Archive for the ‘tax reform’ category

Tax Reform Bottom Line

December 17, 2017

Republicans are predicting that next week the House of Representatives will pass the conference committee’s tax reform proposal and shortly thereafter, the Senate will also vote approval. This outcome is being positioned as a great victory for President Trump and for the Republican leaders in Congress. Hmmm.

For sure it is a legislative victory. But is it in any way a reflection of voters’ best interest? Who wouldn’t want to pay less taxes?

And, is the Republican $1.5 trillion tax cut consistent with long and frequently expressed Republican concerns about annual deficits and the magnitude of the current debt?

This bill is pure and simply a reward to very wealthy Republic donors So, what’s so wrong with this tax reform?

As advertised, “a big beautiful Christmas Present tax cut for the middle class”, it is not. This is a lie or more gently an incorrect projection. Most of the tax savings accrue to the very wealthy and corporations. Even more shameful is that Republicans will now attack entitlements on the basis that the Government cannot afford funding them any longer.

  • One must recognize that tax reform bill is an optional piece of legislation. There is no gun to the heads of Congress members. The US economy is doing well compared to other modern global economies. Changing tax code without severe economic pressure is dangerous.
  • The consequences of lowering both individual and business tax code are unpredictable.
  • The promise of further economic growth, especially in a time of reasonable economic growth, is wildly unsupported with past experience.

The dark side of this “reform” is that it plays to worst of voters’ instincts. Who doesn’t want to pay less in taxes? Unfortunately, America’s growing income inequality makes Medicare, Medicaid, and Social Security even more critical to the well being of so many Americans. Republicans know this and will use the increased deficit to argue for entitlement cuts.

Hmmm. Let me think. Tax cut for the wealthy, pay for it with help from average Americans and the most vulnerable. Wow, what a Christmas present.

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What Is Reform?

November 20, 2017

Candidate Donald Trump and the GOP in general campaigned on the pledge to overhaul the Federal Tax Code and “reform it”. Hmmm.

Both the House and the Senate have unveiled their visions of tax reform and for the clear eyed, one should not be surprised with the comment, “what tax reform”? Tax cut, maybe, but reform, hardly.

What’s the problem?

  1. Republicans were never concerned with “reform”, rather it was tax cuts that drove this campaign pledge.

  2. Republicans had already mortgaged their collective souls to the super rich (like Charles and David Koch, and Robert Mercer), so cuts favorable to the super wealthy were a done deal.

  3. Small business owners who have predominantly voted Republican were next in line. These “pass through” tax payers needed a lower corporate tax rate so they would not have to pay the appropriate individual income tax rate.

  4. Big corporations were interested in more government welfare but were more concerned about not losing their current “effective” tax rate (18%).

  5. The Middle Class were asking “what’s in it for me” and both Congressional Houses presented plans which were murky to say the least. Against Trump boasts, “biggest Middle Class tax cut ever”, the Middle Class has been hard pressed to see anything in it for them.

  6. The Senate, not content with a weak tax cut offering, included a provision to repeal the “individual mandate” of Obamacare which has only served to make voters more suspicious of the tax reform bill’s real intent.

OK, what’s the real problems?

  1. Tax code reform has never been the real intent of Republicans. GOP focus has been on rewarding their supporters.

  2. Tax code reform is extremely complicated and impacts all aspects of our $13 trillion economy.

  3. The underlying threat to the US economy lies in income inequality, per capita healthcare costs, and funding for so-called entitlement programs. Republicans do not care about income inequality, are agnostic about healthcare costs, and want to sharply reduce if not eliminate entitlements (read – Medicare, Medicaid, and Social Security).

  4. Rather than debate tax reform in the open and attempt to reach a bi-partisan compromise, the GOP has chosen to implement rules which would allow the GOP to pass “tax reform” with the current Republican majorities. What policy changes within the compromised GOP could carry the day?

  5. The path Republicans have selected makes a joke of their past chest pounding anxious cries over the Federal Debt. The Senate and House proposals will add $1-1.5 trillion (at a minimum) to the Federal Debt and could add much more.

