indefinitely, often til death when the step up in basis allows their heirs to inherit and start the game all over again)
eliminating the various preferences for fossil fuels that have been in the code in one form or another for years, giving oilmen their wealth while subsidizing the most polluting kind of fuel extraction and use (all the while with their lobbyists arguing against significant long-term subsidies for more environmentally friendly wind and solar)
phasing out the mortgage interest deduction--at least for mortgages at more than the average national housing price-- so that multimillionaires cannot get the benefit of the interest deduction on $1.1 million of mortgages, again, a provision that primarily benefits the wealthy in the top 20% of the income distribution, and
eliminating the provision in the charitable contribution provisions that allows wealthy shareholders to donate certain assets for a full fair market value deduction rather than a basis deduction--thus significantly reducing the overall income tax they owe.
But of course--although most academic research suggests that a mortgage interest deduction serves no legitimate purpose, the GOP 'six' indicate they will retain it, because it "help[s] accomplish important goals that strengthen civil society as opposed to dependence on government: home ownership". Fact is, countries without a mortgage interest deduction have just as high rates of home ownership, and the economic effect of the deduction (especially in its current form) is to favor purchase of ever larger homes by those taxpayers in the upper income distributions.
As with so much else from the man currently holding the office of President, what is said (paraphrasing) --that the wealthy will not get a tax cut and the poor and middle class will get big tax cuts --can't be trusted. Like so much else, Trump says he is "very good at it", but then he thinks he is good at everything and is inevitably shown to be fairly ignorant of the issues that matter. The framework, like everything else the GOP has proposed this year --including repeal of the Affordable Care Act; defunding of Medicaid; withdrawal of scientific information about climate change from the EPA website, reduction in the size of existing national monuments meant to protect the land for all of us --is designed to benefit the GOP establishment's wealthiest donors who continue to call the shots on tax and economic policies.
And of course the claim that this 'framework' can result in "the simplicity of a 'postcard' tax filing for the vast majority of Americans" is absurd. The complexities of accounting for various income sources and the heightened complexities that most low-income Americans face in claiming the Earned Income Tax Credit will remain, even if rates are reduced and the standard deduction replaces the standard deduction and personal exemptions. The claim (page 4 of the framework) that "typical families in the existing 10% bracket are expected to be better off under the framework due to the larger standard deduction, larger child tax credit and [unspecified] additional tax relief that will be included during the committee process" seems clearly wrong for many if not most of those taxpayers in that lower bracket.
And their posturing that this "reform" is to benefit "small businesses" is equally absurd. The main beneficiaries of the pass-through rate will be the huge joint ventures, master limited partnerships, real estate partnerships (like the Trump companies), and hedge funds whose owners will enjoy a reduction in their tax rate on that income from 39.6% to 25%. Most actual small business owners are already paying tax around the 25% rate.
The proposal will not end incentives to ship job and capital overseas (see page 3 of the framework on goals)--those gimmicks with transfer pricing of intangibles will continue, as any lowering of the corporate tax rate here to 20%, which is below the international average of 22.5% (according to the report--it may well be too low a figure), will push other countries to lower their rates as well. It is a corporate lobbyist's ideal playground--playing one country against the other to push the "race to the bottom" faster and faster and continue the quasi-sovereign hegemony of multinational companies around the world. If we want to end the corporate inversions and the transfer pricing gimmicks, we know various ways we could do that, including changing transfer pricing mechanisms in ways that various academics have recommended. Congress hasn't really wanted to, since their wealthy corporatist donors wouldn't like it.
What reveals the hypocrisy of the GOP is their sudden switch from deficit hawks during the Obama administration, which made it harder to get a decent stimulus package through Congress and to promote funding for desperately needed infrastructure projects, even when interest rates were incredibly low, to a willingness to incur significant deficits in order to debt- fund even more tax cuts for the wealthy on top of the Bush-era tax cuts that led to a switch from federal surplus to federal deficits and more debt. As Ed Kleinbard so aptly states, "The Republican tax "plan" is a deficit-busting mess, and it would slash the President's taxes", Vox.com (Sept. 28, 2017).
