Trump's tax plans

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$6.2 trillion in tax cuts over the next decade, according to the Tax Policy Center’s analysis, with the top 1 percent by income getting almost half the benefit. That translates into a 13.5 percent boost to their after-tax income, compared to a 1.8 percent increase for taxpayers in the middle fifth of incomes.  No one knows if Trump can get such big tax cuts for the rich through Congress, even one controlled by the GOP. They could open the gap between the wealthy and everyone else still further, while ultimately widening the U.S. budget deficit and taking resources from other priorities such as health care and retirement. But financial advisers to the wealthy are starting to bet that tax rates will fall as early as next year. And they’re telling clients to make their move before the end of 2016 to maximize the payoff.

What the Rich Are Doing Now to Reap Trump’s Tax Bonanza - Bloomberg

There are lots of reasons to think President-elect Donald Trump’s tax plan, emerging as the centerpiece of his economic agenda (as it becomes clearer he won’t build a wall on the Mexican border), is a bad idea. For starters, the $6.2 billion proposal gives 47% of its personal-tax cuts to the top 1% of earners, (according to the nonpartisan Tax Policy Center) while raising taxes on about 9 million working-class folks, mostly single moms. Great for the Hamptons’ housing and art prices, not so good for people who make Chevys in Ohio, or their customers. Then, there’s the projection that the plan will boost the national debt by $5 trillion in the first 10 years. Not to mention the way President George W. Bush’s tax cuts slashed deficits and staved off 2008’s disaster, making one leery of Republicans bearing fiscal magic. But the reason that sticks is bad timing. Say what you want about Bush’s tax cut: It stimulated an economy that was losing jobs and heading into recession. That’s the exact opposite of now.

The big problem with Trump’s tax plan? The economy doesn’t need it - MarketWatch

Recently, the chairman of the House Ways and Means Committee, Kevin Brady (R-Tex.), said he wants reform to be revenue neutral, albeit as measured by “dynamic scoring,” i.e., accounting for revenue due to projected economic growth. That, too, was a welcome note of relative moderation — but even under fairly robust dynamic scoring, the House GOP plan still costs the government $2.5 trillion over 10 years, according to the Tax Policy Center.

Trump’s proposed tax ‘reform’ is hardly reform at all - The Washington Post

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From Larry Summers:

The proposals from the presidential campaign, reiterated last week by President-elect Donald Trump’s choice for Treasury secretary, will massively favour the top 1 per cent of income earners, threaten an explosive rise in federal debt, complicate the tax code and do little if anything to spur growth.

Steven Mnuchin, Treasury secretary-designate, asserts there will be no absolute tax cut for the upper class because deductions would be scaled back. The rub is that totally eliminating all deductions for those with incomes over $1m would not even raise enough revenue to cover reducing their marginal tax rates from 39 to 33 per cent, let alone offset their benefit from huge rate reductions on business and corporate income, and the elimination of estate and gift taxes.

The repeal of estate and gift taxes is especially problematic because it would provide a window for the very rich to use gift and trust structures to ensure that their wealth passes without tax not just to their children but to their grandchildren and great grandchildren, regardless of subsequent legislation.

Trump’s tax plans favour the rich and will hamper economic growth

By the plutocrats for the plutocrats..

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He said it was "doubtful" that Trump's plan to repatriate huge corporate profits to the United States for infrastructure spending would succeed, saying that a similar effort in 2004 resulted in large stock buybacks, dividend payouts and corporate bonuses, but no noticeable pickup in investment.

Janus' Gross says Trump will be one-termer, in failure for populism

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Could these desires to abolish the millionaires tax, uhh, estate tax be a tad self-serving? What do you think? How about this for swamp draining..

Rather, we want to show you how combining this tax break with repeal of the estate tax — a cherished Republican goal that could be achieved this year - can turn a temporary tax benefit into permanent tax avoidance, enriching the appointees and their heirs.

We’re dealing with substantial money here: at a minimum, tens of millions of deferred capital gains taxes; at a maximum, hundreds of millions. We can’t tell until we analyze filings that appointees haven’t yet made with the Office of Government Ethics. One wild card is their holdings outside of the publicly traded companies with which some of them are associated, because we don’t know what they would have to sell, how much of a gain they would have and how much in capital gains taxes they could defer. Rex Tillerson, for example, owns $28 million to $100 million in land and securities other than ExxonMobil, according to a Dec. 31 report he filed with the ethics office that listed more than 400 holdings.

