Trump's tax plans

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The House Republican tax writers’ plan is estimated to add $1.49 trillion to the deficit over a decade -- just fitting in under the amount allowed under the congressional budget adopted last week. Tax changes for individuals and pass-through businesses, including rate cuts, doubling the standard deduction, repealing the alternative minimum tax and phasing out the estate tax would result in a net cost of $930 billion, according to one of the official congressional scorekeepers, the Joint Committee on Taxation. Corporate tax code changes would add $847 billion to the tab, while international tax provisions would offset $285 billion of that amount.

House GOP Tax Bill Estimated to Add $1.49 Trillion to Deficit - Bloomberg

Soo, let's get some perspective on that:

• In the aftermath of the financial crisis, which produced the worst slump in seven decades, with the economy producing waaaay below capacity, these very same people were dead set against any form of stimulus, because of worries about public finances.
  
• Now that the economy is actually growing at, or faster than capacity growth and the output gap has all but disappeared, they want to stimulate the economy and all public finance worries have disappeared..
  

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To understand the business tax provisions in the Trump tax proposals, begin with F. Scott Fitzgerald’s insight that the rich are different from you and me — they have more money. In particular, they have more capital. (Ever polite, economists call piles of money that have been invested “capital.”) 

Business tax reform really is an exercise in how we should tax capital income — that is, returns on investments. And because the rich have lots more capital than do you or I, the benefits of the multitrillion-dollar business tax cuts proposed by the Trump administration’s tax “framework” necessarily will be vacuumed up by the most affluent Americans. Business tax reform has only a modest connection to the economic future of working stiffs, and the small connection that does exist is a second-order effect.

The Trump framework offers two critical tax cuts for businesses and their owners: First, it reduces the tax rate on corporate income from 35 to 20 percent; and second, it caps the taxes imposed on owners of “pass-through” businesses like partnerships and S corporations, by creating a new 25 percent tax bracket for those owners’ pass-through income.

(As Republicans never tire of pointing out, regular corporations and their shareholders in theory are subject to double taxation — once when the income is earned by the corporation and again when it’s distributed as taxable dividends to individual shareholders. This rule, however, is honored almost exclusively in the breach. By contrast, the owners of “pass-through” entities are taxed directly on the income of their pass-throughs. Most privately owned companies are organized as pass-throughs; virtually all publicly traded companies are taxed as corporations.)

The nonpartisan Tax Policy Center estimates that the changes to corporate and pass-through tax rates, plus some ancillary rules, will slash tax collections by more than $2.6 trillion in forgone revenue over the next 10 years. By contrast, the purely individual provisions in the Trump plan are estimated to raise about $500 billion in taxes from all of us over the same period. So, viewing things in the aggregate, the overall tax cuts promised by the framework are entirely a story about the business tax side of things: The individual side is a net tax hike. More particularly, the overall impact of the tax framework is a story about who benefits from business tax cuts.

The GOP says its business tax plan will help workers and small businesses. It won’t. - Vox

A must read article that goes on who actually pays for the corporate and pass-through tax reductions.

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Hmm..

The Penn Wharton Budget Model, a nonpartisan applied research organization, released a report  Monday  estimating the House GOP tax plan would cost $1.75 trillion over the next decade. That's significantly higher than the $1.41 trillion estimated by the Joint Committee on Taxation, Congress’s official scorekeeper for tax bills. Furthermore, the Penn Wharton Budget Model projects the bill as drafted will cost the federal government $4.39 trillion from 2018 to 2040 — painting a picture of serious federal deficits for the legislation’s second decade, should it become law.  If Congress used the Penn Wharton score, the bill would not comply with the Senate budget resolution, which states that the cost of the bill cannot exceed $1.5 trillion over the next 10 years under a model that does not take into account greater economic activity likely to result from tax reform.

Research group says GOP tax bill costs $1.75 trillion | TheHill

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LOL. Just as with repealing and replacing Obamacare, which would have put tens of millions of Americans in medical misery (out of insurance, restricted access, etc.), there are also those extremists for whom the present tax plan isn't extreme enough. For some it amounts to "class warfare of which the Democrats would have been proud" Amazing stuff..