What reveals the GOP hypocrisy even more is their presentation of this framework without any appropriate CBO or Joint Committee on Taxation analysis. And statements by Senator Bob Corker (Tenn) in connection with scoring tax reform that they don't trust the CBO, implying that the GOP should go to a private (pro-GOP) source for "dynamic scoring" so that it will show the results they want--is truly worrisome. See The sudden and regrettable demise of the CBO, USNews.com (Sept. 21, 2017). It disparages the nonpartisan professionals in the Budget Office while showing that the GOP is willing to do practically anything to further the lie that their budget, with huge tax cuts proposals for the wealthy, will miraculously result in widespread economic growth that will float even poor folks' boats.
We already know that tax cuts do not have the miraculous growth effect that they claim. Kansas actually engaged in an "experiment" to prove that tax cuts would stimulate growth. Even the state's GOP legislature recognized the utter failure of the claim, as the state's economy sank under the burden of the tax cuts. Kansas actually voted to end the experiment and raise taxes!
And of course we have experimented this way nationally with various Republican administrations. Reagan cut taxes drastically in his first year in office, caused huge deficits and then increased taxes every year of his term afterwards. The cuts ended up most especially benefiting the wealthy, because the tax increases took the form of higher payroll taxes and other means of hitting lower-income folks that didn't bother the wealthy. George H.W. Bush promised not to raise taxes, but recognized that he could not keep that promise and run the government appropriately. If we are going to spend billions on continuing to buy arms and military planes we don't need (a silly idea, but one that seems ingrained in the GOP mentality), then we have to have more money to fund things we really do need, such as a fair medical care system for the most vulnerable (Medicare) and funding for basic research that corporations don't want to pay for (NSF and NIH, among others). George W. Bush cut taxes on the wealthy and corporations, fulfilling corporate lobbyists wish lists that had been circulating for 20 years, including creating a 'tax holiday' for corporations to repatriate untaxed profits that they had offshored at a very low rate. All that was promised to drive economic growth, but of course it didn't. As with the similar idea in this year's "reform" talk, the 2004 tax holiday provided a way for corporations that had engaged in various gimmicks to move their profits overseas to low tax jurisdictions (even while the money is often in U.S. banks) to bring it back to the US at low or no taxes and then use it to do stock buybacks that benefited their wealthy shareholders with big boosts of income taxed at preferential capital gains rates. Most of those corporations did not use those funds in any way to create job--in fact, some of the biggest so-called repatriators laid off employees at the same time. The tax holiday merely gave even more of a tax subsidy to unpatriotic corporations that were willing to scam the system by pretending to sell their invaluable IP to offshore subsidiaries, and then even higher payments to the CEOs for raking in more cash. In other words, the tax holiday was a great exercise in supporting the creation of an even greater inequality gap. Historical trends are fairly clear on this. The U.S. economy has thrived more under Democratic presidents who have increased taxes and has turned to deficits more under Republican presidents who have cut taxes.
What we should do at a minimum is increase the amount that corporations pay into the federal government, so that a higher percentage of our GDP is paid in corporate taxes, as in other developed countries. And we should add a financial transactions tax, at least, to the mix while eliminating the preferential capital gains rate and the like-kind exchange provision.
Funding the government so that it can deal with the hundreds of billions in financial aid needed in Texas (Hurricane Harvey) and Florida (Hurricane Irma) and Puerto Rico (Hurricanes Irma and Maria) while at the same time starting to handle some of the deteriorating federal roads, railways, bridges and other infrastructure throughout the country would be the best way to ensure that we could continue the economic growth begun under the Obama administration. That funding would require REAL tax reform: eliminating the preferential capital gains rate, eliminating the many loopholes by which highly profitable corporations manage to pay almost no federal income tax, and creating a significantly higher graduated rate structure for taxing estates (while eliminating the step up in basis).
(Of course, we should also recognize that spending the hundreds of billions annually on defense does much less to defend America and make it great than spending a higher proportion of that money on education, infrastructure, and other ways to increase opportunities for all. Let's get rid of the militaristic jingoism that keeps the U.S. armament industry rolling in cash and start funding scientific and health research through NSF and NIH. That is the way we created a thriving middle class after the second World War and the way to support continuing innovations that will make a difference in our lives and economy into the future.)
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