Remember how Trump sold the Republicans' $1.5 trillion-deficit-creating tax cut plan as a boon for the middle class that was going to create jobs and raise wages? That was in September, when he told congressional lawmakers at the White House that "The rich will not be gaining at all with this plan." See Washington Examiner (Sept. 13, 2017).
Let me repeat that: Trump said "The rich will not be gaining at all with this plan." (emphasis added)
No tax lawyer or professor believed that statement. Nobody that knew anything about the early drafts of the bill believed that statement. But quite a few Trump supporters have believed that statement.
It wasn't true. It was a bald-faced lie, and Trump knew it was a bald-faced lie. He has no trouble making such lies and does it multiple times a day. But this one was both manipulative and deceptive. Manipulative, because it helped to prevent any outcry from his core supporters that might have caused a Senate vote loss. Deceptive, because it was intended to mislead, as so much of what this man does in the office of the President.
Trump made absolutely clear what he really is proud of at his holiday golfing retreat at Mar-a-Lago, where memberships now cost $200,000 (were $100,000 before they counted as access to the Presidency) and members are part of the oligarchic ultra rich set that Trump so adores. Here's what he told them just before Christmas: "you all just got a lot richer" from the passage of the Republican tax cut legislation. See Bobic, Trump Told Friends 'You All Just Got a Lot Richer" From Tax Bill: Report, HuffPost (Dec. 24, 2017).
So September, Trump is claiming that the rich won't gain a thing from the tax cut but come December, Trump is boasting about how much richer the rich got from the tax cut.
Next up? The Republicans who didn't care if they created a $1.5 trillion deficit with their tax cuts for the rich now whine about the dreadful deficit (that they created) and the oh so shocking necessity, now, of cutting back on
Social Security (they want to privatize it so the rich can get rich off of passing risk onto the vulnerable elderly but this is less likely since they can't do it by reconciliation with just GOP votes) and
Medicare (they want to decimate it- and can do that with reconciliation-GOP apparently doesn't want us to have the kind of universal and cheaper health care that the rest of the developed world enjoys because there's no money in that for them) and
Medicaid (GOP can't make money off it and they don't care about the poor kids and families and old people that depend on that anyway).
That, my friends, is the kind of character we have in the White House--a man who doesn't give a damn about the ordinary people that put him in office, except when it comes to stirring up their hatred of "liberals" so that they will keep voting for him under his claimed (but false) "conservative" mantle, a man who cavorts with the ultra-elite and caters to their every need and doesn't give a damn whether they pollute our air, water, or land or destroy our public lands and oceans and wilderness areas and sacred places; a man who is as two-faced as they come--claiming no benefit from his tax cut bill and then boasting about how much richer the rich get from the bill.
And it is also the kind of so-called "leader" we have in Congress-. There's multi-millionaire Paul Ryan--p who wants to cut Medicare because it "has been my big thing for many, many years." His Ayn Rand callousness is coming to the fore. And there's (for now) multi-millionaire Orrin Hatch, who attacked programs for the poor as "wasting America's money." Id. Hatch may well be replaced by multi-millionaire Mitt Romney, who thinks anybody that isn't in the upper class economically is just a wasteful "taker" while it is the rich people that really count. (I've got news for Romney--without those hard workers at the bottom of the income scale, this country would NOT be great.) Romney's not really much different from Trump, just less crass about it when in public.
These rich Republicans are part of the new oligarchy pent on class warfare against the poor and middle class that they disdain while waving the flag and pretending they love their low-income voters. Nah, they just love the votes. They don't give a damn about anyone but themselves, and they are set on a course to destroy all the common decency that this country has established over the years, the core of moral fiber that is really what makes America great.
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.
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.
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.)
Obama's budget isn't even released yet and he's already caving to the "let's make the rich richer and forget the rest" crowd. That crowd that claims that we need a capital gains preference so the rich can gather all that extra money to purportedly create jobs. The crowd, that is, that fails to acknowledge that the rich tend to take all that extra money to Singapore, the Bahamas, or the Cayman Islands or hide it away in some Swiss bank, none of which does any good for our economy compared to what the government investing that money in infrastructure projects would do. See, e.g., David Leigh, Leaks reveal secrets of the rich who hide cash offshore, The Guardian (Apr. 3, 2013); The corporatist crowd that refuses to admit the empirical evidence that says government investment is as important as private investment in creating jobs. It is the government that makes the market go round. And government money--our money--spent for schools, bridges, safer communities provides jobs and improves lives. Without that government investment, there is no market, just barter.
