Tax policy and tax avoidance under neoliberal regime
Neoliberal government which adopted neoliberal ideology with its belief of self-regulation market and
in which no outside oversight is possible, due to the ability of the kleptocrat(s) to personally
control both the supply of public funds and the means of determining their disbursal.
Kleptocratic elite typically treat their country's
treasury as though it were their
own personal bank account, spending the funds on
luxury goods as they see fit.
Many members of kleptocratic elite (especially financial elite) also secretly transfer public funds
into secret personal numbered
bank accounts in foreign countries in order to provide them with continued luxury if/when their
criminal behavior was exposed and they are forced to leave the country.
Kleptocracy is the political regime to which countries in which the governing ideology is neoliberalism
gravitate. Such incomes constitute a form of
economic rent and are therefore
easier to siphon off without causing the income itself to decrease (for example, due to
capital flight as investors
pull out to escape the high taxes levied by the kleptocrats).
Tax avoidance is just one manifestation of neoliberal kleprocracy
Unfortunately,
seniors often miss tax-saving opportunities that are available to them. Don't let that happen
to you!
For new retirees, it's more important than ever to take full advantage of every tax break
available. That's especially true if you're on a fixed income. After all, you have to stretch
out your retirement savings to cover the rest of your life. But holding on to your money during
retirement is easier said than done. That's why retirees really need to pay close attention to
their tax situation.
Unfortunately, though, seniors often miss valuable tax-saving opportunities . In many cases,
it's simply because they just don't know about them. Don't let that happen to you -- check out
these often-overlooked tax breaks for retirees . You could save a bundle!
When you turn 65, the IRS offers you a gift in the form of a larger standard
deduction . For example, a single 64-year-old taxpayer can claim a standard deduction of
$12,550 on his or her 2021 tax return (it was $12,400 for 2020 returns). But a single
65-year-old taxpayer will get a $14,250 standard deduction in 2021 ($14,050 in 2020).
The extra $1,700 will make it more likely that you'll take the standard deduction rather
than itemize. And, if you do claim the standard deduction, the additional amount will save you
over $400 if you're in the 24%
income tax bracket .
Couples in which one or both spouses are age 65 or older also get bigger standard deductions
than younger taxpayers. If only one spouse is 65 or older, the extra amount for 2021 is $1,350
– $2,700 if both spouses are 65 or older. Be sure to take advantage of your age!
For new retirees, it's more important than ever to take full advantage of every tax break
available. That's especially true if you're on a fixed income. After all, you have to stretch
out your retirement savings to cover the rest of your life. But holding on to your money during
retirement is easier said than done. That's why retirees really need to pay close attention to
their tax situation.
Unfortunately, though, seniors often miss valuable tax-saving opportunities . In many cases,
it's simply because they just don't know about them. Don't let that happen to you -- check out
these often-overlooked tax breaks for retirees . You could save a bundle!
When you turn 65, the IRS offers you a gift in the form of a larger standard
deduction . For example, a single 64-year-old taxpayer can claim a standard deduction of
$12,550 on his or her 2021 tax return (it was $12,400 for 2020 returns). But a single
65-year-old taxpayer will get a $14,250 standard deduction in 2021 ($14,050 in 2020).
The extra $1,700 will make it more likely that you'll take the standard deduction rather
than itemize. And, if you do claim the standard deduction, the additional amount will save you
over $400 if you're in the 24%
income tax bracket .
Couples in which one or both spouses are age 65 or older also get bigger standard deductions
than younger taxpayers. If only one spouse is 65 or older, the extra amount for 2021 is $1,350
– $2,700 if both spouses are 65 or older. Be sure to take advantage of your age!
The rules are clear: To qualify for tax-free profit from the sale of a home, the home must
be your principal residence and you must have owned and lived in it for at least two of the
five years leading up to the sale. But there is a way to capture tax-free profit from the sale
of a former vacation home.
Let's say you sell the family homestead and cash in on the break that makes up to $250,000
in profit tax-free ($500,000 if you're married and file jointly). You then move into a vacation
home you've owned for 25 years. As long as you make that house your principal residence for at
least two years, part of the profit on the sale will be tax-free.
Basically, the $250,000/$500,00 exclusion doesn't apply to any profit that is allocable to
the time after 2008 that a home is not used as your principal residence. For example, assume
you bought a vacation home in 2001, convert it to your principal residence in 2015 and sell it
in 2021. The post-2008 vacation-home use is seven of the 20 years you owned the property. So,
35% (7 ÷ 20) of the profit would be taxable at capital gains rates; the other 65% would
qualify for the $250,000/$500,000 exclusion.
The U.S. has won international backing for a
global minimum rate of tax as part of a wider overhaul of the rules for
taxing international companies , a major step toward securing a final agreement on a key
element of the Biden administration's domestic plans for revenue raising and spending.
Officials from 130 countries that met virtually agreed Thursday to the broad outlines of
what would be the most sweeping change in international taxation in a century. Among them were
all of the Group of 20 major economies, including China and India, which previously had
reservations about the proposed overhaul.
Those governments now will seek to pass laws ensuring that companies headquartered in their
countries pay
a minimum tax rate of at least 15% in each of the nations in which they operate, reducing
opportunities for
tax avoidance .
David Milliken and Kate Holton Sat, June 5, 2021, 4:01 AM
...Hundreds of billions of dollars could flow into the coffers of governments left
cash-strapped by the COVID-19 pandemic after the Group of Seven (G7) advanced economies agreed
to back a minimum global corporate tax rate of at least 15%.
Facebook said it expected it would have to pay more tax, in more countries, as a result of
the deal, which comes after eight years of talks that gained fresh impetus in recent months
after proposals from U.S. President Joe Biden's new administration.
"G7 finance ministers have reached a historic agreement to reform the global tax system to
make it fit for the global digital age," British finance minister Rishi Sunak said after
chairing a two-day meeting in London.
The meeting, hosted at an ornate 19th-century mansion near Buckingham Palace in central
London, was the first time finance ministers have met face-to-face since the start of the
pandemic.
U.S. Treasury Secretary Janet Yellen said the "significant, unprecedented commitment" would
end what she called a race to the bottom on global taxation. German finance minister Olaf Scholz said the deal was "bad news for tax havens around the
world". Yellen also saw the G7 meeting as marking a return to multilateralism under Biden and a
contrast to the approach of U.S. President Donald Trump, who alienated many U.S. allies. "What I've seen during my time at this G7 is deep collaboration and a desire to coordinate
and address a much broader range of global problems," she said.
Ministers also agreed to move towards making companies declare their environmental impact in
a more standard way so investors can decided more easily whether to fund them, a key goal for
Britain.
... ... ...
Key details remain to be negotiated over the coming months. Saturday's agreement says only
"the largest and most profitable multinational enterprises" would be affected.
... ... ...
The G7 includes the United States, Japan, Germany, Britain, France, Italy and
Canada.
Last Wednesday, Federal Reserve Chair Jerome Powell showed how simple questions do not
always get simple answers. When speaking to the media after the latest Federal Open Market
Committee ( FOMC ) meeting,
some difficult questions were asked. So much so, Powell had to repeat one question to himself,
asking:
When will the economy be able to stand on its own feet?
He immediately followed with:
I'm not sure what the exact nature of that question is.
FOX News correspondent Edward Lawrence elaborated, asking when the Fed would lower the
number of treasuries it buys, and when the economy would function "without having that support
from the monetary side."
Powell found ways to avoid answering the idea of a nation which stands without central bank
supports, but he did refer to various "tests" the Fed will do in order to make decisions like
shrinking the balance sheet, explaining:
we've articulated our test for that, as you know, and that is just we'll continue asset
purchases at this pace until we see substantial further progress.
He went on to say that prior to making any decisions, such as buying fewer treasuries, they
will give the public a lot of notice beforehand.
There was also a question related to the Fed's influence in the housing market:
the housing market is strong, prices are up. And yet, the Fed is buying $40 billion per
month in mortgage related assets. Why is that, and are those purchases playing a role at all
in pushing up prices?
Despite amassing nearly $2.2 trillion of mortgage-backed securities
(MBS), Powell defended the central bank on the grounds that:
I mean, we started buying MBS because the mortgage-backed security market was really
experiencing severe dysfunction, and we've sort of articulated, you know, what our exit path
is from that. It's not meant to provide direct assistance to the housing market.
To be clear, the "severe dysfunction" occurred over a decade ago, when the Fed entered the
MBS market. As for the public knowing the exit path or not providing assistance to the housing
market, both ideas are highly debatable, to say the least.
But even more puzzling is when Powell says that during the current COVID crisis:
We bought MBS, too. Again, not intention to send help to the housing market, which was
really not a problem this time at all.
Strange, the Fed would commit to buying $40 billion a month of MBS when, according to the
Chair, there were no problems in the market. He concludes that purchases will go to zero over
time, but the "time is not yet."
The final question asked was in regards to market intervention:
if you get out of the markets, there aren't enough buyers for all of the Treasury debt?
And so, rates would have to go way up. Bottom line question is what do we get for $120
billion a month that we couldn't get for less?
Powell never explained what exactly "we get for $120 billion" a month, but assured us the
Fed was looking to reach its goals, and this was part of its plan. However, he did comment on
purchases, saying:
But if we bought less, you know, no. I mean, I think the effect is proportional to the
amount we buy And we articulated the, you know, the test for withdrawing that accommodation.
And we think, you know. So, we're waiting to see those tests to be fulfilled, both for asset
purchases and for lift off of rates. And, you know, when the tests are fulfilled, we'll go
ahead as, you know, we've done this before.
Between various tests to determine policy, vague responses, and a general avoidance of
answering questions directly, not much was offered other than providing perpetual liquidity
injections under accommodative monetary conditions. It was refreshing to see the mainstream
media ask more questions about the plan ahead; we can only hope the mainstream economic
community will do the same.
Janet Yellen caused market ructions when she noted in public that: "It may be that interest
rates will have to rise somewhat to make sure that our economy doesn't overheat, even though
the additional spending is relatively small relative to the size of the economy."
Firstly, because rates aren't the Treasury Secretary's job to comment on - EVER. Yes, there
is the same need for endless hockey-stick-projection optimism on growth, the same silken spiel,
and the same one-size-fits-all Panglossian policy prescriptions (of various vintages: Slash
taxes! Raise taxes!) in both roles: but there is a separation of powers between the two.
Secondly, because that very same Panglossian policy from the Fed has got global markets to
the point where the mere idea of small increase in US rates is going to bring a whole lot of
precariously-levered objects tumbling down. It's a good job that interest rates never, ever,
ever have to go up again then, isn't?
Naturally, Yellen immediately had to walk back these comments when qualifying that rate
increases " are not something that I am predicting or recommending ." So just what was the
correct verb then? Speculating? Hypothesizing? Imagining? Dreaming? Deluding?
For now, markets can happily seize on all of the usual Fed-driven speculative hypotheticals
to imagine, dream, and delude themselves to greater wealth as usual . US couples everywhere can
keep fantasizing that they too can one day get a billionaire divorce. Yet it's not as if Yellen
doesn't have just *a little* bit of experience in this rate field thing. It's not as if she
might not end up thinking a certain way on autopilot in the new job, and saying the quiet part
out loud – is it?
Of course, the question of who is driving applies to the Fed itself . Yellen added: "If
anyone appreciates the independence of the Federal Reserve I think that person is me." Yet
unlike the BOE, for example, the Fed allows US banks a major role (if not "ownership") in its
12 regional Reserve Banks, alongside balancing presidential appointees. So it a fusion body,
and even if it is independent of the Treasury, that is hardly true of all influence: the reason
for having 12 regional Reserve Banks was originally to water down that of Wall Street. Yet how
is that working out, and where are the union/labour representatives, for example? That's a
structural issue the US press doesn't talk about much even as much of it obsesses about power
structures everywhere else; but, sadly, anti-Semitic conspiracy theorists more than compensate,
because that's their defined role.
Meanwhile, we all know the Powell Fed is still firmly in pedal-to-the-metal mode . Yellen
just agreed to stay in the back seat in that regard, even if her proposed fiscal policy is the
equivalent of winding down the window and sticking her head out of it, like a dog having a good
time, which should see any caring central bank driver reduce speed accordingly.
The question remains, however, as to exactly what is driving the massive surge in commodity
prices we are still seeing all round us? Headlines yesterday were that corn hit USD7 a bushel,
the highest since 2013. Today Bloomberg reports "Raw materials surging across tighter markets
and recovery; Consumer prices rising as manufacturers pass on higher costs." Once upon a time,
central banks used to do something when headlines like this were seen. So why no need to brake?
Because this is all transitory, as Powell and Yellen, at the second attempt, just
underlined.
But how so? Is it Covid-19 related? We already hear that semiconductor supply will be
pinched for years. Or perhaps it is all just happening "because markets", as seems to be the
general consensus? Or, just maybe, the Fed, and other major central banks, are also playing a
role via their pedal-to-the-metal liquidity? Another key driver is Wall Street realising
commodities are an inflation hedge too – even as that creates the inflation they are
trying to avoid. (Don't worry: they still get to eat. Others might not though.) Another is
China's voracious commodity appetite. (Don't worry: they still get to eat. Others might not
though.) One thing we can be sure of. Prices seem to be moving significantly higher, and not
just due to the expected base effects.
Ironically, the only way in which Powell --and Yellen-- can be sanguine about this is in the
knowledge that even if prices go up, US wages almost certainly won't. Yes, at the moment we are
anecdotally seeing US labour shortages as millions of previously low-paid workers prefer to
live off of their last stimulus cheque rather than report for the daily drudgery. But have you
heard any anecdotes of wages going up as a result – or rather of businesses closing down,
or automating? As has been repeated here many times, are the structures *really* being put in
place to support sustained higher wages? If not, it's just higher prices - and so lower real
wages.
I am not sure that the 12 regional Reserve Banks and those in DC are aware of what that will
feel like to Joe Public. More so if their logical response is to keep monetary stimulus high,
and so pushing real wages even lower. If mishandled, this could easily drive us off a cliff. As
such, who is really in the driver's seat?
3 play_arrow
Cloud9.5 3 hours ago (Edited)
Who is running the show? The front is the CIA. Who is behind it? A collection of
oligarchs.
Brill 3 hours ago
No mention of Rothschild?
No mention of Rockefeller?
Joe Bribem 2 hours ago
The biggest cockroaches are never mentioned.
Lordflin 3 hours ago remove link
Geopolitics are in the driver's seat...
The economy is along for the ride...
radical-extremist 2 hours ago
If Antifa had any brains (which they don't), they'd be marching and rioting against the
CIA and the Fed - not the Proud Boys, ICE and local police stations. They're fighting to tear
down the SYSTEM, and they don't even know what or where the SYSTEM really is.
PAsucks 2 hours ago
"I am not sure that the 12 regional Reserve Banks and those in DC are aware of what that
will feel like to Joe Public." It's called a lack of empathy, an important trait of
sociopaths. Federal Reserve is an arm of .gov - a criminal organization.
Apollo Capricornus Maximus 2 hours ago
The unelected Council of Foreign Relations kleptocratic oligarchy is in charge of the
kinetic and psychological manipulation of Western finances and zeitgeist. The Federal
Reserve, CIA, National Security state, MSM, Congress all report and obey this criminal cabal
of whom every member should be hung by the American people.
Last Wednesday, Federal Reserve Chair Jerome Powell showed how simple questions do not
always get simple answers. When speaking to the media after the latest Federal Open Market
Committee ( FOMC ) meeting,
some difficult questions were asked. So much so, Powell had to repeat one question to himself,
asking:
When will the economy be able to stand on its own feet?
He immediately followed with:
I'm not sure what the exact nature of that question is.
FOX News correspondent Edward Lawrence elaborated, asking when the Fed would lower the
number of treasuries it buys, and when the economy would function "without having that support
from the monetary side."
Powell found ways to avoid answering the idea of a nation which stands without central bank
supports, but he did refer to various "tests" the Fed will do in order to make decisions like
shrinking the balance sheet, explaining:
we've articulated our test for that, as you know, and that is just we'll continue asset
purchases at this pace until we see substantial further progress.
He went on to say that prior to making any decisions, such as buying fewer treasuries, they
will give the public a lot of notice beforehand.
There was also a question related to the Fed's influence in the housing market:
the housing market is strong, prices are up. And yet, the Fed is buying $40 billion per
month in mortgage related assets. Why is that, and are those purchases playing a role at all
in pushing up prices?
Despite amassing nearly $2.2 trillion of mortgage-backed securities
(MBS), Powell defended the central bank on the grounds that:
I mean, we started buying MBS because the mortgage-backed security market was really
experiencing severe dysfunction, and we've sort of articulated, you know, what our exit path
is from that. It's not meant to provide direct assistance to the housing market.
To be clear, the "severe dysfunction" occurred over a decade ago, when the Fed entered the
MBS market. As for the public knowing the exit path or not providing assistance to the housing
market, both ideas are highly debatable, to say the least.
But even more puzzling is when Powell says that during the current COVID crisis:
We bought MBS, too. Again, not intention to send help to the housing market, which was
really not a problem this time at all.
Strange, the Fed would commit to buying $40 billion a month of MBS when, according to the
Chair, there were no problems in the market. He concludes that purchases will go to zero over
time, but the "time is not yet."
The final question asked was in regards to market intervention:
if you get out of the markets, there aren't enough buyers for all of the Treasury debt?
And so, rates would have to go way up. Bottom line question is what do we get for $120
billion a month that we couldn't get for less?
Powell never explained what exactly "we get for $120 billion" a month, but assured us the
Fed was looking to reach its goals, and this was part of its plan. However, he did comment on
purchases, saying:
But if we bought less, you know, no. I mean, I think the effect is proportional to the
amount we buy And we articulated the, you know, the test for withdrawing that accommodation.
And we think, you know. So, we're waiting to see those tests to be fulfilled, both for asset
purchases and for lift off of rates. And, you know, when the tests are fulfilled, we'll go
ahead as, you know, we've done this before.
Between various tests to determine policy, vague responses, and a general avoidance of
answering questions directly, not much was offered other than providing perpetual liquidity
injections under accommodative monetary conditions. It was refreshing to see the mainstream
media ask more questions about the plan ahead; we can only hope the mainstream economic
community will do the same.
ReadyForHillary 1 hour ago
When will the economy be able to stand on its own feet?
He immediately followed with:
I'm not sure what the exact nature of that question is.
HA HA HA HA!
HA HA HA HA HA HA HA HA!
CovidBannedTard 1 hour ago
C'mon man!!!
Lordflin 1 hour ago
The entire point to the Fed is to fail to answer tough questions...
no cents at all 1 hour ago
Or doublespeak. The fed probably has a talented linguistics department at their employ
Paul Bunyan 1 hour ago (Edited)
What they have always said is moronic. Yet the world is full of morons, so the people
can't see through the lies.
Miniminer1 1 hour ago
Not a confidence builder
SDShack 1 hour ago (Edited)
Good god, how many 'you know' responses did Powell have? Sounds like some brain dead
zoomer...'it's like, you know, complicated, and like, you know, we are working on it.' A
complete 'Emperor has no clothes' moment. And these are supposed to be the smartest people on
the planet. Clueless or just evil liars. Or both.
mtl4 53 minutes ago
I'll take both for $1000 Alex
Ajax_USB_Port_Repair_Service_ 1 hour ago
The Fed intervenes everyday, all day, because they have to. There is no market without the
Fed.
CovidBannedTard 1 hour ago
You know!!!....The Thing!!!
C'mon Man!!
Paul Bunyan 1 hour ago (Edited)
The game is almost over. The dollar has 1-2 years left before a complete monetary reset.
Make sure you get out soon. You won't want to make last minute decisions.
JOHNLGALT. 1 hour ago
My last minute decision is:
1). Do I buy Ounces?
2). Do I buy Kilograms?
🦍🦍🚀🚀🚀😂🤣😎.
Emmet Fitz-Hume 1 hour ago
Powell, Greenspan, et al are just word-salad machines
Why should seniors and retirees be sacrificed with ZIRP in order to advance the interests
of the US Treasury and Corporate borrowers?
I would call it elder abuse. He should be required to address this question. Let's have
the Press do their job
Ben A Drill 41 minutes ago
Why should anyone gamble with their hard earned money to keep up with inflation?
AhabQuixote 50 minutes ago
This is a ponzi scheme in plain sight. It is as if Bernie Madoff told his clients that his
firm is a scam but a scam is the only way the system can function. It will all be fixed at
some point in the future when pigs fly.
nuerocaster 29 minutes ago
You may think that the Mises Institute and Rabo Bank are idiots. But think how hard it is
to present all this as managerial error and make stupendous wealth transference and money
laundering sound like oopsie.
archipusz 1 hour ago
Why even ask.
They are going to print. Congress wants them to print. All the elite benefit from the
printing.
It is not going to stop.
JOHNLGALT. 1 hour ago
WE will stop them!!
We are a community that loves Silver, Period. 72.4k. Silverbacks. 2.2k. Online now Created
29 Jan 2021.
Go SILVERBACKS 🦍🦍🦍🦍.
This is a movement to bring the
🐍🐍🐍BANK$TER$🐍🐍🐍DOWN.
Biden the moron dictator doesn't like to answer questions either
ChromeRobot 47 minutes ago
Basically, if you haven't figured it after 108 years, these clowns don't have the
slightest clue what they're doing or worse....do.
Revolution_starts_now 1 hour ago
Do you prefer GITMO or SuperMax?
Ajax_USB_Port_Repair_Service_ 17 minutes ago
I'll take GITMO. Nonsmoking, non-vaccinated, section please.
CrabbyR 1 hour ago (Edited)
Politicians and banker's first language is bafflegab
Misesmissesme 1 hour ago (Edited)
Answers? We ain't got no answers! We don't need no answers! I don't have to give you any
steenking answers!
Backhandslicer 23 minutes ago
Life support? They have created a monster and the monster is ravaging the country side
Backhandslicer 25 minutes ago
Powell is thinking I'm a currency printing machine and all the chicks dig me I shouldn't
have to answer any questions
Backhandslicer 35 minutes ago
Powell sounds like the absent minded janitor
Backhandslicer 36 minutes ago (Edited)
Eliminate the central bank and use only metals as money with paper currency withdrawable
for any of the metals at any bank or credit union
CosmoJoe 35 minutes ago
Seriously? I haven't carried cash in years. I don't want to. I don't want to carry a bunch
of gold and silver around in a little money sack. It isn't the f&cking middle ages.
zorrosgato 31 minutes ago
A paper currency backed by gold would work fine enough.
MASTER OF UNIVERSE 18 minutes ago
Would cement bricks painted gold work well enough if we never allowed anybody to test gold
samples to verify authenticity?
That's what Fort Knox is, right?
MOU
Backhandslicer 26 minutes ago
Does a 100 dollar bill in your pocket give you a rash?
CosmoJoe 19 minutes ago
I wouldn't know, I don't carry $100 in my pocket.
permanent victim 55 minutes ago
The fed will be all powerful till the world abandons the dollar. Until then they will
print shamelessly
Ben A Drill 48 minutes ago
Understand the free masons and you will see how much evil is in the world.
Realism 1 hour ago
The list of paid liars keeps growing
VWAndy 1 hour ago
Why shouldnt they be hung from lamp posts is a valid question too.
Rainman 1 hour ago
By now we all know the bankster-owned Fed and the US Treasury are one and the same
entity.
Old Hickory twitches in his grave...
dlfield 1 hour ago
A: Why never, because then I would be out of a job.
sarret PREMIUM 1 hour ago
Here's a difficult question Powell. Do you identify more with a disabled penguin or a gay
orangutan? Get it wrong and you will be cancelled ya numpty.
JohnnyCrypto 19 seconds ago
Yeah, MadeofTheta was right!
It's over!
ClamJammer 2 minutes ago
Learned everything he knew about not answering questions from Pompeo........we lie, we
steal, we cheat.........
permanent victim 10 minutes ago
As long as the markets are up I am doing what I am getting paid to do
cowdiddly 14 minutes ago
Ummm....errrr... Questions? We don't need no stinking questions.
IDESofMARCH 16 minutes ago remove link
FED policy picks and chooses which busines fails and which makes all the money.
FED kills Ma and Pa Bus DEAD, Wall Mart, HD, Chain Restaurants and Dollar Stores all
having a good time raising prices.
Most tax havens are either American possessions or British possessions. Then there are the
tax havens that are firmly under American geopolitical control (Switzerland, Monaco,
Luxembourg, Ireland). Then there is the State of Delaware (of which the present POTUS is from).
There are no tax havens under the control of an enemy of the West.
The USA should stop with that charade. If it wanted to curb on tax evasion, it would've
already done so decades ago.
Capitalism is value that self-valorises. The rich must get richer and the poor must get
poorer over the long term. That's how a healthy capitalist system operates. To try to claim USD
1.4 trillion from their bourgeoisie is not how the American Empire should work. This is a
desperate attempt of the American Federal State to survive.
"... Instead of reining in the "globalist elites" he so vociferously ran against or those corporations "who have no loyalty to America," his one legislative achievement has been to award them a massive tax cut. Through it, he has maintained their favorite mix of low revenue intake and high deficits which gives Republicans a pretext to "starve the beast" and induce fiscal anorexia. ..."
"... Trump ran as a populist firebrand -- a fusion of Huey Long and Ross Perot -- and while he never abandoned that style, he has governed for the most part as a milquetoast free market Republican in perfect tandem with Paul Ryan and Mitch McConnell, one whose solution to everything is more tax cuts and deregulation: a kind of turbo-charged "high-energy Jeb." ..."
"... With the outbreak of COVID-19, many on the reformist right are hoping for the emergence of the President Trump they thought they were promised, a leader just as ready to break out of the donor-enforced "small government" straitjacket while in power as he was during the campaign. ..."
"... The heightened rhetoric against China will continue -- the one thing Trump is good at -- but it is unlikely to be matched with the required policy ..."
"... If neoliberalism excused inequality at home by extolling the equalization of incomes across the globe (millions of Chinese raised from poverty, while millions of American workers fall back into it!), the new position must shift emphasis back to ensuring a more equitable domestic distribution of wealth and opportunity across all classes and communities in this country. ..."
"... It is worth pondering what might have happened if the administration had gone the other way and followed the last piece of policy advice given by Steve Bannon before his ouster in August 2017. Bannon suggested raising the top marginal income tax rate to 44 percent while "arguing that it would actually hit left-wing millionaires in Silicon Valley, on Wall Street, and in Hollywood." ..."
"... It might well have put Trump on the path to becoming what Daniel Patrick Moynihan once proposed as a model for Richard Nixon when he gifted the 37th president a biography of Disraeli, namely a Tory Republican who could outsmart the left by crafting broad popular coalitions based on a blending of patriotic cultural conservatism with class-conscious economic and social policy. ..."
"... Then and even more so now, the idea resonates: a Reuters/Ipsos poll from January found that 64 percent of Americans support a wealth tax, a majority of Republicans included. Poll after poll has reaffirmed this. It seems as if there is right-wing populist support for taxing the rich more. ..."
"... There is one more thing to be said about the significance of taxing the rich. Up until very recently, there has been a prevailing tendency among the reformist right (with some important exceptions) to couch criticism of the elites primarily or even exclusively in cultural terms. There seems to have been a polite hesitation at taking the cultural critique to its logical economic conclusions. It is easy to excoriate the excesses of elite identity politics, the "woke" part of woke capitalism; it's something all conservatives -- and indeed growing numbers of liberals and socialists -- agree on. Fish in a barrel. ..."
"... But to challenge the capitalism part, i.e. free market orthodoxy, not in a secondary or tertiary way, but head on and in specific policy terms as Lofgren and a few others have done, would involve confronting difficult truths, namely that the biggest beneficiaries of tax cuts and Reaganite economic policy in general, which most conservatives enthusiastically promoted for four decades, are the selfsame decadent coastal elites they claim to oppose. It is they who more than anyone else thrive on financialized globalization, arbitrage and offshoring. ..."
"... In other words, it amounts to an honest recognition of the complicity of conservatism in the mess we're in, which is perhaps a psychological bridge too far for too many on the right, reformist or not. (Trigger Warning!) This separation of culture and economics has led to the farce of a self-styled nationalist president lining the pockets of his nominal enemies, the globalist ruling class. ..."
"... A conservative call to tax the rich would signal that the right is ready to end this charade and chart a course toward a more patriotic, public-spirited and yes, proudly hyphenated capitalism. ..."
"... Michael Cuenco is a writer on politics and policy. He has also written for American Affairs. ..."
They also left worker wages stagnant and increased the deficit. Where is our more nationalist economic policy?
Much has been written about the disappointment of certain segments of the right in the apparent capitulation of Donald Trump to
the agenda of the conservative establishment.
Instead of reining in the "globalist elites" he so vociferously ran against or those corporations "who have no loyalty to America,"
his one legislative achievement has been to award them a massive tax cut. Through it, he has maintained their favorite mix of low
revenue intake and high deficits which gives Republicans a pretext to "starve the beast" and induce fiscal anorexia.
The president has granted them as well their ideal labor market through an ingenious formula: double down on mostly symbolic raids
(as opposed to systemic solutions like Mandatory E-Verify) and ramp up the rhetoric about "shithole countries" to distract the media,
but keep the supply of cheap, exploitable low-skill labor (legal and illegal) intact for the business lobby.
Trump ran as a populist firebrand -- a fusion of Huey Long and Ross Perot -- and while he never abandoned that style, he has governed
for the most part as a milquetoast free market Republican in perfect tandem with Paul Ryan and Mitch McConnell, one whose solution
to everything is more tax cuts and deregulation: a kind of turbo-charged "high-energy Jeb."
With the outbreak of COVID-19, many on the reformist right are hoping for the emergence of the President Trump they thought they
were promised, a leader just as ready to break out of the donor-enforced "small government" straitjacket while in power as he was
during the campaign.
Despite signs of progress, what's more likely is a return to business as usual. Already the GOP's impulse for austerity and parsimony
is proving to be stronger than any willingness to think and act outside the box.
The heightened rhetoric against China will continue -- the one thing Trump is good at -- but it is unlikely to be matched with
the required policy, such as a long-term plan to reshore U.S. industry (that doesn't just rely on blindly giving corporations the
benefit of the doubt). At this point, we already know where the president's priorities lie when given a choice between the advancement
of America's workers or continued labor arbitrage and carte blanche corporate handouts.
Lest they be engulfed by it like everyone else, the reformist right should ask: is there any way to stand athwart the supply-side
swamp yelling Stop?
Many of these conservatives lament the Trump tax cut not just because it was a disaster that failed to spark reinvestment, left
wages stagnant, needlessly blew up the deficit and served as a slush fund for stock buybacks, but more fundamentally because it betrayed
the overwhelming intellectual inertia and lack of imagination that characterizes conservative policymaking.
More than in any other issue then, a distinct position on taxes would make the new conservatism truly worth distinguishing from
the old: tax cuts were after all the defining policy dogma of the neoliberal Reagan era.
If neoliberalism excused inequality at home by extolling the equalization of incomes across the globe (millions of Chinese raised
from poverty, while millions of American workers fall back into it!), the new position must shift emphasis back to ensuring a more
equitable domestic distribution of wealth and opportunity across all classes and communities in this country.
A reformulation of fiscal policy along populist economic nationalist lines can help with that.
It is worth pondering what might have happened if the administration had gone the other way and followed the last piece of policy
advice given by Steve Bannon before his ouster in August 2017. Bannon suggested raising the top marginal income tax rate to 44 percent
while "arguing that it would actually hit left-wing millionaires in Silicon Valley, on Wall Street, and in Hollywood."
Such a move would have been nothing short of revolutionary: it would have been a faithful and full-blown expression of the populist
economic nationalism Trump ran on; it would have presented a genuine material threat to the elite ruling class of both parties, and
likely would have pre-empted the shock value of Alexandria Ocasio-Cortez proposing a 70 percent top marginal rate.
It might well have put Trump on the path to becoming what Daniel Patrick Moynihan once proposed as a model for Richard Nixon when
he gifted the 37th president a biography of Disraeli, namely a Tory Republican who could outsmart the left by crafting broad popular
coalitions based on a blending of patriotic cultural conservatism with class-conscious economic and social policy.
Not that Trump would have needed to go back to Nixon or Disraeli for instruction on the matter. In 1999, long before Elizabeth
Warren came along on the national scene, a presidential candidate eyeing the Reform Party nomination contemplated the imposition
of a 14.25 percent wealth tax on America's richest citizens in order to pay off the national debt: his name was Donald Trump.
What ever happened to that guy? The Trump of 1999 was onto something. Maybe this could be a way to deal with our post-pandemic
deficits.
Then and even more so now, the idea resonates: a Reuters/Ipsos poll from January found that 64 percent of Americans support a
wealth tax, a majority of Republicans included. Poll after poll has reaffirmed this. It seems as if there is right-wing populist
support for taxing the rich more.
To the common refrain, "the rich are just going to find ways to shelter their income or relocate it offshore," I have written
elsewhere about the concrete policy measures countries can and have taken to clip the wings of mobile global capital and prevent
such an outcome.
I have written as well about how taxing the rich and tightening the screws on tax enforcement have implications that go beyond
the merely redistributive approach to fiscal policy conventionally favored by the left; about how it can be a form of leverage against
an unaccountable investor class used to shopping at home and abroad for the most opaque assets in which to hoard vast amounts of
essentially idle capital.
A deft administration would use aggressive fiscal policy as an inducement for this irresponsible class to make things right by
reinvesting in such priorities as the wages and well-being of workers, the vitality of communities, the strength of strategic industries
and the productivity of the real economy – or else Uncle Sam will tax their wealth and do it for them.
It would also be an assertion of national sovereignty against globalization's command for countries to stay "competitive" by immiserating
their citizens with ever-lower taxes on capital holders and ever more loose and "flexible" labor markets in a never-ending race to
the bottom.
Mike Lofgren has penned a marvelous essay in these pages about the virtual secession of the rich from the American nation, "with
their prehensile greed, their asocial cultural values, and their absence of civic responsibility."
What better way to remind them that they are still citizens of a country and members of a society -- and not just floating streams
of deracinated capital -- than by making them perform that most basic of civic duties, paying one's fair share and contributing to
the commonweal? America need not revert to the 70-90 percent top marginal rates of the bolshevik administrations of Truman, Eisenhower
or Kennedy, but proposals for modest moves in that direction would be welcome.
There is one more thing to be said about the significance of taxing the rich. Up until very recently, there has been a prevailing
tendency among the reformist right (with some important exceptions) to couch criticism of the elites primarily or even exclusively
in cultural terms. There seems to have been a polite hesitation at taking the cultural critique to its logical economic conclusions.
It is easy to excoriate the excesses of elite identity politics, the "woke" part of woke capitalism; it's something all conservatives
-- and indeed growing numbers of liberals and socialists -- agree on. Fish in a barrel.
But to challenge the capitalism part, i.e. free market orthodoxy, not in a secondary or tertiary way, but head on and in specific
policy terms as Lofgren and a few others have done, would involve confronting difficult truths, namely that the biggest beneficiaries
of tax cuts and Reaganite economic policy in general, which most conservatives enthusiastically promoted for four decades, are the
selfsame decadent coastal elites they claim to oppose. It is they who more than anyone else thrive on financialized globalization,
arbitrage and offshoring.
In other words, it amounts to an honest recognition of the complicity of conservatism in the mess we're in, which is perhaps
a psychological bridge too far for too many on the right, reformist or not. (Trigger Warning!) This separation of culture and economics
has led to the farce of a self-styled nationalist president lining the pockets of his nominal enemies, the globalist ruling class.
Already, the White House is proposing yet another gigantic corporate tax cut. Using the exact same discredited logic as the last
one, senior economic advisor Larry Kudlow wants Americans to trust him when he says that halving the already lowered 2017 rate to
10.5 percent will encourage these eminently reasonable multinationals to reinvest. There he goes again.
