There are some amazing feats of verbal legerdemain going on as Republicans try to explain why their Jam It Through Tax Plan isn’t a real bag of snakes.
Oh, don’t worry about our plan…people want to see an improving economy…people want to see more in their paychecks…now 90% of the people can file a simple return…there’s a lot of wishful thinking going on here, and most of it is wrong. The political advertising is going to write itself in 2018.
Senator Maria Cantwell (D-WA) is correct to say that “haste makes waste,” and in its haste the GOP is about to unload both barrels into their own feet.
The tax cuts will explode the debt. Remember all the times the GOP told us that debt is a problem? It certainly can be. When there was a Democrat in the White House the Heritage Foundation positively screamed about the impact of increasing the national debt:
Current and projected increases in government debt, cutting into future economic growth rates, also mean slower future growth of government revenues. Even as future interest expense rises as taxpayers are called upon to service all this debt, growth in government revenues will slow, leaving less available for other priorities, such as national security and economic security, education, and innovation-driving research.
The only difference now is that the accumulated deficits will be driven by a Republican penchant for rewarding the investor class with amazing tax cuts. Now the argument is reversed: there will supposedly be More revenue, More innovation, More funds for national security and research. No there won’t. And we don’t need to kid ourselves, because the same basic economic elements are going to underpin the new tax/budget structure that are girding the current one.
Nothing in the tax bill reverses the current emphasis on short term gains. The GOP is fond of pointing to gains in the stock market as “proof” of its stewardship of economic growth. There’s an obvious problem with this, as noted by the Chicago Tribune:
Nearly half of country has $0 invested in the market, according to the Federal Reserve and numerous surveys by groups such as Gallup and Bankrate. That means people have no money in pension funds, 401(k) retirement plans, IRAs, mutual funds or ETFs. They certainly don’t own individual stocks such as Facebook or Apple.
So, nearly half the population has Zilch invested in The Market. What about the others? While people don’t generally have elephantine memories, 2008 isn’t that far in the rear view mirror, and that’s part of the reason about 54% of Americans have some sort of investments, as opposed to the 62% prior to the Big Crash of 2007-08.
Further, there’s some recent research indicating the decline isn’t over.
Rosenthal and Austin’s main focus was the precipitous decline of taxable investment accounts. In 50 years, the amount of stock owned by individual investors and funds outside retirement and nontaxable accounts such as 529 college-savings plans has dropped off a cliff — to about 25% in 2015 from over 80% in 1965.
But wait, there’s more:
The other startling finding was the growth in foreign investment in the US stock market. What was once a small sliver of the makeup now accounts for a quarter of all stock ownership at $5.5 trillion. Part of this may be due to increasing wealth in foreign countries, but, as the researchers noted, it could also be influenced by corporate inversions, in which foreign-domiciled firms have large direct holdings of US-based stock.
So, we have a structural situation in which the percentage of individual investors is declining precipitously, the percentage of institutional investors is increasing, as is the percentage of foreign investors. It doesn’t take much effort to perceive that the produce of stock market gains aren’t going to benefit most Americans, but should assist institutional and foreign investors.
But surely those institutional investors will be looking for long term investment prospects and will act as a curb on short term pursuits as exemplified by hedge fund operations? Nupe. That part of the structure hasn’t changed either. It’s not happening:
Across the world, a clamor is rising against corporate short-termism—the undue attention to quarterly earnings at the expense of long-term sustainable growth. In one survey of chief financial officers, the majority of respondents reported that they would forgo current spending on profitable long-term projects to avoid missing earnings estimates for the upcoming quarter.1
Critics of short-termism have singled out a set of culprits—activist hedge funds that acquire 1% or 2% of a company’s stock and then push hard for measures designed to boost the stock price quickly but unsustainably. 2 The typical activist program involves raising dividends, increasing stock buybacks, or spinning off corporate divisions—usually accompanied by a request for board seats.
If corporations increase profitability I am hearing, “raising dividends, increasing stock buybacks, and mergers, acquisitions, and spin offs. I am NOT hearing investment in plant expansion, workers’ wages, and company benefits. And, I’m certainly not hearing anything about encouraging the promotion of taxable investment accounts, the kind that puts revenue into the Nation’s coffers.
Nothing in the tax bill addresses wage stagnation. And, no, this is not a myth:
“After adjusting for inflation, wages are only 10 percent higher in 2017 than they were in 1973, with annual real wage growth just below 0.2 percent. The U.S. economy has experienced long-term real wage stagnation and a persistent lack of economic progress for many workers.” […] ” The portion of national income received by workers fell from 64.5 percent in 1974 Q3 to 56.8 percent in 2017 Q2.”
Ouch. Somehow, the Growth Fairy is supposed to be so enamored of tax cuts for corporations and wealthy individuals that more greenbacks will float down and squirm into the pay packets of average American workers. Probably not, and putting more dollars into the pockets of institutional investors — foreign and domestic — isn’t going to be all that helpful either. So, not only does the tax plan not address short term-ism, it doesn’t really address paycheck issues either.
But Wait! How about increasing the child tax credits and standard deductions? It’s no secret that those people earning $75,000 or less aren’t going to be the big winners in this tax bill. “The tax bill Senate Republicans are championing would give large tax cuts to the rich while raising taxes on American families earning $10,000 to $75,000 over the next decade, according to a report released Thursday by the Joint Committee on Taxation, Congress’s official nonpartisan analysts.” [WaPo]
But, but, but…Your tax filings will be simpler! Simple doesn’t matter if you aren’t getting your taxes cut. And, if the tax preparation deduction is eliminated then there are going to be some mom and pop franchises in serious straits — those just happen to be local small businesses as well.
But, but, but…jobs won’t go overseas! You can only dream. The arguments get a bit into the economic weeds, into territorial taxation, but the bottom line is clear:
This might seem like a small difference, but the design of their global minimum tax creates perverse incentives for companies to offshore jobs and shift profits to tax havens—outcomes that a per-country minimum tax would avoid.
Perverse indeed, especially if one expects the new tax plan to provides incentives for companies to expand operations domestically. Nothing in this plan actually and directly promotes domestic expansion in the economy — it’s all indirect and absolutely hopeful, perhaps even illusory if not downright delusional.
In the meantime, Medicare will be facing cuts of about $25 billion. There will be calls to “reform” Social Security” in order to reduce the debt — translation: Higher requirements for fewer benefits. There will be calls to cut SNAP programs — not a drop in the bucket needed to fill the debt hole; and, educational funding — another squeeze on programs that actually help people eventually earn higher wages.
This won’t prevent Republicans like Nevada’s Senator Dean Heller from enjoying the passage of a “great tax cut,” while he hopes to high Heaven no one in the state notices cuts to Medicare, Medicaid, Childrens’ Health Insurance, and no one talks about increased premiums in the individual health insurance market. Perhaps no one will notice that graduate students at UNR and UNLV are supposed to pay taxes on tuition waivers while they’re actually earning minimum wages for part time jobs? No one will notice the reduction in home mortgage interest deductions? No one will observe the reduction or elimination of deductions for major medical expenses — much of which will be out of the pockets of the elderly.
My guess is that Nevadans will notice. The political ads may, indeed, write themselves.