President Obama seems to have forgotten that he was elected. as a Democrat, over the Republican candidate. Obama has no business proposing cuts to Social Security benefits as part of a purported deficit reduction package. Social Security is not a deficit driver: it is a social insurance program earned by those who receive it by payments over lifetimes of hard work. It is the only stable retirement income most have. The average Social Security beneficiary receives just short of $14,000 a year from Social Security--that's just 125% of the poverty line, which of course is defined so low as to guarantee that anyone living at or below that line is indeed in abject poverty and unable to move out of it.
The Republican Party has argued for cuts to Social Security benefits for decades, using whatever crisis of the momen they can engender to argue that we can't afford the system in place. They've invented the perjorative term "entitlement" to imply that those who rely on social insurance because of disabilities or old age are just 'freeloaders' who are mooching off others. Not so, since Social Security is an earned benefit program like insurance: workers pay premiums throughout their working life, and then once they reach retirement age they may draw benefits.
There are a number of reasons for the amount of debt that the US government has--most of them related to the four-decade-long drive by the Republican Party to protect the wealthy and the corporations they own from much of a tax burden and to allow the accumulation of immense wealth by a few at the top of the income distribution. Outsize military expenditures driven by Bush's preemptive wars undertaken at the same time that the Bush Administration pushed through tax cuts that favored the rich are of course a big problem. The Bush tax cuts threw us from surplus to deficit and we haven't gotten beyond them yet. The almost complete capture of the financial regulatory agencies by Wall Street, and the resulting financial crisis driven by casino capitalism spiked with the heady bubbles of derivative inflation is of course another part of the problem, and we haven't gotten beyond that yet, as Big Banks still exercise far too much power over their own regulation, proven by the LIBOR scandal that demonstrated their ability to manipulate the purportedly objective market rate to suit their profit machines.
But Social Security is not one of those drivers of the debt. And the debt is not so outsize that it merits sacrificing the most vulnerable amongst us to mollify the wealthy who merely want to avoid paying their fair share of the revenues needed to get rail service up to snuff, bridges safe, and public schools owned by the public again.
The average Social Security benefit is just under $14,000: the use of chained CPI will result in a loss to the average recipient of "$4,631 in Social Security benefits by age 75, $13,910 by age 85; and $28,004 by age 95" (from release by Social Security Works, based on “Inflation Indexation in Major Federal Benefit Programs: Impact of the Chained CPI,” Alison Shelton, AARP Public Policy Institute, March 2013.).
Obama has no business facilitating the gluttony of the rich. He should drop the proposal to use “chained CPI” that will result in a cut benefits for Social Security recipients.
Obama seemed to get a spine for a brief time around the State of the Union address. But he just can't seem to maintain a strong progressive position--too easily swayed by the Wall Street bunch that run his Treasury or just not understanding what is required to keep his base voting for him. If he treats Social Security--which doesn't have anything to do with the deficit--as one of the cards he can "trade" to the right-wing Republican crowd for some kind of a "grand deal" (of undefined necessity), he will destroy the gains of Roosevelt's New Deal for petty concessions from the entrenched GOP that intends to dismantle the New Deal.
Obama has been threatening to include chained CPI as one of his own budget recommendations. This is foolhardy. For those who depend on Social Security, which they have paid into all their working lives, reducing benefits--which is what moving to chained CPI does--is nothing short of betrayal.
Robert Reich is urging people to sign onto a MoveOn petition to Obama to make clear that we understand the importance of holding firm against the radical right's attempt to dismantle the New Deal. I've reproduced the letter and link, below.
From: Robert Reich Date: Thu, Apr 4, 2013 at 11:10 AM Subject: Mr. President, don't hurt seniors with your Chained CPI
Social Security is not driving the deficit, therefore it should not be part of reforms aimed at cutting the deficit. The chained CPI, deceptively portrayed as a reasonable cost of living adjustment, is a cut to Social Security benefits that would hurt seniors.
There are several sensible reforms to Social Security that should be considered to help make it sustainable, including lifting the ceiling on income subject to Social Security from $113,700 to $200,000 or more, as well as instituting a 1% raise in the payroll tax rate, a rate that hasn't changed in over 20 years.
Both of these reforms would go a long way toward protecting the long-term health of Social Security, but neither should not be conflated with efforts to reduce the federal budget deficit.
President Obama needs to stand by his Democratic principles and fight to protect Social Security benefits.