  6. The notion that corporations will take tax savings and use that money to invest and add jobs is totally laughable. Even more laughable is that corporations will use the extra savings to increase workers wages and benefits. This dog won’t hunt.

  7. The GOP plans come from “supply side” economic theory which in the two recent previous times the US has tried it (Ronald Reagan and George W Bush) has not performed as advertised. If the GOP really was looking to spend $1.5 trillion to stimulate the economy, a coordinated infrastructure government spending program would have far greater chances of increasing GDP, raising employment, and increasing wages.

  8. At the very base of the GOP house of lies (bad assumptions or beliefs), is that on a world basis, the US economy is doing quite well. Thinking that somehow the rest of the world could grow GDP at an average 2% and the US, magically, could grow at 4-6% is worse than drawing to an inside straight. These are different times than the post WWII period and long term growth must by the nature of things grow more modestly if it is to grow at all. The US needs to focus on how, as a nation, the country can grow productivity, make products and services others want, and share these earnings more fairly with other Americans.

Americans, especially voters must come to see that the current GOP leadership views tax reforms as tax cuts, and tax cuts mean “free lunches” and “free lunches don’t exist.

Hand In The Cookie (Tax) Jar?

October 4, 2017

This past weekend, Republican talking heads shared with Americans their absolute guarantee that Republicans would work “hard” trying to deliver middle class tax cuts. Americans found out that not every tax return was the same and so officials such as Steven Mnuchen, Treasury Secretary, and Gary Cohn, Chief Economic Advisor simply could not predict that every middle class American would receive a tax cut.

These leaders did emphasize that corporate tax relief would bust open the dam holding back job creation and that was a good thing they said. Interestingly the leaders were silent over whether there would be cookies for America’s wealthiest in their Christmas basket. A drop in the top bracket from 39 1/2% to 35% should reward these wealthy Americans handsomely.

One of the cute features of the Republican tax reform would be the elimination of deductions for State and local taxes along with mortgage interest deductions. (Surprisingly, it just happens that “blue” States use these deductions more than “red” States).

In the concept stage, Republicans had thought lower tax brackets and larger personal deductions would offset State, local, and mortgage deductions and allow the middle class to see a tax savings. Ironically, at this time the details (you know where the devil lives) are not set and Republicans are unable to categorically say one way or the other. Just as with the repeal and replace Obamacare, Republicans are beginning to realize how bad the “optics” will look if the middle class gets nothing and the wealthy get a lot.

Regrettably, truly simplifying the tax code and adjusting corporate taxes more in line with global competition could be useful efforts. The big money funding so many Republican legislators, however, does not think that way unless they get their cut first and right off the top.

As it stands now, the “repeal and replace” fiasco will make Republicans look good compared to how they are setting out to “reform” the tax code.

Up Next, Tax Reform

August 7, 2017

The President and the Republican controlled Congress agree (for now) that “tax reform” is the next target for action. Tax reform is a umbrella term, and like any good umbrella, tax reform could mean many different things. Soon Americans will know what Republicans have in mind.

There will be two parts to the reform, corporate and individual tax codes. For corporate taxes, there is a rich world of exceptions, exemptions, and deductions which could make anyone dizzy trying to figure out which ones apply to which businesses. Not surprisingly, President Trump has promised to lower corporate rates from 35% to 15% claiming the current US tax rate of 35% is the highest in the world and puts American businesses at a significant competitive disadvantage. Hmmm. (I wonder what the President will propose about the existing dog’s breakfast of loopholes, deductions, exemptions etc which contribute to the current average business tax rate of 14%, far below the starting point of 35%. Which buasinesses will be winners and which one will not?)

An important aspect of corporate tax deals with pass through taxes and carried interest taxes. Both of these options create tax favorable situations for certain wealthy business owners (lowering their overall tax liability). What will the GOP propose for these during tax reform considerations?