A conservative call to tax the rich would signal that the right is ready to end this charade and chart a course toward a more
patriotic, public-spirited and yes, proudly hyphenated capitalism.
Michael Cuenco is a writer on politics and policy. He has also written for American Affairs.
"America need not revert to the 70-90 percent top marginal rates of the bolshevik administrations of Truman, Eisenhower or Kennedy,
but proposals for modest moves in that direction would be welcome."
Those tax rates were offset by direct investment in the US economy. So if I invested in the stock market, I'd get a 90% tax
rate because that doesn't produce actual wealth. On the other hand, if I invested in building factories that created thousands
of jobs for American citizens, my tax rate may fall to 0%. And those policies created a fantastic economy that we oldsters remember
as the golden age. That wasn't bolshevism, it was competitive capitalism. What we have today is libertarianism. And as long as
conservatives are going to let the libertarian boogey-man's nose under the tent, we are going to have this ugly, bifurcated economy.
Your choice. Man up.
You ever tell hear of sarcasm, bud? I think that's what the author was going for. Don't think he was trying to say that Ike and
Truman were Bolsheviks but was rather making fun of libertarians who hyperbolically associate high tax rates with socialism and
Soviet Communism...
We absolutely do not have libertarianism operating in this country today. There is simply no evidence that there is any
sort of libertarian economic or political system in place. Oh sure, you'll whine "but globalism without actually defining
what globalism is, or what is wrong about precisely, but just that it's somehow wrong and that libertarians are to blame for it.
There's a good word for such an argument: bullshit.
We have an economy that is extraordinarily dominated by the state via mandates, regulations, and monetary interference that is
most decidedly not libertarian in any way whatsoever. The current system though does create and perpetuate a system of
rent-seeking cronies who conform rather nicely to the descriptions of said actors by Buchanan and Tullock. The problems of the
modern economy are the result of state interference, not its absence, and Cuenco's sorry policy prescriptions do nothing to minimize
the state but instead just create a different set of rent-seeking cronies for which the wealth and incomes of the nation are to
be expropriated.
If you can point to how the current situation is in any way "libertarian" without creating your own perfect little lazy straw
man definition then by all means do so. Until then your retort is without
substance (you see a no true Scotsman reply doesn't work if the facts are in the favor of the person supposedly making such an
argument. Here you fail to establish why what I said is such a case; saying it doesn't make it so). When Kent makes some throwaway
comment that we're somehow living in some sort of libertarian era he's full of it, you know it, and all you can do is provide
some weak "no true Scotsman" defense? Come on and man up, stop appealing to artificial complaints of fallacious argumentation,
and give me an actual solid argument with evidence beyond "this is so libertarian" that we're living in some libertarian golden
age that's driving the oppression of the masses.
Busted unions, contracting out and privatization, deregulation of vast swaths of the economy since the late 1970's (Jimmy Carter
has gotten kudos from libertarian writers for his de-regulatory efforts), lowered tax rates, especially on financial speculation
and concentrated wealth, a blind eye or shrugged shoulder to anti-trust law and corporate consolidation. Yeah, nothing to see
here, no partial victories for the libertarian wings of the ruling class or the GOP, at all. The Koch Brothers accomplished nothing,
absolutely nothing, since David was the Libertarian Party's nominee for Vice President in 1980; all that money gone to waste.
Sure.
So, now some sort of "partial victory" means we're living in some sort of libertarian era? And what exactly was so wonderful about
all the things you listed being perpetuated? So, union "busting" is terrible, but union corruption was a great part of our national
solidarity and should have been protected? Deregulation of vast swathes of the economy? You mean the elimination of government
controlled cartels in the form of trucking and airlines? You mean the sorts of things that have enabled the working class folks
you supposedly favor to travel to places that were previously out of reach for them and only accessible to the rich for their
vacations? Yes, that's truly terrible. Again, you're on the side of the little guy, right? Lowered taxes? Are you seriously going
to argue that the traditional conservative position has been for high tax rates? What are taxes placed upon? People and property.
What do conservatives want to protect? People and property. So... arguing for higher taxes or saying that low taxes are bad or
even especially, libertarian, is really going off the rails. That's just bad reasoning. And regarding financialization, those
weren't especially libertarian in their enacting, but rather flow directly out of the consequences of the modern Progressive implementation
of neo-Keynesian monetary and fiscal policy. Suffice it to say, I don't think you'll find too many arguments from libertarians
that the policies encouraging financialization were good or followed libertarian economic policy prescriptions. Moreover, they
led entirely to the repulsive "too big to fail" situation and if there's one thing that libertarians hold to is that there is
no such thing (or shouldn't be) as "too big to fail." The objection to anti-trust law is that it was regularly abused and actually
created government-protected firms that harmed consumers. If you think anti-trust laws are good things and should be supported
by conservatives then by all means encourage Joe Biden to have Elizabeth Warren as his vice-presidential running mate and go vote
Democrat this fall.
"The problems of the modern economy are the result of state interference, not its absence". That's because the "state interference"
is working as proxy for the interests of vulture capitalist.
What we have today is vulture capitalism as opposed to free enterprise capitalism.
Exactly. The existence of a vulture capitalist or crony capitalist economy, which we have in many sectors, is evidence that "libertarianism"
is nothing more than a convenient totem to invoke as a rationale for complaint against the outcomes of the existing crony capitalist
state of affairs. My contention is that Cuenco, et al are simply advocating for a replacement of the cronies and vultures.
A very similar article(but probably coming at it from a slightly different angle) wouldn't look out of place in a socialist publication.
The culture war really is a pointless waste of time that keeps working class people from working towards a common solution to
shared problems.
I used to think that conservatism was about protecting private property and not, like Cuenco, in coming up with ever more excuses
for expropriating it.
No, that's libertarianism (or more properly propertarianism). Conservatism is first and foremost about responsibility to God,
community, family and self. Property is only of value in its utility towards a means.
As I see it, here are examples of how "conservatives" have actually practiced their "responsibility to God, community, family
and self":
The genocide of Native Americans
The slavery and murder of blacks
Their opposition to child labor laws, to womens' suffrage, etc.
Their support of Jim Crow laws
Their opposition to ending slavery and opposition to desegregation
Opposition to Civil Liberties Laws
Willingness to block, or curtail, voting rights.
Hyping the "imminent threat" of an ever more powerful communist menace bearing
down on us from the late 40s to the "unanticipated" collapse of the
USSR in '91. All of which was little more than endless "threat inflation" used
by our defense industry-corporate kleptocrats to justify monstrous increases
in deficits that have been "invested" in our meddlesome, murderous militarism all around the world, with the torture and deaths
of millions from S. E. Asia, to Indonesia, to Latin America, to the Middle East, to Africa, etc.
Violations of privacy rights (conservative hero J. Edgar Hoover's illegal domestic surveillance and acts of domestic terrorism,
"justified" by
his loopy paranoia about commies on every corner and under every bed.)
Toppling of democracies to install totalitarian despots in Iran
("Ike" '53), Guatemala (Ike, again, '54), Chile (Nixon '73), Brazil (LBJ, '64) and many, many more countries.
Strong support of the Vietnam War, the wars in Laos and Cambodia, and the Iraq War, which, according to conservative W. Bush,
God had inspired.
The myriad "dirty wars" we've fought around the world, and not only in Latin America.
With a few, notable exceptions, conservatives have routinely been on the wrong side of these issues. For the most part, it
has been the left, particularly the "hard left," that has gotten it right.
So conservatism should be entirely about taking people's property "for the good of the country"? That the purpose of a country
is to loot the people? That the people exist for the government and not the government for the people? Seems Edmund Burke and
Russell Kirk would like to have a word with you Adm.
To quote Kirk as just one example of your fundamental error:
Seventh, conservatives are persuaded that freedom and property are closely linked . [Apparently, Adm. you dispute
Kirk's assertion and accuse him thereby of conflating libertarianism and conservatism. Yes, I know Kirk was a hater of the
idea of patriotism, but he was such a raging libertarian what else could he do?] Separate property from private possession,
and Leviathan becomes master of all. Upon the foundation of private property, great civilizations are built. The more widespread
is the possession of private property, the more stable and productive is a commonwealth. Economic levelling[this
is the outcome of Cuenco's policy prescriptions by the way] , conservatives maintain, is not economic progress. Getting
and spending are not the chief aims of human existence; but a sound economic basis for the person, the family, and the commonwealth
is much to be desired.
So, either "Mr. Conservative" Russell Kirk wasn't really a conservative but a man who horribly conflated libertarianism and
conservatism, or we can say that Kirk was a conservative and that he recognized the protection of private property as crucial
in minimizing the control and reach of the Leviathan state. If the latter holds, then maybe what we've established is that AdmBenson
isn't particularly conservative.
"The more widespread is the possession of private property, the more stable and productive is a commonwealth." This status quo
has produced precisely the opposite of this. Wealth, assets, capital has been captured by the elite. The pitchforks are coming.
See this CBO chart:
View Hide
Conservatives accept taxes as a part of citizenship. Since taxes can't be avoided, a conservative insists on democratic representation
and has a general desire to get maximum bang for their taxpayer buck.
Libertarians, on the other hand, see everything through the lens of an individual's property rights. Taxes and regulation are
infringements on those rights, so a libertarian is always at war with their own government. They're not interested in bang for
their taxpayer buck, they just want the government to go away. I can't fault people for believing this way, but I can point out
that it is severely faulty as the operating philosophy beyond anything but a small community.
As for me not being particularly conservative, ya got me. It really depends on time of day and the level of sunspot activity.
I should have put the /s on my reply, but your response did give me a good chuckle. Besides, for that finger pointing at you,
there were three more pointing back at me.
And somehow people continually fall for the Trickle Down economic theory. George HW Bush was correct when he called this VooDoo
economics. Fiscal irresponsibility at it's finest.
Nah people don't fall for it, republicans do. The rest of us know this stuff doesn't work. We didn't need an additional datapoint
to realize that. The Tax Cuts and Jobs act was the single most unpopular piece of legislation to ever pass since polling began.
It never had support outside of the Republican Party which is why it's never had majority support.
John Kenneth Galbraith called Trickle Down "economics", "Oats and Horse Economics". If you feed the horse a lot of oats, eventually
some be left on the road...
Mitch is fully owned by Trump as is every republican that holds office except Romney. Mitch can't go to the bathroom with out
asking Trumps permission.
Mitch is owned by corporations and he likes it that way. He basically says as much whenever campaign finance reform pops up and
he defends the status quo.
Yep. The guy who declared war on the Tea Party. The guy who changed his tune entirely about China when he married into the family
of a shipping magnate.
I'm eagerly awaiting a GOP plan for economic restructuring. I've been waiting for decade(s). Surely there is someone in the entire
body of think tanks, congressional staffers, and political class that can propose a genuine and comprehensive plan for how to
rebalance production, education, and technology for the better of ALL Americans. Surely...
I honestly wonder if Jack Kemp might have had a "Road to Damascus" conversion away from his pseudo-libertarian and supply side
economic convictions if he had lived through the decade after the Great Recession. Probably not, given his political and economic
activity up until his death.
Trump pushed the tax cut because it saves him at least $20 million each year in taxes, probably closer to $50 million. That's
the only reason he does anything, because he benefits personally.
Thank you very much for posting the link to the wonderful essay by Mike Lofgren. Written 8 years ago it feels even more actual
than then. I have bookmarked it for future reference.
Looking at the US it always comes to my mind the way Rome and then Byzantium fell: a total erosion of the tax-base the rich
refused to pay anything to the imperial coffers, and then some of the rich had land bigger than some modern countries... And then
the barbarians came...
Lofgren: "What I mean by secession is a withdrawal into enclaves, an internal immigration, whereby the rich disconnect themselves
from the civic life of the nation and from any concern about its well being except as a place to extract loot."
That was in 2012, but that was what struck me about my well-to-do classmates
when I transferred from Cal State Long Beach to Columbia University in 1977 . Suddenly I was among people who saw America,
American laws, and a shared sense of civic responsibility as quaint, bothersome, rather tangential to the project of promoting
oneself and/or one's special interest.
The only way that factories would come back is when Americans start buying made in America. We can't wait for ANY government to
bring those factories and jobs ( and technology) . Only people voting with their pocketbooks can do it.
Still waiting for the day the first American asks "What have WE done wrong?" Rather than just following in Trumps step
and playing the victim card every step of the way and wondering why nothing gets better.
Not
surprisingly for those of you who are members of the ABA Tax Section, there is a meeting of
that group next week in Florida when a thousand tax lawyers (give or take a few) will be
talking about everything from basis to wealth taxes; GILTI, BEAT, Dual BEIT, to EITC. Yours
truly will be on a panel of the Tax Policy and Simplification Committee, meeting Friday
morning, to discuss how the tax system should respond to the wealth gap. Joining me on the dais
will be Roger Royse (moderator and panelist), Rich Prisinzano from the Penn Wharton Budget
Model, and Dan Shaviro, Wayne Perry Professor of Taxation at NYU and a blogger at Start Making
Sense. We'll talk about the income and wealth gap data, including the different perspectives of
Saez & Zucman, serving as wealth tax advisers to Senator and Democratic presidential
candidate hopeful Elizabeth Warren; Penn Wharton Budget Model, applying a more standard budget
model to determine harms and benefits of the Warren Wealth Tax; and Cato INstitute. We'll also
discuss Sen. Ron Wyden's proposal for a mark-to-market system of capital gains taxation
(including a lookback charge of some kind for hard-to-value assets, Prof. (and former Cleary
partner) Edward Kleinbard's Dual Business Enterprise Income Tax proposal, and other means of
making the regular tax system more progressive such as rates, removing the capital gains
preference, and reinvigorating the estate tax that has been the object of a GOP murder squad
for the last 20-30 years at least.
Meanwhile, today in Florida there was a Tax Policy Lecture at the University of Florida on
Taxing Wealth, with Alan Viard, resident scholar at the American Enterprise Institute, David
Kamin, Professor at NYU School of Law, Janet Holtzblatt, Senior Fellow at the Tax Policy
Center, and William Gale, Arjay and Frances Fearing Miller Chair in Federal Economic Policy7 at
the Brookings Institution.
Last fall, the Tax Policy Center held a program on Taxing Wealth (w ebcast recording available at this
link ) with Mark Mazur, Ian Simmons, Janet Holtzblatt, Beth Kaufman, Greg Leiserson,
Victoria Perry, and Alan Viard. Sony Kassam from Bloomberg Tax served as moderator. The link
has a series of power point presentations from that meeting as well, for your edification.
Ian Simmons, for example, includes
the letter from billionaires dated June 24, 2019, asking that "[ t]he next dollar of new
tax revenue should come from the most financially fortunate, not from middle-income and
lower-income Americans ." Such a tax " enjoys the support of a majority of
Americans–Republicans, Independents, and Democrats ." It's not a new idea, since all
those millions of middle-income Americans who own their home " already pay a wealth tax each
year in the form of property taxes on their primary form of wealth–their home ." The
billionaires are asking " to pay a small wealth tax on the primary source of our wealth as
well "–such as Elizabeth Warren's proposal, which would tax " only 75,000 of the
wealthiest families in the country " (those with assets over $50 million) and would
generate an estimated $3 trillion over ten years to "f und smart investments in our future,
like clean energy innovation to mitigate climate change, universal child care, student loan
debt relief, infrastructure modernization, tax credits for low-income families, public health
solutions, and other vital needs ." All this is necessary because of the wealth gap: "
[t]he top 1/10 of 1% of households now have almost as much wealth as all Americans in the
bottom 90% ." The signatories support a wealth tax because:
it's a powerful tool for solving our climate crisis
it's an economic winner for America through increased public investments
it will make Americans healthier, addressing the difference in longevity (15 years)
between the richest and the poorest Americans
It's fair -- "[ t]axing extraordinary wealth should be a greater priority than taxing
hard work ."
It strengthens American freedom and democracy, since high levels of economic inequality
lead to political power and pluotocracy and higher levels of distrust in democratic
institutions
It is patriotic -- ' The richest 1/10 of the richest 1% should be proud to pay a bit
more of our fortune forward to America's future ."
Janet Holtzblatt discussed whether wealth should be taxed, with a set of powerful
powerpoint charts . As she notes, there are a number of reasons to think taxing the wealthy
is a good idea because it (slide 4) :
curbs the accumulation of power that comes with the accumulation of wealth–and, I
will add, this is power to get laws and regulations written in your favor, including tax
laws, as well as power that allows pollution, rent-seeking, on-demand schedules for workers
and other 'evils' that come with plutocracy
ensures that the wealth pay their fair share of taxes
finances new initiatives (child care, student debt relieve, climate change policies,
housing initiatives)
provides better data for research on wealth inequality
Those not supportive (or, as JH puts it, "less optimistic") suggest that (slides 5, 7)
even with a wealth tax, the rich remain the richest and the most powerful
incremental changes to current tax system would be more easily implemented
wealth taxes would have a negative impact on savings, investment, entrepreneurship
wealth taxes won't raise as much revenue as claimed
OECD countries with wealth taxes haven't been all that successful (in 1990 12 had them,
in 2018 only 3 still retained wealth taxes: Norway, Switzerland, and Spain)
There are lots of issues with wealth taxes: (slides 8-20)
on what assets
at what rate (tax burden will depend partly on rate of returns on investments
using what exemption threshold (liquidity constraints at lower thresholds; taxing middle
income instead of wealthy)
using what means to prevent tax avoidance (dependents' wealth with parents? include
assets in family-run foundations? restrictive limits for trusts? exit taxes?)
and tax evasion (enhance IRS enforcement, enhance penalties, enhance IRS access to third
party data–but the wealthy have resources to battle IRS claims)
assuming what actual amounts of tax revenues could be raised (" street fights over
revenue estimates among top public finance economists ") (Slide 15)
how much wealth is there? JH notes several 2016 estimates between 86.9 trillion and
101.2 trillion (slides 16-17) {Zucman says just under $115 trillion]
Fed Reserve Survey of Consumer Finance ( 3 year intervals; leaves out Forbes 400
and some pension wealth)
estate tax data (adjusted for mortality probabilities and population)
income tax data (capitalized using assumed rates of returns)
how is that wealth distributed between the top 0.1% and the rest? Bricker 2016 study
estimates range from about 15% to 22% (Slide 18)
how much wealth is hidden by "tax net misreporting rates"? IRS 2016 misreporting:
farms 71%; nonfarm proprietors 64%; CGs 27%; PS/SCorps/Estates/Trusts 16% (slide 19)
how much tax revenues? between 815 billion and 1.098 trillion between 2021-2030
(slide 22, Urban-Brookings TPC Microsimulation Model [ with lower thresholds and rates
than those proposed by Warren]
who pays? 40,000 tax units in the top 1% minus the top 0.1%; 127,000 tax units in the
top 0.1%,with those in the top 0.1% paying between 97% and 100% on the different options
considered
Greg Leiserson discussed the idea of mark-to-market taxation (an idea that Ron Wyden has
endorsed), in "
Taxing wealth by taxing investment income: An introduction to mark-to-market taxation "
(Sept 11, 2019). The key to MTM taxation is that a tax is assessed annually on investments,
whether or not they are sold or otherwise disposed of ('through a transaction that results in
"realization" for federal income tax purposes). The burden of such a tax falls predominantly on
the wealthy, since those are the primary owners of bonds, stocks, real estate empires, and
pass-through businesses that produce investment income, as well as the appreciation of those
assets that is taxed currently as a capital gain on disposition. Leiserson provides a chart
(below) showing the nominal investment income of US households and nonprofits including an
offset for inflation.
As he notes, much of this income is taxed at preferential capital gains rates, and much of
the income tax is deferred because capital gains and losses are generally taxed only when the
asset is sold. Deferral amounts to a reduction in taxes paid under time-value-of-money
principles. But yet another way in which owners of investment assets escape taxation is the
estate tax: appreciation in property in the estate (such as unrealized capital gains from stock
that has appreciated in value significantly over decades) is never taxed, since the heirs get a
step up in basis to market value, so that if the asset were then immediately sold, there would
be no gain remaining.
MTM taxation eliminates the deferral advantage. MTM taxation combined with elimination of
the preferential rate for capital gains would eliminate the preferential treatment of capital
gains that exists in current law. Leiserson notes the difficulties for a MTM system: which
assets are covered, rate of tax applied, and whether there are special rules for volatility.
Further, "[ i]f a comprehensive system of mark-to-market taxation is enacted, then there
would be no unrealized gains at death going forward, because gains will have been taxed on an
annual basis, including in the year the person dies " so long as the system applies over
some transition period to gains accrued prior to enactment. Otherwise, the system would have to
tax gains at death (repealing step-up in basis rule) or at any other disposition, including
gifts, to ensure fair and equal treatment. He suggests other measures–such as limiting
the home sales capital gain exclusion or requiring mandatory distributions of pension account
balances above a threshold, that would be reasonable in a MTM context.
One difficulty with MTM taxation is valuation of assets that are not regularly traded. Ron
Wyden's proposal suggests a lookback charge–an additional tax payment for assets not
subject to MTM taxation that is collected upon disposition to account for the deferral value
while still relying on realization as a trigger for taxation. Wyden and Leiserson suggest
different possible methods. One is to take the gain upon sale and allocate it ratably to each
year between purchase and sale, compute the tax on each year's income at the rate applicable in
that year, and then calculate interest on those unpaid taxes for the years til payment.
Unrealized gains would be deemed realized on death or gift and taxed accordingly.
Three key ideas here:
To protect lower and middle income taxpayers from the tax, there could be a lifetime gain
exemption threshold ($0.5 million, say) that has to be reached before the rules apply or an
asset value threshold ($2 million; $10 million, etc.). Under the latter, taxpayers would fall
into and out of the MTM regime as assets fluctuate. (The asset approach is suggested by
Wyden.)
The revenue raised is significant though it depends on the particular model. Leiserson
suggests MTM combined with elimination of the preferential rate on capital gains "could
easily raise $1 trillion over the next decade–and potentially much more ." He notes
that just eliminating the preferential CG rate gives a much lower estimate–that's
because of "t he ease of tax avoidance under current law such as the ready opportunity to
defer tax by not selling assets and potentially avoid tax entirely through step up in
basis–all while simply borrowing against these same assets to finance any spending
."
"The wealthiest 1 percent of families holds 31 percent of all wealth, and the wealthiest
10 percent holds 70 percent of all wealth." "The highest-income 1 percent of families
receives 75 percent of the benefit of the preferential rates for capital gains and dividends
under current law." The wealthiest 10% would bear the burden of MTM reforms.
Of course, while everybody is talking about taxes, some of that talk is the same old endless
market fundamentalist myth (Reaganomics) about how tax cuts are what make the economy grow and
will actually pay for themselves -- in spite of near 4 decades of evidence to the contrary,
where highest growth rates have generally been in times of higher tax rates, with some
consideration for stimulus impact of tax cuts after periods of recessions. See, e.g., NY Times
editorial, There's No Such Thing as a Free
Tax Cut (Jan 22, 2020).
The op-ed notes that Treasury Secretary Steven Mnuchin "r epeated the risible fantasy
that the Trump administration's 2017 tax cuts will bolster economic growth sufficiently for the
government to recoup the revenue it lost by lowering tax rates " [in the 2017 tax
legislation] even though 2 years in, the " budget deficit has topped $1 trillion ."
This is because, as most of us who haven't drunk the Laffer-curve tax cut kool-aid know and
the Times op-ed reiterates, " businesses responded to increased demand more than they did to
the lower tax rates ." Nonetheless, we should not be surprised that the Trump
Administration is talking about two "big ideas" for taxes if the man gets reelected: 1) cutting
Medicare and Social Security: see, e.g., Trump Opens Door to
Cuts to Medicare and Other Entitlement Programs , NY Times (Jan 22, 2020) and 2)
passing another tax cut bill: see
Steven Mnuchin Confirms Trump's New Tax Plan is Imminent , USNews (Jan 23, 2020). Those two
ideas go hand in hand.
T hough Trump doesn't dare state what he is really doing to his base, who he has deceived
with typical right-wing rhetoric into thinking that he is trying to rightsize the economy to
serve them when he instead engages in class warfare to stuff his own pockets, he is hip to hip
with Newt Gingrich's desire t o "starve the government" to create a huge deficit (we are up to
$1 trillion in our new "gilded age economy") that then provides cover for the wealthy to suck
in even more of the country's wealth by downsizing Medicare and Social Security, programs
essential for those who are not among the wealthy.
"At the end of the day, perhaps, the equity side of the U.S. external balance sheet should
be understood not by thinking of the U.S. as a giant and very successful private equity fund
that borrows to buy equity -- but rather as one giant corporate tax dodge for U.S. based
multinationals
If you think I am exaggerating, I would encourage you to take a look at the IRS data on the
location of U.S. corporate profits -- and the location of the taxes that American firms pay
abroad. U.S. firms are earning big profits in jurisdictions where they don't pay tax, and small
profits in jurisdictions where they do and in the process, reducing their U.S. tax bill as
well. That's real exorbitant privilege."
In China's history when the largest landowners, the wealthiest individuals connived or
bribed their way out of paying taxes and the burden shifted down the income scale, the result
sooner rather than later was an uprising that ended with a new dynasty.
Why is there always more money than is even asked for for the "defense budget", but social
security and medicare are budget problems?
This is a constant in Chinese history, even the French Revolution was set up by the
exclusive taxation of the poor and middle classes. Eviscerating one's sources of income while
weakening the overall economy including the general population does not make for a strong
state able to withstand an unanticipated emergency. Somehow people keep doing the same thing
over and over.
in the US pols are still making masssive tax cuts for billionairs and big
corporations – 60 of America's largest corporations in the US
paid no federal taxes last year.
At the same time, both parties say there isn't enough money to continue Social Security, as
we know it, because of deficits. They say Social Security is the budget problem. right .
France's govt is doing the economic same trick, imo.
Donald Trump Boasts About Taxing Middle Class for "Billions and Billions"
By Dean Baker
This was in the context of the tariffs he has imposed on imports from China. According to
the Washington Post, * Trump boasted:
"I like what's happening right now. We're taking in billions and billions of dollars."
Tariffs of course are taxes on imports. The evidence is overwhelming that the vast majority
of these taxes are being borne either by consumers or retailers in the United States. According
to the Bureau of Labor Statistics ** the price of imports from China has fallen just 1.6
percent over the last year. This means that people in the United States are paying the
overwhelming majority of the tariffs that run as high as 25 percent and apparently Donald Trump
is very happy about that.
Could Tax Increases Speed Up the Economy?
Democrats Say Yes https://nyti.ms/2RlDbJx
NYT - Jim Tankersley - December 5
WASHINGTON -- Elizabeth Warren is leading a liberal rebellion against a long-held economic
view that large tax increases slow economic growth, trying to upend Democratic policymaking
in the way supply-side conservatives changed Republican orthodoxy four decades ago.
(Warren Would Take Billionaires Down
a Few Billion Pegs https://nyti.ms/2CtMPRN
NYT - November 10)
Generations of economists, across much of the ideological spectrum, have long held that
higher taxes reduce investment, slowing economic growth. That drag, the consensus held, would
offset the benefits to growth from increased government spending in areas like education.
Ms. Warren and other leading Democrats say the opposite. The senator from Massachusetts,
who is a leading candidate for the Democratic presidential nomination, contends that her
plans to tax the rich and spend the revenue to lift the poor and the middle class would
accelerate economic growth, not impede it. Other Democratic candidates are making similar
claims about their tax-and-spend proposals. Some liberal economists go further and say that
simply taxing the rich would help growth no matter what the government did with the
money.
Democrats in the past, including the party's 2016 nominee, Hillary Clinton, have argued
that a more modest combination of tax increases and spending programs would expand the
economy. But no Democratic nominee before Ms. Warren had ever proposed so many new taxes and
spending programs, and leaned so heavily into the argument that they would be, in economist
parlance, pro-growth.
That argument tries to reframe a classic debate about the economic "pie" in the United
States by suggesting there is no trade-off between increasing the size of the pie and
dividing the slices more equitably among all Americans.
Ms. Warren has proposed nearly $3 trillion a year in new taxes on businesses and
high-earners, largely focused on billionaires but sometimes hitting Americans who earn
$250,000 and above per year. The taxes would fund wide-reaching new government spending on
health care, education, and family benefits like universal child care and paid parental
leave.
Last month, Ms. Warren wrote on Twitter that education, child care and student loan relief
programs funded by her tax on wealthy Americans would "grow the economy." In a separate post,
she said student debt relief would "supercharge" growth.
The last batch of economists to disrupt a political party's consensus position were
conservative -- the so-called supply-siders who built influence in the late 1970s and gained
power in the Reagan administration. Previous Republican presidents had focused on keeping the
budget deficit low, which constrained their ability to cut taxes if they did not also cut
government spending. Supply-siders contended that well-targeted tax cuts could generate big
economic growth even without spending cuts. ...
Ms. Warren is making the case that the economy could benefit if money is redistributed from
the rich and corporations to uses that she and other liberals say would be more productive.
Their argument combines hard data showing that high levels of inequality and wealth
concentration weigh down economic growth with a belief that well-targeted government spending
can encourage more Americans to work, invest and build skills that would make them more
productive.
They also cite evidence that transferring money to poor and middle-class individuals would
increase consumer spending because they spend a larger share of their incomes than wealthy
Americans, who tend to save and invest.
"The economy has changed, our understanding of it has changed, and we understand the
constricting effects of inequality" on growth, said Heather Boushey, the president of the
Washington Center for Equitable Growth, a think tank focused on inequality.
Inequality has widened significantly in America over the last several decades. The
Congressional Budget Office estimates that the incomes of the top 1 percent of Americans more
than tripled from 1979 to 2016, before taxes and government transfer payments are taken into
account. For the middle class, incomes grew 33 percent. More than a decade after the
recession, wage growth for the middle class continues to run well behind previous times of
economic expansion, like the late 1990s.
Research by the economist Emmanuel Saez and colleagues shows that the last time such a
small sliver of Americans controlled such a large share of the nation's income and wealth was
in the late 1920s, just before a stock market crash set off the Great Depression. World Bank
researchers have warned that high levels of inequality are stifling growth in South Africa,
which has the globe's worst measured inequality.
"We have an economy that isn't delivering like it used to," said Ms. Boushey, who advised
Hillary Clinton's 2016 Democratic presidential campaign. "That's leading people to say let's
re-examine the evidence."
The contention that tax and spending increases can lift economic growth is not the only
challenge to traditional orthodoxy brewing in liberal economic circles. Some Democrats have
also embraced modern monetary theory, which reframes classic thinking that discourages large
budget deficits as a drag on growth. Its supporters, including Representative Alexandria
Ocasio-Cortez of New York and the economist Stephanie Kelton, an adviser to Senator Bernie
Sanders of Vermont, argue that the United States government should be spending much more on
programs to fight inequality, like a federal job guarantee, without imposing new taxes.
Some of the inequality-focused economists say they are hoping to build new economic models
to predict the effects of their policies, though they acknowledge few of those models exist
yet. Instead, they rely on evidence about the likely effects of individual programs, added
together.
Many economists who study tax policy contend that Ms. Warren's plans -- and other large
tax-and-spend proposals from Democratic candidates this year -- would hurt the economy, just
as classic economic models suggest.
"Some elements of the large increase in government spending on health and education
proposed by Senator Warren would promote economic growth" through channels like improved
education, said Alan Auerbach, an economics professor at the University of California,
Berkeley, who has written some of the most influential research in the profession on the
relationship between tax rates and growth.
But, he said, "I am very skeptical that these growth effects would offset the negative
effects on growth of the higher taxes, particularly given that the spending increases are not
specifically targeted toward enhancing growth."
Ms. Warren disagrees. In the latest Democratic debate, she said the spending programs
funded by her wealth tax would be "transformative" for workers. Those plans would raise
wages, make college tuition-free and relieve graduates of student debt, she said, adding, "We
can invest in an entire generation's future."
An emerging group of liberal economists say taxes on high-earners could spur growth even
if the government did nothing with the revenue because the concentration of income and wealth
is dampening consumer spending.
"We are experiencing a revolution right now in macroeconomics, particularly in the policy
space," said Mark Paul, an economist who is a fellow at the liberal Roosevelt Institute in
Washington. "We can think of a wealth tax as welfare-enhancing, in and of itself, simply by
constraining the power of the very wealthy" to influence public policy and distort markets to
their advantage.
Taken together, Ms. Warren's proposals would transform the role of federal taxation. If
every tax increase she has proposed in the campaign passed and raised as much revenue as her
advisers predict -- a contingency hotly debated among even liberal economists -- total
federal tax revenue would grow more than 50 percent.
The United States would leap from one of the lowest-taxed rich nations to one of the
highest. It would collect more taxes as a share of the economy than Norway, and only slightly
less than Italy.
Mr. Sanders's plan envisions a similarly large increase in tax levels. Former Vice
President Joseph R. Biden Jr.'s proposals are much smaller in scale: He would raise taxes on
the wealthy and corporations by $3.4 trillion over a decade, in order to fund increased
spending on health care, higher education, infrastructure and carbon emissions reduction.
If Ms. Warren's tax program is enacted, said Gabriel Zucman, an economist at Berkeley who
is an architect of her wealth tax proposal, "in my view, the most likely effect is a small
positive effect on growth, depending on how the revenues are used."
Another economist who has worked with the Warren campaign to analyze its proposals, Mark
Zandi of Moody's, said he would expect her plans to be "largely a wash on long-term economic
growth."
Researchers at the Levy Economics Institute of Bard College projected this summer that Ms.
Warren's wealth tax and spending policies would generate a 1.7 percent increase in the size
of the economy. A preliminary study of a wealth tax like Ms. Warren's proposal, by the Penn
Wharton Budget Model, found that it would reduce the size of the economy by a similar 1.7
percent. The model uses the sort of classic methodology that liberals are now rebelling
against and did not evaluate Ms. Warren's spending proposals.
Historical experience offers few parallels for assessing the economic effects of a
taxation-and-spending program on the scale of Ms. Warren's ambitions. A 2002 study of wealth
taxes in rich countries found that those taxes, most of which have since been abandoned,
reduced economic growth slightly on an annual basis.
Conservative economists roundly disagree that large tax increases can spur faster growth,
even those who say government spending on paid leave and child care may get more Americans
into the labor force. They say a wealth tax on the scale of Ms. Warren's proposal would
greatly reduce savings and investment by the rich.
"What a wealth tax does is, it directly taxes savings," said Aparna Mathur, an economist
at the conservative American Enterprise Institute who favors a narrow paid leave program and
whose research finds benefits from reducing tax rates on business and investment. "If you're
taxing savings, you're implicitly taxing investment. So how can that possibly be
pro-growth?"
The supply-side economists' plans were similarly denounced -- George Bush called them
"voodoo economic policies" while running for president in 1980 -- but in time dominated
Republican proposals.
Some members of the new liberal revolt against tax orthodoxy welcome the comparison to the
supply-side uprising.
"While I think that the supply-siders were wrong, and were always wrong, they were
reacting to very real economic problems in the 1970s," said Michael Linden, the executive
director of the Groundwork Collaborative, a liberal policy and advocacy group. "There was
something really wrong with the economy at the time. I think there is now."
I don't know how well this will retain format but it is the latest from the US Fed on
providing "liquidity" to the private banking system
"
Friday, 11/15/2019- Thursday, 12/12/2019 The Desk plans to conduct overnight repo operations
on each business day as well as a series of term repo operations over the specified period.
