For some reason, probably known but to the major donors of the Republican Party, “we” need a tax cut. The rationale for this exercise echos the ubiquitous adolescent argument for automobile ownership — I need the car to go to work, I need to work to pay for the car. In this instance, it’s argued that we need the tax cut to promote growth, and the growth to pay for the tax cut. It’s the same old southbound product of a northbound male bovine we’ve heard so many times before.
Even the GOP assertions connect to this circuitous argument. A tax cut, we are told, will promote economic growth — and Everyone will win. Unfortunately, there’s no unanimous jury decision on this question. First, there are some common methodological problems with altogether too many academic studies purporting to answer the question definitively. Secondly, there are further issues intrinsic to discussion about how the tax cuts are to be offset. Not all tax cut/reform proposals are created equal.
“The results suggest that not all tax changes will have the same impact on growth. Reforms that improve incentives, reduce existing subsidies, avoid windfall gains, and avoid deficit financing will have more auspicious effects on the long-term size of the economy, but may also create trade-offs between equity and efficiency.” [Gale, Brookings]
Therefore, if we step back and adopt the centrist conclusions of the Gale-Samwick Study quoted above, there appear to be some boxes to be checked off if the goal is to encourage long term economic growth, and one of those boxes calls for the avoidance of deficit financed tax cuts.
We are cautioned by Republican advocates that there are only two ways to reduce a federal deficit, either raise taxes or reduce spending. The last iteration of a Republican tax cut, was not only deficit financed but the deficit was enhanced by the spending associated with the wars in Afghanistan and Iraq. Since raising revenue by increasing taxation is anathema to Republican orthodoxy then there must be a reduction in spending. Enter the proposals from the current Republicans to reduce Medicare spending by $472.9 billion over the next decade, and a further reduction of $1 to $1.5 trillion in cuts to the Medicaid program.
The current FY 2018 budget makes some assumptions which may be quickly frustrated. For example, the budget assumes no further military conflicts — the military expenditures assume readiness costs, not military operations; and, cuts to domestic expenditures to a level not seen since the Hoover Administration.
If this sounds like the same old prescriptions from GOP decades past, there’s a reason for it which becomes obvious when the framework is examined. What we have herein is NOT a new proposal for tax reform, but a recycling of ideas included in every recent Republican tax plan.
Cut the corporate tax rate from 35% to 20%. As noted previously in this site, there are several options available to corporations, none of which have anything to do with increasing employment or raising wages — share buybacks, dividend payments, mergers and acquisitions, corporate bonuses, management compensation, etc. The GOP argument rests on the fluid assumption that corporations will reward the nation with more plant expansion, research and development, and rising wages — without a scintilla of proof this will actually happen.
The 25% (15%) pass through rate. This purports to be a bonus for small businesses. In the real world most small businesses are already paying this rate or rates even lower. Consider the following evaluation of the Pass Through business:
“Finally, the top statutory rates and average effective rates mask substantial differences in what individual business owners pay in taxes. Most businesses are small, earn relatively modest income, and thus face relatively low bracket rates. As a result, more than 85 percent of pass-through businesses in 2014 faced a top rate of 25 percent or less; only 3 percent faced a marginal rate greater than 30 percent (Figure 6). However, a much larger share of pass-through income does face high marginal income tax rates. Almost half of pass-through income in 2014 came from businesses with a top rate of at least 35 percent. In other words, a small number of large pass-throughs are responsible for the vast majority of the sector’s tax burden.” (emphasis added)
Consumer Warning: Beware of muddled conflation of pass through taxation with income from pass through businesses. 85% of small businesses are already paying low pass through rates, and the income is coming from a small number of very wealthy pass through businesses. It doesn’t take too much imagination to figure out these are lobby shops, law firms, and other wealthy operations which bear little resemblance to small law offices and other independent businesses.
The Death Tax is Coming, The Death Tax is Coming. I have no reason to believe that there won’t be one more “small business owner,” or one more family farmer, hauled into camera range at a GOP function who will have some tale of woe about inheritance taxation — or as I prefer to call it: The Paris Hilton Legacy Protection Act. 99.8% of all Americans don’t have to pay the estate tax, and such taxes as are paid are 40% of the excess above $5.45 million. One other point might be made at this point, it’s not the heirs who pay the estate taxation if any is due — it’s the estate, via the executors. But the major number here is 99.8%, the 99.8% of Americans who will see absolutely no benefit from this “tax cut” at all.