The Club for Growth, an influential conservative group, criticized the massive Republican tax plan on Tuesday, taking issue with key parts of the current version of the legislation. David McIntosh, the president of Club for Growth, said in a statement that the bill contained several provisions that would attack wealthy Americans unfairly.

"While the corporate tax cut will lead to some increase in our nation's GDP, the rest of the provisions on individual taxpayers fails the pro-growth test," McIntosh said. The statement listed four specific issues with the bill on the individual side. They were:

1. The top tax bracket of 39.6% for married couples making over $1 million: "House Republicans are engaging in class warfare the likes of which would make Democrats green with envy," McIntosh said.
   
2. A "bubble tax" on wealthier Americans: A provision would add a tax on individuals' earnings between $1 million and $1.2 million to claw back benefits from the 12% marginal tax rate. "That's a real tax increase on successful people who invest and create jobs," the statement said.
   
3. The guardrails on pass-through businesses: The bill includes a provision designed to ensure that owners of pass-through businesses can count only a certain percentage of business profits toward the lower pass-through rate of 25%. The rest would be taxed at the individual income rate. "The blended, real effective marginal rate is at least 35% and can even be higher," McIntosh said. "That means no tax cut at all for most small business and family-owned companies."
   
4. The six-year phaseout of the estate tax: The Club for Growth wants the tax to be repealed immediately. "Our question is, why wait?" McIntosh said.
   

McIntosh did not close the door to possible support of the bill. He applauded the proposed cuts to the federal corporate rate but said changes were needed overall.

Trump tax plan key piece is 'class warfare,' Club for Growth says - Business Insider

This is of course all nonsense, needless to say..

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Several years ago, as President Barack Obama negotiated with Republicans over the budget, readers of liberal websites were subjected to ponderous explanations of “chained CPI,” a proposed alternative to the Consumer Price Index that would calculate inflation as growing more slowly. Pitched as a more accurate measurement of inflation, the chained CPI was really an attempt to reduce the deficit on the backs of senior citizens: The net effect would have been a heavy benefit cut for Social Security, which only made sense if you thought the elderly were getting too sweet a deal with their $1,360 a month in average benefits.

Now, chained CPI is back. And the new iteration, proposed as part of the Republican tax bill, is also a Trojan horse. It would establish the proposition that a “better” inflation measure exists and should be employed across the government. Even if this specific legislation doesn’t touch Social Security, make no mistake: It puts Social Security under threat.

The Biggest Trojan Horse in the Republican Tax Plan | New Republic

Didn't Trump pledge not to cut Social Security? Hahaha

Speaking of older citizens..

In her powerful new book, “Nomadland,” award-winning journalist Jessica Bruder reveals the dark, depressing and sometimes physically painful life of a tribe of men and women in their 50s and 60s who are — as the subtitle says — “surviving America in the twenty-first century.” Not quite homeless, they are “houseless,” living in secondhand RVs, trailers and vans and driving from one location to another to pick up seasonal low-wage jobs, if they can get them, with little or no benefits.

Many older Americans are living a desperate, nomadic life - MarketWatch

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There are three big ways the bill cuts taxes on businesses. Here they are ranked, from most likely to least likely to grow the economy and "trickle down" as more jobs and higher wages.

• Favorable treatment for new business investments. The House plan would allow businesses, for a few years, to immediately "expense" capital investments. That means, if they buy a new piece of durable machinery, they could deduct the purchase price immediately in the first year, instead of spreading it out over many years. This is a tax cut narrowly targeted at new investments — you only get a tax cut if you grow your business — and so it's the kind of business tax cut most likely to improve the economy and create jobs. But this provision only lasts a few years, because it's expensive and Republicans have other priorities.
  
