tax cuts

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Taxapalooza!

If anyone needed any further evidence as to the endemic corruption of American politics the Republican tax plan is surely the clincher.

Think about it: this is a vastly unpopular plan with the voting public. The Republicans are taking an enormous electoral gamble with it. The plan is even less popular than some tax increases have been in the past. It is an astonishing act of political disregard of voter sentiment.

Yet there it is.

Why?

Because in practical terms the Republicans voting in favor do not care about the public at all. They care only about the people who back them at election time. And the plan is an enormous giveaway to the donor class.

It seems like a very long time ago when the Republicans were promising a massive reform of the tax code. They promised such simplification that the average American could fit their tax filing onto something the size of a postcard. Trump came into power riding a wave of populism and told his faithful supporters that he would deliver a big tax cut for middle class families.

Well, the donor class put their foot down. So populism morphed rapidly into plutocracy and we have ended up with a dramatic hand out to anyone who earns their income from capital. Almost all the key features of this plan benefit the wealthy. They are the shareholders whose stock prices have soared in anticipation of the tax cut. They are the ones who will benefit from the drop in the top rate of tax. They are the group who will benefit from the slashing in tax about to be given to the so-called pass-through businesses. And they will see their primary benefits made permanent, whereas the more modest cuts that the middle class might get are slated to expire in a few years.

Nothing about this plan is middle class. It is all plutocracy.

Still, we have to suffer through the patent nonsense of Republicans desperately trying to position the giveaway as a middle class plan.

That absurd position is based on the magic of old fashioned economics. The argument is that all that extra cash slopping around corporate America will be spent on shiny new factories and other investments which will, in turn, generate jobs, competition for labor, and hence higher wages.

So ethics’s middle class component of the plan is sleight of hand and magic. The plutocratic part is solid hard cash.

Which would you prefer?

And as if you need more evidence of corruption: at the last minute one or two new additions to the plan just happen to be big bonuses for real estate developers. Anyone who makes a living in real estate development will see a special tax cut.

These additions have been explained buy leading Republican Senators as the price needed to secure the vote of Senator Corker. So they admit writing the law to benefit one of their own.

And guess who else in high office will benefit?

Yes, you know who!

Not that we have any idea of how much that benefit will be. We have never been allowed to see his tax returns.

America in decline. Writ large.

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More Fog

We still don’t have much clue what the Republicans want to do with their tax plan. It isn’t that we can’t understand the details, it is that there are no details to understand.

Take the corporate tax rate.

The big argument being put forward for a change in the corporate tax rate is that, at 35%, the US has one of the highest rates in the industrial world. But if you look at multinational corporations the facts tell a slightly different story. US multinationals pay about 28% of their worldwide profits in tax, whereas their competitors in the G-7 nations pay about 29%. In other words American businesses are not being hurt at all by the notionally higher rate.

Why not?

Because the US tax code is riddled with loopholes that any self-respecting tax lawyer or accountant can exploit. Many of those loopholes are highly specific to a particular industry. One or two are so specific that a single company benefits.

How did it get this way?

Money. Lots of it. Big corporations are the biggest source of corruption in the American political system. Only it’s not called corruption, its called lobbying. Lobbyists are very often the only people who really know what the tax code contains, especially for their clients. Politicians rarely, if ever, read the details of what they legislate, so there is plenty of opportunity for a well-connected lobbyist to sneak a paragraph or two in during the legislative process to pad the coffers of a client corporation.

As long as the American political system remains as corrupt as it is, the tax code will be a bear to reform. We are already witnessing how difficult: even though Congress has not released any detail about its big upcoming tax reform, the lobbyists along K Street in Washington are gearing up for a battle royal.

This implies, naturally, that getting anything meaningful done will be tough. Probably tougher than healthcare reform because in healthcare there are few lobbyists working on behalf of the public. So the business lobby gets to dominate it and the ideologues are more immune to money fueled attacks next election time.

This is not true of tax reform. The stakes are huge. And since the beneficiaries of the loopholes tend to be the wealthy and big corporations, these are same people who fund the corruption of our money sickened elections, the battle has big players on all sides. Someone is going to lose. That makes for a frenzied legislative process.