OVERNIGHT OPERATIONS DATES AGGREGATE OPERATION LIMIT
Friday, 11/15/2019 - Thursday, 12/12/2019 At least $120 billion
TERM OPERATION DATE MATURITY DATE TERM AGGREGATE OPERATION LIMIT
Tuesday, 11/19/2019 Tuesday, 12/3/2019 14-days At least $35 billion
Thursday, 11/21/2019 Thursday, 12/5/2019 14-days At least $35 billion
Monday, 11/25/2019 Monday, 1/6/2020 42-days At least $25 billion
Tuesday, 11/26/2019 Tuesday, 12/10/2019 14-days At least $35 billion
Wednesday, 11/27/2019 Thursday, 12/12/2019 15-days At least $35 billion
Monday, 12/2/2019 Monday, 1/13/2020 42-days At least $15 billion
Tuesday, 12/3/2019 Tuesday, 12/17/2019 14-days At least $35 billion
Thursday, 12/5/2019 Thursday, 12/19/2019 14-days At least $35 billion
Monday, 12/9/2019 Monday, 1/6/2020 28-days At least $15 billion
Tuesday, 12/10/2019 Monday, 12/23/2019 13-days At least $35 billion
Thursday, 12/12/2019 Thursday, 12/26/2019 14-days At least $35 billion
"
Some take away quotes from various ZH postings
"
In short, the Fed's dual mandate has been replaced by a single mandate of promoting financial
stability (or as some may say, boosting JPMorgan's stock price) similar to that of the
ECB.
Here BofA adds ominously that "by deciding to dynamically assess bank demand for reserves
and reduce the risk of air pockets in repo markets, we believe the Fed has entered
unchartered territory of monetary policy that may stretch beyond its dual mandate." And the
punchline: "By running balance-sheet policy to ensure overnight funding markets remain flush,
the Fed is arguably circumventing the most important brake on excess leverage: the
price."
So if NOT QE is in fact, QE, and if the Fed is once again in the price manipulation
business, what then?
According to BofA's Axel, the most worrying part of the Fed's current asset purchase
program is the realization that an ongoing bank footprint in repo markets is required to
maintain control of policy rates in the new floor system, or as we put it less politely,
banks are now able to hijack the financial system by indicating that they have an overnight
funding problem (as JPMorgan very clearly did) and force the Fed to do their (really
JPMorgan's) bidding.
And this is where BofA's warning hits a crescendo, because while repo is fully
collateralized and therefore contains negligible counterparty credit risk, "there may be a
situation in which banks want to deleverage quickly, for example during a money run or a
liquidation in some market caused by a sudden reassessment of value as in 2008."
Got that? Going forward please refer to any market crash as a "sudden reassessment of
value", something which has become impossible in a world where "value" is whatever the Fed
says it is... Well, the Fed or a bunch of self-serving venture capitalists, who pushed the
"value" of WeWork to $47 billion just weeks before it was revealed that the company is
effectively insolvent the punch bowl of endless free money is taken away.
Therefore, to Bank of America, this new monetary policy regime actually increases systemic
financial risk by making repo markets more vulnerable to bank cycles. This, as the bank
ominously warns, "increases interconnectedness, which is something regulators widely
recognize as making asset bubbles and entity failures more dangerous."
It is, however, BofA's conclusion that we found most alarming: as Axel writes, in his
parting words:
"some have argued, including former NY Fed President William Dudley, that the last
financial crisis was in part fueled by the Fed's reluctance to tighten financial conditions
as housing markets showed early signs of froth. It seems the Fed's abundant-reserve regime
may carry a new set of risks by supporting increased interconnectedness and overly easy
policy (expanding balance sheet during an economic expansion) to maintain funding conditions
that may short-circuit the market's ability to accurately price the supply and demand for
leverage as asset prices rise."
What I didn't include in comment # 137 above but did in the last Weekly Open Thread is the
following about the recent NOT SHORT TERM actions of the US Fed:
The POMO is a Permanent Open Market Operation (purchases from the primary private banks of
Treasuries & MBS) that bought $20 billion between mid-August to mid-September, another
bought $20 billion between mid-September to mid-October and $60 billion between mid-October
to mid-November....totaling $100 billion of US taxpayers money, so far, and is expected to
continue at the $60 billion/month until, supposedly, the middle of next year. (This is the
one that should concern folks the most because the economy has supposedly not crashed yet and
here the Fed is "foaming the runway" of the private banking system on the backs of Americans
already
@ William Gruff # 156 who wrote
"
There is no increase in the domestic US production of anything but bullshit, which America is
cranking out in record quantities, and with delusional fascists leading that productivity
surge.
"
I agree and want to summarize my comments # 137, 138 to add that on top of the manufacturing
recession that you write of and link to that the US has been in a financial recession since
the August/September time frame.
The US Fed has and continues to foam the private banking runway with billions of dollars
to prop up and delay price/value assessment. One reason that I can think of for that is the
coming IPO of Aramco for Saudi Arabia.
Another reason is likely to be a huge game of musical chairs being played where those in
control are arranging a specific set of very few chairs to be available for them when the
music stops. It will all be legal of course since all these financial derivative instruments
that will be in place will have Super-Priority in bankruptcy which gives those creditors of a
bankrupt debtor (America) the right to receive payment before others who would seem to have
superior claims to money or assets. The other losers in this case will be Social Security,
pension funds, state and municipal bonds to say nothing of the savings of the public that
think they are protected with FDIC.
If this event does not incite the pubic to nationalize the private banking system and
imprison many then a super-national cult of folk will own what is left of the Western world
and be defended by xxxx army.
"... I noticed that the Treasury General Account cash balance hit $435 billion at the end of October, up over $300 billion from the balance in that account at the end of August. That action basically pulled over $300 billion in cash liquidity from the financial system, all while short term money market rates spiked as high as 10 percent ..."
"... I suspect something along the lines of the stock market drop in the fourth quarter of last year when they basically pulled the same stunt ahead of their partial government shutdown. ..."
"... The D party reminds me of the 'union' I belonged to while building refrigerated truck bodies in the south. On Sundays, the head of the 'union' sat in the same pew as the owner of the factory. When real union folks started agitating from within, they were fired. ..."
Yves here. Hahaha! While you
were distracted by the impeachment drama, the Trump Administration soldiered on with launching
more corporate gimmies, this one in the form of another tax break.
By Jake Johnson, staff writer at Common Dreams. Originally published at
Common Dreams
President Donald Trump's Treasury Department on Thursday took the
first step toward eliminating remaining regulations designed to prevent corporations from
avoiding U.S. taxes by storing profits overseas, a move critics decried as yet another harmful
giveaway to big business.
Treasury Secretary Steve Mnuchin, a former Goldman Sachs executive, said in a statement that the 2017
GOP tax law -- which disproportionately
benefited the rich -- rendered Obama-era rules against offshore tax avoidance "obsolete" by
significantly reducing the corporate tax rate.
Sen. Ron Wyden (D-Ore.), the top Democrat on the Senate Finance Committee, disagreed with
Mnuchin's assessment, warning in a statement
that the Treasury Department's plan "only provides an opening for corporations to again dodge
their taxes."
"The corporations that got a massive taxpayer handout are getting another gift from Donald
Trump," said Wyden. "The Obama administration had essentially shut down inversion --
transactions whose only purpose is to help big multinational corporations move overseas to
avoid paying taxes."
According to Bloomberg, the Treasury Department's proposal, detailed in a policy
guidance
(pdf) released Thursday, "could make it easier for firms to use accounting tactics to minimize
their U.S. earnings and inflate their foreign profits, which are frequently taxed at rates
lower than the current 21 percent domestic corporate levy."
"The existing regulations were aimed at stopping American companies from moving their
headquarters to a lower-tax country, a process known as a corporate inversion," noted
Bloomberg .
Contrary to Mnuchin's claim that the GOP's 2017 tax law eliminated incentives for
corporations to shift profits overseas, advocacy groups and Democratic lawmakers have
argued the law made it easier for businesses to avoid U.S. taxes.
"The Tax Cuts and Jobs Act (TCJA) will allow companies to avoid taxes on $235 billion in
profits each year going forward," a coalition of more than 50 progressive organizations led by
Americans for Tax Fairness wrote in a
letter (pdf) to Congress last May.
"Moreover, the law created new incentives for multinational corporations to move their real
operations offshore," the groups said. "The law guarantees that U.S. multinational corporations
will pay at most one-half the domestic tax rate on their offshore earnings, with many companies
paying little or nothing in taxes on these earnings."
The majority of Trump's base believes, as an article of faith, that we need to eliminate
corporate taxes so the poor starving business owners can support more employees.
Completely denying reality, of course, and offering no solutions to it. It's the
"temporarily embarassed millionaire's club".
Pretty much. Both parties are in the pocket of the monopolies that have grown up since
deregulation became the thing, imo. Once upon a time the FDR/New Deal Dems opposed monopoly
power. The New Dems seem to love monopoly power.
And at the same time, he's not doing any of this all by himself.
I think it's more along the lines of he knows an idea that will benefit himself when he hears
it.
One sees why the Democrats are pushing so hard for the "Russiagate" thing, and making a
circus of impeachment – because on matters of substance they are as bad as the
Republicans.
The Democrats have no problem blocking any serious attempt at enforcing the laws against
illegal immigration (something favored by the super-rich, who love cheap labor more than
anything else – Bernie Sanders 2015). The Democrats have no problem blocking Trump's
(admittedly somewhat pathetic) attempts to pull us out of these pointless winless foreign
wars. But as regards Trump's massive corporate tax cut – they basically just let it
pass with only a few pro-forma grumbles. Because you gotta have your priorities. Especially
when these priorities have been paid for.
I dont get distracted, I see it all. These people will all be destroyed by the Almighty in
his great day along with adherents to and all nation/states. This is the love of money and me
me me attitude forecast in the last days.
you and me both, I have been seeing it for a long time. I would like to remind people that
there is a world of difference between a guy on the bottom wanting more, and a guy on the top
wanting more.
Given the left-wing surge through Sanders I am convinced that the corporate paid-for
Democrats see the writing on the wall. Their paid mission is now to discredit the Democratic
party as much as possible to make sure that 1) in short-term Trump wins and continue the
corporate and 1%-er welfare-programs and 2) that no left-winger, similar to Sanders can ever
rule through the Democratic party since it has become a joke and it will cost a lot of time
and money to build a new party that will be trusted
No, no, no It's certainly a move in 11 dimensional chess. First we lure these corporations
back onto American soil. Then, once they're comfy, we nationalize them all and seize all
their overseas holdings. Surely, that's the plan.
The good news is that all it will take to reverse these executive orders that benefit the
few are new executive orders by a different president.
On the related topic of the Mnuchin Treasury acting in the shadows while the spotlight is
trained elsewhere, I noticed that the Treasury General Account cash balance hit $435
billion at the end of October, up over $300 billion from the balance in that account at the
end of August. That action basically pulled over $300 billion in cash liquidity from the
financial system, all while short term money market rates spiked as high as 10 percent
and this president was railing against Fed policy makers for tight monetary conditions and
high interest rates. I hate to think what would have happened to their precious stock market
if the Powell Fed had not implemented new policies to offset the current administration's
borrowing for the purpose of hoarding cash. I suspect something along the lines of the
stock market drop in the fourth quarter of last year when they basically pulled the same
stunt ahead of their partial government shutdown.
Why is the US Treasury hoarding cash? There is no apparent reason to do so in the name of
lowering interest payments as the Fed remits its interest income to the Treasury at the end
of each fiscal year. I expect we will find out soon enough.
The D party reminds me of the 'union' I belonged to while building refrigerated truck
bodies in the south. On Sundays, the head of the 'union' sat in the same pew as the owner of
the factory. When real union folks started agitating from within, they were fired.
How to Tax Our Way Back to Justice: It is absurd that the working class is now paying
higher tax rates than the richest people in America.
By Emmanuel Saez and Gabriel Zucman
America's soaring inequality has a new engine: its regressive tax system. Over the past
half century, even as their wealth rose to previously unseen heights, the richest Americans
watched their tax rates collapse. Over the same period, as wages stagnated for the working
classes, work conditions deteriorated and debts ballooned, their tax rates increased.
Stop to think this over for a minute: For the first time in the past hundred years, the
working class -- the 50 percent of Americans with the lowest incomes -- today pays higher tax
rates than billionaires.
The full extent of this situation is not visible in official statistics, which is perhaps
why it has not received more attention so far. Government agencies like the Congressional
Budget Office publish information about the distribution of federal taxes, but they disregard
state and local taxes, which account for a third of all taxes paid by Americans and are in
general highly regressive. The official statistics keepers do not provide specific
information on the ultra-wealthy, who although few in number earn a large fraction of
national income and therefore account for a large share of potential tax revenue. And until
now there were no estimates of the total tax burden that factored in the effect of President
Trump's tax reform enacted at the end of 2017, which was particularly generous for the
ultra-wealthy.
To fill this gap, we have estimated how much each social group, from the poorest to
billionaires, paid in taxes for the year 2018. Our starting point is the total amount of tax
revenue collected in the United States, 28 percent of national income. We allocate this total
across the population, divided into 15 income groups: the bottom 10 percent (the 24 million
adults with the lowest pretax income), the next 10 percent and so on, with finer-grained
groups within the top 10 percent, up to the 400 wealthiest Americans.
The Regressive American Tax System
How combined federal, state and local taxes fall on American adults, by income
percentile.
Three regressive taxes account for most of the burden on the working class:
Our data series include all taxes paid to the federal, state and local governments: the
federal income tax, of course, but also state income taxes, myriad sales and excise taxes,
the corporate income tax, business and residential property taxes and payroll taxes. In the
end, all taxes are paid by people. The corporate tax, for example, is paid by shareholders,
because it reduces the amount of profit they can receive in dividends or reinvest in their
companies.
You will often hear that we have a progressive tax system in the United States -- you owe
more, as a fraction of your income, as you earn more. When he was a presidential candidate in
2012, Senator Mitt Romney famously lambasted the 47 percent of "takers" who, according to
him, do not contribute to the public coffers. In reality, the bottom half of the income
distribution may not pay much in income taxes, but it pays a lot in sales and payroll taxes.
Taking into account all taxes paid, each group contributes between 25 percent and 30 percent
of its income to the community's needs. The only exception is the billionaires, who pay a tax
rate of 23 percent, less than every other group.
The tax system in the United States has become a giant flat tax -- except at the top,
where it's regressive. The notion that America, even if it may not collect as much in taxes
as European countries, at least does so in a progressive way, is a myth. As a group, and
although their individual situations are not all the same, the Trumps, the Bezoses and the
Buffetts of this world pay lower tax rates than teachers and secretaries do.
This is the tax system of a plutocracy. With tax rates of barely 23 percent at the top of
the pyramid, wealth will keep accumulating with hardly any barrier. So too will the power of
the wealthy, including their ability to shape policymaking and government for their own
benefit.
From Kennedy Through Trump, the Rich Have Done Very, Very Well
Here's the change in total wealth per adult since 1962, on average, from the poorest to
the richest slices of America. Circles representing wealth are proportionate, which is why
they're almost too small to see for the bottom 50 percent of Americans. All wealth figures
are in 2018 dollars.
By Bill Marsh/The New York Times | Source: Emmanuel Saez and Gabriel Zucman, University of
California, Berkeley; wealth includes all non-financial assets plus financial assets net of
debts; tax rates account for all taxes paid at all levels of government (federal, state and
local) and are expressed as a fraction of pre-tax income; adults in analysis are age 20 and
older.
The good news is that we can fix tax injustice, right now. There is nothing inherent in
modern technology or globalization that destroys our ability to institute a highly
progressive tax system. The choice is ours. We can countenance a sprawling industry that
helps the affluent dodge taxation, or we can choose to regulate it. We can let multinationals
pick the country where they declare their profits, or we can pick for them. We can tolerate
financial opacity and the countless possibilities for tax evasion that come with it, or we
can choose to measure, record and tax wealth.
If we believe most commentators, tax avoidance is a law of nature. Because politics is
messy and democracy imperfect, this argument goes, the tax code is always full of "loopholes"
that the rich will exploit. Tax justice has never prevailed, and it will never prevail.
For example, in response to Elizabeth Warren's wealth tax proposal -- which we helped
develop -- pundits have argued that the tax would raise much less revenue than expected. In a
similar vein, world leaders have become convinced that taxing multinational companies is now
close to impossible, because of international tax competition. During his presidency, Barack
Obama argued in favor of reducing the federal corporate tax rate from 35 percent to 28
percent, with a lower rate of 25 percent for manufacturers. In 2017, under President Trump,
the United States cut its corporate tax rate to 21 percent. In France, President Emmanuel
Macron is in motion to reduce the corporate tax in 2022 to 25 percent from 33 percent.
Britain is ahead of the curve: It started slashing its rate under Prime Minister Gordon Brown
in 2008 and is aiming for 17 percent by 2020. On that issue, the Browns, Macrons and Trumps
of the world agree: The winners of global markets are mobile; we can't tax them too much.
But they are mistaken. Tax avoidance, international tax competition and the race to the
bottom that rage today are not laws of nature. They are policy choices, decisions we've
collectively made -- perhaps not consciously or explicitly, certainly not choices that were
debated transparently and democratically -- but choices nonetheless. And other, better
choices are possible.
Take big corporations. Some countries may have an interest in applying low tax rates, but
that's not an obstacle to making multinationals (and their shareholders) pay a lot. How? By
collecting the taxes that tax havens choose not to levy. For example, imagine that the
corporate tax rate in the United States was increased to 35 percent and that Apple found a
way to book billions in profits in Ireland, taxed at 1 percent. The United States could
simply decide to collect the missing 34 percent. Apple, like most Fortune 500 companies, does
in fact have a big tax deficit: It pays much less in taxes globally than what it would pay if
its profits were taxed at 35 percent in each country where it operates. For companies
headquartered in the United States, the Internal Revenue Service should collect 100 percent
of this tax deficit immediately, taking up the role of tax collector of last resort. The
permission of tax havens is not required. All it would take is adding a paragraph in the
United States tax code.
The same logic can be applied to companies headquartered abroad that sell products in
America. The only difference is that the United States would collect not all but only a
fraction of their tax deficit. For example, if the Swiss food giant Nestlé has a tax
deficit of $1 billion and makes 20 percent of its global sales in the United States, the
I.R.S. could collect 20 percent of its tax deficit, in addition to any tax owed in the United
States. The information necessary to collect this remedial tax already exists: Thanks to
recent advances in international cooperation, the I.R.S. knows where Nestlé books its
profits, how much tax it pays in each country and where it makes its sales.
Collecting part of the tax deficit of foreign companies would not violate any
international treaty. This mechanism can be applied tomorrow by any country, unilaterally. It
would put an end to international tax competition, because there would be no point any more
for businesses to move production or paper profits to low-tax places. Although companies
might choose to stop selling products in certain nations to avoid paying taxes, this would be
unlikely to be a risk in the United States. No company can afford to snub the large American
market.
These examples are powerful because they show, contrary to received wisdom, that the
taxation of capital and globalization are perfectly compatible. The notion that external or
technical constraints make tax justice idle fantasy does not withstand scrutiny. When it
comes to the future of taxation, there is an infinity of possible futures ahead of us.
What Taxes Should Look Like
A proposal to return tax rates at the top to where they were in 1950.
Are these ideas for greater economic justice realistic politically? It is easy to lose
hope -- money in politics and self-serving ideologies are powerful foes. But although these
problems are real, we should not despair. Before injustice triumphed, the United States was a
beacon of tax justice. It was the democracy with the most steeply progressive system of
taxation on the planet. In the 1930s, American policymakers invented -- and then for almost
half a century applied -- top marginal income tax rates of close to 90 percent on the highest
earners. Corporate profits were taxed at 50 percent, large estates at close to 80
percent.
The history of taxation is full of U-turns. Instead of elevating some supposedly
invincible and natural constraints -- that are often invincible and natural only in terms of
their own models -- economists should act more like plumbers, making the tax machinery work,
fixing leaks. With good plumbing -- and if the growing political will to address the rise of
inequality takes hold -- there is a bright future for tax justice.
Emmanuel Saez and Gabriel Zucman are economists at the University of California,
Berkeley.
Although they are not officially called taxes, insurance premiums paid by employers are
just like taxes – but taxes paid to private insurers instead of paid to the
government.
---
This is Saez, and official member of tour Orwellian group here. He almost calls premium
taxes. He needs to equate taxes and insurance premiums to prove his priors, it is all one
cost. He is using the tax concept to prove a prior that emichael and the gang insist
upon.
No need to complain about his assumption, we will choose our own fiction, just note he
used the term taxes.
Let me help out more. The Supreme Court called mandatory Obamacare premiums taxes. Saez
needs to use the word taxes so he can prove his priors, and his priors are ordained by our
Orwellian masters. So it is OK to say Medicare for All is paid with taxes, we now have that
in our talking points.
Fell free to say Medicare for All taxes are wonderful gifts from Godot as our prior
dictate, but you are hereby ordered by the official in charge of talking points that Medicare
for All taxes is an acceptable semantic. It is OK, we have it from the high central planners,
it is OK to use medicare taxes, we now have an expectation story to explain it as a cost
savings. We have met our expectation theory requirements.
How to Tax Our Way Back to Justice https://nyti.ms/2M7DK6C
NYT - Emmanuel Saez and Gabriel Zucman - October 11
It is absurd that the working class
is now paying higher tax rates than
the richest people in America.
America's soaring inequality has a new engine: its regressive tax system. Over the past
half century, even as their wealth rose to previously unseen heights, the richest Americans
watched their tax rates collapse. For the working classes over the same period, as wages
stagnated, work conditions deteriorated and debts ballooned, tax rates increased.
Stop to think this over for a minute: For the first time in the past hundred years, the
working class -- the 50 percent of Americans with the lowest incomes -- today pays higher tax
rates than billionaires.
The full extent of this situation is not visible in official statistics, which is perhaps
why it has not received more attention. Government agencies like the Congressional Budget
Office publish information about the distribution of federal taxes, but they disregard state
and local taxes, which account for a third of all taxes paid by Americans and are in general
highly regressive. The official statistics keepers do not provide specific information on the
ultra-wealthy, who although few in number earn a large fraction of national income and
therefore account for a large share of potential tax revenue. And until now there were no
estimates of the total tax burden that factored in the effect of President Trump's tax reform
enacted at the end of 2017, which was particularly generous for the ultra-wealthy.
To fill this gap, we have estimated how much each social group, from the poorest to
billionaires, paid in taxes for the year 2018. Our starting point is the total amount of tax
revenue collected in the United States, 28 percent of national income. We allocate this total
across the population, divided into 15 income groups: the bottom 10 percent (the 24 million
adults with the lowest pretax income), the next 10 percent and so on, with finer-grained
groups within the top 10 percent, up to the 400 wealthiest Americans.
The Regressive American Tax System
(graphic at the link)
How combined federal, state and local taxes fall on American adults, by income
percentile.
Our data series include all taxes paid to the federal, state and local governments: the
federal income tax, of course, but also state income taxes, myriad sales and excise taxes,
the corporate income tax, business and residential property taxes and payroll taxes. In the
end, all taxes are paid by people. The corporate tax, for example, is paid by shareholders,
because it reduces the amount of profit they can receive in dividends or reinvest in their
companies.
You will often hear that we have a progressive tax system in the United States -- you owe
more, as a fraction of your income, as you earn more. When he was a presidential candidate in
2012, Senator Mitt Romney famously lambasted the 47 percent of "takers" who, according to
him, do not contribute to the public coffers. In reality, the bottom half of the income
distribution may not pay much in income taxes, but it pays a lot in sales and payroll taxes.
Taking into account all taxes paid, each group contributes between 25 percent and 30 percent
of its income to the community's needs. The only exception is the billionaires, who pay a tax
rate of 23 percent, less than every other group.
The tax system in the United States has become a giant flat tax -- except at the top,
where it's regressive. The notion that America, even if it may not collect as much in taxes
as European countries, at least does so in a progressive way, is a myth. As a group, and
although their individual situations are not all the same, the Trumps, the Bezoses and the
Buffetts of this world pay lower tax rates than teachers and secretaries do.
This is the tax system of a plutocracy. With tax rates of barely 23 percent at the top of
the pyramid, wealth will keep accumulating with hardly any barrier. So, too, will the power
of the wealthy, including their ability to shape policymaking and government for their own
benefit.
From Kennedy Through Trump, the Rich Have Done Very, Very Well
(graphic at the link)
Here's the change in total wealth per adult since 1962, on average, from the poorest to
the richest slices of America. Circles representing wealth are proportionate, which is why
they're almost too small to see for the bottom 50 percent of Americans. All wealth figures
are in 2018 dollars.
The good news is that we can fix tax injustice, right now. There is nothing inherent in
modern technology or globalization that destroys our ability to institute a highly
progressive tax system. The choice is ours. We can countenance a sprawling industry that
helps the affluent dodge taxation, or we can choose to regulate it. We can let multinationals
pick the country where they declare their profits, or we can pick for them. We can tolerate
financial opacity and the countless possibilities for tax evasion that come with it, or we
can choose to measure, record and tax wealth.
If we believe most commentators, tax avoidance is a law of nature. Because politics is
messy and democracy imperfect, this argument goes, the tax code is always full of "loopholes"
that the rich will exploit. Tax justice has never prevailed, and it will never prevail.
For example, in response to Elizabeth Warren's wealth tax proposal -- which we helped
develop -- pundits have argued that the tax would raise much less revenue than expected. In a
similar vein, world leaders have become convinced that taxing multinational companies is now
close to impossible, because of international tax competition. During his presidency, Barack
Obama argued in favor of reducing the federal corporate tax rate from 35 percent to 28
percent, with a lower rate of 25 percent for manufacturers. In 2017, under President Trump,
the United States cut its corporate tax rate to 21 percent. In France, President Emmanuel
Macron is in motion to reduce the corporate tax in 2022 to 25 percent from 33 percent.
Britain is ahead of the curve: It started slashing its rate under Prime Minister Gordon Brown
in 2008 and is aiming for 17 percent by 2020. On that issue, the Browns, Macrons and Trumps
of the world agree: The winners of global markets are mobile; we can't tax them too much.
But they are mistaken. Tax avoidance, international tax competition and the race to the
bottom that rage today are not laws of nature. They are policy choices, decisions we've
collectively made -- perhaps not consciously or explicitly, certainly not choices that were
debated transparently and democratically -- but choices nonetheless. And other, better
choices are possible.
Take big corporations. Some countries may have an interest in applying low tax rates, but
that's not an obstacle to making multinationals (and their shareholders) pay a lot. How? By
collecting the taxes that tax havens choose not to levy. For example, imagine that the
corporate tax rate in the United States was increased to 35 percent and that Apple found a
way to book billions in profits in Ireland, taxed at 1 percent. The United States could
simply decide to collect the missing 34 percent. Apple, like most Fortune 500 companies, does
in fact have a big tax deficit: It pays much less in taxes globally than what it would pay if
its profits were taxed at 35 percent in each country where it operates. For companies
headquartered in the United States, the Internal Revenue Service should collect 100 percent
of this tax deficit immediately, taking up the role of tax collector of last resort. The
permission of tax havens is not required. All it would take is adding a paragraph in the
United States tax code.
The same logic can be applied to companies headquartered abroad that sell products in
America. The only difference is that the United States would collect not all but only a
fraction of their tax deficit. For example, if the Swiss food giant Nestlé has a tax
deficit of $1 billion and makes 20 percent of its global sales in the United States, the
I.R.S. could collect 20 percent of its tax deficit, in addition to any tax owed in the United
States. The information necessary to collect this remedial tax already exists: Thanks to
recent advances in international cooperation, the I.R.S. knows where Nestlé books its
profits, how much tax it pays in each country and where it makes its sales.
Collecting part of the tax deficit of foreign companies would not violate any
international treaty. This mechanism can be applied tomorrow by any country, unilaterally. It
would put an end to international tax competition, because there would be no point any more
for businesses to move production or paper profits to low-tax places. Although companies
might choose to stop selling products in certain nations to avoid paying taxes, this would be
unlikely to be a risk in the United States. No company can afford to snub the large American
market.
These examples are powerful because they show, contrary to received wisdom, that the
taxation of capital and globalization are perfectly compatible. The notion that external or
technical constraints make tax justice idle fantasy does not withstand scrutiny. When it
comes to the future of taxation, there is an infinity of possible futures ahead of us.
What Taxes Should Look Like
A proposal to return tax rates at the top to where they were in 1950.
(graphic at the link)
Are these ideas for greater economic justice realistic politically? It is easy to lose
hope -- money in politics and self-serving ideologies are powerful foes. But although these
problems are real, we should not despair. Before injustice triumphed, the United States was a
beacon of tax justice. It was the democracy with the most steeply progressive system of
taxation on the planet. In the 1930s, American policymakers invented -- and then for almost
half a century applied -- top marginal income tax rates of close to 90 percent on the highest
earners. Corporate profits were taxed at 50 percent, large estates at close to 80
percent.
The history of taxation is full of U-turns. Instead of elevating some supposedly
invincible and natural constraints -- that are often invincible and natural only in terms of
their own models -- economists should act more like plumbers, making the tax machinery work,
fixing leaks. With good plumbing -- and if the growing political will to address the rise of
inequality takes hold -- there is a bright future for tax justice.
(Emmanuel Saez and Gabriel Zucman are economists at the University of California,
Berkeley, and the authors of "The Triumph of Injustice: How the Rich Dodge Taxes and How to
Make Them Pay," from which this essay is adapted.)
Almost a decade ago, Warren Buffett made a claim that would become famous. He said that he
paid a lower tax rate than his secretary, thanks to the many loopholes and deductions that
benefit the wealthy.
His claim sparked a debate about the fairness of the tax system. In the end, the expert
consensus was that, whatever Buffett's specific situation, most wealthy Americans did not
actually pay a lower tax rate than the middle class. "Is it the norm?" the fact-checking
outfit Politifact asked. "No."
Time for an update: It's the norm now.
For the first time on record, the 400 wealthiest Americans last year paid a lower total
tax rate -- spanning federal, state and local taxes -- than any other income group, according
to newly released data.
That's a sharp change from the 1950s and 1960s, when the wealthy paid vastly higher tax
rates than the middle class or poor.
Since then, taxes that hit the wealthiest the hardest -- like the estate tax and corporate
tax -- have plummeted, while tax avoidance has become more common.
President Trump's 2017 tax cut, which was largely a handout to the rich, plays a role,
too. It helped push the tax rate on the 400 wealthiest households below the rates for almost
everyone else.
The overall tax rate on the richest 400 households last year was only 23 percent, meaning
that their combined tax payments equaled less than one quarter of their total income. This
overall rate was 70 percent in 1950 and 47 percent in 1980.
For middle-class and poor families, the picture is different. Federal income taxes have
also declined modestly for these families, but they haven't benefited much if at all from the
decline in the corporate tax or estate tax. And they now pay more in payroll taxes (which
finance Medicare and Social Security) than in the past. Over all, their taxes have remained
fairly flat.
The combined result is that over the last 75 years the United States tax system has become
radically less progressive.
The data here come from the most important book on government policy that I've read in a
long time -- called "The Triumph of Injustice," to be released next week. The authors are
Emmanuel Saez and Gabriel Zucman, both professors at the University of California, Berkeley,
who have done pathbreaking work on taxes. Saez has won the award that goes to the top
academic economist under age 40, and Zucman was recently profiled on the cover of Bloomberg
BusinessWeek magazine as "the wealth detective."
They have constructed a historical database that tracks the tax payments of households at
different points along the income spectrum going back to 1913, when the federal income tax
began. The story they tell is maddening -- and yet ultimately energizing.
"Many people have the view that nothing can be done," Zucman told me. "Our case is, 'No,
that's wrong. Look at history.'" As they write in the book: "Societies can choose whatever
level of tax progressivity they want." When the United States has raised tax rates on the
wealthy and made rigorous efforts to collect those taxes, it has succeeded in doing so.
And it can succeed again.
Saez and Zucman portray the history of American taxes as a struggle between people who
want to tax the rich and those who want to protect the fortunes of the rich. The story starts
in the 17th century, when Northern colonies created more progressive tax systems than Europe
had. Massachusetts even enacted a wealth tax, which covered financial holdings, land, ships,
jewelry, livestock and more.
The Southern colonies, by contrast, were hostile to taxation. Plantation owners worried
that taxes could undermine slavery by eroding the wealth of shareholders, as the historian
Robin Einhorn has explained, and made sure to keep tax rates low and tax collection
ineffective. (The Confederacy's hostility to taxes ultimately hampered its ability to raise
money and fight the Civil War.)
By the middle of the 20th century, the high-tax advocates had prevailed. The United States
had arguably the world's most progressive tax code, with a top income-tax rate of 91 percent
and a corporate tax rate above 50 percent.
But the second half of the 20th century was mostly a victory for the low-tax side.
Companies found ways to take more deductions and dodge taxes. Politicians cut every tax that
fell heavily on the wealthy: high-end income taxes, investment taxes, the estate tax and the
corporate tax. The justification for doing so was usually that the economy as a whole would
benefit.
The justification turned out to be wrong. The wealthy, and only the wealthy, have done
fantastically well over the last several decades. G.D.P. growth has been disappointing, and
middle-class income growth even worse.
The American economy just doesn't function very well when tax rates on the rich are low
and inequality is sky high. It was true in the lead-up to the Great Depression, and it's been
true recently. Which means that raising high-end taxes isn't about punishing the rich (who,
by the way, will still be rich). It's about creating an economy that works better for the
vast majority of Americans.
In their book, Saez and Zucman sketch out a modern progressive tax code. The overall tax
rate on the richest 1 percent would roughly double, to about 60 percent. The tax increases
would bring in about $750 billion a year, or 4 percent of G.D.P., enough to pay for universal
pre-K, an infrastructure program, medical research, clean energy and more. Those are the
kinds of policies that do lift economic growth.
One crucial part of the agenda is a minimum global corporate tax of at least 25 percent. A
company would have to pay the tax on its profits in the United States even if it set up
headquarters in Ireland or Bermuda. Saez and Zucman also favor a wealth tax; Elizabeth
Warren's version is based on their work. And they call for the creation of a Public
Protection Bureau, to help the I.R.S. crack down on tax dodging.
I already know what some critics will say about these arguments -- that the rich will
always figure out a way to avoid taxes. That's simply not the case. True, they will always
manage to avoid some taxes. But history shows that serious attempts to collect more taxes
usually succeed.
Ask yourself this: If efforts to tax the super-rich were really doomed to fail, why would
so many of the super-rich be fighting so hard to defeat those efforts?
NYT: The data here come from the most important
book on government policy that I've read in a
long time -- called "The Triumph of Injustice,"
to be released next week. The authors are
Emmanuel Saez and Gabriel Zucman ...
Seriously, what am I missing in failing to find that debt or the issuing of Treasury
securities increases inequality? I will suppose I am wrong, since I want to understand the
matter, but absent an explanation I will conclude I am right and the effect on inequality is
of no significance. Corporate debt is another matter and here I understand that this
increases inequality, but Treasury debt?
I think (trying not to dwell on why Biden is not being arraigned) it has to do with
financialization vice manufacturing focus of US "growth".
If material 'wealth' grows through imports..... that creates a large outflow of USD. To
make safe places to put newly printed USD the government borrows from both the foreign
holders of USD and top 1% US citizens who don't enough pay taxes.
How can Joe six pack who has a large negative net worth and loses to foreign imports get
in on accumulating T Bills and FX arbitrage?
Just thinking.
Shorter: Milton Friedman sold US a bill of goods when he said "deficits were delayed
taxes" on PBS when my kids were toddlers.
Q. What tax changes did the Affordable Care Act make?
A. The Affordable Care Act made several changes to the tax code intended to increase health
insurance coverage, reduce health care costs, and finance health care reform.