• Lower tax rates on business profits. The plan would reduce the tax rate on corporate businesses (from 35% to 20%) and create a new preferential tax rate for non-corporate businesses. At the margin, this may encourage new business investments. But it also sharply reduces taxes on the returns from business investments that were made in the past. That's nice for you if you own a company — or stock in a company. But lower taxes on investments you already made don't create jobs.
  
• Deemed repatriation of overseas profits. This is the provision about "cash held overseas" by American companies that have accrued foreign profits. The bill would obligate the companies to bring these profits "home" and allow them to pay tax on them at a much reduced rate. Cohn argues this provision would make new capital available to invest in the United States, but he's wrong. As I wrote a few weeks ago, "cash held overseas" is neither cash nor overseas. Apple's "overseas cash," for example, consists mostly of corporate bonds, which means Apple's accrued profits have already been loaned to other companies for the purpose of business investment — these funds are already available for job creation. Repatriation neither lowers the cost of capital for businesses nor increases their expected after-tax return on future investments, so there's no reason to expect it to cause companies to invest more, grow the economy, or raise wages. It is a one-time tax cut on business profits earned in the past, which means it will flow entirely to owners of capital. None of it can be expected to trickle down. Sad!
  

Another problem is that the Republican tax plan would significantly grow the national debt. This can be expected to produce a negative trickle-down effect, as higher government debt leads to higher interest rates, lower business investment, and higher future tax rates — possibly on the middle class. The sad thing about the "trickle down" argument is that it's not entirely wrong. Business taxes do affect investment; workers likely do bear a portion of the economic burden of the corporate income tax (though the size of that portion is hotly debated among economists); the right kind of business tax cuts really can grow the economy and benefit workers, especially as part of a plan that doesn't grow the deficit.

But the key theme in the design of the Republican tax bill is that the business tax cuts are designed to benefit owners of capital first, with workers as an afterthought. Republican officeholders have been talking surprisingly openly about how angry their major political donors will be if they don't pass this tax cut package. That makes sense, since the donors would benefit directly from these tax cuts. They don't need to worry about whether they will really trickle down.

Trump, GOP tax plan isn't good try at trickle-down economics - Business Insider

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Republican lawmakers pushing to close dozens of tax loopholes have left open one that’s been good to President Donald Trump: the golf break. With Senate Republicans expected to unveil the outline for a sweeping tax rewrite on Thursday, a lucrative break for golf-course owners -- including the president -- remains firmly in place in the House version of the measure. The Obama administration estimated in 2014 that closing the controversial loophole would save more than $600 million over a decade. While Republicans are eliminating many write-offs, the House version of the bill allows golf-course owners to claim deductions for promising never to build on their links. The Trump Organization, which owns a dozen courses in the U.S., has taken advantage of the break in the past, using a law that’s supposed to help preserve open space.

One Tax Loophole Untouched So Far: The Trump Golf-Course Break - Bloomberg

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After promising that every American would receive a tax cut under their tax reform proposal, Republican leaders are struggling to explain away the fact that their own analysis reveals that on average, families earning between $20,000 and $40,000 a year from 2023 onward will see a tax increase. On Monday, Fox News host Sandra Smith asked House Majority Whip Steve Scalise (R-TX) about the apparent contradiction. He responded by pretending the tax increases did not exist, since people would no longer have to do the things that provided them with tax credits. “If you look at every different income range, you’re gonna see everybody in those income ranges get a tax cut. What one person does versus another, as the Speaker said, we’re closing a lot of special interest loopholes. That doesn’t mean somebody will no longer be able to pay less in taxes, it means they just don’t have to alter their behavior. They are gonna be paying less in taxes because every rate will go down and we simplify the code.”

House GOP Whip says bill’s tax increases won’t actually increase taxes – ThinkProgress

Unfortunately, the proposal on offer by House Republicans may well retard growth, reward the wealthy, add complexity to the code and cheat the future, even as it raises burdens on the middle class and the poor. There are three aspects of the proposal that I find almost inexplicable, except as an expression of the power of entrenched interests. First, what is the rationale for passing tax cuts that increase the deficit by $1.5 trillion in this decade and potentially more in the future, instead of pursuing the kind revenue-neutral reform adopted in 1986? There is no present need for fiscal stimulus. The national debt is already on an explosive path, even without taking into account large spending needs that are almost certain to arise in areas ranging from national security to infrastructure to the addressing those left behind by globalization and technology.