It is precisely because all this is known to Congress that we have no details. The minute, no, the second that any details emerge, the lobbyists will go to work. The more detail is available, the more intense the fighting becomes. Members of Congress who might want to produce a genuinely simpler tax code will be swamped by threats and/or inducements. It will take a level of political courage that hasn’t recently existed in Washington to get anything significant done.

So, much of our contorted tax code will likely survive.

Which gets us back to the easy stuff: tax cuts.

Despite all the smoke being blown by the lying cadre in charge of the White House, if the little we know is correct, then the rich will be getting a major tax cut whilst the rest of us will be getting what crumbs fall from the table.

And that, as we all know, is how America is run nowadays. That is the way a plutocracy is run: two Americas, one for the rich and one for the rest.

But plutocracies don’t last forever. They decay. Infighting enfeebles them. Contradictions emerge. And collapse ensues.

America is becoming weakened by its own system of government and the ease with which is can be controlled by a determined minority. This will worsen as the old system, designed to preserve the power of the rural heartland [and slavery along with it back in the day] is undermined by the great demographic shift into our cities. We already saw the future in the last election. Clinton won more votes than Trump by dint of her victory in the highly populous coastal states and biggest cities. She lost according to the ancient rules. How many more losses like that will it take to upend the bias in the system?

Meanwhile at the tax reform coal front a different schism also points to the future. The battle within the plutocracy to protect the rents, cheats, dodges, and sleights of hand that enable the spigot of cash to flow ever upwards will rend the wealthy into factions. How long can such greed driven and egregious plunder last? How many more Trumps do we have to endure before the system crashes to the ground?

Time will tell. But watch then tax reform fight, it will give us insight into how long the plutocracy has left.

Then again they couch it all in the name of markets and freedom. So the economists must be happy. That’s their gig.

Though quite what freedom they are talking about, I have no idea.

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That’s a Tax Plan?

Well, no, it isn’t. It’s a draft of a sketch of an outline of a synopsis of what a tax plan might look like were it designed exclusively to serve the interests of the drafter/sketcher/outliner.

With great fanfare and pomp the White House rolled out its “huge”tax plan. As predicted it is not a plan, it is a tax cut for the wealthy.  And, also as predicted, it is more ghost than real. The entire thing fits onto one side of a piece of paper. It is a typically bureaucratic bullet-point presentation of suggestions that Congress might, or might not, want to take into consideration as it works on its own tax plan.

The entire thing is a farce. It is yet further confirmation that Trump has no clue about governance, or about legislation, or about anything much to do with being president. Oh well, he’s what we’re stuck with.

But, what the piece of paper tells us is interesting. It gives us insight into the minds of the plutocrats that now control the country. Let’s be honest: neither Gary Cohn nor Steve Mnuchin, the two ex-Goldman Sachs financiers who make up Trump’s economic team, are so stupid as to believe that massive tax cuts will lead to extraordinary economic growth. They know better. It’s just that after four decades of selling tax cuts to voters the Republicans have discovered that most people are sufficiently blinded by the prospect of a sliver of gain for themselves that they will happily ignore the torrent of gold that floods into the coffers of the wealthy.

The moral bankruptcy of the sales pitch is breathtaking. It ignores the recent example of the state of Kansas under the leadership of Governor Brownback. Kansas became a test bed for the more virulent form of conservative tax theory that Trump’s erstwhile plan embodies. And the Kansas experiment has been an unmitigated disaster.

Not only did Kansas not benefit from a surge in employment when it slashed taxes — it has seen weaker employment growth than most other states — but its budget was thrown into chaos. The state’s credit rating has been cut. It has had to undergo crisis financial management that includes cuts to popular services like education. And it still is in fiscal turmoil. None of the promised benefits from the tax cuts turned up. On the contrary: Kansas has become a fiscal basket case and a premier example of why far right tax plans are to be avoided at all costs.

Yet here we are with Trump trying to turn the entire US into Kansas.

Why?