That's why I created a petition on SignOn.org to President Barack Obama, which says:
Mr. President, the chained CPI is a cut to Social Security benefits that would hurt seniors—it's an idea not befitting a Democratic president. If you want to reform Social Security, make the wealthy pay their fair share by lifting the cap on income subject to Social Security taxes.
This petition was created on SignOn.org, the progressive, nonprofit petition site. SignOn.org is sponsored by MoveOn Civic Action, which is not responsible for the contents of this or other petitions posted on the site. Robert Reich, former U.S. Secretary of Labor didn't pay us to send this email—we never rent or sell the MoveOn.org list.
Jack Lew, former budget director under Clinton and Obama and former Obama chief of staff, answered questions at Senate Finance today in his bid to succeed Tim Geithner as Treasury Secretary. See, e.g., Rubin & Klimasinska, Lew Says He Didn't Know Money-Losing Investment Was in Caymans, Bloomberg.com (Feb. 13, 2013) and other related articles linked below.
When he was first nominated, I noted that I found his candidacy somewhat worrisome. While there are a number of considerations that suggest a decently competent person, there are also some suggestions of a person who has lived in the "Wall Street" flow too long and thus falls into line with the typical Wall Street/mainstream economics thinking--thinking which ultimately supports policies that will continue to slide towards oligarchy.
The hearing focused on several interesting aspects of Lew's career and investment choices.
1) Investing in the Caymans. Lew made an investment of 50 to 100 thousand in a Citigroup fund based in theCaymans while he was at Citigroup, and claimed that he didn't know it was an offshore investment. He got out of it when he went into government and lost money on it.
ME: There we have it--like most rich people, he just didn't care enough to consider closely whehter his investment was in a tax haven country and certainly didn't ponder the negatives .
2) Compensation at Citigroup. Lew got a "bonus" of $940,000 in January 2009 when Citigroup was receiving federal bailout funds. He defended it as being paid in the same way other private-sector employees in similar jobs were paid.
ME: But there was a ridiculous racheting up of financial sector compensation during the years when the big banks were feeding at the trough of easy mortgage securitization money and derivative speculation. Shouldn't someone that we hire as the head of Treasury have been more aware of that speculative binge? Or shouldn't that person be at least somewhat ashamed now that such an exorbitant "bonus" (10 times what most Americans receive in annual pay) should have been funded, in essential part, by taxpayer bailouts of his institution?
Now, Orrin Hatch (GOP-Utah) tried to make a big deal out of Lew overseeing the Financial Stability Oversight Council in administering the Volcker Rule limiting proprietary trading, saying that "it could lead to an awkward situation in which, in your role as chair of the FSOC, you would effectively be saying to financial firms: 'Do as I say, not as I did.' " Hatch claimed that this issue "bear[s] directly on your qualifications." I'm not so sure that is such a big worry since I think it is advantageous if Treasury has some understanding of how big banks trade, but it is just one more piece of Lew's overall nature of being well-attuned to Wall Street (and not so well-attuned to Main Street).
3) Corporate taxes. Lew suggested in the hearing that Republicans and Democrats could "work together" so that changes in the international tax scheme could lead to lighter burdens on some foreign income of US multinationals. The Bloomberg report notes that he supported a global minimum tax, but indicated that could be nominally territorial, with limits on offshoring income to tax haven countries.
4) Earned benefit programs. Lew is one of those Democrats who is more right of center than the party's base. He still mentions the need for "entitlement" program changes as well as additional revenue increases as a part of "balanced" deficit reduction.
ME: This is one of the most disturbing aspects of the Lew nomination. He is pushing the GOP agenda of deficit reduction and "entitlement" reform when instead he should be staunchly defending the New Deal against the oligarchs who want to shrink government, diminish the safety net, end any support for innovative environmental and energy progrms, yet continue to reap benefits from the long-term government subsidies for Big Oil.....We should not tamper with Social Security--and there is no deficit reason for doing so.
Jacob Lew, Obama's nominee for Treasury Secretary, will be coming into office (assuming confirmation) at a time when the harpy forces on the right are gathering steam, to try to use the artificial debt ceiling as a weapon to push the Democrats to needlessly eviscerate the New Deal programs while the harpies claim to be focused on cutting the deficit.