The Affordable Care Act (ACA) made several changes to the tax code intended to increase
health insurance coverage, reduce health care costs, and finance health care reform.
To increase health insurance coverage, the ACA provided individuals and small employers with
a tax credit to purchase insurance and imposed taxes on individuals with inadequate coverage
and on employers who do not offer adequate coverage. To reduce health care costs and raise
revenue for insurance expansion, the ACA imposed an excise tax on high-cost health plans. To
raise additional revenue for reform, the ACA imposed excise taxes on health insurers,
pharmaceutical companies, and manufacturers of medical devices; raised taxes on high-income
families; and increased limits on the income tax deduction for medical expenses. Reply Wednesday, October 02, 2019 at 10:31 AM anne said in reply to
anne... ACA tax provisions in effect in 2018 include the following:
A refundable tax credit for families to purchase health insurance through state and federal
marketplaces.
A tax credit for small employers to purchase health insurance for their workers.
A tax on individuals without adequate health insurance coverage (the "individual
mandate").
A tax on employers offering inadequate health insurance coverage (the "employer
mandate").
Excise taxes on health insurance providers, pharmaceutical manufacturers and importers, and
medical device manufacturers and importers.
An additional 0.9 percent Medicare tax on earnings and a 3.8 percent tax on net investment
income (NII) for individuals with incomes exceeding $200,000 and couples with incomes exceeding
$250,000.
Additionally, these ACA tax provisions are scheduled to take effect in the future:
An excise tax on employer-sponsored health benefits whose value exceeds specified thresholds
(the "Cadillac tax") starting in 2022.
[ This summary may be helpful to have. As far as I am aware, there is now no significant
"public" criticism of Obamacare taxes. What criticism there is amounts to Republican political
opposition to Obamacare which has had almost no voting resonance.
Democrats ran in support of Obamacare in the last congressional election, and this was
considered a reason there is no Democratic control of the House of Representatives.
Nonetheless, Republican political opposition to Obamacare continues. ] Reply Wednesday, October 02, 2019 at 10:49 AM anne said in reply to
anne... Correcting:
Democrats ran in support of Obamacare in the last congressional election, and this was
considered a prime reason there is [now[ Democratic control of the House of Representatives.
Nonetheless, Republican political opposition to Obamacare continues even though the issue of
protecting Obamacare evidently only helped Democrats in the latest national election.
Reply Wednesday, October 02, 2019 at 03:00 PM anne said in reply
to anne... https://www.nytimes.com/2019/09/25/health/employer-health-insurance-cost.html
September 25, 2019
Employer Health Insurance Is Increasingly Unaffordable, Study Finds
A relentless rise in premiums and deductibles is putting insurance out of reach for many
workers, especially those with low incomes.
By Reed Abelson
Jessie McCormick had to quit her job to afford health care.
Ms. McCormick, 27, who has a heart condition, had an opportunity to move from part time to
full time in her job at a small nonprofit in Washington. Working full time would qualify her
for the firm's health plan.
But she calculated that her out-of-pocket costs would be at least $1,200 per month, about
double the money she had left after paying her rent and utilities.
Instead, she quit her job last summer so her income would be low enough to enroll in
Medicaid, which will cover all her medical expenses. "I'm trying to do some side jobs," she
said.
Employers remain the main source of health insurance in the United States, covering about
153 million people. But premiums and deductibles are pushing employer-based coverage
increasingly out of reach, according to a new analysis released Wednesday by the Kaiser Family
Foundation, which conducts a survey of employers every year.
The average premium paid by the employer and the employee for a family plan now tops $20,000
a year, with the worker contributing about $6,000, according to the survey. More than a quarter
of all covered workers and nearly half of those working for small businesses face an annual
deductible of $2,000 or more.
The new data on employer coverage come as the Democratic presidential candidates debate
sweeping reforms to diminish the role of private insurance in the American health system,
including expanding the federal Medicare program to everyone or giving people the option to
enroll in a government-run plan.
Many of the arguments for both systems center on expanding health insurance to more of the
estimated 27 million people who lack it. But millions of people who already have coverage are
deeply dissatisfied with the current system as well.
"For some reason, we like to focus on coverage when the issue for workers, people and the
public generally is cost," said Drew Altman, the chief executive of the foundation. About 2,000
small and large businesses responded in detail to the survey.
Small employers in particular, and their workers, are struggling.
"Health insurance in the United States is incredibly prohibitive for small businesses," said
Shalin Madan, the founder of a small investment advisory firm in Florida. He is not required to
provide health insurance to his workers, because his business is too small and he outsources
much of the work.
A policy for his own family, he said, runs about $2,000 a month ($24,000 per year), with a
$13,000 deductible. "I'm out $37,000 before I see a return on investment, if you will," Mr.
Madan said.... Reply Wednesday, October 02, 2019 at 10:58 AM EMichael said in reply
to anne... I'd have to know how many family members and his county to give him credit for
accurately quoting his costs.
I know a couple in Fl with two kids and their costs are not remotely close to his. And they
receive no subsidy due to their income level. Reply Wednesday, October 02, 2019 at 11:18 AM anne said in reply to
EMichael... I'd have to know how many family members and his county to give him credit for
accurately quoting his costs....
[ The example makes no sense, but I did not realize that. I appreciate what I take as a
necessary specific correction and caution about the article in all. There will be better
articles. ] Reply Wednesday, October 02, 2019 at 11:44 AM anne said in reply to
anne... A policy for his own family, he said, runs about $2,000 a month ($24,000 per year),
with a $13,000 deductible. "I'm out $37,000 before I see a return on investment, if you will,"
Mr. Madan said....
[ Supposing we are considering a family of 4, this example does not make sense to me. The
quoted cost is beyond any of which I am aware. The reporter needed to have checked this example
but did not, and that means the article is problematic.
Helicopter money makes complete sense when the Pols can be counted on to vote for low
multiplier stimulus that is too small if it even exists. The Fed could just put $10k in
everyone's bank account. It would lower the dollar and create a ton of demand for current
goods rather than old paintings and cars.
LOL!!! Helicopter money makes complete sense when you can count on the Fed to give it to the
banksters? I mean, what other distribution channel does the bankster-owned Fed have?
Certainly not direct access to each of my bank accounts!
Sure, sure, kurt. Where does the article spell out exactly how those $10K deposits will be
made into everyone's bank account? Answer: it doesn't! kurt made it all up.
Sure, helicopter money may not be a bad idea, but the issue always boils down to
implementation and distribution and you can be that it will be a dead letter the moment any
such proposal lands on the desk of deficit hawks like Team Pelosi.
Lots of bright, desperate ideas have been proposed, but no one has a clue as to how it
will happen. Its best chance for political success is for the money to be doled out to the
usual suspects banksters and corporations.
Because doing what is right in a slump is nearly (read always) always politically impossible
- especially since the emergence of the Right Wing psyops media.
The 10k is from Brad Delong, not this article - but as a matter of reality, all discussions
of "helicopter drop" central bank actions that I have ever read would result in either
everyone getting the same amount - an amount that would be a huge marginal increase for poor
people and not much for rich people - or for the recipients to be completely randomized. It
doesn't work like fiscal to give it to the banks - which is exactly what happened with QE and
negative real interest rates. Why? Because 1. bad animal spirits and 2. nothing to invest in
without demand. This is pretty econ 201 level stuff, but you know some folks have an Ivy MBA
so they must be much smarter than me with my BA and MA from state schools. Again - my reply
guy proves he doesn't even understand the basics of what "helicopter drop" means and oddly
has frequently lamented that the Fed didn't do it.....
40% of multinational profits are shifted to tax havens each year
Researchers from the University of California, Berkeley and the University of Copenhagen
estimate that close to 40% of multinational profits (more than $650 billion in 2016) are
shifted to tax havens each year. This shifting reduces corporate income tax revenue by nearly
$200 billion, or 10% of global corporate tax receipts.
Explore the map to see how much profit and tax revenue your country loses (or attracts) in
this game for profits. The tax havens can be hard to find, but you can zoom in by pressing the
full-screen button.
Click here for full screen
Non-tax havens (% of corporate tax revenue lost)
> 20%
> 8%
> 4%
< 4%
Tax havens
No data
About the research
Researchers from the University of California, Berkeley and the University of Copenhagen
have produced a database showing where corporations book their profits globally. Exploiting
these data, the authors develop a methodology to estimate the amount of profits shifted to tax
havens by multinational companies and how much each country loses in profit and tax revenue
from such shifting. Globally, multinational firms shifted more than $650 billion in profits to
tax havens in 2016 and this shifting reduced global corporate tax receipts by close to 10%.
Multinational firms shift profits to tax havens to reduce their global tax bills. Take the
example of Google: In 2017, Google Alphabet reported $23 billion in revenue in Bermuda, a small
island in the Atlantic where the corporate income tax rate is zero. Globally, about $650
billion in profits are shifted to such tax havens by multinational from all countries.
You can explore the map to see which countries attract and lose profits in this shell game.
By clicking on each country you can see the amount of profits shifted to tax havens and to
which havens the profits were shifted. You can also see the implied loss of corporate income
tax revenue. Some countries are marked in green; these are tax havens. For the tax havens we
report how much profits they attract from high-tax countries and what the effective corporate
income tax rate is.
The loss of profit is the highest for the (non-haven) European Union countries. U.S.
multinationals shift comparatively more profits (about 60% of their foreign profits) than
multinationals from other countries (40% for the world on average). The shareholders of U.S.
multinationals thus appear to be the main winners from global profit shifting. Moreover, the
governments of tax havens derive sizable benefits from this phenomenon: by taxing the large
amount of paper profits they attract at low rates (less than 5%), they are able to generate
more tax revenue, as a fraction of their national income, than the United States and non-haven
European countries that have much higher tax rates.
Until recently, this research would not have been possible, because firms usually do not
publicly disclose the countries in which their profits are booked, and national accounts data
did not make it possible to study multinational corporations separately from other firms. But
in recent years, the statistical institutes of most of the world's developed countries
(including the key tax havens) have started releasing new macroeconomic data known as foreign
affiliates statistics. These data allow to obtain a comprehensive view of where multinational
companies book their profits, and in particular to estimate the amount of profit booked in tax
havens globally. To further our understanding of this issue we need more and better data. In
particular it would be desirable that all countries publish foreign affiliates statistics, and
that these statistics be extended to always include information on taxes paid. Reply Monday, September 23, 2019 at 02:18 PM anne said in reply to
anne... This map is a terrific tool, do explore. Every country is described in terms of tax
revenue lost or the benefit of being a tax haven. For the United States the loss of tax revenue
to tax havens is 17%. For Germany 29% (I had no idea).
... Reply Monday, September 23, 2019 at 02:24 PM point said in reply to
anne... It may be had the USA not lowered its corporate tax rates toward zero the percentage
lost could be higher.
Perhaps there would be a way to display the tax rates as well as the losses and gains. I
presume the havens are even lower than the USA. Reply Monday, September 23, 2019 at 04:51 PM anne said in reply to
point... It may be had the USA not lowered its corporate tax rates toward zero the percentage
lost could be higher.
Perhaps there would be a way to display the tax rates as well as the losses and gains. I
presume the havens are even lower than the USA.
Almost 40% -- or some $15 trillion -- of the world's foreign direct investment is "phantom
capital" designed to minimize the tax bills of multinational firms, according to a study
published by the International Monetary Fund.
Such investments -- which are now equivalent to the combined GDP of China and Germany --
have surged about 10 percentage points in the past decade despite targeted global attempts to
curb tax avoidance, an IMF and University of Copenhagen study found. The capital typically
passes through empty corporate shells that have no real business activity.
"FDI is often an important driver for genuine international economic integration,
stimulating growth and job creation and boosting productivity," the report said. But phantom
capital is "financial and tax engineering" that "blurs traditional FDI statistics and makes
it difficult to understand genuine economic integration."
Almost half of the world's phantom capital is hosted by Luxembourg and the Netherlands,
according to the report, with just 10 economies holding more than 85% of such
investments.
"Luxembourg, a country of 600,000 people, hosts as much FDI as the U.S. and much more than
China," the report said. "FDI of this size hardly reflects brick-and-mortar investments in
the minuscule Luxembourg economy," whose $4 trillion in FDI comes to $6.6 million a
person.
"Unsurprisingly," the study found, an economy's exposure to phantom FDI increases with the
corporate tax rate.
Top Wealth in the United States: New Estimates and Implications for Taxing the Rich
By Matthew Smith, Owen Zidar and Eric Zwick
Abstract
This paper uses administrative tax data to estimate top wealth in the United States. We
build on the capitalization approach in Saez and Zucman (2016) while accounting for
heterogeneity within asset classes when mapping income flows to wealth. Our approach reduces
bias in wealth estimates because wealth and rates of return are correlated. Overall, wealth
is very concentrated: the top 1% holds as much wealth as the bottom 90%. However, the
"P90-99" class holds more wealth than either group after accounting for heterogeneity.
Relative to a top 0.1% wealth share of more than 20% under equal returns, we estimate a top
0.1% wealth share of [15%] and find that the rise since 1980 in top wealth shares falls by
[half]. Top portfolios depend less on fixed income and public equity, depend more on private
equity and housing, and more closely match the composition reported in the SCF and estate tax
returns. Our adjustments reduce mechanical revenue estimates from a wealth tax and top
capital income shares in distributional national accounts, which depend on well-measured
estimates of top wealth. Though the capitalization approach has advantages over other methods
of estimating top wealth, we emphasize that considerable uncertainty remains inherent to the
approach by showing the sensitivity of estimates to different assumptions.
"... Almost four decades ago then-candidate George H.W. Bush used the phrase "voodoo economic policy" to describe Ronald Reagan's claim that cutting taxes for the rich would pay for itself. He was more prescient than he could have imagined. ..."
"... For voodoo economics isn't just a doctrine based on magical thinking. It's the ultimate policy zombie, a belief that seemingly can't be killed by evidence. It has failed every time its proponents have tried to put it into practice, but it just keeps shambling along. In fact, at this point it has eaten the brains of every significant figure in the Republican Party. Even Susan Collins, the least right-wing G.O.P. senator (although that isn't saying much), insisted that the 2017 tax cut would actually reduce the deficit. ..."
"... During the 2016 campaign Donald Trump pretended to be different, claiming that he would actually raise taxes on the rich. Once in office, however, he immediately went full voodoo. In fact, he has taken magical thinking to a new level. ..."
"... My favorite until now came from Art Laffer, the original voodoo economist and recent recipient of the Presidential Medal of Freedom. Why did George W. Bush's tax-cutting presidency end not with a boom, but with the worst economic slump since the Great Depression? ..."
"... But Trump has gone one better. As it has become increasingly clear that the results of his tax cut were disappointing -- recent data revisions have marked down estimates of both G.D.P. and employment growth, to the point where it's hard to see more than a brief sugar high from $2 trillion in borrowing ..."
"... Officials have floated, then retracted, the idea of a cut in payroll taxes -- that is, a tax break for ordinary workers, rather than the corporations and wealthy individuals who mainly benefited from the 2017 tax cut. But such action seems unlikely, among other things because top administration officials denounced this policy idea when Obama proposed it. ..."
"... The truth is that Trump doesn't have a Plan B, and probably can't come up with one. On the other hand, he might not have to. Who needs competent policy when you're the chosen one and the king of Israel? ..."
From Voodoo Economics to Evil-Eye Economics
Are Democrats hexing the Trump boom with bad thoughts?
By Paul Krugman
Almost four decades ago then-candidate George H.W. Bush used the phrase "voodoo economic
policy" to describe Ronald Reagan's claim that cutting taxes for the rich would pay for
itself. He was more prescient than he could have imagined.
For voodoo economics isn't just a doctrine based on magical thinking. It's the ultimate
policy zombie, a belief that seemingly can't be killed by evidence. It has failed every time
its proponents have tried to put it into practice, but it just keeps shambling along. In
fact, at this point it has eaten the brains of every significant figure in the Republican
Party. Even Susan Collins, the least right-wing G.O.P. senator (although that isn't saying
much), insisted that the 2017 tax cut would actually reduce the deficit.
During the 2016 campaign Donald Trump pretended to be different, claiming that he would
actually raise taxes on the rich. Once in office, however, he immediately went full voodoo.
In fact, he has taken magical thinking to a new level.
True, whenever tax cuts fail to produce the predicted miracle, their defenders come up
with bizarre explanations for their failure.
My favorite until now came from Art Laffer, the original voodoo economist and recent
recipient of the Presidential Medal of Freedom. Why did George W. Bush's tax-cutting
presidency end not with a boom, but with the worst economic slump since the Great Depression?
According to Laffer, blame rests with Barack Obama, even though the recession began more than
a year before Obama took office. You see, according to Laffer, everyone lost confidence upon
realizing that Obama might win the 2008 election.
But Trump has gone one better. As it has become increasingly clear that the results of his
tax cut were disappointing -- recent data revisions have marked down estimates of both G.D.P.
and employment growth, to the point where it's hard to see more than a brief sugar high from
$2 trillion in borrowing -- Trump has invented ever more creative ways to blame other people.
In particular, he's now claiming that the promised boom hasn't arrived because his opponents
are hexing the economy with bad thoughts: "The Democrats are trying to 'will' the Economy to
be bad for purposes of the 2020 Election."
Can opposition politicians really cause a recession with negative thinking? This goes
beyond voodoo economics; maybe we should call it evil-eye economics.
To be fair, the claim that Democrats are hexing his boom is a secondary theme in Trump's
ranting. Mostly he has been blaming the Federal Reserve for its "crazy" interest rate hikes.
And the truth is that last year's rate increases pretty clearly were a mistake.
But blaming the Fed for the tax cut's fizzle won't wash. For one thing, the Fed has
actually raised rates less than in previous economic recoveries. Even more to the point, the
Trump economic team was expecting Fed rate hikes when it made its extravagantly optimistic
forecasts. Administration projections from a year ago envisioned 2019 interest rates
substantially higher than what we're actually seeing.
Put it this way: The Trump tax cut was supposed to create a boom so powerful that it would
not only withstand modest Fed rate hikes, but actually require such hikes to prevent
inflationary overheating. You don't get to turn around and claim betrayal when the Fed does
exactly what you expected it to do.
Aside from blaming everyone but himself, however, how will Trump deal with the failure of
his economic promises? He has taken to demanding that the Fed roll the printing presses,
slashing interest rates and buying bonds -- the actions it normally takes in the face of a
serious recession -- even as he claims that the economy remains strong, and unemployment is
in fact near a historic low.
As many people have noted, these are exactly the actions Republicans, including Trump,
denounced as "currency debasement" when unemployment was far higher than it is today and the
economy desperately needed a boost.
Since the Fed is unlikely to oblige, what else might Trump do? Officials have floated,
then retracted, the idea of a cut in payroll taxes -- that is, a tax break for ordinary
workers, rather than the corporations and wealthy individuals who mainly benefited from the
2017 tax cut. But such action seems unlikely, among other things because top administration
officials denounced this policy idea when Obama proposed it.
Trump has also suggested using executive authority to reduce taxes on capital gains (which
are overwhelmingly paid by the wealthy). This move would have the distinction of being both
ineffectual and illegal.
What about calling off the trade war that has been depressing business investment? This
seems unlikely, because protectionism is right up there with racism as a core Trump value.
And merely postponing tariffs might not help, since it wouldn't resolve the uncertainty that
may be the trade war's biggest cost.
The truth is that Trump doesn't have a Plan B, and probably can't come up with one. On the
other hand, he might not have to. Who needs competent policy when you're the chosen one and
the king of Israel?
"But blaming the Fed for the tax cut's fizzle won't wash. For one thing, the Fed has actually
raised rates less than in previous economic recoveries. Even more to the point, the Trump
economic team was expecting Fed rate hikes when it made its extravagantly optimistic
forecasts. "
Yes the Trump economic team is insane and clueless. But the Fed has been tightening since
2013 when Bernanke began tapering QE.
So now all good liberals are crying recession (which would hurt Trump in the election) but
the Fed is blameless?
Monetary policy is ineffective. Then why don't we get rid of the Fed's vaunted
independence? Then why does it matter if Trump tweets at Powell?
This isn't directed at Anne but at the general comment reader and Krugman admirer.
"... Europe and Japan are currently caught in what might be called a monetary black hole – a liquidity trap in which there is minimal scope for expansionary monetary policy ..."
"... "There are strong reasons to believe that the capacity of lower interest rates to stimulate the economy has been attenuated – or even gone into reverse." Good to see that some prominent economists are finally willing to say what I've been pointing out for the past five years. ..."
"... A much better idea for central banking, negotiate the seigniorage fee, up front, then let the central banker do its thing with no interference until the contract expires. Just admit, upfront, central bankers are a creation of government, serve government, let's at least do it twice as efficient as the boomers done it. Screw up half as often! Why not! ..."
Whither Central Banking?
In an environment of secular stagnation in the developed economies, central bankers'
ingenuity in loosening monetary policy is exactly what is not needed. What is needed are
admissions of impotence, in order to spur efforts by governments to promote demand through
fiscal policies and other means.
By LAWRENCE H. SUMMERS and ANNA STANSBURY
CAMBRIDGE – The world's central bankers and the scholars who follow them are having
their annual moment of reflection in Jackson Hole, Wyoming. But the theme of this year's
meeting, "Challenges for Monetary Policy," may encourage an insular – and dangerous
– complacency.
Simply put, tweaking inflation targets, communications strategies, or even balance sheets
is not an adequate response to the challenges now confronting the major economies. Rather,
ten years of below-target inflation throughout the developed world, with 30 more expected by
the market, and the utter failure of the Bank of Japan's extensive efforts to raise inflation
suggest that what was previously treated as axiomatic is in fact false: central banks cannot
always set inflation rates through monetary policy.
Europe and Japan are currently caught in what might be called a monetary black hole
– a liquidity trap in which there is minimal scope for expansionary monetary
policy . The United States is one recession away from a similar fate, given that, as the
figure below illustrates, there will not be nearly sufficient room to cut interest rates when
the next downturn comes. And with ten-year rates in the range of 1.5% and forward real rates
negative, the scope for quantitative easing and forward guidance to provide incremental
stimulus is very limited – even assuming that these tools are effective (which we
doubt).
These developments seem to lend further support to the concept of secular stagnation;
indeed, the issue is much more profound than is generally appreciated. Relative to what was
expected when one of us (Summers) sought to resurrect the concept in 2013, deficits and
national debt levels are far higher, nominal and real interest rates are far lower, and yet
nominal GDP growth has been far slower. This suggests some set of forces operating to reduce
aggregate demand, whose effect has only been partly attenuated by fiscal policies.
Conventional policy discussions are rooted in the (by now old) New Keynesian tradition of
viewing macroeconomic problems as a reflection of frictions that slow convergence to a
classical market-clearing equilibrium. The idea is that the combination of low inflation, a
declining neutral real interest rate, and an effective lower bound on nominal interest rates
may preclude the restoration of full employment. According to this view, anything that can be
done to reduce real interest rates is constructive, and with sufficient interest-rate
flexibility, secular stagnation can be overcome. With the immediate problem being excessive
real rates, looking first to central banks and monetary policies for a solution is
natural.
We are increasingly skeptical that matters are so straightforward. The near-universal
tendency among central bankers has been to interpret the coincidence of very low real
interest rates and nonaccelerating inflation as evidence that the neutral real interest rate
has declined and to use conventional monetary policy frameworks with an altered neutral real
rate.
But more ominous explanations are possible. There are strong reasons to believe that the
capacity of lower interest rates to stimulate the economy has been attenuated – or even
gone into reverse.
The share of interest-sensitive durable-goods sectors in GDP has decreased. The importance
of target saving effects has grown as interest rates have fallen, while the negative effect
of reductions in interest rates on disposable income has increased as government debts have
risen. Declining interest rates in the current environment undermine financial
intermediaries' capital position and hence their lending capacity. As the economic cycle has
globalized, the exchange-rate channel has become less important for monetary policy. With
real interest rates negative, it is doubtful that the cost of capital is an important
constraint on investment.
To take the most ominous case first, with interest-rate reductions having both positive
and negative effects on demand, it may be that there is no real interest rate consistent with
full resource utilization. Interest-rate reductions beyond a certain point may constrain
rather than increase demand. In this case, not only will monetary policy be unable to achieve
full employment, it will also be unable to increase inflation. If demand consistently falls
short of capacity, the Phillips curve implies that inflation will tend to fall rather than
rise.
Even if interest-rate cuts at all points proximately increase demand, there are
substantial grounds for concern if this effect is weak. It may be that any short-run demand
benefit is offset by the adverse effects of lower rates on subsequent performance. This could
happen for macroeconomic or microeconomic reasons.
From a macro perspective, low interest rates promote leverage and asset bubbles by
reducing borrowing costs and discount factors, and encouraging investors to reach for yield.
Almost every account of the 2008 financial crisis assigns at least some role to the
consequences of the very low interest rates that prevailed in the early 2000s. More broadly,
students of bubbles, from the economic historian Charles Kindleberger onward, always
emphasize the role of easy money and overly ample liquidity.
From a micro perspective, low rates undermine financial intermediaries' health by reducing
their profitability, impede the efficient allocation of capital by enabling even the weakest
firms to meet debt-service obligations, and may also inhibit competition by favoring
incumbent firms. There is something unhealthy about an economy in which corporations can
profitably borrow and invest even if the project in question pays a zero return.
These considerations suggest that reducing interest rates may not be merely insufficient,
but actually counterproductive, as a response to secular stagnation.
This formulation of the secular stagnation view is closely related to the economist Thomas
Palley's recent critique of "zero lower bound economics": negative interest rates may not
remedy Keynesian unemployment. More generally, in moving toward the secular stagnation view,
we have come to agree with the point long stressed by writers in the post-Keynesian (or,
perhaps more accurately, original Keynesian) tradition: the role of particular frictions and
rigidities in underpinning economic fluctuations should be de-emphasized relative to a more
fundamental lack of aggregate demand.
If reducing rates will be insufficient or counterproductive, central bankers' ingenuity in
loosening monetary policy in an environment of secular stagnation is exactly what is not
needed. What is needed are admissions of impotence, in order to spur efforts by governments
to promote demand through fiscal policies and other means.
Instead of more old New Keynesian economics, we hope, but do not expect, that this year's
gathering in Jackson Hole will bring forth a new Old Keynesian economics.
Anna Stansbury is a PhD candidate in Economics at Harvard University.
Lawrence H. Summers is a former president of Harvard University, where he is currently
University Professor.
"There are strong reasons to believe that the capacity of lower interest rates to
stimulate the economy has been attenuated – or even gone into reverse." Good to see
that some prominent economists are finally willing to say what I've been pointing out for the
past five years.
Part of the choir, you and many others. The idea that our accounting system stimulates by
methods other than accurate accounting is perfectly nuts.
Then some economists fail to understand that the accounting system adapts when repricing,
and adapting to reflect fundamentals is not stimulating.
We have Summers intimating that our four or five recessions since 1980 cost us long term,
thus the idea of currency banker stimulating was never correct, it was always the central
banker making bankers adapt to the needs of Treasury, basically following the one year
Treasury rate.
And, soon another young kid will show up and claim she has solved the secret of central
banking.
A much better idea for central banking, negotiate the seigniorage fee, up front, then
let the central banker do its thing with no interference until the contract expires. Just
admit, upfront, central bankers are a creation of government, serve government, let's at
least do it twice as efficient as the boomers done it. Screw up half as often! Why
not!
@ james 39 basically, the prognosis isn't good.. none of the colonies are capable of speaking up to
the usa regime, largely because they lack strong leadership and independence of thought in
all this...
I agree with Summer Diaz at 26 and would say the folks most at fault here are the american
sheeple. The boomers, their parents and grandparents are at fault for allowing the american
dream to evaporate. We watched it occur before our very eyes, but were too self indulged to
care. We have only ourselves to blame, nobody else.
I recently stumbled upon Charles Lindbergh Sr's articles of impeachment against the
officers of the federal reserve and the federal reserve act itself. What amazes me whilst
reading it is how much life then, mimics life today. Because of this circumstance our lives
have been stifled, even with all this wondrous technology around us.
Imho, most of our problems today emulate from both the formation of that despicable act
and the failure to impeach and dispose of it four years later. Had it been we likely wouldn't
be having this discussion on Iran, today.
Again I mention President Wilson only became Pres after a grand election rigging when
Former Pres Theodore Roosevelt suddenly announced a 3rd party that split the Repub ticket
between him and incumbent[!] Pres Taft, enabling Dem candidate Wilson to get a majority.
Congressman C A Lindbergh, Sr. warned over and over against passage of Fed Reserve Act,
which finally passed Congress during Christmas holidays in 1913 and was immediately signed b
Pres Wilson.
He wrote an amazingly clear booklet forecasting the harm that would happen if the Fed was
established. And the harm happened.
I recommend any interested reader to read Lindbergh's 1913 "Banking. Currency and the
Money Trust". It's freely available on the internet.
After Congress passed and Woodrow Wilson signed the Fed Res Act, Lindbergh, Sr. tried in
1916, without success, to impeach Fed Res director Paul Warburg, et al.
[His son CAS,Jr did the NY-to-Paris solo flight in 1927.
Add to that amazing Lindbergh essay, the definitive work on the subject by E. G. Griffin,
The Creature from Jekyll Island. Between the two, you will find out how the US of A was sold
wholesale by a bunch of unscrupulous scoundrels and started a perpetual cycle of debt
slavery.
An increase of $5/hr x 30hrs/wk x 52wks/yr = $7,800 per employee. They've got 2.2M
employees. Let's say 2M of those 2.2M are in dire need of a raise.
That's a bit over $15bn a year in cost to the company. $114bn in annual profit, instead of
$129bn sounds like plenty to me. How about a little shared sacrifice?
I doubt it would actually require such a big hit, because an across the board hike in
wages would probably partially boomerang back into revenues for Walmart as employees and
their families/dependents had more to spend in Walmart's stores.
No. The payroll tax is the one tax I absolutely do not want reduced as those taxes are
dedicated to Social Security and Medicare.
The raise should come from the companies that strategically and callously refuse to raise
wages unless forced to. In point of fact the abuse of the independent contractor position AND
the increased use of unpaid interns are good examples of how wide spread the idea is that you
shouldn't actually pay the labor costs involved in your business.
Yes, I do get that some small businesses have problems with payroll that are not the
result of the greed of the owners. But seriously using Wal-Mart's cheap ass wages to put
forth a plan that supposedly helps workers while actually harming them (as Social Security is
absolutely necessary for most workers to even consider retirement even if they are physically
unable to work any longer shortchanging it is most definitely not worker friendly) and leaves
WalMart with even higher obscenely high profits is well .despicable.
Oh, and just for the record a lot of those small businesses would do better with a higher
minimum wage as more people would have more disposable income to make use of those small
businesses. Underpaid people don't shop or use services unless they absolutely have to
for the record: all of the small business would be better off if you cut the payroll tax
as more people would have more money to spend. (and businesses too, as their tax burden would
go down)
Small businesses would be better off But Social Security and Medicare would be gutted?
No thanks. Besides, I doubt that alone would stop the trends of small businesses becoming
more and more irrelevant against the forces of monopolization. A 'magic bullet' fix like this
won't be enough even if it didn't have obvious downsides. Which it does.
But why fund SS and Medicare regressively/flat? The money winds up in the same bucket that
ought to be offset by greater amounts of progressively-incurred income taxes.
If the bucket has to be filled (but I'm not sure it does – Doesn't MMT say to some
extent it doesn't, particularly when we're in what's effectively a disinflationary
environment) please let it be filled in a progressive way. We can start by inverting the cap
gains preferences and advantaging earned income while restoring additional tiers until we get
back to the 90% marginal rates that correlated with the post-war boom times.
In a world where the Waltons and the Bezos and the Kochs do not have the means of buying
elected officials you might have a point. But we do not live in that world nor do we live in
the world where MMT exists for more than the MIC and Corporate welfare.
Unless and until those two things change we cannot even consider eliminating the dedicated
taxes for SS and Medicare. Even with them we are constantly faced with threats to their
existence. Without them they wouldn't last past lunch.
there are other ways to cut businesses costs like healthcare costs, but don't cut payroll
taxes now or anytime soon, we don't live in the kind of world where it could work at this
point. And what's so horrible about businesses paying their fair share in taxes anyway? If
they can't be profitable and do that, maybe they need to close up shop.
In principle, I'm opposed to payroll taxes because they penalize hiring people. The chief
exception, in my mind, is directly employment-related programs – like Social Security,
but not Medicare so much. There is also a small unemployment tax, at least in Oregon.
A basic principle is to tax things you want less of, not things you want more of. A
partial exception is income taxes or profit taxes, because they're supposed to be fairly
neutral and not influence economic decisions. People are unlikely to want less income because
it's taxed.
This is a long-running issue here, because proposals for state-level Medicare4All tend to
rely on a payroll tax. Health is only very partly employment-related; we already have decent
Workmen's Comp system (state operated). Either that or a sales tax, a certain deal killer in
Oregon – the whole thing has to get past the voters. I advocate a dedicated surtax on
the business and income taxes. Corporate taxes are much too low in Oregon.
He's right about small businesses, which I once had (now it's even smaller). Payroll taxes
are a significant burden, in part just for the accountants. It's easier for large businesses
to absorb, so gives them an advantage. Not good.
People on the left tend to see payroll taxes as a free lunch of sorts; they're actually
quite costly.
Because it's the one that allows people to claim they earned SS and Medicare, whether it's
true or not, it's a powerful argument.
Employers want to get rid of it, well if it comes down to them or workers, I don't
prioritize them. These same employers complain about raising the minimum wage. I prioritize
workers, and whether they can survive the present and retirement (already iffy of
course).
Tax reform debates have been transformed in recent weeks by a shift in emphasis from revenue
raising and progressivity to an emphasis on going after the rich for the sake of equality and
justice. Bold proposals from Representative Alexandria Ocasio-Cortez of New York, for a 70
percent marginal tax rate on top earners, and from Senator Elizabeth Warren of Massachusetts --
a 2020 Democratic presidential candidate -- for a wealth tax on those worth more than $50
million have attracted widespread attention.
Warren's proposal aspires to raise roughly 1 percent of GDP ($2.75 trillion in the next
decade). Ocasio-Cortez's proposal is estimated to generate around one-third of 1 percent ($720
billion in the next decade). By way of comparison, the Trump tax cuts will cost the federal
government about $2 trillion over the next decade. We agree with Ocasio-Cortez and Warren that
increases in tax revenue of at least this magnitude are necessary. We also agree that the way
forward is by generating more revenue from the most affluent Americans. Indeed, it may well be
necessary and appropriate to raise more than Warren's targeted 1 percent of GDP from those at
the top.
Where we differ from Warren and Ocasio-Cortez is in our belief that the best way to begin
raising additional revenue from highest income tax payers is with a traditional tax reform
approach of base broadening and loophole closing, improved compliance, and closing of shelters.
We show that these measures, along with partial repeal of the Trump tax cut, can raise far more
than recent proposals. These measures will increase economic efficiency, make our tax system
more fair, and are perhaps more politically feasible than a wealth tax or large hikes of top
rates. It may be that measures beyond base-broadening are appropriate and desirable given the
magnitude of the revenue challenge we face. But base-broadening is the right place to
begin.
Below we outline proposals for broadening the tax base that meet a stringent test: These are
measures that would be desirable even if we did not have revenue needs. They are progressive
and attack those who have received special breaks for too long. And together, the
revenue-raising potential of these measures exceeds that of the 70 percent top rate or the
wealth tax. We believe this is where the progressive tax policy debate should begin.