For the individual tax code, it is hard to imagine a more complicated set of rules. The individual tax code is used to generate tax revenue on earned income after certain exemptions and deductions are taken into account. When the adjusted income level is determined, individuals fall into tax brackets and the tax is calculated. For many tax payers (but still a minority over all), pass through and carried interest income plays a role in lower the overall bracket.

Some very wealthy Republicans want a straight “flat” tax of say 10% on all income, no exceptions, and no deductions of any kind. Others argue for less deductions and lower bracket rates but, of course, argue certain deductions are still important. Hmmm.

What is normally never discussed under the heading “tax reform” is what would be the consequences. On the plus side, tax reform is often argued as a route to stimulating the economy.  Some even say a tax cut (their idea of a reform) would pay for itself by growing the tax revenue even at lower tax rates.  Yes, believe it or not, a free lunch.

And unmistakably, there are those who plead for tax reform for various purposefully sounding reasons, in truth only seek a tax cut for themselves.

The more insidious consequence resides in what the government will not be able to afford on lower tax revenues.  Will a GOP controlled Congress lobby for healthcare and entitlements cuts too?

The current tax code has something for everyone to find wanting. The tax code seems to complex. There must be something wrong when an average person needs the help of tax experts to file ones income tax.  Corporate taxes are too high we are told yet American business, on average pay about the same tax rate as foreign businesses.  And, the tax code seems unfair to both the wealthy and the average person.  So “reform” seems a reasonable goal.

The mystery is what will the GOP think constitutes reform?

Tax Reform On The High Wire

April 28, 2017

With a one page, 200-ish word handout, President Trump presented his outline for revamping the Federal Tax code, and in one fell swoop, jump starting US economic growth. The Trump Administration announced the largest tax cuts “in history” and with a straight face assured listeners that these cuts would pay for themselves by boosting current 2% annual growth to 3+%. Hmmm.

The supply side argument is that lower taxes puts money in Americans pockets and with the extra cash, Americans will spend more. More spending, in turn, stimulates industry which adds more capacity, employing more Americans. The increased employment then ignites another round of investment and job hiring. If nothing else, it is an exciting story.

Regrettably, supply side economics (George H W Bush called it VooDoo economics) has been tried before and has been discredited by most economists. Arguably if most Americans received a big positive hit from a tax cut, one might feel President Trump’s outline was worth a shot.  Unfortunately most of President Trump’s tax savings proposal would flow to the already wealthy.  Hmmm.

Progressive economists (Keynesian followers) would prefer outright government spending if the desired policy is to stimulate growth. In practice tax cuts have tended to find their way into the already wealthy’s pockets and not into business investment. Surprised?

The proposed tax cut is a shameless attempt to steal from the average person and give to the wealthy. Hillary Clinton had proposed somewhat the opposite when she proposed new taxes on the wealthiest of Americans. While it is fair to question why the very wealthiest should pay more in taxes (as oppose to everyone paying more), the Trump proposal, as outlined, could increase the taxes of average Americans living in States with high State taxes (which are deductible now on Federal returns). But more than anything, the Trump proposal promised the lower income Americans nothing, question marks to middle income, and a bountiful gift to the wealthiest. For what?

First quarter GDP growth numbers were announced this morning.  The 0.7% growth underlines the problem America’s economy is facing.  Consumers aren’t spending nor are they choosing to save instead.  The average American does not feel flush with money and is choosing to wait on discretionary purchases.  A small increase in most consumer’s discretionary income (via a tax cut) will likely have only a small impact compared to an equal sized increase in direct Government spending.

There is another and important part to the tax cut announcement. Trump Administration is proposing to lower the “corporate” tax rate from 35% to 15%. This is worth listening too. Why? The stated objective is to make our corporation globally competitive and in the process encourage (and not discourage as in now the case) American corporations to repatriate their overseas earnings. (One report estimated that there may be over 2 trillion dollars in overseas banks.) Corporations claim that the 35% tax on repatriated earnings is too onerous compared to their alternatives.

The reasoning goes that repatriated overseas earnings could be used to invest and stimulate the economy, and once taxed, provides the Government a means to increase spending without increasing the debt.