The worry, of course, is that Lew was already involved in White House budget negotiations that appeared to buy that line, offering up COLA adjustments and age-eligibility extensions that cut back on benefits, rather than dealing with the resource issue (lifting or removing the Social Security cap; moving towards universal single-payer to cut back on the wasteful health care expenses generated by all of the rent-seekers in the health care chain of providers). See WPAA, Obama Picks Lew for Treasury as Fiscal Issues Loom, AP (Jan. 10, 2013).
Remember, readers. There is no evidence whatsoever that the right-wing really is interested in the well-being of the US economy. If they were, they would not threaten to use the archaic, artificial debt-ceiling limitation as an occasion to swing a cudgel at that very economy and send it reeling into another recession. They would more readily admit that once they have legislated X dollars of spending and Y dollars of revenue, any excess of X over Y has to be made up by debt. Given that debt is very very cheap right now, that's no big deal. Congress should simply eliminate the debt ceiling and authorize borrowing as needed to make pay for the spending they have already authorized in lieu of raising more revenues to do so. Even Ben Bernanke has finally said what is obvious--the debt ceiling has no fiscal value. See Ben Bernanke: Get Rid of the Debt Ceiling, The Examiner, Jan. 15, 2013 (hat tip to Naked Capitalism's Yves Smith).
Robewrt Pollin, another academic interested in the issues of employment, wages, fair benefits, workers rights and, yes, tax and debt policy, has a good blog on Lew and the need for clear statements about debt, deficits and the US economy: A Modest Proposal for Jacob Lew: Acknowledge Three Simple Facts about US Fiscal Reality (Jan. 15, 2013). The three facts are straightforward (and he has some good charts to support them).
1) The US is not facing a fiscal crisis: our interest payments as a percent of our expenditures are considerably lower now than they have been in the past (including the past under GOP presidents).
2) Interest rates on US bonds are at historic lows, making borrowing even cheaper today than it has been in the past and causing even less worry about a "fiscal crisis" than borrowing might have caused in the past. As Pollin notes, "[w]e should expect Jacob Lew to at least state the obvious here: that the deficit hawks have been wrong about an impending interest rate spike for four years running."
3) The deficits that we are running right now are due to the Great Recession, not to out-of-control spending. The spike (to 10.1% of GDP) occurred in 2009, right after we nearly went off the speculation cliff built by Wall Street, and the deficit has now fallen to around 8.5% of GDP in 2012.
Lew should be able to acknowledge each of these points. And if he could, it would help convince people like me that the Obama administration is finally really ready to fight the teaparty naysayers who seem prepared to destroy the economy in order to be able to bring down benefits under Social Security and Medicare.
Pollin has it right when he says the following:
"[T]he single most important thing we can do to lower the fiscal deficit further is to push unemployment down. This will generate increased government revenues with people paying more in income and sales taxes, and it will reduce government payments on unemployment insurance and supplemental aid for health care and family support. The U.S. has the capacity to pursue a stimulus agenda now quite easily, precisely because interest rates and interest payments to creditors remain historically low." Id.
Paul Krugman appeared on Bill Moyers PBS program Sunday night, talking sanely and rationally about the economy and why jobs (should) come first--and along the way noting how politics now dominates what and how we can talk about economic policies. See Moyers & Company, Paul Krugman on Why Jobs Come First (Jan. 11, 2013).
(While you are at the site, also watch Moyers' essay, The Crony Capitalist Blowout, about the goodies that corporations got out of the fiscal cliff deal, which included everything from immediate expensing to the active financing exception and the R&D credit--all subsidies for big corporations that spent lots of lobbying power ensuring they would get them).
We have all kinds of reasons to know that the US is not Greece and will not be like Greece--we are a powerful economy, we have our own currency, and our debt is widely respected. Nonetheless, the right-wing radicals want to destroy the New Deal programs--Social Security, Medicare, and Medicaid, and they are willing to take the entire economy hostage to try to get their way. Just look at Pat Toomey in the clip Moyers shows on the show, threatening to put the US government into default unless the majority in Congress accedes to the will of the wacky minority.
That wacky minority hopes to use brinksmanship games around the debt ceiling to force progressives to yield on their dream target--decimating the New Deal.
The radicals on the right don't really care about the debt ceiling--look at the way they willingly raised it throughout the Bush administration, even while viciously cutting taxes for the wealthy and creating huge deficits out of the surplus existing when Bush took office! They don't really care about deficits. Look at the way they viciously cut taxes for the wealthy and spent on military budgets and preemptive wars when Bush was in office!