Other very-well-off Trump appointees whose pending jobs will almost surely make them tax deferral candidates include Wilbur Ross, who made vast sums restructuring bankrupt steel companies; Gary Cohn, former No. 2 executive at Goldman Sachs; Steven Mnuchin, who made a huge profit buying a dead savings institution from the FDIC, reviving it and selling it to CIT, and also has extensive private holdings; Andy Puzder, chief executive of privately held CKE, a big restaurant chain; Linda McMahon, former chief executive of World Wrestling Entertainment; and Betsy DeVos, a scion of a rich family who married into the family of the co-founder of the Amway multilevel marketing firm, now known as Quixtar.

Kushner, who succeeded his father as head of the Kushner Companies, a former New Jersey real estate empire that’s now based in Manhattan, has said he’ll sell assets that pose a conflict with his new role as senior adviser to the president. So we asked his attorney, Jamie Gorelick of WilmerHale, whether Kushner would seek a “certificate of divestiture” from the government to allow him to defer taxes on gains generated by his sales. Her emailed answer: “Mr. Kushner will need a certificate of divestiture for certain divestitures that are required for his compliance with the ethics rules.”

For Trump’s Rich Appointees, Death May Be Certain But Taxes Aren’t - ProPublica

The article goes on with considerable detail. But then again, Trump as much as admitted that he didn't pay any Federal tax, and he bragged that this was smart. And we don't really know, because he didn't release his tax returns, providing a bogus reason. 

The Republican Party's main raison d'existence is to provide tax cuts for the rich, which then creates deficits which forces them to decrease entitlements ("starve the beast"). This is naked self-interest but dressed up as economic ideology (small state, free enterprise, supply-side economics, although we simply call it Voodoo Economics) and is supposed to lead to increased economic growth, but this hasn't materialized.

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Accident? It's by design

There's risk that Washington's plan to give Corporate America a big tax break could backfire and create a fat tax on consumers. That's because the key way the House Republicans would pay for the cut in the corporate tax rate from 35 percent to 20 percent depends on a controversial border-adjusted tax, which in turn relies on a sharply rising dollar. The proposal would tax all imports into the U.S. at the corporate tax rate of 20 percent, and would exempt exports from any taxes at all..

GOP corporate tax plan could backfire and slam consumers

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No surprise here..

Staff has been ordered to project that inflation-adjusted growth will average between 3 and 3.5 percent over the next decade, eventually settling at around 3.2 percent. That’s drastically higher than the estimates provided by the Congressional Budget Office and the Federal Reserve, both of which see the economy growing at a bit less than 2 percent.

The make-believe reasoning the administration is giving for this is that “a regulatory rollback and a tax-code revamp will unleash growth that drives a recovery in productivity, sends business investment higher and draws idled workers back to the labor force.”

Deep into his story about Trump budget hijinks, Timiraos reveals that “what’s unusual about the administration’s forecasts isn’t just their relative optimism but also the process by which they were derived.” Specifically, what’s unusual about them is that they weren’t derived by any process at all. Instead of letting economists build a forecast, Trump’s budget was put together with “transition officials telling the CEA staff the growth targets that their budget would produce and asking them to backfill other estimates off those figures.”

Report: Trump transition ordered government economists to cook up rosy growth forecasts - Vox

It doesn't roll out of any formal economic model, nor economic experience from the past, so it's merely assumed..

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Third, if the president does push for individual as well as corporate tax reform, what will be the distributional effects?   In Trump's revised tax plan before the 2016 election, he would have cut the top income tax rate for individuals to 33% from 39.6% and eliminated the 3.8% tax on net investment income for high earners.  As a result, the top 0.1% of taxpayers — with incomes over $3.7 million on average — would get an average tax cut of 14%, or $1.1 million, according to the independent Tax Policy Center.

Trump’s tax reform looks like just another of his tweets - MarketWatch

Analysts at Bank of America wrote in a recent note that they think a tax proposal written by House Republicans is more likely to pass. According to the Tax Foundation, it's revenue neutral — also using dynamic scoring — even though it also cuts the corporate tax rate from 35% to 20%.

Bank of America's analysts aren't convinced this would lead to economic growth, and that is partly because of how the Tax Foundation does its calculations. Under this plan, companies can immediately expense, rather than gradually deduct, depreciation for all capital spending. The Tax Foundation thinks that would make businesses want to invest, ultimately adding 9.1% to GDP.