Eliminating the Alternative Minimum Tax, “which is intended to ensure that higher-income people who take large amounts of deductions and other tax breaks pay at least a minimum level of tax.” Now, gee, if I could just see a certain President’s tax returns I could tell if he were liable for the AMT? If I could be reassured that high profile NYC real estate developers, who take a spectacular range of deductions, might have to pay the Alternative Minimum Tax so they aren’t dodging their contributions almost entirely? However, it’s been since May 20, 2014 since a certain presidential candidate said that if he decided to run for high office he’d release his tax returns — some 1,313 days ago…
In short, there’s nothing new here. It’s the same old south bound produce of a north bound bull. Repackaged, with a new face in the Oval Office, and I remain convinced that two of our Congressional representatives, Senator Dean Heller and Representative Mark Amodei, will happily twist themselves into rhetorical knots trying to explain how cutting Medicare and Medicaid will benefit middle income Nevadans by pleasing the millionaires and billionaires among us.
The big push of the week appears to be that the Republicans have in mind a “middle class tax cut.” Notice please that we’re not getting all that much in the way of “tax reform” but we are poised to get a deficit financed tax cut. And, that WE part doesn’t actually include all that many people who file tax returns from Nevada.
Nevada by the Numbers: 2,940,058 Nevadans filed tax returns in 2015 (the last year for which statistics are available from the IRS.) 655,530 were individual tax returns and 440,130 were filed as joint returns. There were 233,730 filed as Head of Household. 713,530 filers used paid preparers. The number in that last category ranges from those who have extremely complicated filings to those of us who simply find it convenient to have someone else fill in the forms, or those who take advantage of tax prep companies who offer free filing services to those who don’t actually owe taxes or have small refunds due from the taxes they’ve already paid.
When we look at the adjusted gross incomes reported by Nevadans it may be useful to put the numbers in some context. For example, the median income in Nevada is $51,847 and the per capita income is $26,541. The median value of a housing unit owned by the occupant is $173,700 and the median selected mortgage cost is $1,442 per month. The median gross rent is reported as $973.00. This gives us a preliminary picture of the 1,016,709 households in Nevada, and our population of 2,940,058.
1,350,730 Nevadans filed income tax returns in 2015. 27.21% of the Nevada filers reported adjusted gross income between $25,000 and $50,000. 13.5% of filers reported AGI between $50,000 and $75,000. 8.15% reported AGI between $75,000 and $100,000. Another 10.22% reported an AGI between $100,000 and $200,000. From this point on the percentage of filers by category drops, those reporting AGI between $200,000 and $500,000 were 2.48% of the filers; those reporting AGI between $500,000 and $1 million were 0.43%, and those reporting over $1 million AGI made up 0.26%.
The current (2017) tax brackets and explanations can be found compliments of the Tax Foundation in a convenient table form for single and joint filers. To make a long story a bit shorter, a person would have to have an AGI (adjusted gross income) of at least $191,650 if filing a single return to hit the 33% bracket, and $233,350 if filing a joint return.
The numbers indicate that 48.95% of those filing Federal income tax returns from Nevada are reporting below $100,000 in annual adjusted gross income. Some of the 138,000 Nevada filings between $100,000 and $200,000 AGI may have been included in the bracket in which there is a $18,735.75 liability plus 28% of an excess over $91,900. Fewer still would be in the 33% bracket with a liability of $46,643.75 plus 33% over $191,650. Indeed, only 3.17% of Nevada returns reported AGI over $200,000 annually (35% and 39.6% brackets.)
Where’s the middle? Numbers are objective and instructive, but tax policy can get pretty emotional. By the numbers a person earning about $52,000 per year in this state is in the “middle.” Pew Research provides one of the more commonly accepted definitions of Middle Class, “2/3rds to 2 times the national median income for household size.” In current parlance this would be in a range of $46,960 to $140,900. If we compare this to the Nevadans filing tax returns in 2015 then 21.74% are in the $50,000 to $100,000 AGI range; some others will be in the $100,000 to $200,000 AGI range (10.22%.) Undifferentiated reporting with two sets of categorization make this a difficult call without being able to drill down into that latter classification of filers) However, what these numbers do tell us is that to be considered a Middle Class Tax Cut the benefits should accrue to those earning between $46,960 (a little below the Nevada median earnings) and $140,900.
So, how does the current edition of the Republican tax plan fit into “the Middle.”
“Despite repeated promises from Republican lawmakers that the plan is designed to provide relief to the middle class, nearly 30 percent of taxpayers with incomes between $50,000 and $150,000 would see a tax increase, according to the study by the Urban-Brookings Tax Policy Center. The majority of households that made between $150,000 and $300,000 would see a tax increase.” [WaPo]
The report from which the Washington Post article is derived is more specific.
