Tornado Alley (PROG)

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shermann7, Opinion: Trump tax cut undermines most dynamic parts of the economy

"I am seeing things going on in the U.S. I never thought I would see ..." .. me too. One certainty is that when
Trump was thinking of his tax plan he wasn't thinking of being good for you. If you happen to sneak into a
niche which is good for you in the short term - after 2017 you will likely pay more tax - then lucky you now.

Published: Jan 2, 2018 1:47 p.m. ET

Corporations will be rewarded for playing games with taxes, Joseph Stiglitz writes


Andrew Harrer/Bloomberg
President Donald Trump and Republican lawmakers celebrate the tax bill that will keep their campaign donors happy.

By Joseph E. Stiglitz

NEW YORK (Project Syndicate) — Never has a piece of legislation labeled as both a tax cut and a reform been received with as much disapproval and derision as the bill passed by the Congress and signed into law by President Donald Trump just before Christmas.

The Republicans who voted for the bill (no Democrats did) claim that their gift will come to be appreciated later, as Americans see their take-home pay go up. They are almost certainly wrong. Rather, the bill wraps into one package all that is wrong with the Republican Party, and to some extent, the debased state of American democracy.

The legislation is not “tax reform” by even the most elastic reading. Reform entails closing distortionary loopholes and increasing the fairness of the tax code. Central to fairness is the ability to pay. But this tax legislation reduces taxes by tens of thousands of dollars, on average, for those most able to pay (the top quintile). And, when fully implemented (in 2027), it will increase taxes on a majority of Americans in the middle (the second, third, and fourth quintiles).

The U.S. tax code was already regressive long before Trump’s presidency. Indeed, the billionaire investor Warren Buffett, one of the wealthiest men in the world, famously complained that it was wrong that he paid a lower tax rate than his secretary. The new legislation makes America’s tax system even more regressive.

It is now universally recognized that growing inequality is a key economic problem in the United States [and tending more that way in Australia], with those at the top capturing almost all the gains in gross domestic product over the past quarter-century. The new legislation adds insult to injury: rather than offsetting this disturbing trend, the Republicans’ “reform” gives even more to the top.

A more distorted economy is not a healthy economy. The International Monetary Fund has emphasized that a more unequal society worsens economic performance — and the new tax legislation will lead inexorably to a more unequal society.

Much of the complexity and distortion in the U.S. tax code arises from different types of income being taxed at different rates. Such differential treatment leads not only to the (correct) perception that the tax code is unfair, but also to inefficiencies: resources move to favored sectors, and are wasted as firms try to convert their incomes and activities into the more favored forms.

The worst provisions of the old tax code — such as the carried-interest loophole, which allows job-destroying private-equity firms to pay taxes at low rates — have been retained, and new categories of favored income (earned by so-called pass-through entities) have been created.

The hoped-for spur to economic growth is unlikely to materialize, for several reasons.

First, the economy is already at or near full employment. If the Federal Reserve comes to view that to be the case, it will raise interest rates at the first sign of a significant increase in aggregate demand. And higher interest rates mean that investment, and thus growth, will slow, even if the consumption of the very rich increases.

INSERT: Noted: Trump has already started blaming the Fed. for interest rate rises.

Moreover, squeezing the “blue” (Democratic) states, including California and New York, by including provisions in the tax bill aimed specifically at them, not only further widens America’s political divide; it’s also bad economics. No sane government would undermine the most dynamic parts of its economy, and yet that is what the Trump administration is doing.

Special tax breaks for the real-estate sector may help Trump and his son-in-law, Jared Kushner, but it does not make America great or competitive. And limiting the deductibility of state income tax and property tax will almost surely reduce investment in education and infrastructure — again, not a sound strategy for increasing American competitiveness. Other new provisions will also hurt the U.S. economy.

Because the fiscal deficit will increase — the only question is by how much, with my bet being that it will be far larger than current estimates of $1 trillion to $1.5 trillion — the trade deficit will increase as well, regardless of whether Trump pursues more nativist/protectionist policies. Lower exports and higher imports will further undermine U.S. manufacturing. Once again (as they have done with health care and the tax cuts), Trump is betraying his core supporters.

But the Republican Party is cynical. Its leaders are stuffing themselves at the trough — Trump, Kushner, and many others in his administration are among the biggest winners — thinking that this may be their last chance at such a feast. And no Republican believes the party can get away with it more firmly than Trump does.