What they want is a radical restructuring of the economy in a way that will maintain and further the new gilded age, where bankers and private equity titans get rich off the labor of ordinary folk and ordinary folk find themselves eeking out a living at more or less the same rate they were before the Bush decades. The top 1%, as Moyers pointed out, have seen a 275% increase in incomes over the last decade (due in large part to the Bush tax cuts, but also to the misappropriation of productivity gains by the rich). Meanwhile, average American workers have seen their wages barely increase by $1.23 an hour.....not even keeping up with inflation.
Obama has said he will not negotiate on the debt ceiling. He must hold firm. There are various ways he can combat their "leverage". The obvious one is that it is unconstitutional for Congress to pass laws that require spending, pass laws that raise too little revenue to pay for that spending, and then refuse to permit the government to borrow to make up the difference that they have legislated into being. That is irresponsible, and can be viewed as a violation of their constitutional obligation to ensure that the nation can pay for the debts it has already incurred. See Taylor, Top Dems Urge Obama to Weigh Unilater Debt Hike, Salon.com (Jan. 13, 2013). Obama is correct when he highlights this. And surely as President, his power reaches to borrowing to fund the government that he is obligated by Congress to run under the laws he is obligated to implement. He should make it clear that he is willing to risk impeachment to test that power rather than be held hostage by their petty, selfish games.
What about the "trillion dollar platinum coin" idea? This is the law that grants the executive the right to mint platinum coins of any denomination. Why not mint a few that add up to a trillion, and then pay it to the Fed and draw cash from the Fed based on that coin, to pay our bills? That is perfectly legal--Congress did not limit the use of the coins in the legislation authorizing them. If Congress can play brinksmanship games by threatening to put the US in default and destroy our economy unless the majority enacts the pet legislation of the minority to destroy the Social Security, Medicaid, and Medicare safety net programs, then the Executive should be willing to use every tool at his disposal to prevent that. Of course, Treasury today said it wouldn't do that. See Anne Lowrey, Treasury Won't Mint Coin to Defy Debt Ceiling, New York Times (Jan. 12, 2013). Stupid of them to do so, since it is clearly within the law. Obama cannot "wimp out" on this debt ceiling issue (to use Krugman's term): if he lets the zanies in the GOP use these tactics to force changes in the safety net programs, he will have destroyed the Democratic party and the recovery from the Grand Recession in one fell swoop.
Remember, the analogy of US government debt to household debt is a silly one, just as is the analogy to Greece. The government is not a family; our income is not the fixed wages of a head of household; our debt may feel staggeringly large for ordinary people to comprehend, but it is not too large a share of our GDP and our cost-of-funds right now is incredibly low. We should borrow while the borrowing is good, to pay for the vital infrastructure repairs that need to be made and to ensure that we do not default on a key obligation to our people--the provision of a decent standard of living through measures that encourage job creation (by creating demand) and provide security against job loss and the vulnerabilities of old age and sickness.
The Peterson INstitute is spending half a billion dollars to distort the public's understanding of debt and deficits, in order to convince Americans that we should run the government like they run their households, in terms of amount of debt. But Peterson is a right-wing billionaire whose views are antiquated and wrong for the time. Keynes is the only one who has had it right, and we should listen to Keynes, not Friedman's brute capitalism theories of a "free" market in which the wealthy control the assets and confiscate the rewards, not Peterson's cacophonous sounds about debt.
Look again at Moyers' program. He runs a tape where Lloyd Blankfein--head of Goldman Sachs, filthy rich, and one of the culprits of the financialization of the economy and the speculation that threw us into the Great Recession--talks about how ordinary people will have to give up on their expectations from Social Security and Medicare. Entitlements, he says, just can't deliver what people want--we can't afford it. This from a guy who has socked away millions garnered from the everyday lives of ordinary people. This from a person who has ridden the easy street rail line of subsidized profits for his banking firm (cost-of-funds extraordinarily low due to the government bailout; and subsidies in the code both internationally (active financing exception) and at home (the tax treatment of derivatives has been extraordinarily kind to banks in terms of sourcing and therefore taxability), etc. This from a person who has enjoyed a priviledged preferential rate of taxation on much of his income, lobbied for through the revolving door of Treasury officials and banksters and their attorneys.
No, Obama shouldn't listen to the Blankfeins of the world, or the Norquists, or the Toomeys. He should turn a deaf ear to Mitch McConnell and to Rand Paul and all of those who insist that we have to keep funding the military-industrial oligarchy but that we can't afford to keep funding the earned benefit programs that have made the difference between an intolerable standard of living and a decent standard of living for millions of Americans.
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