“In 2018, the average tax bill for all income groups would decline. Taxpayers in the bottom 95 percent of the income distribution would see average after-tax incomes increase between 0.5 and 1.2 percent. Taxpayers in the top 1 percent (incomes above $730,000), would receive about 50 percent of the total tax benefit; their after-tax income would increase an average of 8.5 percent. Between 2018 and 2027, the average tax cut as a share of after-tax income would fall for all income groups other than the top 1 percent. In 2027, taxpayers between the 80th and 95th percentiles of income (between about $150,000 and $300,000) would experience a slight tax increase on average.”
There’s something about an analysis from the Tax Foundation reporting that 50% of the total tax benefit going to the top 1% that doesn’t sound precisely like a “middle class tax break.” In short, the analysis makes it seem much more likely that the plan would be far more beneficial for the Nevada income earners who report AGIs over $500,000 per year, a total of 9,290 filers out of 1,350,730 who filed tax returns. This really isn’t a “middle class tax cut.” At least not in terms of the real Nevadans, who report their real incomes.
“This morning, the Senate Budget Committee will consider a resolution that instructs lawmakers to find ways to reduce Medicaid spending by $1 trillion (and Medicare spending by $473 billion) over the next decade, according to supporting documentation that Democrats are publicizing.” [WaPo]
Here’s the strategy: “A fast-track “reconciliation” process that would allow for tax cuts costing $1.5 trillion over ten years that require only a simple majority to pass. The $1.5 trillion cost would not have to be offset by closing tax loopholes or ending unproductive tax breaks, and thus would add to the nation’s deficits, which are already growing as the baby boomers retire. In addition, the resolution would allow the Senate Finance Committee to cut critical programs under its jurisdiction, including Medicaid, Medicare, and basic assistance for poor seniors and people with disabilities, and then use those savings to make the tax cuts even larger (so that the net cost of the tax cuts and the budget cuts combined equaled $1.5 trillion). The reconciliation process is the same process that Congress tried to use to repeal the ACA and requires only a simple majority to enact law.” [CBPP] (emphasis added)
And, there we have it: (1) If it’s a Republican budget, then adding to the federal deficit doesn’t matter; (2) in order to provide for tax cuts to the top 1% of income earners in the United States, the Committee can slash funding for Medicaid, Medicare, basic assistance for senior citizens, and people with disabilities.
The trick is that the Senate Republicans have to pass a “budget” slashing spending for those aforementioned Medicare and Medicaid beneficiaries, elderly people in poverty, and disabled people, in order to create ‘space’ for the “reforms” in their tax legislation. The buck slashing needs to stop here.
Please contact Senator Dean Heller, and let him know that these are not Nevada priorities.
There is a mandatory mantra to be recited by all proponents of the Republican tax cut plan: “It will make corporations more competitive. It will raise employee wages. It will make corporations more competitive. It will raise employee wages. It will make corporations more competitive. It will raise employee wages. This really requires some unique methodology and some very creative logic. [FC]
First, there’s the obvious proposition that when Republicans speak of “competitiveness” they are addressing a global market for goods and services. Further, being competitive usually means being able to offer goods and services at lower costs to customers and clients. And, being able to offer goods and services at lower costs means having a grip on factors which increase costs — things like labor. If there isn’t any obvious connection between “competitiveness” and increasing wages then how can the contentions be contorted to make the mantra lucid? We probably can’t, at least not until we agree on what we mean by “competitive.”
Whether a nation is competitive hinges instead on its long-run productivity—that is, the value of goods and services produced per unit of human, capital, and natural resources. Only by improving their ability to transform inputs into valuable products and services can companies in a country prosper while supporting rising wages for citizens. Increasing productivity over the long run should be the central goal of economic policy. This requires a business environment that supports continual innovation in products, processes, and management. [HBR]
If we accept the Harvard Business School’s thesis, then the policies we should be adopting to promote competitiveness would be (1) conducive to research and development; (2) that which promotes greater efficiency in the delivery of services and the manufacturing of goods; and (3) that which promotes better management practices. I don’t see “tax cut” in this list.
Tax policy that encourages research and development, promotes efficiency, and encourages better management practices, might be a start. However, that doesn’t seem to be what the White House and Congress have in mind. For example, there’s the tax repatriation scheme — which was tried in 2004, and the result as reported by the Wall Street Journal was:
“The 15 companies that benefited the most from a 2004 tax break for the return of their overseas profits cut more than 20,000 net jobs and decreased the pace of their research spending, according to report from the Democratic staff of the Senate Permanent Subcommittee on Investigations released Monday night.”
