Trump's tax plans

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Meanwhile..

Republicans’ long-awaited tax bill, unveiled on Thursday, targets key renewable energy tax credits that have helped make clean energy a crucial high-wage job-creating sector in the United States. The measure would slash the wind Production Tax Credit (PTC) by over a third, weaken the solar tax credit, and eliminate the $7,500 credit for the purchase of electric vehicles. The solar and wind credits were part of a major bipartisan deal reached in December 2015, in which the credits were extended for several years while being reduced or phased out over time.

“This proposal reneges on the tax reform deal that was already agreed to, and would impose a retroactive tax hike on an entire industry,” said American Wind Energy Association CEO Tom Kiernan in a statement. “The House proposal would pull the rug out from under 100,000 U.S. wind workers and 500 American factories, including some of the fastest growing jobs in the country.”

Republicans’ new tax bill targets clean energy industry – ThinkProgress

Renewable energy is likely to suffer under the Trump tax plan:

• Slashes the Wind Production Tax Credit (PTC) by over a third
  
• Weaken the solar tax credit
  
• Eliminates the $7,500 credit for the purchase of electric vehicles
  
• These breaks were part of a bi-partisan deal in 2015
  

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At a tax reform rally last week, President Donald Trump told supporters that “our tax plan is anti-offshoring and 100 percent worker…100 percent pro-America.” He didn’t explain how that fits with his plan to eliminate taxes on US company’s international profits. The Republican tax plan can be divided into three buckets: individual, corporate, and international. That last bucket creates new incentives for companies to move factories overseas and shelter money in tax havens. Today, the United States has what’s known as a worldwide tax system in which all profits—foreign and domestic—are subject to a 35 percent corporate income tax. If a US company wants to return foreign profits to the United States, it pays the 35 percent rate minus what it’s paid to foreign governments. The House and Senate tax bills replace this with a “territorial” system that drops the tax rate to 20 percent for domestic profits and nothing for foreign profits.

The territorial model that the GOP is pushing would create an additional incentive to invest in countries like Ireland where the corporate rate is significantly lower than the United States. Republicans believe the differences won’t be big enough to drive investment abroad. Steve Rosenthal, a senior fellow at the Tax Policy Center, disagrees, saying that’s still “plenty of juice” to encourage companies to shift production to countries with lower tax rates. Kimberly Clausing, an expert in international taxation at Reed College, writes that the shift to a territorial system “makes explicit, and permanent, the preference for foreign income over domestic income.” She estimates that profit shifting already costs the US government more than $100 billion per year. 

Trump’s “100 Percent Pro-America” Tax Plan Is Actually a Huge Gift to Offshorers – Mother Jones

• Senate bill moves to a territorial model
  
• Could actually foster investment abroad and tax avoidance schemes as there are jurisdictions where rates are lower, like Ireland
  
• Profit shifting is already costing the Treasury $100B per year.
  

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Amazing stuff..

During the Senate debate over the Tax Cuts and Jobs Act, Senator Orrin Hatch was challenged over support for the Children’s Health Insurance Program, which covers nine million U.S. children — but whose funding lapsed two months ago... Hatch ... insisted that “the reason CHIP’s having trouble is because we don’t have money anymore” — just before voting for a trillion-and-a-half-dollar tax cut that will deliver the bulk of its benefits to the richest few percent.... 

He then went on to say, “I have a rough time wanting to spend billions and billions and trillions of dollars to help people who won’t help themselves, won’t lift a finger and expect the federal government to do everything.” So who, exactly, was he talking about...? Was he talking about food stamps, most of whose beneficiaries are children, elderly or disabled? ... Was he talking about the earned-income tax credit, which rewards only those who work? Was he talking about Medicaid, which again mainly benefits children, the elderly and the disabled, plus people who work hard but whose jobs don’t provide health benefits? We can go on down the list.

The simple fact is that big spending on people who “won’t lift a finger” doesn’t actually happen in America — only in Hatch’s meanspirited imagination. Now, to be fair..., some people ... get lots of money they didn’t lift a finger to earn — namely, inheritors of large estates. ...Republican legislation would give these people ... billions and billions of dollars...

How can this be justified if it’s supposedly hard to find money for children’s health care? Well, Senator Chuck Grassley explained it all last week: “I think not having the estate tax recognizes the people that are investing, as opposed to those that are just spending every darn penny they have, whether it’s on booze or women or movies.” ... 