As with many well intended objectives, lowering the corporate tax rate across the board could bring handsome savings to many who do not compete with foreign companies or have hoarded money in far away places. Lawyers, doctors, and hedge funds, to name a few, could spin this lower rate and change their tax paying status for income taxed at 35% to the new lower !5% corporate rate. And why would that be a wise use of the tax code?

There is precious little known about the exact tax code reform but what is implied in the one page press release, the rationale (stimulating growth) for implementing this reform is highly doubtful.

What seems not doubtful is that the very wealthiest Americans will take home a bundle. Hmmm.

Public Option?

April 21, 2017

The GOP and the Trump White House are beating the healthcare drum again. The President promises a really good plan for replacing Obamacare. According to a report in the Washington Post, Trump said, “We’re doing very well on health care.” “The plan gets better and better and better, and it’s gotten really good, and a lot of people are liking it a lot.”  “We have a good chance of getting it soon. I’d like to say next week, but we will get it.” Hmmm.

I suspect those Americans who loose their coverage or those who subsequently find out their coverage covers a lot less will not think their health plan got “better and better”.

Republicans are now debating behind closed doors a plan which seeks to bring together conservatives (Freedom Caucus who do not want any hint of entitlements in healthcare and would prefer for the government to not be involved at all), and moderates (The Tuesday Group who fear sharp political retribution if the benefits of Obamacare are rescinded). The Tuesday crowd are offering weasel words that would allow States to opt out of certain Obamacare services. Hmmm.

The overall facts appear unchanged. The American Health Care Act, even as amended, will provide less coverages to fewer Americans than Obamacare and will provide huge tax savings for the wealthiest Americans. The GOP’s embrace of “the best healthcare money can buy” is a sad replacement for the Affordable Care Act (Obamacare). Is that the best we can hope for?

Here’s a dream.  “Medicare for all” could be a next step in healthcare. Compared to the “oh so many” for-profit insurance companies today (which stand between you and your doctor), Medicare, which insures post 65 year old Americans, and fits seamlessly into existing doctors, hospitals, and pharmacies, could offer “a ready to go” alternative.

Of course Medicare is not without some problems, namely how it is funded. Republicans will decry the expansion of government and seek ways to defund Medicare. Cooler minds, however, might see Medicare as the ideal vehicle to determine what is basic healthcare and how to pay for it, especially if Medicare became the standard package for employer provided healthcare.

No sane discussion of healthcare reform should avoid the obvious elephant in the room. Americans spend more on healthcare than any other country in the world and receive mediocre healthcare outcomes in return. The difference in cost is significant (greater than two times).

An additional revelation is that balancing the Federal Budget can not be achieved unless there is a fix for Medicare and Medicaid, both of which collect less in tax revenues than they spend on healthcare benefits. With “Medicare for All” there is one program providing basic coverage with significant negotiating power with healthcare providers. Existing insurance companies could continue to “administer” Medicare benefits but would be unable to set different conditions around services.

Most likely efficiencies associated with a single payer would be insufficient to assure Medicare would be solvent. Consequently tax reform coupled with healthcare reform could be seen as reforms aimed at serving all Americans and not as ploys to pass on huge tax breaks to the already very wealthy.

Despite wrong headed GOP motivation on both tax reform and healthcare, Democrats, unfortunately, appear willing to simply play for a tie (defined as thwarting the American Health Care Act thereby keeping Obamacare) and rejecting tax reform unless the proposal is revenue neutral or positive.  Hmmm.

The can is poise for another kick down the road.

Trump’s Thanks To The Rust Belt States

November 19, 2016

Donald Trump lost the popular vote by about 2 million, but was able to win the electoral college tally by flipping normally blue “rust belt” States to red.  His victory, in no small measure is thanks to a disheartened core of blue collar workers.  These voters were seeking someone who could offer them hope.

Now there is much speculation about how President-elect Donald Trump’s Administration will begin its first term. What will President Trump attempt to accomplish in the first 100 days? What legislation will signal America is going the “right” way again?  Will the “rust belt” supporters receive their just reward?