“Decreased spending on research” doesn’t fit the formula for increased competitiveness. Far from it, as in antithetical. How about promoting long term visions on the part of corporate management?
“Even as managers’ geographic horizons have broadened, their time horizons appear to have shortened. Shareholder activism, stock-based incentives, and declining managerial tenure surely injected new, needed discipline into American business and had some positive effects. However, financial markets and executive compensation practices that reward quick fixes and focus attention on “this quarter’s numbers” can tempt managers to move business activities to whatever location offers the best deal today rather than make the sustained, location-specific investments required to boost long-run productivity. ” [HBR]
Returning to a consistent theme on this site, short term “financialist” perspectives won’t promote American competitiveness. However, nothing in the guidance on tax cuts thus far demonstrates any broad interest in long term productivity. Indeed, it appears to move right along, in step, with the financialist rhetoric.
So, the Republicans and corporate allies argue that cutting corporate taxes will increase wages. Before we get lost in the weeds there is a general point to be made about the corporate tax burden and employees:
“Three nonpartisan organizations — the Joint Committee on Taxation, the Congressional Budget Office and Tax Policy Center — all say the majority of the corporate tax burden falls on shareholders, not workers. The Treasury Department, which Mnuchin now heads, reached that same conclusion in 2008 during the George W. Bush administration.” [FC]
To make a long story a bit shorter — if less of the corporate tax ‘burden’ is hefted by the employees, then the less of a ‘tax break’ the employees will receive if the corporation pays less in taxation. Some work is required to make the data fit the results desired by the Republicans:
“…the CRS states that while “a number of more recent theoretical studies find that labor can bear the majority of the [corporate] tax burden” those studies “appear to rely critically on particular assumptions that drive the results. When these assumptions are relaxed the burden of the corporate tax is found to fall mostly on capital — in line with the traditional analysis.” [FC]
Thus, only in the highly theoretical fantasy land of Republican economists will we find support for the notion that lower taxes automatically make our businesses more competitive, and lower corporate taxes will necessarily make businesses pay higher wages.
Unfortunately, none of this will stop the Republican propaganda machine from cranking up the volume and increasing the repetition of their mantra, until it is picked up by Republican members of Congress who will recite it in turn to their constituents.
Representative Mark Amodei’s (R-NV2) record in the 115th Congress is as dubious as the institution itself. For a group touting their “accomplishments” the actual record doesn’t quite hit that level. Post Office namings, and other minutiae are not included in this list.
Roll Call 8, January 4, 2017: Midnight Rules Relief Act — “This bill amends the Congressional Review Act to allow Congress to consider a joint resolution to disapprove multiple regulations that federal agencies have submitted for congressional review within the last 60 legislative days of a session of Congress during the final year of a President’s term. Congress may disapprove a group of such regulations together (i.e., “en bloc”) instead of the current procedure of considering only one regulation at a time.” Representative Amodei voted in favor of this bill (238-184). But, wait, there’s more:
“According to the CRA, resolutions of disapproval not only nullify the regulation in question; they also prohibit a federal agency from issuing any other regulation that is “substantially the same” in the future, unless specifically authorized to do so by a future act of Congress. As a result, these mass-disapproval resolutions would permanently block agencies from addressing threats to public health and safety.” (emphasis added)
Those who believe that things like corporate accountability, safe working conditions, clean air, and clean drinking water are important wouldn’t find this very appealing. However, that didn’t stop Rep. Mark Amodei from supporting this bill, which was essentially a solution in search of a problem.
Roll Call 23, January 5, 2017: “Regulations from the Executive in Need of Scrutiny Act of 2017” Representative Amodei voted in favor of this bill. “(Sec. 3) The bill revises provisions relating to congressional review of agency rulemaking to require federal agencies promulgating rules to: (1) identify and repeal or amend existing rules to completely offset any annual costs of new rules to the U.S. economy.” [Cong] This is vague to the point of ridiculousness. There are several ways to do a cost analysis, and we can bet that the GOP has in mind only the most stringent, even if there is an obvious benefit to public health, safety, or general well being. Frankly, there are some rules we have put in place which are expensive in terms of commercial and industrial calculations, but necessary in terms of public health and safety — we do not allow, for example, the unlimited release of arsenic into supplies of drinking water. It’s hard to imagine this as a “major piece of legislation” without considering the potential hazards it creates for local governments and citizens who have to live with the pollution, work rules, and other regulations which place them at risk.