Bank of America was not impressed with this logic: "We are skeptical and have factored in only a small boost to GDP in our forecast. Our reading of the literature is that changes in the cost of capital—through tax changes or changes in financing costs—tend to have small impacts on investment. Indeed, most work suggests that the dominant driver of capital spending is growth and growth expectations.

Claims of a balanced budget impact also echo some of the over optimism around the big tax cuts and reforms of the 1980s. By most estimates, potential growth was about average in the 1980s and the budget deficit surged to then-record levels as a share of GDP."

Trump's tax plan counts on supply-side theories that haven't worked - Business Insider

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There are a few other interesting graphs on Trump's tax plans in the BI article as well:

Here's what those savings look like measured as a percent increase in after-tax income. Again, higher-income earners would see their tax savings increase the most — both by dollars and by percentage.

[img=0x0]http://static2.businessinsider.com/image/58920399713ba117398b59d2-1200/heres-what-those-savings-look-like-measured-as-a-percent-increase-in-after-tax-income-again-higher-income-earners-would-see-their-tax-savings-increase-the-most--both-by-dollars-and-by-percentage.jpg[/img]

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Voodoo statistics like dynamic scoring (see above) to make the policies not blow up the deficit, etc.

President Donald Trump complains regularly about what he calls “fake news.” What’s got some statisticians worried, though, is the risk of doctored economic data coming from the administration itself. While there are government directives in place to prevent that from happening, the number crunchers worry that the president’s occasionally cavalier comments on the economy and economic statistics, and his apparent disdain for economists in general, could mean trouble ahead.

One month into his presidency, Trump has yet to nominate anyone to the Council of Economic Advisers, established in 1946 to provide presidents with objective economic analysis and advice. Indeed, staffers at the council complain that the White House seems to be giving short shrift to the regular reports they produce on the economy, a person familiar with the matter said on condition of anonymity. There are rules that “protect the statistics from direct manipulation, but don’t address all my concerns about independence,” Brent Moulton, who retired in December after 32 years at the Bureau of Labor Statistics and the Commerce Department’s Bureau of Economic Analysis, wrote in a Jan. 24 blog post. “For example, a Cabinet secretary could still order the statistical agency to drop certain statistics or to change methodologies in ways that seem politically expedient,” he added in the piece, titled “Why I’m Concerned About the Independence of U.S. Statistical Agencies.”

Trump Team Fosters Fears He'll Adopt Alternative Economic Facts - Bloomberg

And of course there is method behind the means:

The evidence ... is totally at odds with claims that tax-cutting and deregulation are economic wonder drugs. So why does a whole political party continue to insist that they are the answer to all problems? It would be nice to pretend that we’re still having a serious, honest discussion here, but we aren’t.

At this point we have to get real and talk about whose interests are being served. Never mind whether slashing taxes on billionaires while giving scammers and polluters the freedom to scam and pollute is good for the economy as a whole; it’s clearly good for billionaires, scammers, and polluters.

Campaign finance being what it is, this creates a clear incentive for politicians to keep espousing a failed doctrine, for think tanks to keep inventing new excuses for that doctrine, and more. And on such matters Donald Trump is really no worse than the rest of his party. Unfortunately, he’s also no better.

Economist's View: Paul Krugman: On Economic Arrogance

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Ok, after decades of this:



And this:



Do we actually need a tax plan that produces this:



Especially when we know that neither business investment nor growth has increased since the 1980s? Why do we expect a different outcome this time when the labor market is already close to full employment, the Fed is raising rates, inflation is creeping up and productivity growth and the growth of the labor force are much smaller than before. And Trump's immigration and deportation policies might very well reduce the growth in the labor force further:

The effect of immigration on growth of the working age population is even more pronounced as immigrants are usually young relative to the aging domestic population (left panel of Exhibit 2). As a result, net immigration currently accounts for virtually all of the 0.5pp trend increase in the working age population. According to Census projections, the level of the US working age population would actually fall by about 0.2% per year in 2020-2030 in the absence of immigration (Exhibit 2, right panel). The tendency for immigrants to be younger is also reflected in labor force participation data as the participation rate of foreign-born individuals (65.9%) is a bit higher than that of their native-born counterparts (62.2%).

Snap AV: immigration and the US labour force | FT Alphaville