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NOTE: Treasury Secretary Steve Mnuchin and his wife celebrate the first batch of dollar bills with his signature in the Feature Picture above. Mnuchin, who supports the current tax cut, made millions after his bank foreclosed on homeowners.
Note: I wrote about this subject in THIS earlier post.
I’m trying very hard to understand WHY we need a tax cut. Most of the news today is about what kind of tax cut we need, what the details should be, etc. President Trump and Paul Ryan argue that high corporate tax rates make U. S. corporations uncompetitive, drive our businesses overseas, and hold back economic growth. They argue the Republican tax cut bill will remedy these problems and lead to new businesses and new jobs and higher wages.
Republicans used to be concerned about the government debt. Many referred to themselves as fiscal conservatives. The tax bill just passed in the House will lead to an increase in the debt of at least $1.5 trillion over the next ten years according to their own calculations. The current debt is around $20 trillion. That’s a high number, around 105% of our GDP. The ratio peaked in 1946, the year I was born, at around 122% mostly as a result of the cost of the Second World War. By 1974 the ratio dropped to its lowest point at 32%. Dire warnings from Republicans appeared when the debt ratio rose to 80% after the great recession and higher under President Obama. But now, at 105%, they have no concern about raising even more debt. As reported by Reuters a recent CBO report indicates the ratio will rise to 150% in thirty years without raising taxes or reducing spending.
Are we in a recession? No. The economy has largely recovered from the deep recession of 2008. Is economic growth stagnating? The rate of growth has been low for several years although it has been increasing recently. But, there is no solid evidence that lowering taxes and raising the debt ratio further will increase growth. Raising the growth rate is complicated and depends on many factors—education, skill levels, innovation and even something as amorphous as the “animal spirits” referred to by the famous economist John Maynard Keynes. Are corporate profits so low and interest rates so high that corporations are unable to invest? No. Corporate profits are at all time highs and interest rates at all time lows.
Is the United States a high taxed nation? Not at all. We are below the OECD average, below all of western Europe, and below Canada. It is true that the “statutory” tax rate for corporations is high but the “effective” rate is not higher than most other major countries. More to the point, many wealthy people and corporations hide investments overseas to avoid paying any taxes at all. The recent leak of the Paradise Papers opens up some of this activity for all to see and its huge. Surprisingly, no one is bringing this up in reference to the proposed tax law changes.
So, I ask the question again. WHY do we need a tax cut? The answer is that the rich want to be richer and they are willing to soak the poor to grow their own wealth. This is no exaggeration. Two-thirds of the proposed tax cuts go to corporations and they are permanent. Of the one-third that goes to individuals and families, these tax cuts are temporary and expire in a few years. The estate tax that impacts less than 1% of families in America, the richest of the rich, is permanently eliminated. This is so outrageous at a time when inequality among Americans is near its highest level in history that even sensible rich folks object:
I grew up in a lower middle-class rural family. I inherited no assets from my parents. But after a successful entrepreneurial career I now have plenty of money to give each of my kids and grandkids a head start with an advanced education, a car, and even a house here in Silicon Valley. I have the ability with or without an estate tax to leave enough for my kids such that they never need to work. So why do I need a tax break by eliminating the estate tax? The truth is I don’t. And I shouldn’t get one. Richard Boberg, Patriotic Millionaire
In order to “pay” for their tax cut, Republicans look like Robin Hood in reverse. School teachers, for example, often pay out of pocket for classroom supplies. Heretofore they have been able to deduct a relatively small amount, $250, from their income for tax purposes, far less than most of them spend. No more say the Republicans. Lack of retirement savings is a serious problem in our country. We should do as much as we can to encourage them. Current law allows those over 50 to make larger (“make-up”) contributions to their pension plans to encourage them to save more for retirement. Uh uh, says the new tax cut plan. Top income earners get a nice tax cut, somewhere north of $250,000. What about the bottom 40%? Oh, they get about $25. Remember the “hedge fund” guys that helped create the “housing bubble” that led to the Great Recession of 2008? We were going to change the arcane tax laws that allow these guys to get away with shifting and delaying the taxes they should be paying. So that’s in this new law, right? Uh, no. Nothing changes with “carried interest” or “capital gains”. Well, okay. At least things are now so simple that we can file our taxes on a post card. Isn’t that the way its going to work? Sorry. The tax professionals need not fear they will be out of a job. They won’t. [I am in debt to Serious Inquiries Podcast for much of this information.]
There are lots of reasons Congress should NOT pass the tax cuts as proposed. There may be a tax cut that does not benefit the rich at the expense of the poor and also helps the economy and reigns in the national debt. Given the situation today and how it differs from the economic environment of past tax cuts, the timing does not seem right at this time. In any case, a one-vote majority to pass something of this magnitude and importance is very unwise in an already divided country. In their zeal to “get a win,” Republicans move ahead with this bill at their own peril.
I just am confounded by the total ASSHOLINESS of this administration…..every day…another awful attack on Democracy and decency….
Terrific analysis, Mr. Jones. I have been reading Paul Krugman regularly over the past few weeks, but once again you step in with your own steady eye. I very much appreciate your perspective, David. And–as usual–I learned a lot. Thanks.
Mnuchin and his wife are obscene examples of ruthless greed. It speaks legion that he has been appointed to office by the current President.
You couldn’t have said it better, Jonathan Lehan! I truly get nauseous just seeing their photo above :(( They are definitely the scum at the bottom of the swamp. Nuff said….