Roll Call 45, January 11, 2017: “(Sec. 103) This bill revises federal rulemaking procedures under the Administrative Procedure Act (APA) to require a federal agency to make all preliminary and final factual determinations based on evidence and to consider: (1) the legal authority under which a rule may be proposed; (2) the specific nature and significance of the problem the agency may address with a rule; (3) whether existing rules have created or contributed to the problem the agency may address with a rule and whether such rules may be amended or rescinded; (4) any reasonable alternatives for a new rule; and (5) the potential costs and benefits associated with potential alternative rules, including impacts on low-income populations.” Here we go again! Yet another way to tie the hands of executive branch departments and agencies, and a GOP tenet for some time now. Remember, the rules don’t have to be in one category (for example, environmental regulation) they can also cover such things as SEC rules and regulations, banking, and other financial regulations. Representative Amodei, voted in favor of this bill and perhaps needs to explain if he meant this to handcuff the financial regulators who are responsible for seeing that Wall Street doesn’t replicate its performance in the run up to the Housing Crash of 2007-2008.
Roll Call 51, January 12, 2017: SEC Regulatory Accountability Act, and yet another House attempt to slap a “cost-benefit” analysis on SEC regulations on financial market transactions. Representative Amodei voted in favor of this bill. There were objections to this bill at the time, and this is one of the more cogent:
“The most prominent new requirement would mandate that the SEC identify every “available alternative” to a proposed regulation or agency action and quantitatively measure the costs and benefits of each such alternative prior to taking action. Since there are always numerous possible alternatives to any course of action, this requirement alone could force the agency to complete dozens of additional analyses before passing a rule or guidance. Placing this mandate in statute will also provide near-infinite opportunities for Wall Street lawsuits aimed at halting or reversing SEC actions, and would be a gift to litigators who work on such anti-government lawsuits. No matter how much effort the SEC devotes to justifying its actions, the question of whether the agency has identified all possible alternatives to a chosen action, and has properly measured the costs and benefits of each such alternative, will always remain open to debate.”
Speaking of a “Lawyers Full Employment Bill,” this is it. Imagine voting in favor of allowing an infinite and interminable number of lawsuits demanding that the SEC consider ALL available options before promulgating a rule. That didn’t stop Representative Amodei from voting in favor of it.
If you’re seeing a pattern, you’re right. “De-regulation” has been a Republican talking point for the last 40 years. However, while the term sounds positive when it’s generalized the devil, as they say, is in the details. The January flood of deregulation bills in the 115th Congress wasn’t designed to tamp regulations on ordinary citizens, but on the corporations (especially in terms of environmental issues) and Wall Street players who want more “flexibility” in their transactions.
What the Republicans have yet to provide are instances of jobs lost because of environmental regulations. Since this evidence is scarce, the next ploy is to argue that the costs outweigh the benefits. By emphasizing the short term monetary costs the GOP minimizes the importance of long term economic or environmental costs, and the impact deregulation has on residents in our states and communities.
We can point to jobs lost after financial deregulation — Nevada was one of the poster children for financial sector deregulation impact. Eight months later, Representative Amodei has yet to offer more than the usual highly generalized platitudes about the significance of the deregulation fervor during the first month of the 115th Congress.
We’ll be taking a look at some other “important” votes taken by our 115th Congress. In the mean time, it’s depressing but productive to watch what this current Mis-administration is doing in regard to North Korea, Iran, women’s issues, common sense gun control legislation, and the various and sundry scams and grifts associated with the Cabinet.
The 66th Congress of the United States enacted the Jones Act in 1920; it refers to “federal statute 46 USC section 883. This is the act that controls coastwise trade within the United States and determines which ships may lawfully engage in that trade and the rules under which they must operate.” [MarLaw] Further:
“The essential term that has given rise to various interpretations of what constitutes “coastwise trade”. The federal courts have given a very wide interpretation of the term. Essentially the term applies to a voyage that beginning at any point within the United States and delivering a type of commercial cargo to any other point within the United States.” [MarLaw]
So, why do we have this relic on the books? That’s easy enough, a handful of American shipping firms benefit, and most people with any political “juice” don’t care enough to repeal or revise it. And, it is making the rescue and renewal of Puerto Rico more expensive and logistically difficult than is necessary. Want to rid the “system” of waste, fraud, and abuse? Then either get rid of the statute or significantly revise it.
Recommendation for the day: Read the articles, then call members of the House and Senate, (202) 224-3121, to ask them for their support to repeal the Jones Act, or at least to extend the waiver of it until Puerto Rico recovers.