It isn’t because he is clueless. Nor is it because he is ill-informed. Cohn and Mnuchin are too smart for that. It is because he is a plutocrat. It’s as simple as that. Trump himself will get a tax cut of around $30 million a year from his own plan. On any other planet that would smell of corruption, but in planet-USA it is positioned as a pro-growth strategy to generate jobs for the plebes.

Now, I could support a thorough revision of the US tax code. It is so ridiculous and riddled through with special interest driven exceptions that it needs tossing out and totally re-inventing. At one point in his presentation Cohn mentioned that the intention was to produce a radically reduced and simplified tax code. Great, but the one page we were given didn’t get us there. Instead it featured a breathtaking giveaway to the wealthy and to business.

Republicans are always telling us that the US tax rate for corporations is the highest in the western world. That’s true, it is. But corporations don’t pay the nominal rate, they pay a much lower rate after taking all sorts of deductions that lobbyists have managed to insert into the tax code. That’s why the code is so complicated. Most large companies pay a very low actual rate of tax. Many pay nothing at all, even after making enormous profits. The same is true of wealthy taxpayers who can exploit all sorts of loopholes to minimize their tax rates.

Most people know this. Yet the Republicans keep up with the special pleading anyway.

Trump’s suggestions do include a few things for the average voter: the old seven tax brackets are condensed into three, although we have no idea at what income levels these brackets kick in; and the standard deduction would be doubled, meaning there would be virtually no tax below an income of $24,000. The plan is decidedly partisan in one way at the individual level: it would do away with a whole host of popular deductions that have particular impact in typically Democratic states like California and New York. Those states tend to have higher local taxes to pay for their higher quality education systems and public services. Eliminating the ability to use those local taxes as a Federal deduction would put huge pressure in those states to cut services like education. The Republicans apparently want to turn the entire country into Alabama or Mississippi. The want to initiate a race to the bottom in public service. Right now low quality service tastes benefit from an inflow of residents who have been educated in higher quality service states. Their workforces do not reflect their own service levels but those elsewhere. Once we have squeezed quality down everywhere, those inflows will cease.

Worse: since the higher quality service states are typically those where the economy is strongest, they have sent to Washington tax revenues far in excess of any subsidies they receive back. In effect the blue states pay into and the red states draw out from the Federal Budget. Trump’s tax plan will exaggerate the subsidy the blue states pump into the red states. At some point this will have to become an explosive political issue. Right now most taxpayers are blissfully unaware of it.

Fortunately, none of this matters much.

This meager beginning is just a start in what will be a long and drawn out battle. Most of what we saw yesterday will not make it into the final package that emerges from the arcane processes of Congress.

Oh, and we will now see just how committed the Republicans are to their fiscal conservatism. After years of bleating about the deficit during the Obama years will they simply “do a Cheney” and suddenly argue that deficits don’t matter? The Trump plan would blow hole of up to  $7 trillion in the budget over the next ten years. Either the Republicans have to let that happen or they need to find ways to cover the gap. Current Senate rules forces any tax legislation with a life beyond ten years to be “revenue neutral” — they must not add to the deficit —  this is why the Bush tax cuts were phased out after ten years, or they would have been had they not been re-upped. So do the Republicans go for another ten year deal? Or do they tackle the tax code once and for all?

The Trump plan gives us no insight. It isn’t worth the paper it is written on. So it’s a good job there wasn’t much paper involved.

One last thing, for all of you who thought a vote for Trump was a vote for fair trade: the Trump tax plan has abandoned his much ballyhooed tax on importers. He caved to pressure from the retailing industry.

What a negotiator!

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Republican Debt Builders

Just to make the point, here is a chart I grabbed, back in 2012, from Atlantic magazine:

Total Increase in debt to GDP overall

 

 

 

 

 

 

 

 

 

 

 

It shows the increase in the national debt as a percentage of GDP during various presidential regimes.

Guess what?

Reagan – he of small government and endless anti big-government tirades – added more mightily than anyone else. Second place? George W. Bush. Third place goes to Obama who gets an asterisk for his performance because the deficit is now coming down rapidly which could reduce his score on the chart by the time he is done.

I point this out to you in an effort at injecting a little fact into our election. I realize my effort will be in vain, but I have to try.