There is plenty of chatter about repealing Obamacare (and little talk about what will replace it). There is stealthy talk about who Trump will nominate for the Supreme Court. And lots of talk about Trump’s bold front attack on taxes and regulations. For the voters who pushed the electoral college total over the top for Trump (dislocated workers in rust belt States), they may not realize it but there is little to be optimistic about.

Obamacare addressed a shameful and hurtful aspect of the American healthcare delivery system, namely the notion that an insurer could reject (outright or through prohibitively high premiums) a customer based upon some pre-existing condition. Obamacare also made it much easier (read affordable) for many low earning Americans to gain coverage. Short of a universal healthcare (single payer) system, Obamacare marked a clear step towards human dignity and, for a country which considers itself “exceptional”, closer to where the rest of America’s peer countries already are with healthcare.

Obamacare insures more Americans in every State. Repealing Obamacare will hurt many of these rust belt State voters, not help them. Hmmm.

Trump’a Supreme Court nominee will represent the worst of American exceptionalism. The process of denying President Obama the time honored (and Constitutionally founded) practice of appointing someone to fill a vacancy has blackened the reputation of the Republican Party and will lessen the honor of Trump’s nomination. The actual nominee, himself (little chance of herself) will only tangentially be the issue.

Someone in the Scalia mold should be expected to rule conservatively and in a way unhelpful to rust belt State voters.

For the bread and butter task of “making America Great Again”, the Trump team is proposing “tax reform”and regulations roll back. Tax reform is said to feature lower tax rates coupled with elimination of tax loopholes and deductions. Most pundits say that, at a minimum, this will include sharp reductions in corporate tax rates and for individuals, lowering the top income tax rate reduction (39% to 33%). So, what’s in it for those rust belt State supporters?

The Trump team says those receiving tax cuts (corporations and high earners) will turn around and re-invest this new found money creating a sea of jobs. Regrettably there is no recent experience (like with the George W Bush tax cuts) to support this belief. Wealthy people spend or save any new found wealth and corporations tend to give the money back to share holder rather than actually invest. Sadly, the tax reform is unlikely to stimulate the economy and almost certainly is not going to benefit the rust belt State crowd.

The plan to roll back regulations must have more specifics. Which regulations and what does the roll back look like. This same type of Republican thinking, however, produced the “Katrina effect” and in 2008, a sleeping Republican Government woke up to find the precipice overlooking a world depression. Capitalism and free market policies may help but they can bring harm just as well.

To be sure, rolling back environmental standards and green house gas regulations could enable, for example, the coal industry to hire back some former workers. While this might seem to help in the short term the rest of the world including developing countries will be watching. For rust belt State supporters, global warming long term impact could work against their children.

One must grant that large tax cuts could have a stimulating effect on the economy as predicted by Republicans. While this might be a cause for cheer, these rust belt State voters would do well to recognize three things before they celebrate too loudly. (1) Any overall tax cut driven economic boom would not necessarily flow to them or their States. (2) Over stimulation is almost always followed by a period of contraction and recession (which will adversely impact the rust belt). And, (3) for auto and industrial workers longing for a return to the great paying and benefit rich jobs of the past, while prohibitively improbable, such an occurrence would jack up the cost of what ever was produced and decrease their companies’ competitiveness. These higher cost items in turn would make the companies less competitive and initiate another round of outsourcing or severe downward pressure on wages and benefits.

Tax cuts and slashing regulations is a no win situation.

All is not doom and gloom. Obamacare could benefit from a number of modifications, most healthcare experts agree. A moderate, right of center jurist does not necessarily need to be the end of the world. And, a combination of government stimulus (tax cuts and spending) coupled with a careful review of unnecessary regulation could provide a better situation for American businesses to flourish and grow, helping everyone.

Since the GOP’s heart does not lie in these rust belt States, IMO, disappointment and maybe even resentment lies ahead for these voters who made Trump’s victory possible.