Emphasis on compliance and auditing of the rich. In 2017, the IRS had only 9,510 auditors --
down from over 14,000 in 2010. The last time the IRS had fewer than 10,000 auditors was in the
mid-1950s. Since 2010, the IRS budget has decreased by over 20 percent in real terms. The
result is that individuals and corporations are shirking their responsibilities: The most
recent estimate by the IRS suggests that taxpayers paid only around 82 percent of owed taxes,
losing the IRS over $400 billion a year.
The Congressional Budget Office estimates that spending an additional $20 billion on
enforcement in the next decade could bring in $55 billion in additional tax revenues. This
excludes the indirect deterrent effects of greater enforcement, which the Treasury Department
has estimated are three times higher. Outlays at this level would still leave the IRS operating
with budgets in real terms that were nearly 10 percent below peak levels, which themselves were
leaving large amounts of revenue on the table.
In addition to the level of investment in enforcement, there is the question of the
allocation of enforcement resources. It has been estimated that an extra hour spent auditing
someone who earns more than $1 million a year generates an extra $1,000 in revenue. And yet in
2017 the IRS audited only 4.4 percent of returns with income of $1 million or higher, less than
half the audit rate a decade prior. Remarkably, recipients of the earned income tax credit, who
never have incomes above $50,000, are twice as likely to be audited as those who make $500,000
annually.
No one can know exactly the potential for increased enforcement to raise revenue. Suppose
instead of investing an extra $20 billion over the next decade, we invested $40 billion and
focused on wealthy taxpayers, perhaps taking the audit rate for million-dollar earners up to 25
percent. Considering the direct benefits and the multiplier from deterrence, it is not
unreasonable to suppose that over a decade $300 billion to $400 billion could be raised.
This revenue increase -- unlike a revenue increase from new taxes or higher rates -- will
have favorable incentive effects. It will encourage people to participate in the above-ground
economy. And what could be more of a step toward fairness than collecting from wealthy
scofflaws?
Closing corporate tax shelters. All too often, corporations are able to make use of tax
havens, differences in accounting treatment across jurisdictions, and other devices to reduce
tax liabilities. Economist Kimberly Clausing estimates that profit-shifting to tax havens costs
the United States more than $100 billion a year. Although the Trump tax plan sought to reduce
the incentives for profit-shifting, various exemptions and design flaws mean that the new
system does little to deter shifting revenues to tax havens. Fairly incremental changes will
have a large impact: For example, a per-country corporate minimum tax rather than a global
minimum tax will increase tax revenues by nearly $170 billion in a decade.
But there is much more to be done. A robust attack on tax shelters -- that included, for
example, tariffs or penalties on tax havens as well as stricter penalties for lawyers and
accountants who sign off on dubious shelters -- could raise twice the revenue attainable from a
per-country minimum tax, or about 30 billion annually. It would also encourage the location of
economic activity in the United States and discourage the vast intellectual ingenuity that
currently goes into tax avoidance.
Closing individual tax shelters. Like the corporations they own, wealthy individuals make
use of myriad loopholes in the tax code to shelter their personal income from taxation. Most
high-income taxpayers pay a 3.8 percent tax that pays into entitlement programs like Social
Security and Medicare. However, some avoid these payroll taxes by setting up pass-through
businesses and re-characterizing large shares of their income as profits from business
ownership, rather than wage income. The Obama administration's proposals to close payroll tax
loopholes were estimated to generate $300 billion over a decade.
Another egregious loophole is 1031 exchanges, which allow real estate investors to sell
property, take a profit, and defer paying taxes on those profits so long as they reinvest them
in similar investments. There is no limit on the number of these exchanges that investors can
make. Consequently, the wealthy use 1031 exchanges to build up long-term tax-deferred wealth
that can eventually be passed down to their heirs without taxes ever being paid. Outright
repeal of 1031 exchanges were estimated in 2014 to raise around $40 billion in a decade and
would raise almost $50 billion today.
Another tool used to shelter individual income from taxation is carried interest. Income
that flows to partners of investment funds is often treated as capital gains and taxed at lower
rates than ordinary income. This creates a tax-planning opportunity for investors to convert
ordinary income into long-term capital gains that receive much more generous tax treatment.
President Trump repeatedly vowed that his signature tax cuts would eliminate the
carried-interest loophole, saying it was unfair that the ultra-wealthy were "getting away with
murder." However, in the face of significant lobbying pressure, the administration abandoned
these plans. The Joint Committee on Taxation estimates that taxing carried profits as ordinary
income would generate over $20 billion in a decade.
Other ways in which individuals can shelter income include misvaluing interests such as
shares in investment partnerships when putting them in retirement accounts as well as schemes
involving nonrecourse lending.
Closing tax shelters would level the playing field in favor of investments by companies that
create jobs and to the detriment of various kinds of financial operators. This would raise
employment and incomes as well as contributing to fairness.
Eliminating "stepped-up basis." Wealth tax advocates rightly point to an important gap in
our current system. An entrepreneur starts a company that turns out to be highly successful.
She pays herself only a small salary, and shares in the company do not pay dividends, so the
company can invest in growth. The entrepreneur becomes very wealthy without ever having paid
appreciable tax, as the income that made the wealth possible represents unrealized capital
gains.
Unrealized capital gains explain how Warren Buffett can pay only a few million dollars in
taxes in a year when his wealth goes up by billions. Astoundingly, no capital gains tax is ever
collected on appreciation of capital assets if they are passed on to heirs. Specifically: When
an investor buys a stock, the cost of that purchase is the tax basis. If the stock rises in
value and is then sold, the investor pays taxes on the gains. If an investor dies and leaves
stock to her heir, that cost basis is "stepped up" to its price at the time the stock is
inherited. The gain in value during the investor's life is never taxed.
Implementing the Obama administration's proposals for constructive realization of capital
gains at death would raise $250 billion in the next decade. This is a progressive change that
would impact only the very wealthy: Ninety-nine percent of the revenue from ending stepped-up
basis will be collected from the top 1 percent of filers.
Eliminating stepped-up basis will also make the economy function better and so would be
desirable even if it did not raise revenue. The fact that capital gains passed on to children
entirely escape taxation provides aging small-business owners or real estate owners a strong
incentive not to sell them to those who could operate them better while they are alive. It also
makes it much more expensive to realize capital gains and use the proceeds to make new
investments than it would be if the capital gains tax was inescapable.
Capping tax deductions for the wealthy. Today, a homeowner in the top tax bracket
(post-Trump tax cuts, 37 percent) who makes a $1,000 mortgage payment saves $370 on her tax
bill. Under an Obama administration proposal to limit the value of itemized deductions to 28
percent for all earners, that same write-off would save this wealthy taxpayer just $280.
Importantly, such a cap would raise tax burdens only for the rich: Those with marginal rates
under the cap would still be able to claim the full value of their itemized deductions. The
plan to cap top-earners' itemized deductions was estimated to raise nearly $650 billion in a
decade. Recognizing that the Trump tax plan scaled back the mortgage interest deduction and
state and local tax deductions, we estimate that additional limits on top-earner deductions
could generate around $250 billion in a decade.
As with the elimination of stepped-up basis, the distributional case for capping tax
deductions is strong. The mortgage interest deduction provides a tax advantage to homeowners;
promoting homeownership is a worthy goal. But there is little rationale for subsidizing home
ownership at higher rates for richer rather than poorer taxpayers.
End the 20 percent pass-through deduction. Perhaps the most notorious of the Trump tax
changes, the pass-through deduction provides a 20 percent deduction for certain qualified
business income. This exacerbated the tax code's existing bias in favor of noncorporate
business income and so reduces economic efficiency. And the complex maze of eligibility is
arbitrary, foolish, and a drain on government resources: The Joint Committee on Taxation
estimates that this provision will reduce federal revenues by $430 billion in the next decade.
Eliminating the pass-through deduction will reduce incentives for tax gaming and raise revenue
primarily from taxpayers making more than $1 million annually.
Broaden the estate tax base. Prior to the Trump tax reform, only 5,000 Americans were liable
for estate taxes. The recent changes more than halved that small share by doubling the estate
tax exemption to $22.4 million per couple. The Joint Committee on Taxation estimates that this
change costs around $85 billion, with the benefits accruing entirely to 3,200 of the wealthiest
American households. Repealing the Trump administration's changes and applying estate taxes
even more broadly -- for example, as the Obama administration proposed, by lowering the
threshold to $7 million for couples -- would raise around $320 billion in a decade. The estate
tax would still only impact 0.3 percent of decedents.
In addition to the question of the appropriate floor on estates, there is also ample room to
attack the many loopholes that enable wealthy families to largely avoid paying taxes when
transferring wealth to their progeny during their lifetimes. This happens through a mix of
trust arrangements, intra-family loans, and dubious valuation practices to evade gift-tax
liability. Strengthening the taxation of estates would raise revenue and be efficient,
diverting resources from tax planning and increasing work incentives for the children of the
wealthy. We are enthusiastic about proposals, notably by Lily Batchelder, that call for the
conversion of the estate tax into an inheritance tax, to appropriately tax inherited privilege
and discourage large concentrations of wealth.
Increasing the corporate tax rate to 25 percent. When corporations began lobbying efforts on
corporate tax reform, their stated objective was a 25 percent corporate rate. Business leaders
produced estimates showing how this 25 percent rate would have prevented foreign purchases of
thousands of companies and shifted billions in corporate taxable income to the United States.
The Trump tax cuts delivered more than the business community asked, slashing the corporate
rate to 21 percent. The CBO estimates that a 1 percentage point increase in the corporate tax
rate will generate $100 billion in the next decade. Based on this estimate, a 4 percentage
point increase to 25 percent will generate an additional $400 billion in revenue.
Raising the corporate tax rate would not increase the tax burden on most new investment,
because it would raise in equal measure the value of the depreciation deductions that
corporations could take when they undertook investments. The principle losers from an increase
in the rate would be those earning economic rents in the form of monopoly profits and those who
had received enormous windfalls from the Trump tax cut.
Closing tax shelters used by the wealthy alone raises more revenue than Ocasio-Cortez's
proposal. And together, the reforms we propose raise far more than a 70 percent top tax rate,
and more too than Warren claims her wealth tax will generate. These base-broadening,
efficiency-enhancing reforms are the best way to start raising revenue as progressively and
efficiently as possible. To be sure, it may well be that wealth taxation or large increases in
top rates are necessary to adequately fund government activities. But we advocate these
approaches only after the revenue-raising potential of base-broadening is exhausted.
Tomorrow: The challenges in the rate hike and wealth tax proposals.
"... The Trumpist theory -- which was, I'm sorry to say, endorsed by conservative economists who should have known better -- was that there was a huge pile of money sitting outside the U.S. that companies would bring back and invest productively if given the incentive of lower tax rates. But that pile of money was an accounting fiction. And the tax cut didn't give corporations an incentive to build new factories and so on; all it did was induce them to shift their tax-avoidance strategies. ..."
"... As Brad Setser of the Council on Foreign Relations points out , a casual glance at the data seems to suggest that American companies earn a lot of their profits at their overseas subsidiaries. But a closer look shows that the bulk of these reported profits are in a handful of small countries with low or zero tax rates, like Bermuda, Luxembourg and Ireland. The companies obviously aren't earning huge profits in these tiny economies; they're just using accounting gimmicks to assign profits earned elsewhere to subsidiaries that may have a few factories, but sometimes consist of little more than a small office, or even just a post-office box. ..."
"... These basically phony profits then accumulate on the books of the overseas subsidiaries, rather than the home company. But this doesn't affect their ability to invest in America: if Apple wants to spend a billion dollars here, it can always borrow the money using the assets of its Irish subsidiary as collateral. In other words, U.S. taxes weren't having any significant effect in deterring real investment in the U.S. economy. ..."
"... So the theory supposedly behind the Trump tax cut has turned out to be a complete bust. Corporate accountants got to have some fun exploring new frontiers in tax avoidance; the rest of us just ended up saddled with an extra $2 trillion or so in debt. ..."
"... Now, I'm not deeply worried about that debt. Given low borrowing costs , the costs and risks of federal debt are far less than the usual suspects -- again, the same people who cheered on the Trump tax cut -- have claimed. But think of all the other things we could have done with $2 trillion -- all the infrastructure we could have built and repaired, all the people who could have been given essential health care. ..."
So far, Donald Trump has passed only one significant piece of legislation: the 2017 tax cut.
It was, to be fair, a pretty big deal: corporations, the principal beneficiaries, have already
saved more than $150 billion, and over the course of a decade the tax cut will probably
increase the budget deficit by more than $2 trillion.
But the tax cut was supposed to do more than just give stockholders more money -- or at
least that's what its proponents claimed. It was also supposed to lead to many years of high
economic growth, 3 percent or more at an annual rate.
Independent observers were skeptical, to say the least. They conceded that the tax cut might
lead to a brief sugar high, because that's what big deficits do. But any favorable effects on
growth, they argued, would soon fade out. And they always insisted that it would take some time
to assess the tax cut's actual effects.
Nonetheless, when the economy grew pretty fast in the second quarter of last year, Trump and
his supporters cried vindication, and ridiculed the critics.
But a bit of time has passed since then. The chart shows the U.S. economy's growth rate by
quarter since the beginning of 2018. The last number isn't official; but there are a number of
independent observers, including both Federal Reserve banks and private financial institutions,
who produce "nowcasts" that estimate growth based on early data. At this point all of these
nowcasts show slowing growth, and most put the first quarter at around 1.5 percent.
So do the results so far look like the huge, sustained boom the Trump camp promised, or the
brief sugar high predicted by the critics?
But Donald Trump is a special kind of leader. When things don't go his way, when events fail
to turn out as he planned and promised, he always knows exactly what to do:
Blame someone else . Sure enough, he's now asserting that we'd be having a yuge economic
boom, 3 percent growth, all that, if only the Federal Reserve hadn't raised interest rates.
O. K., this is where you need to be able to hold two ideas in your head at the same time.
Was the Fed wrong to raise rates? Probably yes. Does this account for the failure of the Trump
tax cut? No.
The Fed was clearly overoptimistic about the economy's prospects, as it has pretty
consistently been for the past decade. It's worth noting that throughout that whole period
conservative critics of the Fed -- the same people now backing Trump -- attacked the
institution for keeping interest rates too low, not too high. Still, it's now clear that the
attempt to normalize monetary policy was premature.
But the Fed's premature rate hikes aren't why the Trump tax cut is failing. How do we know
that? Because all those boasts about why the tax cut would work miracles were based on a
specific story about what is holding the U.S. economy back. And that story was and is all
wrong.
The Trumpist theory -- which was, I'm sorry to say, endorsed by
conservative economists who should have known better -- was that there was a huge pile of
money sitting outside the U.S. that companies would bring back and invest productively if given
the incentive of lower tax rates. But that pile of money was an accounting fiction. And the tax
cut didn't give corporations an incentive to build new factories and so on; all it did was
induce them to shift their tax-avoidance strategies.
As Brad Setser of the Council on Foreign Relations
points out , a casual glance at the data seems to suggest that American companies earn a
lot of their profits at their overseas subsidiaries. But a closer look shows that the bulk of
these reported profits are in a handful of small countries with low or zero tax rates, like
Bermuda, Luxembourg and Ireland. The companies obviously aren't earning huge profits in these
tiny economies; they're just using accounting gimmicks to assign profits earned elsewhere to
subsidiaries that may have a few factories, but sometimes consist of little more than a small
office, or even just a post-office box.
These basically phony profits then accumulate on the books of the overseas subsidiaries,
rather than the home company. But this doesn't affect their ability to invest in America: if
Apple wants to spend a billion dollars here, it can always borrow the money using the assets of
its Irish subsidiary as collateral. In other words, U.S. taxes weren't having any significant
effect in deterring real investment in the U.S. economy.
When Trump cut the tax rate, some companies "brought money home." But for the most part this
had no economic significance. Here's how it works: Apple Ireland transfers some of its assets
to Apple U.S.A. Officially, Apple Ireland has reduced its investment spending, while paying a
dividend to U.S. investors. In reality, Apple as an entity has the same total profits and the
same total assets it did before; it hasn't devoted a single additional dollar to purchases of
equipment, R&D, or anything else for its U.S. operations.
Not surprisingly, then, the investment boom Trump economists promised has
never materialized . Companies didn't use their tax breaks to invest more; mainly they used
them to buy back their own stock. This in turn, put more money in the hands of investors, which
gave the economy a temporary boost -- although for 2018 as a whole, one of the biggest drivers
of faster growth was, believe it or not, higher
government spending .
So the theory supposedly behind the Trump tax cut has turned out to be a complete bust.
Corporate accountants got to have some fun exploring new frontiers in tax avoidance; the rest
of us just ended up saddled with an extra $2 trillion or so in debt.
Now, I'm not deeply worried about that debt. Given
low borrowing costs , the costs and risks of federal debt are far less than the usual
suspects -- again, the same people who cheered on the Trump tax cut -- have claimed. But think
of all the other things we could have done with $2 trillion -- all the infrastructure we could
have built and repaired, all the people who could have been given essential health
care.
What a colossal, corrupt waste.
Paul Krugman has been an Opinion columnist since 2000 and is also a Distinguished
Professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial
Prize in Economic Sciences for his work on international trade and economic geography.
@ PaulKrugman
The GOP has announced a comprehensive bipartisan effort to reform our tax code, promote
fairness, and provide health coverage. APRIL FOOLS! The U.S. has put a tax evader in charge,
who has in turn named Sen. Scott, the former CEO who steered the largest Medicare fraud in
our history, to develop a health coverage plan. No, that's not April Fools, but reality.
I resent the Trump tax travesty being referred to as a "tax cut". For many middle class
homeowners, it was anything but. Just the elimination of personal exemptions for my family of
four cost us more in increased tax liability than the increase in the standard deduction.
Then there were tens of thousands of dollars' worth of deductions that we didn't get to take
under the new rules. Our tax liability went up by thousands.
I have not had any fun as corporate tax accountant from Trump's giveaway to the rich.
Firstly, the law was not planned out, so there is no guidance for any of the new laws. The
IRS is scrambling just to get new instructions and forms out. I'd bet that the confusion is
creating more opportunities to avoid taxes than there were before. Secondly, I get to deal
with the whining of the beneficiaries of the tax cut. Somehow they aren't satisfied with
paying 40% less. Corporations and the 1% have a criminally high sense of entitlement.
Supply side economics was, is, and always will be, almost a complete lie. Put simply, if
consumer spending doesn't increase, why would a company spend money to produce more products?
It is demand, not supply, that drives economic growth. And it should not come as a surprise
that government spending creates economic growth when so much of the economy is tied to
government spending. If you cut government spending, as Republicans wish, other than the
government employees suddenly out of work, there are all the private businesses that depend
on government contracts that will be laying off workers. So the economy contracts, other
businesses become pessimistic and the economy contracts even further. Where I disagree with
Paul is that we need the Fed to raise interest rates before the next recession hits. The
economy has been strong for a decade but when a recession comes around, we need the Fed's
ability to reduce rates and encourage borrowing.
@Bill The effects of government spending (or lack thereof) should be obvious to the
economics-challenged just by looking at what happened during Trump's government shutdown.
Hint: it wasn't just bad for the people who were directly not being paid for their government
jobs. And that was only a brief microcosm of the effect. What I don't get is why people
thought this time would be different, when it has never worked as advertised before. Did they
think Trump would make it work this time?
Krugman shows little caring about common people -- taxes or otherwise. He wants people to
have "healthcare," but what does he mean by that? He doesn't support Medicare for All he has
said. He doesn't seem to know that it would be paid for by US, not the government -- along
with our taxes, in the way that makes the most sense everywhere. We'd pay according to our
incomes; if you had NO income, you'd still have healthcare, birth to grave. Especially in
times of recession, let Krugman put that in his pipe and smoke it!
Medicare for All would not break the government; private insurance would still be allowed,
but more and more people would like a universal plan with the low rates it would bring --as
we get out from under the high prices we're paying for private health insurance, even the
Medicare Advantage run by companies like Aetna. Mine costs nearly $400 a month!
Money, power and greed is what the whole Trump presidency is about. A few people are getting
very rich. In the meantime, his base is fueled by diversionary red meat. I think every
American should get a cut of the ill-gotten gains. A monthly check for enduring this
presidency, and the stupid people who support him.
There is one point in Professor Krugman's article that needs to be highlighted; "although for
2018 as a whole, one of the biggest drivers of faster growth was, believe it or not, higher
government spending." Government spending, not tax cuts has fueled recoveries from recessions
caused by their policies from Reagan to Bush Jr. That is, if you look at what happened when
both Reagan and Bush Jr. first took office and began their policies those policies resulted
in recessions. Both Reagan and Bush Jr. got out of those recessions by going on huge spending
binges. The point being that well Republicans do cut taxes for the super rich and powerful,
the disguise the fact that those policies do not benefit America by going on huge deficit
spending binges that, to quote Lloyd Benson, "Create an illusion of prosperity". The fact
that Republicans use large increases in deficit Government spending for all of their economic
success is the most unreported fact in American politics.
I am not sure why I should put any stock in any of your opinions/predictions when you have
been so colossally wrong (e.g. "the stock market will crash if Trump gets elected") so often.
Nobel Laureate? You and Yasser Arafat - The Nobel Prize committee doesn't always get it right
@Randy Well, let's compare Dr. Krugman to the GOP: 1)Since the 1970's, they have claimed that
supply side economics ie cutting taxes, will 'float all boats', and since the 1980's the tax
rate on the most well off has plummeted..and since then? The top .5% have seen huge gains,
while the bottom 90% of Americans have seen their incomes and wealth fall. 2)The GOP under
Obama said the budget deficits caused by government spending were going to cause
hyperinflation and cause the dollar to become valueless, they screamed with the economic
bailouts and so forth. Yet the world didn't end, and now the GOP just added 2 trillion to our
debt, and saying "it is no big deal"..so who was right 3)Trump claimed the tax cut was going
to make the economy sing, that it was going to grow at 5% a year and that ordinary people
were going to see their decline in wages end.......fast forward 2 years, and wages have not
grown faster than inflation, and despite a supposedly tight labor market, wages are still not
growing...and the only people seeing increases in wealth and income are the top .5%, they saw
a huge increase last year thanks to the corporate tax cut. So whose predictions were wrong?
@music observer The working middle class has been shrinking since the supply side Reaganomics
started and it has never stopped since. There is not much of the Great Society left, the
Republicans are still cutting the benefits for Medicare and Medicaid and food stamps, Head
Start disappeared too as far as I can tell. The Republican party is morally and
intellectually bankrupt.
Americans comment about tax or not tax. Free market. But there is absolutely no precise
conscience of the numbers nor how the American economy works. Where the US corporations are
domiciliated . In Europe ? We don't care. No comment. We cheat ? we don't care. No comment .
Who are these people ?
This article is a death sentence for Trump. Now he he win only on pure demagogy, which might not work.
Notable quotes:
"... Still, an extra $700 billion flowing into the economy in a year is hardly chicken feed. So, has the money being used to create more jobs as Trump hoped? Hardly. The evidence suggests that majority of that cash has simply found its way into buybacks with minimal discernible impact on investments. It's probably not a coincidence that the generous tax cut has been followed by record buybacks, with companies repurchasing more than a trillion dollars-worth of their own shares last year. ..."
"... Ironically, Congress now wants to tame the monster it has helped create by reining in on buybacks. But with fears that a market top could be near, the timing would be wrong since buybacks provide a large source of demand for shares. ..."
"... "Congress failed to anticipate a major loophole" Huh? Its not a bug, its a feature. ..."
"... "With their enormous complexity and high-stakes, tax issues are the buffet that keeps Washington's swamp creatures fed," Public Citizen said in the conclusion of its report. " ..."
"... "But the success of the nation's largest corporations and wealthiest interests in shaping the current tax legislation to suit their interests shows that bankrolling the lobbyists' unending feast is a small bill to pay in the big scheme of things -- because it is a very big scheme, indeed." ..."
"... How would an open, globalised world work against the West and in favor of the East? The 1% would get better returns from investing their capital in the rapidly growing Asian economies than the mature economies of the West. Multi-national corporations could make higher profits in Asia due to the low cost of living that they had to cover in wages. ..."
"... Richard Koo explains: https://www.youtube.com/watch?v=AtwxhT8e7xQ Higher returns on capital are affecting their economies as they off-shore to places where they can pay lower wages for higher profits. ..."
"... Richard Koo asked American firms where they are expanding their capacity. They said it was in Mexico as it's cheaper and they can make more profit. Do the maths. To maximise profit you need to minimise labour costs, i.e. wages. Disposable income = wages – (taxes + the cost of living). The minimum wage leaves no disposable income. Minimum wage = taxes + the cost of living ..."
"... The American people should be screaming about the fact most of these corporations barely pay any taxes at all to keep this country running. But silence. Why is there such slavish loyalty to corporations by Americans when most aren't even employed by them? ..."
"... Well that is twice now that corporate America has repatriated hundreds of billions from overseas and each time, so far as I know, it was used for stock buybacks, executive bonuses, vanity projects, etc. Not for investment, not for research, not for up-skilling their workforce or expanding their operations but just playing Wall Street games. ..."
"... By my calculations, Jeff Bezos thus owes the US government $2,352,000,000 in taxes. I'm sure that a cheque from him would do just fine. ..."
Last year, drugmaker Abbvie Inc. told shareholders that its tax rate would fall to just 9
percent from 22 percent previously due to a change in the territorial system. Abbvie happens to
be a grandmaster when it comes to shielding its profits in tax havens, routinely reporting zero
profits in the US despite most of its research facilities being based in the country.
Pfizer, Boston Scientific Corp. ,Microsoft Inc. Synopsis and Expedia Group are all pros at
the game, too.
This bunch, however, have nothing on Amazon Inc. The ecommerce giant not only
managed to pay zero tax on its massive $11.2 billion corporate income for 2018, but was
even able to claim $129 million in rebates thanks to loopholes in the new tax law. Video
streaming company, Netflix Inc ., also managed to get away scot free despite posting a record
profit of $858 million.
More Buybacks
Still, an extra $700 billion flowing into the economy in a year is hardly chicken feed.
So, has the money being used to create more jobs as Trump hoped? Hardly. The evidence suggests
that majority of that cash has simply found its way into buybacks with minimal discernible
impact on investments. It's probably not a coincidence that the generous tax cut has been
followed by record buybacks, with companies repurchasing more than a trillion dollars-worth of
their own shares last year.
Ironically, Congress now wants to tame the monster it has helped create by reining in on
buybacks. But with fears that a market top could be near, the timing would be wrong since
buybacks provide a large source of demand for shares.
In an article by Mehan R. Wislon in "The Hill" (12/01/17) one can read that:
"With their enormous complexity and high-stakes, tax issues are the buffet that keeps
Washington's swamp creatures fed," Public Citizen said in the conclusion of its report. "
"But the success of the nation's largest corporations and wealthiest interests in shaping
the current tax legislation to suit their interests shows that bankrolling the lobbyists'
unending feast is a small bill to pay in the big scheme of things -- because it is a very big
scheme, indeed."
American companies are trying to tell us they are demand driven and they won't invest in
expansion until they can see the demand in the system to make it worth their while.
How would an open, globalised world work against the West and in favor of the East? The 1% would get better returns from investing their capital in the rapidly growing Asian
economies than the mature economies of the West. Multi-national corporations could make higher profits in Asia due to the low cost of
living that they had to cover in wages.
(Employees get their money from wages, so the employer pays through wages.)
The West never did work out what was going on, but now the more developed Eastern
economies are seeing the same thing and are looking into it.
Richard Koo explains: https://www.youtube.com/watch?v=AtwxhT8e7xQ Higher returns on capital are affecting their economies as they off-shore to places where
they can pay lower wages for higher profits.
Richard Koo asked American firms where they are expanding their capacity.
They said it was in Mexico as it's cheaper and they can make more profit. Do the maths. To maximise profit you need to minimise labour costs, i.e. wages. Disposable income = wages – (taxes + the cost of living). The minimum wage leaves no disposable income. Minimum wage = taxes + the cost of living
The cost of living = housing costs + healthcare costs + student loan costs + food + other
costs of living
Employees get their money from wages and employers have to pay the US cost of living in
wages unless they off-shore to somewhere cheaper, like Mexico.
The developed Eastern economies are now finding they are in same situation as the West has
been for the last few decades and they are coming up with explanations and solutions, unlike
our own experts.
The American people should be screaming about the fact most of these corporations barely
pay any taxes at all to keep this country running. But silence. Why is there such slavish loyalty to corporations by Americans when most aren't even
employed by them?
Well that is twice now that corporate America has repatriated hundreds of billions from
overseas and each time, so far as I know, it was used for stock buybacks, executive bonuses,
vanity projects, etc. Not for investment, not for research, not for up-skilling their
workforce or expanding their operations but just playing Wall Street games.
I would judge
that before trying to go after all this money overseas, that it will be necessary to impose a
working taxation system on corporate America first. To earn over $11.2 billion in tax but to
not only not get taxed but to earn a rebate illustrates how broken the system is.
At the
moment, the corporate tax rate is supposed to be 21% so perhaps they can bring out a tax on
gross corporate income of 21% – but with no rebates or anything at all that can be
taken from this amount. Just a flat out tax.
By my calculations, Jeff Bezos thus owes the US
government $2,352,000,000 in taxes. I'm sure that a cheque from him would do just fine.
"... To that end, the senator from Florida on Tuesday unveiled a proposal to limit corporate buybacks. Unlike a plan pitched by Bernie Sanders and Chuck Schumer earlier this month, Rubio's plan would seek to end preferential tax treatment of share buybacks, by decreeing that any money spent on buybacks would be considered - for tax purposes - a dividend paid to shareholders, even if individual investors didn't actually part with any stock. ..."
"... Any tax revenue generated by these changes could then be used to encourage more capital investment, Rubio said. As part of the proposal, Rubio would make a provision in the tax law that allows companies to deduct capital investment permanent (that provision is currently set to expire in 2022). ..."
"... But before lawmakers take their next steps toward regulating how and when companies should return excess capital to shareholders, they might want to take a look at a column recently published by WSJ's "Intelligent Investor" that expounds a concept called "the bladder theory." ..."
"... But the law most likely to govern here is the Law of Unintended Consequences. ..."
"... That companies bought back a record $1 trillion worth of stock last year while employers like GM slashed jobs and closed factories has stoked criticisms of the Trump tax cuts, but as the gulf between the rich and the poor grows ever more wide (a phenomenon for which we can thank the Federal Reserve and other large global central banks) it's worth wondering: facing a simmering backlash to one of the most persistent marginal bids in the market place, have investors already become too complacent about proposals like Rubio's? ..."
"... Worse, since they're largely funded by increased corporate debt (!) they amount to corporate strip-mining by senior management. This is disgraceful and dangerous. The debt will bust some corporations when the inevitable next downturn comes. ..."
"... This buyback cancer, which has grown rapidly because of corrupt SEC thinking and perverse tax incentives, requires urgent treatment. ..."
For better or worse, Republican Senator and one-time presidential candidate Marco Rubio
isn't about to let
the Democrats own the fight to curtail one of the most flagrant examples of post-crisis
corporate excess. And if he can carve out a niche for himself that might one day help him
credibly pitch himself as a populist firebrand, much like the man who went on to claim the
presidency after defeating him in the Republican primary, well, that sounds to us like a
win-win.
To that end, the senator from Florida on Tuesday unveiled a proposal to limit corporate
buybacks. Unlike a plan pitched by Bernie Sanders and Chuck Schumer earlier this month, Rubio's
plan would seek to end preferential tax treatment of share buybacks, by decreeing that any
money spent on buybacks would be considered - for tax purposes - a dividend paid to
shareholders, even if individual investors didn't actually part with any stock.
According to CNBC
, the plan calls for every shareholder to receive an imputed portion of the funds equivalent to
the percentage of company stock they own, which, of course, isn't the same thing as directly
handing capital to shareholders (it simply changes the tax rate that the company buying back
the shares would pay).
Ultimately, Rubio hopes that these changes would discourage companies from buying back
stock. Those companies that continued to buy back shares would help contribute to higher
revenues by increasing the funds that can be taxed, while also raising the rate at which this
money can be taxed. Any tax revenue generated by these changes could then be used to encourage
more capital investment, Rubio said. As part of the proposal, Rubio would make a provision in
the tax law that allows companies to deduct capital investment permanent (that provision is
currently set to expire in 2022).
But before lawmakers take their next steps toward regulating how and when companies should
return excess capital to shareholders, they might want to take a look at a column recently
published by WSJ's
"Intelligent Investor" that expounds a concept called "the bladder theory."
Overall, however, buybacks (and dividends) return excess capital to investors who are free
to spend or reinvest it wherever it is most needed. By requiring companies to hang onto their capital instead of paying it out, Congress might
- perhaps - encourage them to invest more in workers and communities.
But the law most likely to govern here is the Law of Unintended Consequences. The history of investment by corporate managers with oodles of cash on their hands isn't
encouraging. Hugh Liedtke, the late chief executive of Pennzoil, reportedly liked to quip
that he believed in "the bladder theory:" Companies should pay out as much cash as possible,
so managers couldn't piss all the money away.
That companies bought back a record $1 trillion worth of stock last year while employers
like GM slashed jobs and closed factories has stoked criticisms of the Trump tax cuts, but as
the gulf between the rich and the poor grows ever more wide (a phenomenon for which we can
thank the Federal Reserve and other large global central banks) it's worth wondering: facing a
simmering backlash to one of the most persistent marginal bids in the market place, have
investors already become too complacent about proposals like Rubio's?
We ask only because
the Dow soared more than 350 points on Tuesday, suggesting that, even as Rubio added a
bipartisan flavor to the nascent movement to curb buybacks, investors aren't taking these
proposals too seriously - at least not yet.
Celotex
This still doesn't address the insider trading aspect of stock buybacks, with insiders front-running the buyback.
vladiki
No one's arguing that if a company's groaning with cash then buybacks make sense. But it's the other 95% of of them that
are the problem. Compare the 20 year graphs of buybacks with corporate profits, corporate debt, corporate tax paid, corporate
dividends paid.
They tell you what everyone in higher management knows - that they're a tax-free dividend mechanism pretending to be
"capital rationalisation".
Worse, since they're largely funded by increased corporate debt (!) they amount to corporate strip-mining by senior
management. This is disgraceful and dangerous. The debt will bust some corporations when the inevitable next downturn comes.
This buyback cancer, which has grown rapidly because of corrupt SEC thinking and perverse tax incentives, requires
urgent treatment.
james diamond squid
Everyone is in on this ponzi. I'm expecting tax deductions for buying stocks/homes.
Microsoft co-founder Bill Gates does not think the way
to increase U.S. tax
revenue is through policies like raising the tax rate on the wealthy to 70 percent – as
has been floated by some Democratic lawmakers like New York Rep. Alexandria Ocasio-Cortez.
During a podcast interview with
The Verge , Gates responded to a question about whether raising the top rate to 70 percent
in order to fund social programs – like infrastructure initiatives – appeals to him
by saying government can be more effective in running social programs, but that's not the best
way to raise revenue.
"You finally have some politicians who are so extreme that I'd say, 'No, that's even
beyond,'" Gates said. "You do start to create tax dodging and disincentives, and an incentive
to have the income show up in other countries and things."
Gates added that the country's richest people often don't pay the highest rate because their
wealth doesn't always show up as income, it can be in the value of their stock, for
example.
"So it's a misfocus," he added. "If you focus on that, you're missing the picture."
The billionaire businessman, however, does believe there are ways to make the current tax
code more progressive. Some of those ways include more progressive policies regarding the
estate tax, the tax on capital, or reforming FICA and Social Security taxes. Independent
Vermont Sen. Bernie Sanders recently released a proposal to expand the estate tax to a rate of
77
percent for those passing on assets in excess of $1 billion.
Bill Gates also called modern
monetary theory (MMT) – which asserts that because the government controls its own
currency, there is no need to worry about balancing the budget – "some crazy talk."