A simple look at history suggests that the Republicans do not actually mean what they say about balancing budgets or about the debt. The current group of candidates is not better. They would all – with the possible exception of Rand Paul – make the problems they rant about so much a great deal worse.

The reason for this perversity is simple: the policy prescriptions that the Republicans offer are all totally wrongheaded. They have been shown to be massively erroneous. They never accomplish what they are aimed at achieving. They fail dismally time after time. Yet, such is the Reagan worship and the attachment to the magic of supposedly free markets, that the Republicans are trapped vice-like within the error.

This would be amusing were it not that the error infects our discussions about policy. Those of us who see a robust role for government, and fiscal policy, have to leap an extra hurdle before we can even begin to discuss reality. We have to establish what reality is beforehand. Since that takes time and consumes so much political ammunition we never really drive at a sensible starting place.

It is practically impossible to have a discussion about the proper role of government if the shrillest in the discussion are shouting that there is none.

Worse: those shrill voices are also advocating tax and economic policies that then compound the very issue they are shrill about.

We cannot escape this trap and improve our economy until we move decisively beyond the Reagan era. Let’s all face it: he was mediocre at best in his stewardship of the economy. Facts matter.

Well, I wish they would.

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Republican Pseudo-Economics

I was going to write about last night’s Republican presidential debate. After all it was ostensibly about the economy.

But I can’t. I won’t.

There is nothing to say other than these two observations:

First: the questions themselves were designed to allow the candidates to spout standard Republican ideology unfettered by reality. For instance, early on one question began with a meandering statement about how the national debt is unsustainable, and how the social security system is headed for bankruptcy. Neither is true. Neither is true at all. However, in the tightly controlled and hermetically sealed world of the GOP party base, both those statements are regarded as rock solid facts.

Thus the candidates were able to answer with the necessary Republican critique that we must balance the budget, slash social spending, and cut taxes on the wealthy.

In other words the answers were given to questions that did not reference the real economy, but only the make-believe economy that Republicans now inhabit.

Second: this disconnect with reality gets even worse when we take a look at the various tax or economic plans on offer. They are all, without exception, based on the same supply-side twaddle that got us into the mess we are currently digging ourselves out of.

The notion that by cutting taxes on the wealthy we somehow spur investment has been so thoroughly debunked by recent experience that it defies belief that anyone still trots it out as a viable policy. Yet every single one of them does.

Not only this, they all imagine that the magic of supply-side economics will suddenly hurl the economy out of its present torpor and into an unprecedented period of growth such that the massive hole in the deficit caused by the tax cuts, and the subsequent loss in revenues, will be made up for by the lower tax rates being applied to all that new activity. We will, apparently, make it up in volume.

This is, of course, fantasy. It always has been. It always will be. But it sounds nice and plausible. Especially if the people listening focus simply on the tax cut they will receive and not on the flood of red ink it will cascade through our national finances.

At this point I must give Rand Paul some kudos: he, at least, bashed away at the idea – put forward by Rubio – that we can balance the budget and yet increase military spending simultaneously. What, Rand asked, is conservative about hiking any spending if it is not financed by taxes? Rubio blustered in response, presumably because he is unprepared for anyone asking simple questions about his math.

And that’s it.

The Republicans are stuck in a policy cut-de-sac because their base wants to hear certain things even if those things no longer relate to economic reality. So the holy trinity of tax cuts, smaller government, and deregulated business are trotted out over and over even if they are not solutions to what ails us.

They are presumed to be solutions. So we have to assume a set of problems to make them relevant. Hence the questions that were devoid of recent fact.

I doubt any of these people will get elected, but that doesn’t alleviate the problem: the entire Republican party is hiding within its alternative world. So Congress is steeped in these same solutions to the same imaginary problems. We have a Congress and a Republican party that wants to legislate for an alternative world and not the one they actually live in. So when reality and the imaginary worlds collide, and when the legislation has no bearing on what’s going on around us, nothing happens to move the lives of the voters forward.

Hence the gridlock. There will be no change in the foreseeable future. Or until someone in the Republican party returns to earth and comes up with something new.

Don’t hold your breath.

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