The important thing to realize, however, is that the hypocrisy and contempt for the public we’ve seen ... is just the beginning..., budget deficits are going to soar... And offsetting those deficits will require going after the true big-ticket programs, namely Medicare and Social Security. Oh, they’ll find euphemisms to describe what they’re doing, talking solemnly about the need for “entitlement reform” as an act of fiscal responsibility — while their huge budget-busting tax cut for the rich gets shoved down the memory hole. But whatever words they use to cloak the reality of the situation, Republicans have given their donors what they wanted — and now they’re coming for your benefits.

Republicans Are Coming for Your Benefits, by Paul Krugman, NY Times

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They f**ed up..

A massive corporate tax cut is the Republican tax overhaul’s entire reason for being. It is the star around which the rest of the plan orbits. But Senate Republicans, in a frantic rewrite of their tax bill late last Friday, appear to have screwed it up. Kind of. At least for now. The price tag for the apparent mistake, added hastily in a late-night, partially handwritten draft, is $250 billion or more, according to some rough outside estimates. Businesses are furious. Correcting the Senate’s error is expected to be priority No. 1 as House and Senate members start negotiating a final tax package this week.

But this episode is a potent reminder of how haphazardly this once-in-a-generation tax rewrite was put together before the Senate passed it, and the enormous consequences of such a freewheeling approach.
If Republicans struggle or, worse, fail to correct their error, they risk undermining the entire internal logic of their bill: that this dramatic, permanent corporate tax cut will kick-start the economy, lifting up all Americans as the benefits trickle down.

The Senate tax bill’s $250 billion problem - Vox

The AMT explained

The corporate alternative minimum tax, explained This is a separate tax calculation under current law, used to make sure that businesses are forced to pay at least a base level of federal taxes and can’t totally avoid taxes by taking various deductions and credits. Few businesses pay it currently, because their regular rate is usually higher than the AMT rate, which works out to about 20 percent. The Senate bill, like the House bill, originally repealed it entirely while slashing the regular corporate tax rate from 35 percent to 20 percent. But Senate Republicans, as they tinkered with their tax plan just hours before they put it up for a vote, stuck the corporate AMT back in at the last minute to make sure the bill didn’t raise the federal deficit too much. At first it looked like a comparatively minimal provision, about $40 billion in revenue over 10 years, according to the Joint Committee on Taxation’s quick-hit analysis, in the context of a $1 trillion corporate tax cut. But over the past few days, policy experts, lobbyists, and the business community have come to believe the stakes are much bigger. Senate Republicans may have accidentally created this new tax system where many or even most businesses would end up paying the AMT — and would lose many prized tax breaks.

The problem is that the current AMT rate is about the same as the new corporate rate that Republicans want to institute. Under the Senate bill, businesses were supposed to be able to have the new 20 percent rate, but then also take advantage of tax credits and deductions to drive their tax burden even lower.

But if the AMT remains instead of being repealed, then businesses largely wouldn’t get their effective tax rate any lower than that. The AMT rate is usually substantially lower than the regular rate. But under the Senate bill, the AMT and the new corporate rate would be about the same: 20 percent. Companies would no longer be able to take advantage of tax breaks for research and development and the like. The whole point of the AMT is to eliminate deductions. “Basically everyone would pay it,” one lobbyist tracking the tax bill told me, adding for emphasis that fixing it would be the No. 1 and No. 2 priority for Republicans now.

The Senate tax bill’s $250 billion problem - Vox

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Not a surprise, this

Republicans in Congress are openly admitting they plan to use their tax reform bill to justify slashing funding for essential social programs like Social Security, Medicare, Medicaid, and food stamps. The bill — which is expected to balloon the national deficit by at least $1 trillion, and which only benefits the country’s wealthiest in the long-term — has not yet been reconciled or signed. But Republicans aren’t wasting any time laying out what they see as the next step. Speaker of the House Paul Ryan (R-WI) laid out the plan in an interview Wednesday on Ross Kaminsky’s radio show. “We’re going to have to get back next year at entitlement reform, which is how you tackle the debt and the deficit,” Ryan said, adding that health care entitlements like Medicare and Medicaid are “the big drivers of our debt.”

Paul Ryan admits the GOP will gut Medicare and Medicaid to pay for tax cuts – ThinkProgress

• What about those tax cuts paying for themselves?
  

Can they get away with it?