That is why the legislation is structured to give individuals temporary tax cuts, with corporations getting a permanent reduction in their tax rate. The Republicans seem confident that voters will not see beyond the next paycheck. But voters are not so easily manipulated: they have seen through the trick, and are rightly convinced by the numerous studies, from sources in and out of government, showing that the lion’s share of the tax cut goes to corporations and the very rich.

Trump’s tax legislation also attests to many Republicans’ belief that dollars are more important than voters. All that matters is pleasing their corporate sponsors, who will reward the party with contributions, which will be used to buy votes, thereby ensuring the perpetuation of a corporate-driven political agenda.

Let’s hope that Americans really are smarter than the greedy corporate CEOs and their cynical Republican servants believe. With midterm congressional elections coming in November, they will have ample opportunity to prove it.

This article was published with permission of Project Syndicate .. http://www.project-syndicate.org/ — The U.S. Donor Relief Act of 2017 .. https://www.project-syndicate.org/commentary/trump-republican-tax-legislation-by-joseph-e--stiglitz-2018-01 .

https://www.marketwatch.com/story/trump-tax-cut-undermines-most-dynamic-parts-of-the-economy-2018-01-02

See also:

Taxpayers, You’ve Been Scammed
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"Taxpayers, You’ve Been Scammed"
""What's Behind President Donald Trump's Latest Poll Numbers? | Morning Joe | MSNBC
[...]
The still more-Obama economy ticking ok, yet Trump's changes are starting to bite, and inflation is overriding the middle class tax cuts. Trump's tariffs starting to hit with farmer uncertainty building, and Harley Davidson (Wisc.) jobs a problem. Trump tweet attacking HD a pain-in-the-azz for Republican candidates there. . Suburbia has problems with Trump. His con is unraveling. Healthcare premiums possibly up 30-50% in late Sept./early Oct. Trump's administration seen as irresponsible on the fiscal front, corrupt and cruel in the social arena. Even with Obama's (still more than not) ticking along Trump hits 39% in latest Gallop. Not good historically. Suburbia drifting from Donald. No Hillary to bully and lie about. Who could be slipped into a jail him/her chant ever again. It was boring as hell anyway. What scurrilous, nasty, irresponsible action(s) will Donald and his corrupt administration come up with before the mid-terms?""
By Paul Krugman
Opinion Columnist
June 30, 2018
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Now this is good for the working poor! More money for the rich.
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Robert Reich
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Trump's 11 Biggest State of the Union Lies:
[...]
5. “Just as I promised the American people from this podium 11 months ago, we enacted the biggest tax cuts and reform in American history.” More BS. Trump’s tax cut is nearly 0.9 percent of GDP. Ronald Reagan’s 1981 tax cut was 2.89 percent of GDP. Trump’s tax cut is even smaller than two of Barack Obama’s tax cuts as portion of GDP.
6. “Our massive tax cuts provide tremendous relief for the middle class and small businesses.” Oh, please. A raft of independent analyses show that more than three-quarters of the individual tax cuts will go to people who earn more than $200,000 a year in taxable income – the richest 5 percent of all taxpayers.
7. “We slashed the business tax rate from 35 percent all the way down to 21 percent, so American companies can compete and win against anyone in the world. These changes alone are estimated to increase average family income by more than $4,000.” Utter baloney. The average household would get a tax cut of $1,610 in 2018, according to the Tax Policy Center. From then on, the average household will save less and less in taxes.
8. “Since we passed tax cuts, roughly 3 million workers have already gotten tax cut bonuses — many of them thousands of dollars per worker.” Rubbish. Fewer than 2.5 percent of American workers have received one-time bonuses so far, and many of the companies offering bonuses are on Wall Street.
9. “Since we passed tax cuts … Apple has just announced it plans to invest a total of $350 billion in America, and hire another 20,000 workers.” In fact, Apple didn’t say whether its moves had been long planned or spurred by the tax changes, or even whether it’s increasing its level of U.S. investment from previous years.
10. "Chrysler is moving a major plant from Mexico to Michigan.”
Baloney. Chrysler’s plan to invest $1 billion in a factory in Michigan was in motion before Trump’s election, according to its CEO, who credits talks with the United Auto Workers in 2015.
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