Ocasio-Cortez recently indicated she was open to supporting MMT.
Gates is one of the richest people in the world. He has said, despite the fact that he has
paid more in taxes than most, he should be
paying more .
"... Last night, President Trump reserved a few minutes of his State of the Union address to praise his tax reform law, which turned a year old last month. To promote its passage, Mr. Trump and his congressional allies promised Americans that drastically lowered corporate tax rates would bring home large sums of capital that had been stashed overseas and finance a surge of domestic investment. ..."
"... Why would any multinational corporation pay America's 21 percent tax rate when it could pay the new "global minimum" rate of 10.5 percent on profits shifted to tax havens, particularly when there are few restrictions on how money can be moved around a company and its foreign subsidiaries? ..."
"... For starters, the law's repatriation deal did prompt a brief surge in offshore profits returning to the United States. But the total sum returned so far is well below the trillions many proponents predicted, and a large chunk of the returned funds have been used for record-breaking stock buybacks, which don't help workers and generate little real economic activity. ..."
"... Bottom line: the Trump tax cut is a giveaway to corporations that doesn't promote investment here ..."
The Global Con Hidden in Trump's Tax Reform Law, Revealed
Why would any multinational corporation pay the new 21 percent rate when it could use the new
"global minimum" loophole to pay half of that?
By Brad Setser
Last night, President Trump reserved a few minutes of his State of the Union address
to praise his tax reform law, which turned a year old last month. To promote its passage, Mr.
Trump and his congressional allies promised Americans that drastically lowered corporate tax
rates would bring home large sums of capital that had been stashed overseas and finance a
surge of domestic investment.
"For too long, our tax code has incentivized companies to leave our country in search of
lower tax rates," he said, pitching voters in the fall of 2017. "My administration rejects
the offshoring model, and we have embraced a brand-new model. It's called the American
model."
The White House argued they wanted a system that "encourages companies to stay in America,
grow in America, spend in America, and hire in America." Yet the bill he signed into law
includes a sweetheart deal that allows companies that shift their profits abroad to pay tax
at a rate well below the already-reduced corporate income tax -- an incentive shift that
completely contradicts his stated goal.
Why would any multinational corporation pay America's 21 percent tax rate when it
could pay the new "global minimum" rate of 10.5 percent on profits shifted to tax havens,
particularly when there are few restrictions on how money can be moved around a company and
its foreign subsidiaries?
These wonky concerns were largely brushed aside amid the political brawl. But now that a
full year has passed since the tax bill became law, we have hard numbers we can evaluate.
For starters, the law's repatriation deal did prompt a brief surge in offshore profits
returning to the United States. But the total sum returned so far is well below the trillions
many proponents predicted, and a large chunk of the returned funds have been used for
record-breaking stock buybacks, which don't help workers and generate little real economic
activity.
And despite Mr. Trump's proud rhetoric regarding tax reform during his State of the Union
address, there is no wide pattern of companies bringing back jobs or profits from abroad. The
global distribution of corporations' offshore profits -- our best measure of their tax
avoidance gymnastics -- hasn't budged from the prevailing trend.
Well over half the profits that American companies report earning abroad are still booked
in only a few low-tax nations -- places that, of course, are not actually home to the
customers, workers and taxpayers facilitating most of their business. A multinational
corporation can route its global sales through Ireland, pay royalties to its Dutch subsidiary
and then funnel income to its Bermudian subsidiary -- taking advantage of Bermuda's corporate
tax rate of zero.
Where American Profits Hide
[Graph]
No major technology company has jettisoned the finely tuned tax structures that allow a
large share of its global profits to be booked offshore. Nor have major pharmaceutical
companies stopped producing many of their most profitable drugs in Ireland. And Pepsi, to
name just one major manufacturer, still makes the concentrate for its soda in Singapore, also
a haven.
Eliminating the complex series of loopholes that encourage offshoring was a major talking
point in the run-up to the 2017 tax bill, but most of them are still in place. The craftiest
and largest corporations can still legally whittle down their effective tax rate into the
single digits. (In fact, the new law encourages firms to move "tangible assets" -- like
factories -- offshore).
Overall, the Tax Cuts and Jobs Act amounted to a technocratic sleight of hand -- a scheme
set to shift an even greater share of the federal tax burden onto the shoulders of American
families. According to the Treasury Department's tally for fiscal year 2018, corporate income
tax receipts fell by 31 percent, an unprecedented year-over-year drop in a time of economic
growth (presumably a time when profits and government revenue should rise in tandem).
These damning results, to be sure, don't make for a good defense of what came before the
new law. In theory under the old system, American-based firms still owed the government a cut
of their global profits. In practice, large firms could indefinitely defer paying this tax
until the funds could be repatriated -- usually when granted a tax holiday by a friendly
administration.
Over a generation, this political dance was paired with rules that made it relatively easy
for firms to transfer their most prized intellectual property -- say, the rights to popular
software or the particular mix of ingredients for a hot new drug -- to their offshore
subsidiaries. Taken together, they created a tax nirvana of sorts for multinational
corporations, particularly in intellectual-property-intensive industries like tech and
pharmaceuticals. But it wasn't enough.
For their next trick, the companies worked with their political allies to favorably frame
the 2017 tax debate. When he was the House speaker, Paul Ryan was fond of talking about $3
trillion in "trapped" profits abroad. But those profits weren't actually, physically, sitting
in a few tax havens.
Dwarf Economies, Giant American Profits
[Graph]
They were largely invested in United States bank accounts, securities and bonds issued by
the Treasury or other companies headquartered in the States. As Adam Looney -- a Brookings
Institution fellow and former Treasury Department official -- has explained, companies that
needed to finance a new domestic investment could simply issue a bond effectively backed by
its offshore cash. (For instance, Apple could bring its "trapped" funds onshore by selling a
bond to Pfizer's offshore account, or vice versa.)
Put plainly, they got the best of both worlds: Uncle Sam could tax only a small slice of
their books while they traded with one another based on the size of the entire pie.
The scale of the tax shifting has become so immense that some economists believe curbing
it could raise reported G.D.P. by well over a percentage point -- something Mr. Trump, who's
been absorbed by opportunities to brag about the economy, should notionally welcome.
President Trump's economic advisers and the key architects of the bill on Capitol Hill
must have known their reform wasn't going to end business incentives that hurt American
workers. Honest reform would have meant closing corporate loopholes -- a move they originally
promised to make.
Should the opportunity present itself, perhaps to the next president, there are a couple
of viable options for a fundamental tax overhaul that wouldn't require reinstating the 35
percent corporate tax rate.
One of several possibilities is to return to a system of global taxation without the
deferrals that enabled empty repatriations. That would mean profits sneakily booked tax-free
in Bermuda would be taxed every year at 21 percent. Profits booked in Ireland -- or other
low-tax nations -- would be taxed at the difference between Ireland's rate and America's
rate.
It's an approach that would protect small and midsize American companies while cracking
down on bad corporate actors with enough fancy accountants and lawyers to rig the game to
their advantage. And it would be far better than the fake tax reform passed a year ago.
This is very good from the essential Brad Setser, our leading expert on international
trade and money flows. Bottom line: the Trump tax cut is a giveaway to corporations that
doesn't promote investment here 1/
The Global Con Hidden in Trump's Tax Reform Law, Revealed
Why would any multinational corporation pay the new 21 percent rate when it could use the
new "global minimum" loophole to pay half of that?
2:14 PM - 6 Feb 2019
@Brad_Setser also gets at something I've been trying to explain: corporate cash "overseas"
isn't really a stash of money that can be brought home, it's an accounting fiction that lets
them avoid taxes, with no real consequences for investment 2/
And this chart, showing the predominance of tax avoidance in overseas "investment", is a
classic 3/
Tax havens are used as an instrument to increase the profitability of US multinationals at the expense of
the public, according to investigative economist and lawyer James Henry.
He told RT that there's a tiny group of the world's elite professionals, banks, law firms, and accounting
firms that make a nice living from the global tax haven industry. Multinational companies, and their
shareholders to some extent, have benefitted from the fact that they were able to park US profits
offshore and avoid paying US corporate income tax.
"The rest of us who have to pay for the taxes that corporations are not paying, are seeing the
race to the bottom, we're seeing many countries around the world slashing corporate taxes and putting
more of the costs of the government on ordinary taxpayers,"
said Henry, a senior advisor at the Tax
Justice Network.
He explained that America's wealthy kleptocrats, tax-dodgers, and particularly multinational companies
have been massively parking money offshore. By 2017, US multinationals have
"accumulated about $2.6
trillion offshore while they didn't have to pay the 35 percent US corporate tax,"
the economist
said.
Henry points out that the Trump administration has slashed that tax to about 15 percent and now they
have eight years to pay it while not even being required to repatriate the money hoarded offshore.
"The new tax bill was a disaster but it did benefit the major companies by allowing them to get
their $2.6 trillion back home tax free,"
Henry said.
The senior fellow at Yale noted that bringing the tax rate back to less than five percent from the
current fifteen, would mean
"a $600 – 800 billion gift to the wealthiest companies on the planet."
Ninety percent of corporate shares are owned by the top one percent, he said.
Tax havens are used as an instrument to increase the role of profitability of the US multinationals
and the oil companies all use tax havens aggressively to reduce taxation, according to Henry.
In general, since the financial crisis the world has increased its debt levels to an unprecedented
proportion. So, the countries tended to borrow to fill the gap.
"It would go a long way over time
toward chipping away from the massive debt burden that we have."
The US has actually become a safe haven of its own, Henry said, adding that there's no beneficial
ownership reporting, no country by country reporting.
"The US has some of the most aggressive
enablers on the planet – accounting firms and law firms that are enabling this activity. A lot of
multinationals that have been exploiting the tax haven system are US companies like Apple, Google, and
Microsoft."
While historically the US has always been a proponent of a progressive taxation lately that's been
lagging, he stressed.
New York collected $2.3 billion less income-tax revenue than predicted for December and
January, a development that Governor Andrew Cuomo blamed on wealthy residents leaving for
second homes in Florida and other states that received more favorable treatment in the tax law
enacted by President Donald Trump and the Republican Congress.
The shortfall will require a new look at the $175 billion budget Cuomo submitted to the
legislature last month, he said. If the trend continues, the governor said it would affect
spending on high-expense items such as health, education, infrastructure and a planned
middle-class tax cut.
"There is no doubt that the budget we put forward is not supported by the revenue," the
Democratic governor said during a news conference in Albany. "If even a small number of
high-income taxpayers leave, it has a great effect on this tax base. You are relying on a very
small number of people for the vast amount of your tax dollars."
While acknowledging that stock market volatility is among several factors that may have
suppressed income-tax revenue in the past two months, the governor placed most of the blame on
Trump and the Republican-dominated Congress of 2017, which enacted a tax plan limiting federal
deductions on real estate and other local taxes.
Related: New York's Income-Tax Revenue Falls 'Abruptly' Under Forecast
"It was politically diabolical and also highly effective," Cuomo said. "And if your goal is
to help Republican states and hurt Democratic states this is the way to do it."
Wait long enough, and great ideas come
back around, although not necessarily wearing the same garb.
Elizabeth Warren has just come out
for a 2% wealth tax
(above $50 million).* But this is simply an annualized version of my lump sum stochastic
jubilee .
What's the advantage of redistributing the whole thing every 50 years (on
average) vs a steady trickle? A periodic reset would interrupt long run processes of wealth
inequality more fully than a tax, so long as the rate of return on financial assets is high
enough to compensate for the extra annual pinch, which it most likely would be, since wealth
holders would demand a higher rate of return. It would also be a lot more fun.
On the other
hand, it would be more complicated to administer and might be resisted by force.
On balance, I'd go for the jubilee, but I'll take Warren's version as a close second.
*There's also an extra 1% on wealth in excess of $1 billion, but this is largely
symbolic.
Guess no one plays board games anymore. But there was a time when most people were
familiar with the game Monopoly. And it is a pretty good teaching tool regarding end stage
capitalism and extreme unequal distribution of wealth. At first the game is fun. Everyone has
a grand time. But near the end of the game just a couple of people have all the property with
hotels on everything. Every time you roll the dice, no matter where you land you have to pay
one of those assholes. There is no escape and there is no doubt who is going to win. If you
insist on keeping the game going you will have to spread the wealth around. Otherwise you
will have to dump the whole board and start over.
SW,
Maybe we could program an every loop redistribution tax (maybe every so many times around) to
keep the game going almost forever. Guaranteed to get Democratic presidential candidates'
endorsement. :-O
likbez , January 30, 2019 2:01 am
Those are funny ideas, if we think about who controls the government.
As neoliberal oligarchs are the real winners of each Presidential election theoretically it
might be logical to have Election tax: a "wealthy tax" after each Presidential election.
Say, 10% for those who continued to the winner, and 5% for those who contributed to the
loser, and 2.5% for whose who did not make any election contributions :-)
"... The Trump administration's $1.5 trillion in tax cuts appears to have not made any major impact on businesses' capital investment or hiring plans, according to a new survey. ..."
"... "A large majority of respondents, 84%, indicate that one year after its passage, the corporate tax reform has not caused their firms to change hiring or investment plans," NABE President Kevin Swift said in a release. "Fewer firms increased capital spending compared to the October survey responses, but the cutback appeared to be concentrated more in structures than in information and communication technology investments." ..."
"... The lower tax rates did have an impact in the goods-producing sector, NABE found, with 50% of respondents reporting increased investments at their companies, and 20% saying they redirected hiring and investments to the US from abroad. ..."
The Trump administration's $1.5 trillion in tax cuts
appears to have not made any major impact on businesses' capital investment or hiring plans,
according to a new survey.
A quarterly poll from the National Association for Business Economics
published Monday found that some companies reported accelerating investments because of
lower corporate taxes, but a whopping 84% of respondents said they had not changed their plans.
That's up slightly from 81% in the previous survey published in October,
Reuters reports.
The White House had said the massive stimulus package, which cut the corporate tax rate to
21% from 35%, would boost business spending and job growth. The tax cuts that came into effect
in January 2018 were the biggest overhaul of the U.S. tax code in more than 30 years.
"A large majority of respondents, 84%, indicate that one year after its passage, the
corporate tax reform has not caused their firms to change hiring or investment plans," NABE
President Kevin Swift said in a release. "Fewer firms increased capital spending compared to
the October survey responses, but the cutback appeared to be concentrated more in structures
than in information and communication technology investments."
The lower tax rates did have an impact in the goods-producing sector, NABE found, with 50%
of respondents reporting increased investments at their companies, and 20% saying they
redirected hiring and investments to the US from abroad.
An analysis of how S&P 500 firms were reacting to the tax cut by researchers at the
University
of Michigan found that 4% of the sample said in Q1 of 2018 they would pay some of their tax
savings back to workers, and 22% mentioned in earnings conference calls they would increase
investment because of the tax cuts.
Though for small businesses, a new survey from the
National Federation of Independent Business released earlier this month found 61% of owners
reported making capital investments, unchanged from last month but 5 points higher than in
August. In December, 35% of small-business owners reported increasing employee compensation and
24% reported planned increases in the next few months.
Billionaire Michael Dell, chief executive officer of the eponymous technology giant, rejected a suggestion by U.S. Representative
Alexandria Ocasio-Cortez of a 70-percent marginal tax rate on the wealthiest Americans.
"No, I'm not supportive of that," Dell said at a Davos panel on making digital globalization inclusive. "And I don't think it
will help the growth of the U.S. economy. Name a country where that's worked."
She may not be in Davos, but the New York representative's influence is being felt on the slopes of the Swiss Alps. Three weeks
after Ocasio-Cortez floated the idea in an interview on "60 Minutes" to raise the top marginal tax rate on Americans' income of more
than $10 million to 70 percent, it was a hot topic at the gathering of the global financial and political elite.
... ... ...
"My wife and I set up a foundation about 20 years ago and we would've contributed quite a bit more than a 70 percent tax rate
on my annual income," Dell said. "I feel much more comfortable with our ability as a private foundation to allocate those funds than
I do giving them to the government."
Erik Brynjolfsson, a professor at the Massachusetts Institute of Technology who was on the panel with Dell, said such a rate worked
in the U.S. after World War II. But other executives were opposed, including Salesforce.com Inc. Co-Chief Executive Officer Keith
Block.
... ... ...
Billionaire investor Ray Dalio suggested that the idea may have legs in the run-up to the U.S. presidential election. Discussing
the outlook for a slowing world economy Tuesday, Dalio said that next year will see "the beginning of thinking about politics and
how that might affect economic policy beyond. Something like the talk of the 70 percent income tax, for example, will play a bigger
role." He didn't mention Ocasio-Cortez by name.
Currently in the U.S., the top marginal tax rate is 37 percent, which takes effect on income of more than $510,300 for individuals
and $612,350 for married couples, according to the Tax Foundation.
The fortunes of a dozen attendees at the World Economic Forum in 2009 have soared by a combined $175 billion, a Bloomberg analysis
found. The same cannot be said for people on the other end of the social spectrum: A report from Oxfam on Monday revealed that the
poorest half of the world saw their wealth fall by 11 percent last year.
Washington Post Forgets to Mention, Scott Walker Misled Fifth Graders About Taxes
By Dean Baker
The Washington Post had an article * about how Republicans and right-wingers have become
obsessed with trying to attack Alexandria Ocasio-Cortez, the newly elected representative
from Brooklyn. At one point it refers to former Wisconsin governor Scott Walker's attack on
Ocasio-Cortez's position advocating a high marginal tax rate on high income individuals.
"Former Wisconsin governor Scott Walker, a Republican who was defeated in November, on
Tuesday mocked Ocasio-Cortez for her tax proposal and suggested it was an elementary-school
understanding of the issue. 'Even 5th graders get it,' he tweeted."
While the piece noted part of Ocasio-Cortez's response, that rich people are the one's
with the money, it left out the more important part, Walker misled the fifth graders he
refers to in his tweet. In his tweet, Walker confuses a marginal tax rate with an average tax
rate
"Explaining tax rates before Reagan to 5th graders: 'Imagine if you did chores for your
grandma and she gave you $10. When you got home, your parents took $7 from you.' The students
said: 'That's not fair!' Even 5th graders get it."
Ocasio-Cortez correctly pointed out in her reply that the $10 the students earned for
doing chores for their grandma would not be taxed because the 70 percent tax rate she
proposes would only apply to incomes above $10 million.
"Explaining marginal taxes to a far-right former Governor:
"Imagine if you did chores for abuela & she gave you $10. When you got home, you got
to keep it, because it's only $10.
"Then we taxed the billionaire in town because he's making tons of money underpaying the
townspeople."
Ocasio-Cortez is right on this point and Walker is wrong. He either does not understand
how our income tax system works or is deliberately lying to advance his agenda. Either way,
the Post should have pointed out that Walker was wrong.
Many people are confused about the concept of a marginal tax rate (the higher tax rate
only appears to the income above a cutoff). Opponents of high marginal taxes on the rich try
to take advantage of this confusion in the way Scott Walker did with his class of fifth
graders. It is the media's responsibility to try to inform people about how the tax system
works and to expose politicians who misrepresent the issue.
That's funny in a sad sort of way. Dean has his hands full. There is no explaining the
stupidity of politicians, media, and ordinary people in the US these days.
100% tax, no economy, so no revenue.
0% tax, no revenue.
So, maximum revenue is somewhere between those.. and the 70% top rate is clearly above
that.. so we have to lower the top rate.
Let's unwrap the lies.
1) At 100% top rate, there is no economy.
WRONG! Ignores brackets, marginal rates, deductions, effective rates... Even at 90% top rate,
the rich were averaging 40% effective.
2) The goal of taxation is maximum revenue. NO!!! The tax code should be viewed as a tool
to keep the right amount of money, actively circulating in the economy. As such, is not only
about getting back out the money the government adds, but also about limiting how much the
rich take out.
3) Even if we assumed there is some taxation rate that hurts the economy, there was no
evidence presented to say we were above that point.
OF course, it is point #2 (limiting how much money the rich take from the economy) that the
Laffer Curve was created to destroy. And destroy it did, which is why we've been going into
debt at 3x the sustainable rate.
I would add that there is plenty of historical evidence ("90% destroys all incentives!"
"70% destroys all incentives!"..."39.5% destroys...") to conclude that the plutocrats believe
that all taxation is theft.
People on the left need to realize that high top rates are NOT to take money from the rich.
They will spend or invest in ways that lets them avoid taxes.
High top rates are needed to get the rich to spend and capital invest, to reverse the
structural imbalances.
That spending and investing creates demand, jobs, wages, lifting the poor into the middle
class.
The extra revenue comes from that growth in the middle class as the poor go from 0%
effective rate to 10-15% effective rate.
Agree - but it also changes the incentives for corporations and CEOs. By taxing away huge
windfalls for CEOs it allows corporations to set a max wage around 15-20M. This means instead
of the 700M to 1B salaries of big corps going to one guy, they pay their mid managers more
and their line staff more. It means they invest more in R&D. I agree with you - just an
supporting argument.
I have no idea how well Alexandria Ocasio-Cortez will perform as a member of
Congress. But her election is already serving a valuable purpose. You see, the mere thought of having a young,
articulate, telegenic nonwhite woman serve is driving many on the right mad -- and in their madness they're
inadvertently revealing their true selves.
Some of the revelations are cultural: The hysteria over a video of AOC dancing
in college says volumes, not about her, but about the hysterics. But in some ways the more important
revelations are intellectual: The right's denunciation of AOC's "insane" policy ideas serves as a very good
reminder of who is actually insane.
The controversy of the moment involves AOC's advocacy of a tax rate of 70-80
percent on very high incomes, which is obviously crazy, right? I mean, who thinks that makes sense? Only
ignorant people like um, Peter Diamond, Nobel laureate in economics and arguably the world's leading expert
on public finance. (Although Republicans blocked him from an appointment to the Federal Reserve Board with
claims that he was
unqualified
. Really.) And it's a policy nobody has ever implemented, aside from the United States, for 35
years after World War II -- including the most successful period of economic growth in our history.
To be more specific, Diamond, in work with Emmanuel Saez -- one of our leading
experts on inequality -- estimated the
optimal top tax rate
to be 73 percent. Some put it higher: Christina Romer, top macroeconomist and former
head of President Obama's Council of Economic Advisers, estimates it at
more than 80 percent
.
Where do these numbers come from? Underlying the Diamond-Saez analysis are two
propositions: Diminishing marginal utility and competitive markets.
Diminishing marginal utility is the common-sense notion that an extra dollar is
worth a lot less in satisfaction to people with very high incomes than to those with low incomes. Give a family
with an annual income of $20,000 an extra $1,000 and it will make a big difference to their lives. Give a guy
who makes $1 million an extra thousand and he'll barely notice it.
What this implies for economic policy is that we shouldn't care what a policy
does to the incomes of the very rich. A policy that makes the rich a bit poorer will affect only a handful of
people, and will barely affect their life satisfaction, since they will still be able to buy whatever they
want.
So why not tax them at 100 percent? The answer is that this would eliminate any
incentive to do whatever it is they do to earn that much money, which would hurt the economy. In other words,
tax policy toward the rich should have nothing to do with the interests of the rich, per se, but should only be
concerned with how incentive effects change the behavior of the rich, and how this affects the rest of the
population.
But here's where competitive markets come in. In a perfectly competitive
economy, with no monopoly power or other distortions -- which is the kind of economy conservatives want us to
believe we have -- everyone gets paid his or her marginal product. That is, if you get paid $1000 an hour, it's
because each extra hour you work adds $1000 worth to the economy's output.
In that case, however, why do we care how hard the rich work? If a rich man
works an extra hour, adding $1000 to the economy, but gets paid $1000 for his efforts, the combined income of
everyone else doesn't change, does it? Ah, but it does -- because he pays taxes on that extra $1000. So the
social benefit from getting high-income individuals to work a bit harder is the tax revenue generated by that
extra effort -- and conversely the cost of their working less is the reduction in the taxes they pay.
Or to put it a bit more succinctly, when taxing the rich, all we should care
about is how much revenue we raise. The optimal tax rate on people with very high incomes is the rate that
raises the maximum possible revenue.
And that's something we can estimate, given evidence on how responsive the
pre-tax income of the wealthy actually is to tax rates. As I said, Diamond and Saez put the optimal rate at 73
percent, Romer at over 80 percent -- which is consistent with what AOC said.
An aside: What if we take into account the reality that markets aren't
perfectly competitive, that there's a lot of monopoly power out there? The answer is that this almost surely
makes the case for even higher tax rates, since high-income people presumably get a lot of those monopoly
rents.
So AOC, far from showing her craziness, is fully in line with serious economic
research. (I hear that she's been talking to some very good economists.) Her critics, on the other hand, do
indeed have crazy policy ideas -- and tax policy is at the heart of the crazy.
You see, Republicans almost universally advocate low taxes on the wealthy,
based on the claim that tax cuts at the top will have huge beneficial effects on the economy. This claim rests
on research by well, nobody. There isn't any body of serious work supporting G.O.P. tax ideas, because the
evidence is overwhelmingly against those ideas.
Look at the history of top marginal income tax rates (left) versus growth in
real GDP per capita (right, measured over 10 years, to smooth out short-run fluctuations.):
Top tax rates and growth
Credit
Tax
Policy Center, BEA
Image
Top
tax rates and growth
Credit
Tax
Policy Center, BEA
What we see is that America used to have very high tax rates on the rich --
higher even than those AOC is proposing -- and did just fine. Since then tax rates have come way down, and if
anything the economy has done less well.
Why do Republicans adhere to a tax theory that has no support from nonpartisan
economists and is refuted by all available data? Well, ask who benefits from low taxes on the rich, and it's
obvious.
And because the party's coffers demand adherence to nonsense economics, the
party prefers "economists" who are obvious frauds and can't even
fake their numbers
effectively.
Follow The New York Times Opinion section on
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Paul Krugman has been an Opinion columnist since 2000 and is also a Distinguished Professor at the City
University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his
work on international trade and economic geography.
@
PaulKrugman
Billy, if AOC's proposal is
insane, than Dwight Eisenhower, President during a long period of economic expansion and
prosperity, belonged not in the White House but in a mad house, given that the top income tax
rate during his administration, 91%, exceeded even that suggested by AOC. I have lifelong
friends in Denmark and have visited the country. All say they are happy with the high
personal income tax rate, which was 55.8 % in 2018 . See
https://tradingeconomics.com/denmark/personal-income-tax-rate
. Interestingly, the main
indicators of happiness find that Denmark is also the happiest country in the world (
https://www.frugalconfessions.com/miscellaneous/denmark-highest-tax-rate-and-happiest-people.php
).
Whatever one makes of AOC's tax
ideas (they're good) or PK's take on them, the frenzy that AOC has sparked is quite a sight
to behold.
This is how people shape the conversation, and it's how the Dems can reclaim a
share of the news media spotlight.
Conservatives have known this is how it works for a long
time: it pays to have a few extremists willing to utter ideas from the fringe. The media will
cover AOC because it's AOC saying things. Period. Over time, with persistence and if she and
others like her have substance and discipline (still not certain), she will help move the
window of opportunity to the left.
She will help normalize what until recently was regarded
as 'zany lefty'. This clearly freaks out conservative operators and it will be one of AOC's
biggest contributions. Her strength will be to make everyone talk about her and her ideas.
Her haters commenting here are proving the point. Finally, a Dem who knows to steer clear of
the 51-point policy plan that oh-so-cleverly tweaks the tax code here and balances the wishes
of everyone/no one and instead just make a bold ambitious claim. Good for her.
In Manchester's "The Power and
the Glory" he noted that in 1950, the CEO of Ford Motors lived in a relatively modest
five-bedroom home in Detroit: "when the doorbell rang, he answered himself." So did the Vice
President of the United States. Their children were drafted.
These men were no less smart,
savvy, and entrepreneurial than today. They were comfortable, had homes in the Hamptons (not
mansions) and still led the United States in the greatest economic expansion in history.
When
did we begin to believe that mega-millions to CEOs will magically transform into wealth for
all, or that it is a necessary inducement to work? A man who makes millions will reinvest in
his country; a man who makes hundreds of millions will hide it offshore, Restore the marginal
tax rate to the 1960 level. And restore the draft. It's America, dammit, and everybody pulls
an oar.
I'm baffled by the rationale here. The liberals certainly understand that it's 2019 and people and capital are more mobile than
they've ever been. I own a business - tax me at 73% and watch me take it to Canada, Ireland, or any other locale where I don't get
"soaked".
Why is the answer from the left that we always need more money from someone? As if the "rich" have done something wrong. Why not
take the existing bloated budget, apply some creativity and critical thinking (you know - the kind that happens in the private
sector) and solve problems with the current tax rates.
@Freda Pine When you're making
over $10 million, you're not getting out of bed and clocking into the warehouse to earn your
money. Your interest are diverse and generate money without your lifting a finger. There is
no faucet of income to turn off, and even if you could, why would you? It's still a lot of
extra income for the type of person who is interested in earning more money than they can
possibly spend.
Economists are not
physiologists. I will not get out of bed if I had to pay 70% tax on my income. Not even if my
income was $300,000 annually. I might as well work less hard and earn $100,000 paying $20%
tax. This tax worked in the past, but since a lot has changed in our society. We are far from
Scandinavia and any effort to impose a move in it's direction is unproductive.
Ask most older white Americans
what was the best time economically in this country and they will say the post WWII and the
Eisenhower years. Then remind them of the top tax rates and the lack of deductions.
I think this is still the wrong tack, as it gets too close to the wrong headed Modern Money
Theory where the ignorant think money can be dumped into the economy, in near infinite
amounts, without regard for taxation, with no side-effects.
I think the better tack is to attack it as a cash-flow issue. The rich are taking money
out of active circulation, and lending it back into the economy. This is why debt is
exploding at an unsustainable rate.
We need to use the tax code to force the rich to spend or capital invest their income back
into the economy.
Observations of the 1950-1960s tax code show that the rich didn't actually pay a higher
effective rate. They used loopholes.
RIGHT!!! Those loopholes were created as the carrot to get the rich to spend or
invest.
Don't phrase it as "We need to raise taxes to fund..." It smacks of "take from workers and
give to lazy".
We need to phrase it as "We need to tax to force the rich to spend or invest."
The spending and investing increases total economic activity. The poor become middle
class, going from paying little-to-no tax to paying 20-30% effective rates.
AND, it is that lifting of the poor into the middle class that creates the extra tax
revenue to fund needed social and infrastructure spending.
The solution is to put the Federal government on GAAP bookkeeping. An income and expense
ledger. And asset and liabilty ledger.
State and local government sorta do this, ie, they balance income and expense except for
capital expense funded with bonds.
What is not done is the listing of all assets offset by debt, etc, and shareholder
equity.
For NYC vs smallville KS, the liabilities of NYC would be tens of billions and svKS zero,
but the assets of NYC multiples of liabilities vs a few thousand in asset value for that debt
free small town.
Given Adam Smith, the assets of a government should include its people as they are the
biggest wealth "of nations". The better educated, skilled, more productive, substantially
derermined by investing in education, health, etc, the greater the asset value, the greater
the wealth.
But just limiting debt to bonds tied to new assets, bonds for roads, schools, etc. Taxing
the assets to pay off the bonds while taxing the people for current consumption is
prudent.
Track refers to trains or roads, meaning one of limited options.
Tack is a sailing term used to describe how you get a sailboat to go upwind by not going
directly in the direction you want, but rather at an angle.
I am concerned with the money supply.
Currently, 10% of GDP leaks out via structural imbalances, replaced by debt increasing at
3x the rate of population(1%ish) and inflation(2%ish).
The OP Krugman tacks the tack (or is it track, becasue of limited options?) that we should
just keep doing that. He is saying we should ignore the massive deficits, and wealth transfer
to the rich that the interest on that debt creates.
I believe this the wrong tack (or is it track?), instead thinking we should attack and
reverse the trade imbalances such that the debt is no longer necessary.
You are still misunderstand the problem, viewing the macroeconomy through a microeconomic
lens.
You want the federal government to start acting "responsible", ignoring the lessons of the
1800s that the rich would soon suck all the money out of the economy, creating a
depression.
You get blood out of a turnip by first putting blood into a turnip.
You get money out of an economy (as the trade does $500+B a year and the rich are doing
$1T+ a year) but first putting money in ($1.5T+ new debt a year).
You think we can stop putting blood into the turnip... I mean stop putting money into the
economy, without first stopping the giant drain of blood... dang it... I mean money out of
the economy.
In reality, there appear to be 2 options. 1) Keep putting money in and taking it out. 2)
Stop taking it out so that we can stop putting it in.
Your option of "just stop putting money in, without first addressing the drains" is sure
to lead to collapse.
"... This is an excellent analysis. Let's look at the issue from a non monetary stance. The prime mover here is not wealth, but power, political power. These ultra rich want to run the show. Think about that. ..."
"... If you have so much money that you can buy anything you want, what else is there to grasp beyond material possessions? Power. The low tax rates are intended to establish a wealth aristocracy, a type of moneyed royalty who control society. Coupled with that is the elimination of the estate tax. This allows the ultra rich to set up dynasties, like royal lines of succession, to have their legacies continue. It's like a stab at immortality. ..."
"... The only people who believe in Republican economic doctrine are people who are paid to believe and people who are paid don't care whether the doctrine is accurate. George H.W. called it from the start. Voodoo economics defies basic arithmetic. How 40 years worth of voters forgot common sense is beyond me. ..."
"... Paul, the United States has conducted a continual experiment in radical inequality ever since Reagan entered the White House. This experiment has largely continued regardless of whether a Democrat or Republican has sat in the Oval Office. IMHO, the results are in - and they demonstrate that America is not a happier country when CEOs make roughly 300 times amount of their lowest paid employees, and when the ultra rich can easily shift the money that they're not paying in taxes to federal and state governments into off-shore havens or emerging market economies. ..."
"... The graph is telling. I don't recall rich people in the late 50s and early 60s as being destitute because of tax rates; they seemed to do just fine. But now Jeff Bezos earns roughly $6,000,000 per hour, while Amazon warehouse workers start at $11 per hour. Is Bezos's personal marginal product really worth 545,455% more than his warehouse employees? ..."
"... The lies of Republican economics, or greed is good, has led us to the brink of plutocracy and oligarch ..."
"... "She definitely knows more economics than almost everyone in the G.O.P. caucus, not least because she doesn't "know" things that aren't true. This sums up the GOP. They've created their own alternate reality where facts and history do not exist. ..."
"... President Reagan was at least honest. He dropped the high income tax rates by about a factor of 2 and then made all income sources equal, e. g., no special low tax rates for capital gains. The rich accepted the new, low tax rates on income, and then worked feverishly to regain their perks, including preferential treatment of capital gains. ..."
I have long been humored by the absurd idea that the wealth accumulated by "entrepreneurs" and businessmen is hard earned. I made
a pretty decent living and, while experiencing some added stress with more responsibility, I worked less hard as I became more successful.
Sure, I had experience and judgment that helped, but mostly I won the game that is played in most businesses and organizations.
Being white helps a lot. Being male helps a whole bunch. Knowing certain social conventions and being reasonably well educated
was useful. The very wealthy folks I have known, and there have been many, have more leisure time, more freedom to manage their own
personal affairs and less stress from being at the mercy of others.
And the very wealthy I've known are not smarter, more creative or virtuous than the folks who work for them or for other wealthy
executives. It's all a complex social sorting based primarily on several kinds of privilege combined with aggression in many cases.
America's greatest myth is that people deserve what they get and get what they deserve. That is why progressive taxation and civic
generosity is the only way to craft a truly civil society.