Cuts to social welfare programs would be far more unpopular than the tax bill already is. A recent Pew Survey found that 94 percent of Democrats and 85 percent of Republicans oppose cutting Medicare. President Trump has also repeatedly promised not to cut programs like Medicare and Medicaid — though Ryan said, “We’re working with the President on the entitlements that he wants to reform, that he’s supportive of.”

Paul Ryan admits the GOP will gut Medicare and Medicaid to pay for tax cuts – ThinkProgress

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Gee, that's a surprise!

Today, the Treasury Department finally released its much-promised analysis of its tax plan. And it turns out, they can’t deliver what they promised. For months now, top leaders in the Trump administration have been promising to produce a dynamic economic analysis that shows the growth-boosting powers of its tax plan are so impressive that they will negate any revenue loss. But the report — published by an agency overseen by Trump appointees and using methods Republicans say they favor — found that they have to assume large numbers of additional policy changes to get the growth they’ve promised. Dozens of Republican Senators and members of Congress profess to believe that some such analysis is out there somewhere, and that it justifies their decision to ignore Joint Committee on Taxation findings that the plan would, in fact, add somewhere between $1 and $1.5 trillion to the deficit.

Treasury Department admits Senate tax plan won’t pay for itself - Vox

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The Walt Disney Co. on Thursday said it would buy selected assets of 21st Century Fox, in the latest multibillion-dollar deal of 2017. Also on Thursday, details began to emerge over the Republican tax deal, which includes cutting corporate taxes and a plan to repatriate the untaxed profits of U.S. firms held overseas. The two events are separate, but point to a longstanding issue in the economy, which is that while economic growth has been steady and solid, companies are using non-organic means to boost their earnings and share prices, a method that may grow less effective with time, and which the tax bill—should it be signed into law—may not alleviate. The Disney DIS, +0.07%  acquisition of Fox FOXA, +6.50% comes at a time when the amount of cash that S&P 500 SPX, -0.41%  companies have on hand is at historic highs, totaling 12% of assets, according to Goldman Sachs data. 

The passage of the tax bill would boost that total, and the acquisition “shows no one knows what to do with their money,” said Luis Maizel, senior managing director at LM Capital Group, referring to companies. He noted that Disney also announced a $10 billion stock buyback program when it made the acquisition news official. “There’s no investment in brick and mortar, and if the tax bill does bring cash back, no one will be using it to build a new factory; there will be no rise in demand for steel or anything like that.” Maizel speculated companies would use any new money in the way they have been, by returning cash to shareholders, either in the form of dividends or buybacks, or to make acquisitions. “It won’t mean anything for organic growth, and little by little the bubble will keep getting bigger.” 

The last time there was an one-time tax on the foreign profits of U.S. companies—following the Homeland Investment Act of 2004, which created a repatriation “tax holiday” with an effective rate of 5.25%, as opposed to 35%—buyback activity surged, jumping 84% in 2004 and 58% in 2005, according to Goldman data.

Why the Disney deal suggests the tax bill may mean little for the economy - MarketWatch

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Officials in major European economies and China are readying themselves for policy responses that could counteract some the effects of the GOP's Tax Cuts and Jobs Act (TCJA). The finance ministers from five of the largest European economies — Britain, France, Germany, Italy, and Spain — sent a letter to US Treasury Secretary Steven Mnuchin on Monday warning that the TCJA could be detrimental to the global economy and "risk having a major distorting impact on international trade." "It is important that the US government's rights over domestic tax policy be exercised in a way that adheres with international obligations to which it has signed-up," said the letter, which was first reported by Reuters.. The finance ministers also charged that the TCJA runs afoul of World Trade Organization rules and could lead to legal challenges.

Trump, GOP tax reform bill gets resistance from world leaders - Business Insider

The Federal Reserve isn’t buying President Donald Trump’s argument that his tax cut package will lead to a significantly stronger, sustainable expansion of the economy. While the central bank would welcome such a development, outgoing Fed Chair Janet Yellen suggested on Wednesday that policy makers generally see the plan as having a modest and mostly short-term impact.