Three (almost) inexplicable parts of the Republican tax plan | Larry Summers

A report published Wednesday found that the Republican tax bill, the Tax Cuts and Jobs Act (TCJA), would lead to higher taxes for many Americans over the next 10 years if enacted into law. The new analysis from the Urban Institute's and Brookings Institution's Tax Policy Center found that by 2027, 28% of Americans would see an increase in their tax burden due to the tax code overhaul proposed in the TCJA. According to the TPC, the expiration of a number of provisions designed to ease the burden on individuals over the first 10 years of the House bill would lead to an eventual increase for many taxpayers. "Overall, the tax cut would be smaller in 2027, because of the expiration of certain provisions in 2023 (including the new $300 family credit and 100 percent bonus depreciation), the effect of indexing tax parameters to a slower-growing measure of inflation, and the substitution of a child credit that is not indexed for inflation for personal exemptions that are indexed," the report said.

Trump, GOP tax plan effects for middle class: TPC analysis - Business Insider

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Great take on the Republican tax proposals, by David Kamin in Medium (click to read the whole article).

The Senate Bill Really Is Regressive
(Or Why You Shouldn’t Use Percent Change in Tax Liabilities!)
Last night, the Joint Committee on Taxation released new distributional tables showing the effects of the newly introduced Senate tax legislation across the population. Upon the tables’ release, Senate Finance Committee Republicans declared that the tables demonstrated that their tax plan was progressive with the middle class winning the most, and a number of news reports have picked up on this.

However, the legislation is in fact regressive, by any truly meaningful measure. These claims rely on the use of a misleading distributional metric and the opacity of deficit-financed legislation, hiding who really wins and loses in the end. Take a look at two figures below showing the effects of the Senate bill in 2027 and adjusted to include the effects of estate tax cuts which JCT leaves out of its estimates. I use the 2027 figures to capture more permanent effects (though plan to post 2018 figures as an addendum as soon as I have time to actually enter them into a spreadsheet).

As these show, when you look at how these tax bills actually effect the lives of families, it is clear who wins the most: the top. Yes, millionaires — as in earning $1 million per year — apparently get somewhat less as a percent of after-tax income than almost-millionaires. But that doesn’t exactly sound like a progressive change, when those millionaires still get double as much as a share of their incomes as an average family making $40,000 to $50,000 — and one hundred times as much in average dollars per family.

Finally, when you take into account who is likely to pay for the deficit-financed tax cuts in the end, low- and middle-income Americans arelikely to not just end up winning less, but actually be left worse off helping to pay for the tax cuts at the top.
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Some Better Than Others: Different Metrics, Different Answers

However, proponents of the Senate bill are using the JCT distributional tables to argue that their tax bills are in fact doing more for those with lower incomes than with higher incomes. How can this be? It’s all about misleading measures of tax progressivity (and a little bit about JCT leaving out the estate tax). These claims tend to rely on two closely-related distributional measures: percent change in tax liability and change in share of total taxes paid. These two metrics are designed to mislead as to the actual effects of tax changes on people’s lives, as well as to the likely long-run effects of the legislation.   [Continue read here]

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The Trump administration has argued that the proposed GOP tax cuts will lead to a boom in private investment. During an event with the top White House economic adviser, Gary Cohn, CEOs were asked whether they would increase investment if the GOP's tax overhaul passed. Few did, prompting Cohn to ask, "Why aren't the other hands up?"

Trump, GOP tax plan: Gary Cohn has awkward moment with CEOs - Business Insider

Simple:

• Investment isn't all that interest rate sensitive, it's likely not all that tax sensitive either
  
• Companies are already swimming in cash and experiencing record profitability
  
• The tax code is already heavily favoring investment
  
• Funding costs are at historic lows