When top rates were high, 70-80 percent, executive salaries were lower, much lower. Why? Companies saw that if they raised
executive salaries they would simply be shoveling most of that extra money to the government. They thought they had better uses
for it, such as capital investment and better pay for workers. This is yet another way, an indirect way, in which low top rates
encourage economic inequality, the bane of our society, today.
If high taxes on the rich really were a problem, how is it possible then that the economies of Scandinavia and Europe are doing
so well? I'd also like to add that the best way to add revenue to the government, is to fund the IRS: it busts cheaters, and it
enforces compliance of those who may be tempted to cheat. When, after the Panama and UBS leaks, a few big cases of tax fraud were
brought to justice in Europe (some well-known VIPs even went to prison), there suddenly was a wave of rich people voluntarily declaring
hidden assists and gladly paying penalties, for fear of being busted in another set of leaks, sent to prison and/or be publicly
shamed.
Although I agree with Mr. Krugman's argument and I'm a big fan of AOC and the other fresh young voices in the House, I think
the graph presented in the middle of this article is misleading. While it's true that we had tremendous growth during a period
of very high taxes, one should not draw the conclusion that the high taxes promoted vigorous growth. That period of high taxes
occurred when the US manufacturing sector was supercharged by the war effort, and Japan and Europe lay in ruins. It's entirely
possible that growth might have been even stronger with lower tax rates. That said, as a wealthy person I fundamentally agree
that paying higher taxes will not affect my personal economics in any materially meaningful way. Sure, some wealthy people might
leave the US for cheaper lands; people whose principal goal in life is to have the highest score in the video game of finance.
Most of the rest of us will continue to enjoy living in this country, and likely take advantage of an improved infrastructure,
a more educated workforce, clean air and water, and pristine wilderness areas.
To anyone who thinks that the Republican Party knows a thing about economics or business: you're delusional. Republicans know
a tremendous amount about greed, theft and selfishness. Arthur Laffer is the idiotic tax-cut patron saint economist of the Grand
Old Phonies who helped Ronnie Reagan raid the US Treasury for the uber-wealthy.
George W Bush re-implemented Laffer-economics
and drove the nation into a Depression.
Trump and the GOP are in the process of driving America over another bankrupting 0.1%
welfare tax-cut cliff -- remember it took Bush-Cheney a good seven years to do it.
And guess who recently helped drive Kansas
bankrupt with tax cuts for the rich ?
GOP tax-cut saint Arthur Laffer. He helped former Kansas Gov. Sam Brownback (R) pass tax
cuts through the Kansas legislature. In August 2012, Laffer promised a crowd at a small business forum in Kansas that the cuts
would produce "enormous prosperity," adding that they'll "make a big difference in a decade." They did make a big difference.
Kansas employment and the Kansas state economy both grew slower than the national rates, and the drastic decline in tax revenue
coming into the state's treasury blew a gigantic hole in its budget.
Kansas reversed the destructive tax cuts in order save Kansas.
The lesson is plain and simple and happens over and over again. Republicans are economic wrecking balls hellbent on destroying
society for corrupt billionaires. D to go forward. R for nationally-assisted suicide.
These top rates almost never apply to the rich anyway who almost always are paying the capital gains rate rather than that
on ordinary income. It is much like the rates on corporations -- they never pay anything near that amount. Only those working for
wages pay top dollar. A huge scandal.
@OCA is going to show these resentful old white patriarch and their female enablers what well-adjusted women are like and what
self-respect does not only for ones soul, but in righting the wrongs for a new generation of Americans. It's about time, too!
@OCA has vision, imagination, compassion, and self-love. We're being robbed by a bunch of entitled two-bit crooks.
It'll take
raising corporate taxes to Clinton levels or higher, not only to recover from Trump, the Bush recession and the then middle aged
workers who never got back on track, but also to prepare for the new automated economy in the next 20 years.
We need more Ocadio-Cortezes
in office and I look forward to electing a progressive majority in 2020. --- Things Trump Did While You Weren't Looking [2019]
https://wp.me/p2KJ3H-3h2
In Manchester's "The Power and the Glory" he noted that in 1950, the CEO of Ford Motors lived in a relatively modest five-bedroom
home in Detroit: "when the doorbell rang, he answered himself." So did the Vice President of the United States. Their children
were drafted. These men were no less smart, savvy, and entrepreneurial than today. They were comfortable, had homes in the Hamptons
(not mansions) and still led the United States in the greatest economic expansion in history. When did we begin to believe that
mega-millions to CEOs will magically transform into wealth for all, or that it is a necessary inducement to work?
A man who makes
millions will reinvest in his country; a man who makes hundreds of millions will hide it offshore, Restore the marginal tax rate
to the 1960 level. And restore the draft. It's America, dammit, and everybody pulls an oar.
Well, this is refreshing. The tax rate, once 90% of rich people's income, now sits at 150% from where it once as, during America's
halcyon days of growth and incentive. In other words, the rich were put to work for the rest of us. And why not? But it took a
healthy dive, from 70% to less than half that under Reagan (trickle-down, anyone?). The graph is most revealing in that growth
rate dropped like a stone (under Reagan) as did the corresponding top tax rate. Coincidence? Hardly. So Alexandria Ocasio-Cortez
comes along and has the idea that the wealthy will never (all things considered equal) lack for money. So, the Right's question
is this: "why should the rich work for the poor?" The answer is that they live in the same world that we do, and the labor and
the tax rate for the less-than-rich allow the rich to utilize the same benefits the rest of us do. It's been a Republican meme,
and will, I fear, always be one, but the cry of "Socialism" and "wealth re-distribution" are as potent on the right as anything
racist or nationalist or xenophobic that Trump or McConnell or Ryan or anyone of their ilk could dream up. Simply put, Republicans
do not consider those without wealth worth the trouble, the time, the patience, or the courtesy of invested citizenship. Instead,
they re-direct their anger towards voting rights and unfunded schools and unlimited political donations. They now own the Supreme
Court, the executive and half of Congress. I wish Ms. Ocasio-Cortez well.
My spouse and I have a very nice life, probably in the top four-tenths of the one percent in terms of assets (primarily illiquid)
and somewhat wealthy with a combined mid-six-figure annual salary income. I gave away 25 percent of my salary this year because
I was so disgusted by the impact of the Trump tax bill. I will probably do the same in 2019. Some of the money I gave did not
go to nonprofits, but directly to very hard-working people whose incomes do not cover housing, food, health care, transportation,
and utilities. Basics. For God's sake, Republicans, get with the program, And Democrats, you too. My spouse and I, even though
we live in a high-tax state, should be paying more taxes. Our systems rot from the inside out. I see it in both parties, and I
see it at the local, state, and federal level. And this greed is unique to one group. I see it in privileged whites and I also
see it in minorities.
This is an excellent analysis. Let's look at the issue from a non monetary stance. The prime mover here is not wealth, but
power, political power. These ultra rich want to run the show. Think about that.
If you have so much money that you can buy anything
you want, what else is there to grasp beyond material possessions? Power. The low tax rates are intended to establish a wealth
aristocracy, a type of moneyed royalty who control society. Coupled with that is the elimination of the estate tax. This allows
the ultra rich to set up dynasties, like royal lines of succession, to have their legacies continue. It's like a stab at immortality.
To top off the entire royalty thing, much of their wealth was most likely generated from tax breaks, tax giveaways, tax shelters
and the like. Odds are that a substantial portion of their wealth was never taxed to begin with and with the loss of the estate
tax, they get to will it to their heirs tax free. This wealth aristocracy is the prime mover of Republican politics. Everything
they do from judges to legislation is targeted to bolstering this wealth aristocracy. The real tragedy here is they convinced
the coal miners and factory workers that doing this is a great idea.
This needed to be said and you said it well. The nonexistent link between higher taxes and lower growth has to be exposed.
Tax policy based on that falsehood only serves to make the wealthy wealthier. It also serves to create a class of offsprings who
are also extremely wealth without having worked for a nickel of that wealth. This can't be good economic or social policy.
@WPLMMT That is not what she is proposing. The 70% is the marginal tax rate, applied only to the very highest portion of incomes,
like over 10 million. Do just a little research before criticizing.
I do not understand the donor class -- those in the top tenth of the top one percent who give millions to GOP congresspeople
in expectation of massive tax cuts. According to CBS reporting they pull in an average annual income of $35 million and belong
to a cohort of billionaires whose combined net worth approximates that of the rest of us put together. They have everything they
need, everything they could ever want. Yet very little of their income goes back into the economy to "trickle down."
Typically
the majority goes to investment, often offshored for tax advantage. And big tax-deductible blocks go to "charities" like the Heritage
Foundation which stocks the courts with partisan judges who mould the law in their favor or like conservative publications or
think tanks which help mould public opinion in their favor. They spend millions to get their tax cuts, to mould the courts and
public opinion, for the best accountants and tax lawyers money can buy. All to maximize incomes so large the marginal utility
of additional millions is, well, marginal.
And all to keep absolutely as little as possible from going to public health, public
education, public security, any public use whatsoever. It is not so much that more is never enough. The bigger question is why
they spend so much to avoid contributing money of so little marginal value to them to the commonweal. Whatever happened to noblesse
oblige? To "For to whom much is given, much is required"?
I didn't know Nobel prize winning economists needed to defend Ocasio-Cortez. I used to teach marginal utility and marginal
product to kids fresh out of high school. You don't need a doctorate to understand the fundamental mechanics of economic theory.
The only people who believe in Republican economic doctrine are people who are paid to believe and people who are paid don't care whether
the doctrine is accurate. George H.W. called it from the start. Voodoo economics defies basic arithmetic. How 40 years worth of
voters forgot common sense is beyond me.
Paul, the United States has conducted a continual experiment in radical inequality ever since Reagan entered the White House.
This experiment has largely continued regardless of whether a Democrat or Republican has sat in the Oval Office. IMHO, the results
are in - and they demonstrate that America is not a happier country when CEOs make roughly 300 times amount of their lowest paid
employees, and when the ultra rich can easily shift the money that they're not paying in taxes to federal and state governments
into off-shore havens or emerging market economies.
I submit that our exploding budget deficit is a testament to how this policy
has failed fiscally - and that our loss of national comity is a testament to how this policy has failed politically. It's time
for a new experiment, an experiment in bubble-up economics - an economics for the rest of us, a capitalism with a human face,
a mixed economy where individual effort is rewarded, but within which no one who truly tries to keep up is left behind.
Judging from many of the comments posted here what is needed to improve tax policy in the US is education. If so many of us
can't follow the simple analysis Professor Krugman offers how will we ever get past the bogus claims and do the right thing?
The graph is telling. I don't recall rich people in the late 50s and early 60s as being destitute because of tax rates; they
seemed to do just fine. But now Jeff Bezos earns roughly $6,000,000 per hour, while Amazon warehouse workers start at $11 per
hour. Is Bezos's personal marginal product really worth 545,455% more than his warehouse employees?
And what is his ACTUAL tax
rate, given all the many deduction open to the super wealthy that someone making $11 per hour doesn't have available? The great
irony of the graph is that MAGA hearkens back to post WWII America, a time when the richest among us had a 90% tax rate and far
fewer deductions, and unions helped lower to middle class workers get livable wages and a pension.
@Kenneth Johnson How many wealthy people left the US in the 50's and 60's, when the tax rate was so high? It's a reasonable
hypothesis: most wealthy people will leave the US if the tax rate goes too high. But what actual evidence is there to support
it? I'm a very wealthy person, have constantly voted to increase my tax rate, live in the one of the highest taxed states in the
union, and I have no plans to leave. Like the professor wrote, paying more taxes will not affect my material life in the least.
So why would I leave?
Whatever one makes of AOC's tax ideas (they're good) or PK's take on them, the frenzy that AOC has sparked is quite a sight
to behold. This is how people shape the conversation, and it's how the Dems can reclaim a share of the news media spotlight. Conservatives
have known this is how it works for a long time: it pays to have a few extremists willing to utter ideas from the fringe. The
media will cover AOC because it's AOC saying things. Period. Over time, with persistence and if she and others like her have substance
and discipline (still not certain), she will help move the window of opportunity to the left. She will help normalize what until
recently was regarded as 'zany lefty'. This clearly freaks out conservative operators and it will be one of AOC's biggest contributions.
Her strength will be to make everyone talk about her and her ideas. Her haters commenting here are proving the point. Finally,
a Dem who knows to steer clear of the 51-point policy plan that oh-so-cleverly tweaks the tax code here and balances the wishes
of everyone/no one and instead just make a bold ambitious claim. Good for her.
The most important thing is to make clear that this rate is for a new bracket. It only applies to people who make more than
$10 million dollars a year, and only applies to the income over the first $10 million. Once that is understood, most people would
support a top rate of 73 percent, or even Eisenhower's 90 percent. We need a transformation to common sense, ethics, and the public
good. The lies of Republican economics, or greed is good, has led us to the brink of plutocracy and oligarchy...
Ask most older white Americans what was the best time economically in this country and they will say the post WWII and the
Eisenhower years. Then remind them of the top tax rates and the lack of deductions.
@Gwe - I don't believe that people with the competency to run a company are so rare, and their skills so exceptional, that
you need to pay them millions of dollars to have any hope of attracting one of these management unicorns. I think they definitely
would LIKE people to believe that. But there are plenty of examples of incompetent CEOs doing a terrible job, and they still get
paid millions.
There is also an economic theory out there, I can't remember its name, but I call it the Ferrari theory. It goes like this:
these men/women..."Masters of the Universe" are so smart, so talented at generating $$, so in love with $$ that taxing them too
little is like driving a Ferrari at very low RPM; Ferraris are optimal and made for high RPMs. Well, this applies to some people
too. If you have some employees that are workhorses, you work them; you do NOT lessen the proportion of their work, you increase
it because they can do it. If these rich people are so smart, so talented and so in love with $$, the society needs to optimize
their tax output for the betterment of society. They'll only work harder to make more money. The Tax code today pampers them like
they are incompetent and is the central cause of inequality never seen before in history. N.B., Atlas is not going to Shrug
When George Romney was a CEO in Detroit, his $compensation was about 80X the median income. (Today's CEOs are at 300X) And
his tax rate, as shown when he ran for president, was about 40%. Wasn't Mitt's tax rate under 15% when he released his tax records.
Billy, if AOC's proposal is insane, than Dwight Eisenhower, President during a long period of economic expansion and prosperity,
belonged not in the White House but in a mad house, given that the top income tax rate during his administration, 91%, exceeded
even that suggested by AOC. I have lifelong friends in Denmark and have visited the country. All say they are happy with the high
personal income tax rate, which was 55.8 % in 2018 . See
https://tradingeconomics.com/denmark/personal-income-tax-rate
. Interestingly, the main indicators of happiness find that Denmark is also the happiest country in the world (
https://www.frugalconfessions.com/miscellaneous/denmark-highest-tax-rate-and-happiest-people.php
).
@Jason So take your lemonade stand to Canada, see if they're willing to pay $4 a cup. You're here because the market is here
and, in some cases, because the employees you need are here. So suck it up and contribute your fair share. Current tax rates are
a complete sham, fiscal stimulus at the top of the business cycle, benefiting only the rich. This is when we need to be reducing
debt and saving for the lean times.
"She definitely knows more economics than almost everyone in the G.O.P. caucus, not least because she doesn't "know" things
that aren't true. This sums up the GOP. They've created their own alternate reality where facts and history do not exist. I hope AOC does very well for her district and the country. We need fact based leadership and in that regard she already outshines dump
and co.
@Freda Pine When you're making over $10 million, you're not getting out of bed and clocking into the warehouse to earn your
money. Your interest are diverse and generate money without your lifting a finger. There is no faucet of income to turn off, and
even if you could, why would you? It's still a lot of extra income for the type of person who is interested in earning more money
than they can possibly spend.
I appreciate your comment and the reminder that correlation is not causation. I'm puzzled as to why it's not a "pick." Anyway,
I saw the graph differently. Not so much that high taxes on the wealthiest promote growth as that high taxes do not prevent growth,
which is the Republican cant. That is, high taxes on the wealthy and solid economic performance can coexist just fine, thankyouverymuch.
I also appreciated your first-hand validation of Dr. Krugman's point about marginal utility.
@Geoffrey I don't think people necessarily deserve what they get. Progressive taxation is an attempt to compensate for imbalances
in distribution of wealth, not an attempt to steal from the wealthy. Who is to say what is fair you ask? That is what democracy
is for. A civil society can't tolerate the gigantic pay imbalances we see today. It's gotten out of control, it's messing with
the cohesion that we need to survive, and something has to be done. If not taxation, what.
President Reagan was at least honest. He dropped the high income tax rates by about a factor of 2 and then made all income
sources equal, e. g., no special low tax rates for capital gains. The rich accepted the new, low tax rates on income, and then
worked feverishly to regain their perks, including preferential treatment of capital gains. They have had their cakes and have
been eating them too. Not exactly fair.
@Gwe Your opinion, in my opinion (!), has a few faults. The good CEO types don't grow on trees. That's one reason so many CEO's
are not good. But they get paid lavishly all the same. You are talking only about the achievement, academic and economic, of the
ones who are making a lot of money. How about the ones with equal achievement that doesn't result in a lot of money? Why do they
deserve less? I suggest that one reason is that they aren't the ones deciding on the flow of money. When someone joins that crowd,
they are likely to be well taken care of. A high marginal tax rate won't push anyone down severely. It will stop some of the self-indulgence
of people who believe they are entitled to self-indulgence at the expense of 95-99% of the people. They will have to readjust
their standards, and it won't be a disaster.
Dr. Krugman, you are being - dare I say it - a little Disingenuous - here. You make it sound like the criticisms of AOC are
based only on her dancing video and her views on the top marginal rates. That is not the case. Her dancing is of course personal
business and it is is silly on the right to go after this. And her views on the top rates could perhaps be justified as you have
done. But she has displayed appalling ignorance of economics and even worse evidence of innumeracy. First she said that the unemployment
rate was low because many people work a second and third job. Surely, you will be first person to acknowledge that this is blather?
This may forgivable if it came from an English or History major. Ms. Dowd informs us that AOC is an econ major. And then there
was the nonsense about the 21 trillion dollar mistake that the Pentagon made which will be enough to pay for healthcare for all
and a host of other programs. This is worse than ignorance of economics. It is evidence of poor reasoning and innumeracy (all
that she needed to do was to look at the size of US GDP to know that 21 trillion dollar income release from an accounting error
is a ridiculous idea). She displays the tendency to speak first and think later.
Would you accept this level of ignorance and
innumeracy in Mr. Ryan or President Bush or Mr. Gingrich? She has the right instincts for the most part. But it is not OK to play
the "our ignoramus is fine, but theirs is a wingnut" game.
I'd like to call out the video for a moment - in a country where a full half of college students don't graduate from college
on time - and in a country plagued by opioid abuse - and in a country where #metoo was started because of harassment and sexual
violence - and in a country with a president elected by people who deny gender and racial equality - watching a bunch of clean
cut, lighthearted, happy, talented young women and men dancing was a breath of cool, fresh air.
The Trump Tax Cut: Even Worse Than You've Heard
Skeptical reporting has still been too favorable.
By Paul Krugman
The 2017 tax cut has received pretty bad press, and rightly so. Its proponents made big
promises about soaring investment and wages, and also assured everyone that it would pay for
itself; none of that has happened.
Yet coverage actually hasn't been negative enough. The story you mostly read runs something
like this: The tax cut has caused corporations to bring some money home, but they've used it
for stock buybacks rather than to raise wages, and the boost to growth has been modest. That
doesn't sound great, but it's still better than the reality: No money has, in fact, been
brought home, and the tax cut has probably reduced national income. Indeed, at least 90 percent
of Americans will end up poorer thanks to that cut.
Let me explain each point in turn.
First, when people say that U.S. corporations have "brought money home" they're referring to
dividends overseas subsidiaries have paid to their parent corporations. These did indeed surge
briefly in 2018, as the tax law made it advantageous to transfer some assets from the books of
those subsidiaries to the home companies; these transactions also showed up as a reduction in
the measured stake of the parents in the subsidiaries, i.e., as negative direct investment
(Figure 1).
Figure 1 *
But these transactions are simply rearrangements of companies' books for tax purposes; they
don't necessarily correspond to anything real. Suppose that Multinational Megacorp USA decides
to have its subsidiary, Multinational Mega Ireland, transfer some assets to the home company.
This will produce the kind of simultaneous and opposite movement in dividends and direct
investment you see in Figure 1. But the company's overall balance sheet – which always
included the assets of MM Ireland – hasn't changed at all. No real resources have been
transferred; MM USA has neither gained nor lost the ability to invest here.
If you want to know whether investable funds are really being transferred to the U.S., you
need to look at the overall balance on financial account – or, what should be the same
(and is more accurately measured), the inverse of the balance on current account. Figure 2
shows that balance as a share of GDP – and as you can see, basically nothing has
happened.
Figure 2
So the tax cut induced some accounting maneuvers, but did nothing to promote capital flows
to America.
The tax cut did, however, have one important international effect: We're now paying more
money to foreigners.
Bear in mind that the one clear, overwhelming result of the tax cut is a big break for
corporations: Federal tax receipts on corporate income have plunged (Figure 3).
Figure 3
The key point to realize is that in today's globalized corporate system, a lot of any
country's corporate sector, our own very much included, is actually owned by foreigners, either
directly because corporations here are foreign subsidiaries, or indirectly because foreigners
own American stocks. Indeed, roughly a third of U.S. corporate profits basically flow to
foreign nationals – which means that a third of the tax cut flowed abroad, rather than
staying at home. This probably outweighs any positive effect on GDP growth. So the tax cut
probably made America poorer, not richer.
And it certainly made most Americans poorer. While 2/3 of the corporate tax cut may have
gone to U.S. residents, 84 percent ** of stocks are held by the wealthiest 10 percent of the
population. Everyone else will see hardly any benefit.
Meanwhile, since the tax cut isn't paying for itself, it will eventually have to be paid for
some other way – either by raising other taxes, or by cutting spending on programs people
value. The cost of these hikes or cuts will be much less concentrated on the top 10 percent
than the benefit of the original tax cut. So it's a near-certainty that the vast majority of
Americans will be worse off thanks to Trump's only major legislative success.
As I said, even the mainly negative reporting doesn't convey how bad a deal this whole thing
is turning out to be.
The reduction in corporate taxes from 440 billion to 280 billion is a staggering reduction
in tax liability. Corporations tend to be very rational actors. They want to maximize the value
of their firms and long term shareholder wealth. Corporate leaders, given this windfall, which
should be 1.6 trillion or more over the next ten years can
1. return the wealth to shareholders who then can make their own decisions about the
money
2. invest in personnel, capital equipment or other factors related to production. A sales
organization may want to increase the sales force, a research organization might want to hire
new researchers or they might invest in software or other information technologies to increase
productivity.
3. build their balance sheets for various strategic purposes
4. borrow money with the new capital formation from the tax reduction, i.e. combine equity
with new debt or recapitalize their institutions for strategic reasons and or shareholder
liquidity.
5. They can grow their companies through strategic acquisitions enabled by the new
money.
6. They can grow organically using the new capital to penetrate new markets and or develop
new products.
7. Potential benefits overall are stronger corporations and fewer weak companies. Everyone
should have seen the tax cut as incremental recapitalization. Len Charlap Princeton, NJ July
1
Here's the problem withe your argument Y. I agree that adding money to the privare sector is
good for the economy IF IT IS DONE RIGHT, What history has shown over and over when you give
money to corporation 1, happens, not all the other wished for possibilities. Since the
shareholders tend to be much wealthier than the general population, what you have done
INCREASES inequlaity.
Forget about fairness, inequality is BAD for the economy. Money going to the Rich is less
useful than money going to the non-rich. Economists would say it has lower velocity The Rich
spend a lower percentage of their money. What's a guy or gal who already has so many houses he
can't remember how many & an elevator for his horse gonna spend his money on? The answer is
he is going to use it to speculate.There is a correlation between inequality & financial
speculation. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1661746
Speculation is bad for the economy. That money has a very low velocity. AND it increases risk
which we have seen in 2008 ain't a good thing.
"... Recent SCOTUS decisions affecting organised labour will disenfranchise the worker even more. Anti union fervor might claim a short term battle, but the long term war of trade attrition will likely be lost as US companies lose their competitive edge by declaring employees liabilities rather than allies. Ludicrous. ..."
Most economic claims by the Republicans appear to be simply boneheaded assertions. They
would have us believe that tax savings for the wealthy trickle down to the less affluent. Now
they claim that the enormous slashing of government income caused by their tax cut for the
wealthy is leading to a significant decrease in the federal deficit. Apparently about a third
of the electorate are dumb enough to buy into their nonsense.
The trump tariffs are looking like the nixon tariffs of 1971. All trump, like Nixon in 1971,
cares about is the mid term election and next presidential election, and the votes of 'the
constituency of uneducated people' , as Nixon referred to them. Like Nixon, trump has total
contempt for the law and ethics. Nixon's tariffs and china visit produced his re-election in
1972, stagnation for a decade, and a loss of many millions of US jobs that we never recovered
from.
In 1970, before Nixon's China visit, Americans could get a decent job with a high school
education. After the flood of Chinese masters and PhD students that followed, encouraged by
Nixon and republican presidents since, and their dumb free but unfair market policies which made
their ultra wealthy donors unimaginably wealthy combined with Chinese protectionism to this
day-and stealing of US technology and property, currency manipulation, the neglect of US
students who pay very high fees and much more, many tens of millions of US jobs migrated to
china.
The same charlatans- the GOP and trump are manipulating uneducated white and rural
voters, who are going to pay the heaviest price for letting themselves be misled.
Trump works on the premise that MAGA is a desperately needed, long overdue, patriotic race
to save America from God only knows what. Harley Davidson, that most American of companies, has
proven the validity of this morose mantra. Like other corporations, HD has benefitted from
Trump's tax cuts while shedding American jobs: it purchased back tons of its stock then closed
a plant in Kansas. Then, following European tariffs being slapped on it, HD outsources jobs to Europe to avoid
them. What temerity!
To Trump, this is a vile act of disloyalty. He had championed Harley's cause, only to see it
abandon him. What he fails to comprehend is that very few corporations entirely buy into MAGA,
only his, apparently economically ignorant, base embrace it. Companies enjoy it where it suits
them, ignore or evade it when it doesn't. Corporations have too much power for Trump to curb.
The only thing he can do is threaten to punish them through the imposition of punitive domestic
taxes. That probably won't sit at all well with American workers, outpriced in their own
backyard. Essentially, Trump et al, through intransigence and ineptitude, have backed
themselves into a corner.
Recent SCOTUS decisions affecting organised labour will
disenfranchise the worker even more. Anti union fervor might claim a short term battle, but
the long term war of trade attrition will likely be lost as US companies lose their competitive
edge by declaring employees liabilities rather than allies. Ludicrous.
Economic propaganda has its place in promoting a healthy economy. However, it only goes so
far. Real wages will ultimately trump (no pun) a healthy consumer out -look. Trump propaganda
is a different breed all together. It promotes one thing only, a good out - look on Trump
himself. Adoration for a job well done, regardless of how "potemkin" it is, feeds the beast.
Economist, a notably disagreeable lot, do agree on at least two theories:
(1) Presidents
actually have little effect on the economy and;
(2) the policies that they do implement reach
the desired effect at least one and one half of a presidential term. Trumps tax plan, in the
short term, is as effective as a penny dropped in the ocean.
In the long term, it will blow up
the deficit and require major cuts in major governmental programs, such as Medicare and social
security. Major targets for destruction by Ryan republicans. Trumps deregulatory platform is a
"poor man's" economic policy. The long term cost of deregulation is unpredictable and
therefore, frightening. High concentrations of lead in our ground water. Atmospheric poison.
Toxic run off rears its ugly head.
Once eradicated illness and health concerns inundate a
heavily overburdened healthcare system. All the while, the Trump propaganda machine churns out
lies of triumph and facades of growth, worthy of the "Potemkin" villages.
There has been talk of higher interest rates for 10 yrs.
The US debt is $20 Trillion. 1% rise in rates would be $200 billion that must be serviced.
US deficit this year will be almost 500B. 1% rise would be about 50% of the deficit. 2%
doubles it.
Trump's "tax cuts" are going to accelerate the deficit spending trend that Obama (and Bush
before him) initiated. The Fed's machinations over the last 100+ years are utterly irrelevant
because all of them are in fact driven by Congress. The Fed is a creature that operates at
the behest of Congress, as a creation of Congress, and every single dollar it has "printed"
it has "printed" because Congress spent money it did not have.
In other words, Congress ran a deficit.
The Fed has its share of detractors and I'm among them. But those who refuse to place
responsibility where it belongs are fraud-running jackasses, and while I'm happy to try to
educate folks those who refuse to learn and cling to that which is trivially disproved
mathematically wind up on my "ignore" list.
The bottom line: It is Congress, which is elected by you, that has destroyed the
purchasing power of the currency and enabled all of the fraud and force in our economy
today.
Karl Denninger
Trump has now publicly acknowledged that McCabe violated several federal laws, not the
least of which is the Hatch Act. Yet he now proposes to allow McCabe to retire next year,
keeping his federal pension and benefits.
Not only that but Congress has that evidence now too -- but note that the House Judiciary
Committee is not issuing a single word about the fact that such actions are violations of
several federal laws.
What Trump should do is have Sessions immediately indict him - after firing McCabe for
cause, which terminates his right to any sort of federal pension or benefit. If McCabe wants
to sue for his pension let him, because that will force into the public record all of the
evidence on exactly what he did as he will have to defend the claim that his firing "for
cause" wasn't actually for cause.
Good luck with that.
But Trump isn't going to do that. Instead he's going to let McCabe walk off with your
money America. Money he will steal from you for the rest of his life after having taken
actions that, the President has good reason to believe, were felony violations of the law and
abuses of his office, effectively using the FBI as a political weapon in a Presidential
contest.
A central selling point of the tax bill is that it will encourage investment. But that assumes that high tax rates were the
primary reason why business wasn't investing. Instead, the data says business investment is weak because the U.S. has a ton of
spare capacity.
First, let's look total capacity utilization: It has peaked at lower levels in each of the last three expansions.
Let's break the data down into durable and non-durable CU:
Both categories of production have ample spare capacity, with non-durable production having greater capacity.
Finally, let's look at crude, intermediate and final stages of production: All three have plenty of spare capacity to bring
online if needed.
So, will we see a huge wave of investment as a result of the changed tax bill? The data says no.
adding capacity hasn't been about need for years companies have been adding plant and
equipment that they didn't need for years because of incentives included in the code, such as
the investment tax credit and accelerated depreciation, so it's really hard to say when that
will stop..
spencer , December 22, 2017 1:30 pm
Rather than using the Fed estimate of capacity maybe it would be better to use a trend
line for capacity utilization and compare that to reported capacity utilization. I think that
would give a more realistic measure of economic slack as the trend line shows a long run
trend of slower capacity growth.
Lyle , December 22, 2017 11:46 pm
The main investment might be made to automate things, replacing expensive human workers
with cheaper automatic workers who don't need benefits and an HR department.
David Stockman estimates that front-loaded tax cuts will produce a federal deficit of
about $1.3 trillion in fiscal year 2019. In effect, fiscal stimulus is being cranked from 3
to 6 percent of GDP.
Gunning the economy could help reduce R party losses in the 2018 midterm elections. But
it's very poor timing for the 2020 presidential election. By then, with rate hikes biting and
stimulus easing, the economy is likely to take a tumble at the worst possible time for
re-electing the incumbent.
But given the regal out-of-touchness of elitist Dems, coupled with their jaw-dropping
incompetence, they should still be able to seize defeat from the jaws of victory.
My biggest complaint with this argument is that it's far from clear the tax bill is
gunning the economy. It looks much more like looting, in terms of where the gains go.
Doubling the standard deduction might have a big effect on a number of cash-constrained
households. It won't do much for the 47%, and of course it expires. I don't know how much
effect it will have in aggregate though.
I agree with you on the looting. What I expect that the Republicans are counting on
is:
1) The base (the people most immediately screwed by this) will still vote with them
because of tribalism and a few symbolic bonuses from a grateful AT&T.
2) The middle-class will be carried through the mid-terms by the immediate cuts and some
measure of gullibility.
3) The stock owners will enjoy the sugar high as buybacks kick off speculation, and thus be
more predisposed to it.
4) The donor cash will cushion the blow of any real blowback and the Dems will fumble the
fight over extending the "temporary" cuts so that the Repubs can look like middle class
saviors.
5) Even if all that fails they get cushy jobs as consultants.
Disagree that it gins the economy because the distribution of the tax cuts looks more like
a QE program than what tax cuts were when they cut taxes for working people.
The tax cuts go to those who hoard money and take it out of circulation – the rich
and corporations. They aren't going to spend more, they will save more or do stock buy
backs.
Thus the velocity of money will decline further.
So where is the gin coming from because I'm not seeing it.
Tax cuts are one part of fiscal stimulus. But so is increased direct spending. Stockman
elaborates:
We expect FY 2019 outlays to rise by upwards of $200 billion from CBO's most recent
baseline projection. That would include $75 billion for defense, $65 billion for disaster
aid, $25 billion for increased of domestic appropriations above the sequester cap, $20
billion for the ObamaCare subsidies and another $15 billion for interest on higher spending
and lower revenues.
Those kinds of spending increases are now virtually certain, and will take total FY 2019
outlays to around $4.575 trillion -- nearly 20% more than the $3.85 trillion spent during
FY 2016 during the run-up to the presidential election.
If such radically ramped-up spending fails to gin the economy, then we will be obliged to
question (as some do) whether fiscal stimulus actually works at all.
I don't really know what to tell you boo boo
I mean I try (you know I try)
I was referring to the tax cut, but you are right about the spending side and wrong too
IMO.
Disagree that this "increase" in spending – which is party a decrease of a decrease
– is even light years close to "radical" as you say.
The Defense spending is the least stimulate type of fiscal spending, Obamacare goes mostly
to rich gigantic corporations, disaster relief is transitory, and the interest goes to
investors.
So spending increases of a small very non radical nature that go largely to rich gigantic
corporations.
Ok I'm seeing some gin. But I'm still not seeing much gin.
Here's something about the GOP House and the GOP Senate: they each passed tax bills (supposed to come out in a "conference"
agreement sometime today) that diss the United States' working class taxpayers. White or black, Christian or Jew or other,
citizen by birth or naturalized citizen–workers are treated as an inferior "taker" class and owners are treated as a superior "maker"
class–the same old GOP class warfare that has been evidenced in Republican-driven tax legislation for decades. That shows in
the provisions that have been discussed quite a bit already, even though there is no official distributional analysis and even though
the Treasury Department put out a one-pager claiming to provide an analysis showing huge economic growth would eliminate any deficits
(based on both the tax "reform" legislation and promised cost-cutting "reforms" to Medicare and Social Security):
the significant reduction in impact of the estate tax,
the huge reduction in the statutory corporate tax rate of most benefit to officers/shareholders (it was 35%, it will be 21%
under the conference agreement, apparently, even though the "effective" corporate tax rate ranged from negative to around 24-25%–essentially
more favorable than many of our fellow advanced economies' corporate tax rates);
the territoriality of the corporate tax (generally, zero tax on foreign earnings of U.S. companies);
immediate expensing of company investments (a five year provision that allows companies huge tax benefits for those five years);
the elimination of the corporate alternative minimum tax (AMT), at a cost of about $250 billion in revenues.
the reduction in the top rate for wealthy individuals (from 39.6% to 37%),
the substantial reduction in the State and Local Tax Deduction for workers (thus changing entirely the economics of
paying for a house already purchased, while allowing sole proprietors, partnerships and other "owners" of equity in businesses
the ability to deduct such State and Local Taxes in full);
a larger standard deduction but the elimination of personal exemptions;
a larger child tax credit that only becomes refundable over time (limiting how much it helps the poor) but is available to
wealthy households (starting to phase out at half-a-million of income!);
the only slight reduction in the ability of wealthy individuals to take advantage of the mortgage interest deduction (reducing
the debt limit to $750,000 instead of $1,100,000)
the elimination of the corporate AMT (which cuts taxes for wealthy shareholders/owners/managers) but the retention of the
individual AMT (which primarily affects the upper middle class and not the wealthiest taxpayers under the current rate bracket
system);
the elimination of the
Affordable Care Act mandate and penalty (which reduces the amount of Medicaid and insurance subsidy funds for poor and middle-income
taxpayers, as well as guaranteeing the deconstruction of the health care system for 13 million or more Americans by 2027 and
increasing insurance premiums for upper-middle-class taxpayers); and
the opening of the Arctic National Wildlife Refuge to rape by fossil fuel oligarchies (a piddling amount of revenue, but sufficient
to buy off the principle-less Sen. Lisa Murkowski from Alaska );
making the corporate tax changes permanent (and effective without any transition period) while making the individual tax cuts
other than benefits for the wealthy like the estate tax changes temporary.