Yellen Isn't Buying Trump's Tax Cut Talk of an Economic Miracle - Bloomberg

The Walt Disney Co. on Thursday said it would buy selected assets of 21st Century Fox, in the latest multibillion-dollar deal of 2017. Also on Thursday, details began to emerge over the Republican tax deal, which includes cutting corporate taxes and a plan to repatriate the untaxed profits of U.S. firms held overseas. The two events are separate, but point to a longstanding issue in the economy, which is that while economic growth has been steady and solid, companies are using non-organic means to boost their earnings and share prices, a method that may grow less effective with time, and which the tax bill—should it be signed into law—may not alleviate. The Disney DIS, +0.07%  acquisition of Fox FOXA, +6.50%  comes at a time when the amount of cash that S&P 500 SPX, -0.41%  companies have on hand is at historic highs, totaling 12% of assets, according to Goldman Sachs data.

The passage of the tax bill would boost that total, and the acquisition “shows no one knows what to do with their money,” said Luis Maizel, senior managing director at LM Capital Group, referring to companies. He noted that Disney also announced a $10 billion stock buyback program when it made the acquisition news official. “There’s no investment in brick and mortar, and if the tax bill does bring cash back, no one will be using it to build a new factory; there will be no rise in demand for steel or anything like that.” Maizel speculated companies would use any new money in the way they have been, by returning cash to shareholders, either in the form of dividends or buybacks, or to make acquisitions. “It won’t mean anything for organic growth, and little by little the bubble will keep getting bigger.” 

The last time there was an one-time tax on the foreign profits of U.S. companies—following the Homeland Investment Act of 2004, which created a repatriation “tax holiday” with an effective rate of 5.25%, as opposed to 35%—buyback activity surged, jumping 84% in 2004 and 58% in 2005, according to Goldman data.

Why the Disney deal suggests the tax bill may mean little for the economy - MarketWatch

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In Chapter 3 of White House Burning, James Kwak and I reviewed what happened after the tax cuts enacted in 2001 under George W. Bush. Great promises were made about the cuts, including that they would help most Americans. But while they did help rich people become richer, there is no evidence that they delivered faster growth or higher incomes for the middle class. Instead, they boosted the budget deficit and contributed significantly to increasing the US national debt (by around $3 trillion through 2010), which weakened the government’s ability to respond to crises, either in terms of national security or financial instability..

America’s Tax-Cut Peronists by Simon Johnson - Project Syndicate

Unfortunately for the American middle class, Ryan is lying. The hypothetical family his top spokesperson AshLee Strong described would get a tax cut of almost $1,200 — for one year. It gets smaller in year two, smaller still in year three, smaller still in year four, and smaller still in year five. It nearly vanishes in the sixth year of the Ryan tax plan, and in years seven, eight, nine, and 10 the family would be paying higher taxes than under current law. That tax hike is not only permanent, it actually grows over time because of a change to the inflation indexing of tax brackets. On average, over the entire 10-year scoring window, the family would get a total tax cut of $3,550. Yet over the same time period, the national debt would grow by $4,644 per person — or about $18,500 for a family of four. There’s nothing wrong with running a budget deficit if you’re accomplishing something worthwhile. But to go $18,500 in debt in order to secure a $3,550 tax cut is preposterous. And yet something like that is an inevitable consequence of the Republican tax plan’s original decision — an unpopular and unworkable scheme to reduce the corporate income tax rate from 35 percent to 20 percent.

The Republican tax plan’s original sin - Vox

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Self-dealing. There are so many ways in which the tax cuts is actually benefiting the President himself, here is just one:

But the final tax legislation contains a brand-new provision that wasn’t included in the House or Senate bills. It benefits real estate developers like President Donald Trump and his family. The provision was first highlighted by the International Business Times. The Republican tax legislation always provided a tax break for “pass-through” corporations, which is a type of corporation where the income is passed to the owners who pay personal income taxes on the money. The rationale for providing tax benefits to this kind of corporation, Republicans say, is that this is how many small businesses are set up. 

In addition to lowering the tax rate for “pass-through” corporations, both the House and the Senate allowed corporations to deduct about 20 percent of this kind of income from all taxation. But how do you prevent everyone from declaring themselves a corporation to avail themselves of these new benefits? The House and Senate capped the availability of the deduction as a percentage of wages paid. In other words, you had to at least demonstrate that you were a real business employing people to receive this benefit. The final legislation, however, includes a new way to qualify for this valuable deduction. You can qualify by paying wages or through owning property. This would benefit people who own businesses with large real estate holdings but few actual employees — a category that includes many businesses still owned by President Trump.

Buried in 503-page tax bill, a new provision that personally benefits Trump – ThinkProgress