(just to name a few).
When the health care mandate removal is combined with the other provisions, "On net, the poor would actually lose out in all years
once this effect is taken into account." Dylan Matthews,
The Republican tax bill that could actually become law, explained , Vox.com (Dec. 14, 2017). The following
Tax Policy Center graph from the Vox article (using
the Urban-Brookings Microsimulation Model) shows that by 2027 the top 0.1% end up doing much better (average tax cut for the top
0.1 percent is $221,550 a year). The bottom 20% do worse while the middle–the second and third quintiles–have a very insignificant
plus (average tax cut of the third quintile is $490). Within the third or middle quintile, more than 62% of taxpayers that earn between
$54,700 and $93,200 would see their taxes go up, "[b]ut only about 0.1% of the very richest one-thousandth of Americans would see
a tax hike." Id.
Early gains–though small, intended perhaps to benefit the GOP in earlier votes -- don't last because the individual
cuts aren't permanent. A change to chained CPI for indexing brackets amounts to a tax increase on individuals, while the permanent
corporate tax cuts mean rich and very rich do well while middle and upper-middle lose out.
Lyle, December 17, 2017 6:10 pm
Note that ending the mandate just means more folks will wager on their health. All that wished to sign up could have. (and
still can where medicaid was expanded).
And the rest of us will pay their emergency room bills, as well.
Since it is now voluntary
to count the lower amount of subsidies as a cut seems a strange way of counting, but of course figures don't lie but liars do figure.
Don't panic. Sit back, take a deep breath , and wait out the new developments.
Even though they have only a caretaker government now in Berlin, they have commissioned
experts to assess if and where the beautiful Trump tax reforms will violate the German/US
friendship treaty from the 1950s. Not a lot is known at the moment but the reduction in
corporate tax could be seen as a hostile act, providing an unfair advantage for American
companies. And then there is the end of tax deductability for parts bought in Europe. One
would have to look at the text of that friendship treaty but it looks all very probable.
What will happen then? Europe will have to say that they must sell their parts, to China
or Russia. Sanctions? You cannot blanket us with hostile acts, someone will say. Maybe you
should take a hike from Ramstein, if this is how you value our friendship. Sounds all very
drastic but has been a longtime coming.
The tax-reform bill that US Republicans are attempting to implement is economically
indefensible and blatantly unfair. But the US has a much deeper problem: the Anglo-Saxon model
of representative government is in serious trouble, and nobody seems to know how to fix it.
BERKELEY – The tax bill that US Republicans have doggedly pushed through Congress is
not as big a deal as many are portraying it to be. It is medium-size news. The big news –
the much more weighty and ominous news – lies elsewhere.
Of course, medium-size is not nothing. If the tax bill does clear its final hurdle – a
conference committee must reconcile the Senate-approved bill with that of the House of
Representatives – and become law, it will complicate the tax system considerably, as it
opens many loopholes. It won't have any impact on economic growth – positive or negative
– but it would have an impact on the government's finances, causing revenues to decline
by the equivalent of about 1% of national income.
The missing resources would most likely be transferred to the top 1% of earners, raising
their share of total income from 22% to 23%. The top 0.01% would probably gain the most, with
their share of income rising from 5.1% to 5.5%. In this sense, the tax plan would be another
brick – not a huge brick, but a medium-size brick – in the increasingly impregnable
fortress of American plutocracy.
But the bill may well not become law at all. Consider the Republicans' efforts earlier this
year to repeal and replace the Affordable Care Act ("Obamacare") – an effort that, it now
seems clear, was pure Dingbat Kabuki.
The Republicans didn't actually want to take responsibility for changing the health-care
financing system, much less strip their own constituents of health care. But the party's
propaganda arm had worked so hard to convince its base that Obamacare represented a clear and
present danger to the country that its leaders had to act as if they were making a serious
effort to fulfill their promise to repeal and replace it.
So a majority of Republicans in the House of Representatives voted for the bill, expecting,
with reasonable confidence, that it would be blocked in the 100-member Senate, where fewer than
40 of the 52 Republicans actually wanted it to pass. Had any of the three Republican senators
who voted against the bill – John McCain of Arizona, Susan Collins of Maine, or Lisa
Murkowski of Alaska – made a different choice, there were probably about five more who
would have stepped in to nix it.
The same thing may be happening with the tax reform. It depends on whether at least three of
the ten Republican senators who have raised objections are serious, or are playing a different
game of Dingbat Kabuki: seeking to trick their constituents into thinking that they went the
extra mile to try to help them, and are not puppets of Senate Majority Leader Mitch
McConnell.
But, regardless of whether the tax bill survives the reconciliation process and becomes law,
the big news won't change: the Anglo-Saxon model of representative government is in serious
trouble. And there is no solution in sight.
For some 400 years, the Anglo-Saxon governance model – exemplified by the republican
semi-principality of the Netherlands, the constitutional monarchy of the United Kingdom, and
the constitutional republic of the United States of America – was widely regarded as
having hit the sweet spot of liberty, security, and prosperity. The greater the divergence from
that model, historical experience seemed to confirm, the higher the likelihood of repression,
insecurity, and poverty. So countries were frequently and strongly advised to emulate those
institutions.
Nobody would dare offer that same advice today. The UK, having been thrown into devastating
austerity by Conservative and Liberal leaders after the global economic crisis, is now being
led by the Conservatives toward a messy and damaging Brexit. And, in the US, the election of
President Donald Trump heralded the age of "alternative facts" and "governance by tweet,"
overseen by an erratic and ignorant leader who is clearly in over his head.
When Trump was first elected, some argued that it did not have to be a disaster. After all,
the optimists pointed out, President Ronald Reagan had been more a "chief of state" than a
"chief executive," as had George W. Bush.
As divisive as Chief of State Trump would be, according to this view, he wouldn't derail
policy, because electing a Republican president is more like electing the Republican Party
establishment. And that bench was very deep and very competent, despite its weakening in recent
years.
The optimists were wrong. After nearly a year in control of both houses of Congress and the
White House, the Republicans haven't achieved any of their four policy goals: repeal and
replacement of Obamacare, infrastructure development, trade-policy reform, or even tax reform.
This points to a broken system of politics and governance, one that Americans seem to have no
idea how to fix.
The US remains the world's preeminent superpower. But doubts are intensifying over whether
it's still up to the job. In this context, the Republicans' tax reform, however economically
indefensible and blatantly unfair it is, is far from America's biggest concern.
"... The Demopublican War Party: United to shovel more money into the maw of the oligarch class while stealing dollars, services, and servitude from the working class. Reverse Robin Hood/Reverse Socialism in full effect. ..."
"... Currently, we have $20T debt but the U.S. govt is borrowing at short term rates in order to get this amazingly low debt service. ..."
"... Does anyone else believe that this is the game the U.S. govt is playing? If it is then I wonder what the consequences are in keeping short term interest rates at artificially low levels in perpetuity. ..."
"... I'll start taking the "deficit hawks" seriously when they start talking Defense procurement reform. Until then, its just "balance the budget on the backs of widows and orphans". ..."
"... For those who are fortunate enough not to live in these Benighted States: have pity upon us, especially those of us who done our best to fight against this horror show. Democraps are either just as bad or worse bc of their duplicity. The GOP is, at least, totally loud and proud of who they are, and no more dog whistles for them. ..."
"... poll end of October 2017 shows widespread fed up with government policies and war https://www.charleskochinstitute.org/news/cki-real-clear-politics-foreign-policy-poll/ ..."
"... It is impressive how the Democrats do nothing, but nothing at all against the catastrophic tax 'reform', instead - me too! ..."
"... I am still waiting on my Reagan trickle down. Reagan and fellow thieves stole social security funds to make their deficit look lower. Those funds have not been paid back....approximately $3,000,000,000,000. Now the dead beats are planning on slipping out of town. ..."
"... We should go back to the 1960 tax structure , the one in place after eight years of Eisenhower, so it should get plenty of Republican support, yes? ..."
"... You are already seeing the consequences of artificially low short term rates. Negative yielding sovereign European debt - meaning you pay to lend to some European governments. ..."
"... People don't understand what money is our how it is and can be created. They imagine it is like gold and limited in supply so that government can spend only from a finite supply which they must obtain by taxes or loans that require interest to be paid. This fable is about as true as Santa Clause and the Tooth Fairy. Money has no value but as an instrument of exchange. It can be created by government to pay for benefit of a nation. Instead we allow private bankers to create money via loans (no printing press needed its just a line item on a spread sheet on their computers which shows up in the borrowers account) The privately owned central bank system limits or increases the supply by various means in a cyclical manner which leads to boom and bust cycles in the economy. The rich get richer after each bust cycle since they have cash to acquire assets available at depressed prices ..."
"... There's no reason why with the current state of technology so much money is needed to campaign for office. Almost as if the MSM is conditioning us to believe it necessary. There's no reason some one can't run a campaign using social media, YouTube and video conferencing instead of advertising (on same MSM) travelling long distances to campaign rallies and broadcast advertising. Microdonations and volunteering assistance can take care of the rest. If there is a will, there's a way to run an outsider as a candidate. The recent death of Anderson reminded me of his difficulties running, but he ran at a time when none of these technologies existed. ..."
"... Churning out extra dosh works when it is part of a larger plan to increase productivity by encouraging people outta pointless 'shit industry' service jobs into either outright production like manufacturing or primary industry, or infrastructure investment like railways, roads, bridges & renewable energy projects. Just pumping fresh new bills into health n education will be great for those who work in these sectors, but is unlikely to create much flow on to the rest of the population. ..."
House Speaker Paul Ryan (R-Wis.) on Thursday said the tax cuts included in the tax reform
package Republican lawmakers crafted in conjunction with the Trump Administration have to be
deficit neutral so as to conform with budget reconciliation rules.
The U.S. Republican tax cut plan that President Donald Trump wants passed by the end of the
year is unlikely to trigger a big deficit expansion because it will spur more investment and
job growth, House of Representatives Speaker Paul Ryan told Reuters in an interview on
Wednesday.
"Paul Ryan deficit hawk is also a growth advocate. Paul Ryan deficit hawk also knows that you
have to have a faster growing economy, more jobs, bigger take-home pay, that means higher tax
revenues ," Ryan told Chris Wallace on "Fox News Sunday."
The tax overhaul legislation that Ryan shepherded through the House -- the Senate takes up
its version this week -- would add at least $1 trillion to budget deficits over the next
decade, even when accounting for economic growth, according to independent tax analysts.
House Speaker Paul Ryan (R-Wis.) on Wednesday said House Republicans will aim to cut spending
on Medicare, Medicaid and welfare programs next year as a way to trim the federal deficit .
"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 during an interview on Ross Kaminsky's talk radio
show.
And no. The Democrats aren't any better. Look at the trillions Obama handed to Wall Street.
That wasn't even a tax cut, it was a give-away. Obamacare is a sham, willfully constructed in
way that makes sure it can't survive. The Democrats only pretend to care for the people. As
soon as they again have a majority and fake intent for pro-social reforms the Repubs will again
whine about the deficit and the Democrats will be happy to fold.
The Demopublican War Party: United to shovel more money into the maw of the oligarch class
while stealing dollars, services, and servitude from the working class. Reverse Robin
Hood/Reverse Socialism in full effect.
Indeed. Two faces, same coin. The msm desperately wants to keep the relevant the age-old
rope-a-dope of the Demotards vs. Rethuglicans 2K17! Jesus, ever-loving-Christ, though, you
fuck with social security and Medicare and you bring on the wrath of AARP's membership.
Release the BLUE-HAIRS!
Can't wait, but that is another struggle for another day. In the mean time, I notice that
even the mention of Paul Ryan elicits a shudder. Such a slime.
It [was] a remarkably low $240B as of 2016. Does this mean that the Fed can just keep short term
rates low or even reduce them, vis-a-vis the Japanese model, and allow U.S. govt debt to grow
to arbitrarily high levels?
Currently, we have $20T debt but the U.S. govt is borrowing at short term rates in order
to get this amazingly low debt service. Now let's suppose over the next 50yrs our national
debt grows to a ridiculous $100T, if the fed puts short term rates at 0.1% then our annual
debt service will still be at the same levels or less.
Does anyone else believe that this is the game the U.S. govt is playing?
If it is then I wonder what the consequences are in keeping short term interest rates at
artificially low levels in perpetuity.
Here's to the evolving True Political
Awakening .
Move beyond the two-faced monkeys; the 2-faced division-makers; the 2 lying parties. Move
beyond them into yourself, your own mind and thoughts, owned by no-one; a critical and
independent thinker who seeks the truth.
I'll start taking the "deficit hawks" seriously when they start talking Defense procurement
reform. Until then, its just "balance the budget on the backs of widows and orphans".
There was a large mound formed recently over the grave of former Republican senator from WI
Bob Lafollette Sr., this protrusion was caused by his rapidly spinning corpse.
For those who are fortunate enough not to live in these Benighted States: have pity upon us,
especially those of us who done our best to fight against this horror show.
Democraps are either just as bad or worse bc of their duplicity. The GOP is, at least,
totally loud and proud of who they are, and no more dog whistles for them.
The Democrats, all while the GOP Tax SCAM was being shoved down our gobs, wasted all of
their time and "emotions" on a witch hunt to toss Al Franken outta the Senate. Franken is not
my favorite Senator by a long shot, but this is yet another chapter of the Democraps ACORNing
their own purportedly in the name of "taking the moral high ground." My Aunt Fanny.
Complicit, greedy, conniving, venal, deplorable bastards the whole d*mn lot with the
possible exception of Bernie Sanders (no great shakes but the pick of the litter).
Ugh. Don't get me started on all of those dual Israeli/USA citizens in riddling our
Congress. They are ALL in favor of this Jerusalem travesty with Schmuck Schumer leading the
charge. That's not about Trump... or not much about Trump. I place blame on worthless scum
like Schumer.
This is why people voted for Trump: they could see the worthlessness of both parties. Of
course, voting for Trump was a complete Mug's game, as for sure, the way things have turned
out was a foregone conclusion.
I am still waiting on my Reagan trickle down. Reagan and fellow thieves stole social security
funds to make their deficit look lower. Those funds have not been paid back....approximately
$3,000,000,000,000. Now the dead beats are planning on slipping out of town.
We should go back to the 1960 tax structure , the one in
place after eight years of Eisenhower, so it should get plenty of Republican support, yes?
top rate on regular income: 91%
top rate on capital gains: 25%
top rate on corporate tax: 52%
The top income tax tier back then was $400,000 - adjusted for inflation to 2017 dollars,
that's about $10 million. So anyone with an income of $10 million would still get a take-home
pay of $1 million a year. Seems like the right thing to do, doesn't it?
Good one b, the demodogs will stoop their feet point figures so they can raise lots of
$$$$$$$$$$$$$ to pay their friends the consultants and lose more seats. It's what they do
best.
I've almost given up. It's not just amerika; lookit Australia this week where the citizens
are being distracted by a same sex marriage beatup which should have been settled in 5
minutes years ago - meanwhile the last vestiges of Australia's ability to survive as a
sovereign state are being flogged off to anyone with a fat wedge in their kick.
Aotearoa isn't much better the 'new' government which was elected primarily because the
citizens were appalled to discover that for about the first time in 150 years, compatriots -
compatriots with jobs in 'the gig economy' were homeless in huge numbers, has just announced
that the previous government's housing policy was a total mess, and that fixing the problem
will be difficult -really Jacinda we never woulda guessed, I guess what yer really trying to
say is nothing is gonna change.
The englanders are in even worse trouble with their brexit mess, the political elite is
choosing to ignore a recent Northern Ireland poll which revealed that most people in the
north would rather hook up with Ireland than stay with an non EU UK, so the pols there are
arguing over semantics about the difference between "regulatory alignment" and "regulatory
equivalence" as it applies to Ulster while the pound is sinking so fast it is about to
establish equivalence with the euro by xmas.
No one is paying attention to what is really happening as in between giving us the lowdown on
which 2nd rate mummer was rude to a 3rd rate thespian and advertorials about the best
chronometer (who even wears a watch in 2017?) for that man in your life, the media simply
doesn't have the time much less the will to tell the citizens how quickly their lives are
about to go down the gurgler.
The only salient issue is - will the shit hit the fan before the laws are in place to
silence, lock up and butcher dissenters, or will there be a brief period where we hit the
barricades and have a moment of glory before humanity gets to enjoy serfdom Mk2?
b, have you really taken a look at federal government spending? What is the ratio of spending
by the German government between social programs and discretionary spending for defense,
agriculture subsidies, infrastructure, etc?
The majority of federal government spending is non-discretionary social entitlement
spending with the biggest being health care spending. Just Medicare & Medicaid is a third
of all federal government spending. Then you have to add health care spending for federal
government employees and members of Congress, Tricare and VA. With health care costs growing
at 9% each and every year as it has for the past 30 years, medical related expenditures as a
share of total federal government spending will continue to rise.
Deficits will continue to grow as these entitlement programs grow automatically as
eligibility grows. Even if all defense expenditures were zeroed out, the federal government
would still run a deficit.
You are already seeing the consequences of artificially low short term rates. Negative
yielding sovereign European debt - meaning you pay to lend to some European governments.
European junk bonds with 10 year duration yielding less than 10 yr US Treasury bond. Loss
making, junk rated European companies raising even more intermediate term debt at 0.001%.
Corporations borrowing to buy back stock. The Swiss National Bank creating money out of thin
air and owning $85 billion of US equity in major US companies like Apple & Google. The
Bank of Japan owning a third of all Japanese government bonds outstanding and the Top 10
holder of the companies in the Nikkei 100 index. Financial speculation off the charts across
the globe.
People don't understand what money is our how it is and can be created. They imagine it is
like gold and limited in supply so that government can spend only from a finite supply which
they must obtain by taxes or loans that require interest to be paid. This fable is about as true as Santa Clause and the Tooth Fairy. Money has no value but as an instrument of exchange. It can be created by government to
pay for benefit of a nation. Instead we allow private bankers to create money via loans (no
printing press needed its just a line item on a spread sheet on their computers which shows
up in the borrowers account) The privately owned central bank system limits or increases the
supply by various means in a cyclical manner which leads to boom and bust cycles in the
economy. The rich get richer after each bust cycle since they have cash to acquire assets
available at depressed prices
As for the debt owed by the US the privately owned Fed will ensure the government can
borrow whatever is needed for interest payments since they can create an infinite supply of
money by acquiring junk and calling them assets. Out pal OPEC (Saudis) keeps Petro dollar
(USD ) in demand and exchange rates are set within agreed upon limits by the worlds central
banks under the BIS, with input from various shadowy groups like Bilderbergers, trilaterals
and CFR. And if all else fails, an attack on the USD will result in the military option being
used
To remain in power corrupt governments rely on a citizen base that is uneducated or
misinformed, busy surviving to pay taxes and daily expenses, is dependent on government and
in debt and is well entertained. They must also be divided by religion, race, social, gender,
age and party (secular religion) and given a common external enemy to fear.
The system is working to perfection. Neoliberal economics is the icing on the cake and is
the gift that keeps on giving to the chosen ones.
Check out the pdf on money creation by the Bank of England
There's no reason why with the current state of technology so much money is needed to
campaign for office. Almost as if the MSM is conditioning us to believe it necessary. There's no reason some one can't run a campaign using social media, YouTube and video
conferencing instead of advertising (on same MSM) travelling long distances to campaign
rallies and broadcast advertising. Microdonations and volunteering assistance can take care
of the rest. If there is a will, there's a way to run an outsider as a candidate. The recent death of
Anderson reminded me of his difficulties running, but he ran at a time when none of these
technologies existed.
I think people are just too lazy to make the effort. Most elections people are just too
lazy to even vote.
While I agree that money can just be created there is a limit to that particularly when
low constraints on consumable supplies run parallel to established shortfalls on finite goods
such as houses, land, food etc. Inflation runs rampant and we weak humans distract ourselves
with cheap baubles instead of creating useful shit and putting a roof over the heads of our
children - "waddaya want for xmas kid, a freehold shithole or a new VR headset?" "I'll take
the vive Dad".
Churning out extra dosh works when it is part of a larger plan to increase productivity by
encouraging people outta pointless 'shit industry' service jobs into either outright
production like manufacturing or primary industry, or infrastructure investment like
railways, roads, bridges & renewable energy projects. Just pumping fresh new bills into
health n education will be great for those who work in these sectors, but is unlikely to
create much flow on to the rest of the population.
"... On a net basis, in fact, fully 97% of the $1.412 trillion revenue loss in the Senate Committee bill over the next decade is attributable to the $1.369 trillion cost of cutting the corporate rate from 35% to 20% (and repeal of the related AMT). All the rest of the massive bill is just a monumental zero-sum pot stirring operation ..."
"... Whereas if the US spent the same 1 to 2 percent on defense (meaning its own territory) that normal countries do, individual tax cuts could be cut back to the Reagan-era maximum of 28 percent, permanently. Alternately, individual taxation could remain the same and everyone could have health care and maybe free college too. ..."
"... These choices are unavailable because the unauditable Defense Dept and spook agencies have made themselves politically untouchable. This is the real scandal of the tax bill. ..."
On a net basis, in fact, fully 97% of the $1.412 trillion revenue loss in the Senate
Committee bill over the next decade is attributable to the $1.369 trillion cost of cutting
the corporate rate from 35% to 20% (and repeal of the related AMT). All the rest of the
massive bill is just a monumental zero-sum pot stirring operation
The zero-sum game details:
1. eliminating state and local deductions
2. higher personal deductions
3. doubling child tax credit
4. tax credit for private education
5. new income brackets and rates
And the huge 35%-to-20% (or whatever) corporate tax reduction.
According to MMT, this perversion of that theory (and pervert MMT will always be
practiced) should put money into the system. The 'government can spend as much as it wants, deficits don't matter,' is 1) not
sufficient to ensure a desirable outcome and 2) can be abused to lead to many undesirable
results. As for the zero-sum game, it's zero-sum, so some of us 99% will benefit and the rest will
suffer. Some may enjoy higher personal deductions, child tax credit or a lower rate in a new tax
bracket.
Whereas if the US spent the same 1 to 2 percent on defense (meaning its own territory)
that normal countries do, individual tax cuts could be cut back to the Reagan-era maximum of
28 percent, permanently. Alternately, individual taxation could remain the same and everyone could have health care
and maybe free college too.
These choices are unavailable because the unauditable Defense Dept and spook agencies have
made themselves politically untouchable. This is the real scandal of the tax bill.
A Republican party unable to deliver individual tax cuts after harping relentlessly on the
theme for a decade is revealed as a fraud, a laughingstock and a failure on its own
terms.
"... If the goal is to prevent excessive compensation of top layers of executives, it is probably non-constructive to treat tax issues in isolation from the general problem of neoliberalism with its powerful mechanisms of redistribution of the wealth up. ..."
I will ease the pain from this early morning (when GOP senate slashed corporate taxes) by escaping into fantasy, I mean theory,
but I repeat myself.
A key theoretical argument about taxing profits (due to Diamond and Mirrlees I think) is that the tax can be very very high if
firms maximize profits, because maximizing 0.5X is just the same problem as maximizing X. This is a tax on pure profits (profits
minus capital times the cost of capital) .
The practical implication is that we should figure out what corporations maximize and apply a high flat tax rate on it, because
maximizing 0.1X is the same problem as maximizing X.
Theory then goes crazy and assume that firms maximize shareholder value equal to the present discounted stream of dividends. If
so, we should tax dividends. This is roughly similar to the new law in which investment is treated as an expense, so profits minus
investment is taxed.
There are lots of problems (aside from the fact that only in shareholders' dreams do manager maximize shareholder value). We would
have to tax stock buybacks too (just another way to get money to shareholders). Taxing dividends but not interest paid encourages
high leverage (for example through leveraged buyouts). Here again a tax on buying and retiring shares would be useful (not politically
possible but useful). A really heavy tax on dividends would make initial public offerings unattractive -- I think a subsidy for new
share issue would be nice (reallly politically impossible).
But the idea is just tax money going to shareholders and it is based on the assumption that getting money to shareholders is the
whole point and maximizing 0.01X is the same problem as maximizing X.
The assumption is crazy.
I think top management of corporations maximizes compensation of top management subject to a limit that, if they go too far, it
will be very profitable to take over the coporation and fire them. This means that, if the aim is to generate compensation for top
management, we should tax compensation of top management. Highly. I am quite sure that if the tax were 99% it would raise a lot of
money (provided all compensation could be detected). They *will* pay themselves no matter how much it costs the shareholders.
Now this strikes me as a pretty good idea. I think top management has to be defined as those with the top total compensation not
any title (otherwise the CEO will call himself his secretaries secretary). Now this does encourage taking corporations private. But
really, CEO compensation is obscene and is just begging to be taxed.
likbez , December 3, 2017 1:03 am
If the goal is to prevent excessive compensation of top layers of executives, it is probably non-constructive to treat tax
issues in isolation from the general problem of neoliberalism with its powerful mechanisms of redistribution of the wealth up.
My impression is that due to the complexity of the USA laws and the army of well paid corporate lawyers (including tax lawyers)
it is just a matter of time when any new tax system will be perverted.
For example, when there is a high tax on executive compensation, nothing prevents a corporation to donate money to charity,
and then this charity can hire corporate officers (or their relatives) to the board. Various form of "trusts" or "loans" also
can be played with.
You need some general mechanism of suppression of the power of the financial oligarchy. An institutional framework, like the
New Deal capitalism, has been. Tax laws are an important part of such a framework, but by themselves, they are not enough.
"... With the Federal Reserve facing a Herculean conundrum in unwinding its crisis-era monetary policy - and a likely leadership
transition on the horizon - Goldman Sachs (GS) suggested on Saturday the central bank could move early to reduce the vast sums of government
and mortgage-backed securities (MBS) it holds on its books. ..."
"... "This could be important for balance sheet policy because many Republican-leaning economists have criticized quantitative easing
(QE) and have expressed a preference for rapid balance sheet rundown, perhaps even through asset sales," wrote Daan Struyven, a Goldman
economist. ..."
"... A potential fire sale of Treasurys and mortgage-backed securities by the Fed "could have significantly more adverse effects
on financial conditions than gradual runoff, and the mere risk of such an outcome might set up another 'taper tantrum,' " Struyven added.
..."
"... Some market observers have long argued that the Fed has distorted financial conditions with QE, and the central bank faces
a huge task trying to pare down its bloated balance sheet. ..."
Yellen's exit may prompt the Fed to pare its balance sheet sooner rather than later, Goldman says
Yuri Gripas | Reuters
It's often said that good things come to those who wait - but a bloated $4.5 trillion balance sheet might be a notable exception
to that rule.
With the Federal Reserve facing a Herculean conundrum in unwinding its crisis-era monetary policy - and a likely leadership
transition on the horizon - Goldman Sachs (GS) suggested on Saturday the central bank could move early to reduce the vast sums of
government and mortgage-backed securities (MBS) it holds on its books.
In a research note to clients, the bank pointed to the likelihood that President Donald Trump may "reshape the leadership" of
the Federal Open Market Committee (FOMC), the Fed's powerful policy-making body, as the terms of Fed Chair Janet Yellen and Vice
Chair Stanley Fischer expire in early 2018.
"This could be important for balance sheet policy because many Republican-leaning economists have criticized quantitative
easing (QE) and have expressed a preference for rapid balance sheet rundown, perhaps even through asset sales," wrote Daan Struyven,
a Goldman economist.
If the new appointments-especially the new chair-are thought to favor aggressive balance sheet normalization, perhaps even including
asset sales, and if all decisions are left up to the incoming team, financial markets might experience heightened uncertainty during
the transition."
Goldman suggested there was a "strong 'risk management' case for an announcement of very gradual balance sheet runoff later this
year," because of the political risk associated with new leadership at the Fed.
"Our forecast is that the discussion around reinvestment continues for most of this year and the plan is formally announced in
December 2017," Struyven said. "At that meeting, we expect the committee to hold the funds rate steady after hiking in both June
and September. We expect the quarterly hikes to resume in March 2018."
The economist harked back to 2013's "taper tantrum," in which markets reacted the Fed's suggestions of tighter monetary policy
by sending bond yields surging and stocks reeling - albeit temporarily.
A potential fire sale of Treasurys and mortgage-backed securities by the Fed "could have significantly more adverse effects
on financial conditions than gradual runoff, and the mere risk of such an outcome might set up another 'taper tantrum,' " Struyven
added.
'The uncertainty is substantial'
As the central bank begins a campaign to tighten benchmark interest rates - making a quarter-point hike just last week - it's
renewed a debate over how to unwind the Fed's massive bond buying program.
Some market observers have long argued that the Fed has distorted financial conditions with QE, and the central bank faces
a huge task trying to pare down its bloated balance sheet.
"The bigger the Fed's credit footprint, the more it interferes with the efficient employment and pricing of credit," wrote George
Selgin, a senior fellow and director of the Center for Monetary and Financial Alternatives at the libertarian-leaning Cato Institute,
in a blog post last month.
"By directing a large share of savings to purchases of longer-term MBS and Treasury securities, for example, the Fed has artificially
raised both the prices of those securities, and the importance of the housing market and the federal government relative to the rest
of the U.S. economy," Selgin wrote. "It has also dramatically increased its portfolio's duration gap and, by so doing, the risk that
it will suffer losses should it sell assets before they mature."
On Friday, Minneapolis Federal Reserve Bank President Neel Kashkari, the lone dissenter against the U.S. central bank's decision
last week to raise interest rates, the U.S. economy is still falling short on employment and inflation.
Kashkari, an alumnus of both Goldman Sachs and the U.S. Treasury who oversaw the government's Temporary Asset Relief Program (TARP)
during the financial crisis, believes the Fed should wait on raising interest rates until it publishes a detailed plan for how and
when it will reduce its $4.5 trillion balance sheet.
Goldman set forth two scenarios under which the Fed could begin trimming its balance sheet. Under an "early start, passive runoff"
scenario, the bank said the Fed "gradually tapers reinvestment in December 2017 over 10 months but does not sell assets."
Conversely, under a "late start, active sales" scenario, Goldman said the Fed could cease reinvesting in bonds in July 2018 "without
tapering and actively sells $40bn of assets per month."
Under the latter, the Fed could shrink its balance sheet by about $250 billion per quarter starting in the second half of next
year, "with similar contributions from maturing assets and active sales," the bank added.
However, neither scenario is without its risks, Goldman's economist wrote: "While our baseline estimate suggests relatively little
tightening from balance sheet rundown, the uncertainty is substantial. The 2013 'taper tantrum' also provides a reminder that the
impact of balance sheet policy on financial conditions is uncertain and could be larger than our baseline estimate."
Every time the Fed deals with the financial asset trading marketplaces the private parties wish to make a profit, no wonder
Goldman is shilling to get the more valuable Fed holdings 'sold' to these parties.
No article on reserves or Fed asset holdings is legitimate unless it also discusses the use of administrative offset with Treasury
(whether the bonds are mature and as a result, redeemable at that time, or not, they could all be offset with Treasury now).
The Fed has a lot it can do with the assets they bought with newly created money, but subsidizing the money center banks once
again ought to be low on the list (moral hazard rewarded again?). The asset-handling plans should be pursued only after Treasury
coordination talks are settled and according to well discussed, publicly known plans.
It is not clear to me who the public should trust here, so open public programming should be expected and press involvement
sought after by the Fed. Look at the magnitudes here, no one should be looking the other way on this.
RGC what is your point except to note that private interests sweep monies out of private positions in order to create the cash
to buy the bond being offered by the Fed should they sell some. It is a way to sweep excess monies out of the economic system,
though that is not a completed end-game unless the Fed destroys the money or it is remitted to Treasury where it covers other
claims for payment (reducing the need to borrow anew) turnstiling the monies back into the economy.
It is simpler with regard to Treasury to have both sides agree to osset their position.
But offsets means that Treasury offers none or fewer bonds for sale to outsude interests, including China and other govts or
within the banks or elsewhere.
Is the Fed ready to do all of these approaches, and is it coordinated with the oublic's govt via Treasury agreement?
The Fed has instruments with 8 percent coupons, I just don't like the idea of them selling these to the banking segment, at
a price that allows them to profit, with little risk, especially when you consider that they were the ones who caused the financial
crisis in the first place.
It will be interesting to see what the Feds do, what they do with the cash they get, and what Treasury and the Trump Administration
does as more cash remittances come in (and why was this not done to help the Obama Admin look good fiscally before?).
President Donald Trump's top economist is doubling down on claims that corporate tax
cuts would spark economic growth and boost incomes.
Kevin Hassett is chairman of the White House Council of Economic Advisers. Hassett says
the plan to slash the corporate tax rate from 35 percent to 20 percent could increase the
size of the U.S. economy by $700 billion to $1.2 trillion over a decade.
Actually, it doesn't matter what fantasies Hassett spins.
They have the votes, and their donors won't take no for an answer.
The repulsive Ed Gillespie is the Republican candidate for governor in VA. [Election is in
about 10 days.] His non-stop tv ads include one in which he claims he'll lower taxes and that
this will create "57,000 new jobs in VA."
We need to kill this whole "tax cuts -- > jobs" myth with fire.
Income tax rates go down on the upper incomes and businesses in a big way. State income
taxes go down on the middle and working classes in a small way.
Sales tax, local property taxes, county user fees/assessments go up for everyone including
the poor, to cover the ensuing state budget shortfall.
The upper 20% income/large businesses spend less a percentage of their income on purchases
/fees and property taxes than the bottom 80%. Top 20% see net decrease in combines
state/local tax/fees as a percentage of income. Bottom 80% see a net increase in combines
local/state taxes/fees as a percentage of income.
That still isn't enough to fill the budget hole, so state services and state funding to k-12
education gets cut.
Talk about a bait and switch.
What a deal.
adding: the increased sales tax/user fees/ property taxes won't be enough to fill the
budget hole. That's when the real fun starts. Then the no-tax-ever crowd will start talking
about selling off the public state properties to fill the budget hole created by tax cuts.
Sell off state-own govt buildings and rent them back (from their crony friends). Sell off
water treatment plants, or turnpikes, or state govt -owned medical facilities, or
prisons.
The "cut taxes and riches will follow" pitch is a con. The ultimate end seems to be
privatizing as much state property as possible. That will cost 80-90% of the state's
taxpayers far more over the long run than the current state income tax structure.
There's a sucker born every minute. There were plenty of suckers in my state, until they saw
how they were getting fleeced and finally wised up. Education is expensive.
Suppression of the wealth tax: an historical error, by Thomas Piketty : Let it be said at
once: the suppression of the wealth tax (Impôt sur la Fortune or ISF) constitutes a
serious moral, economic and historical mistake. This decision reveals a profound
misunderstanding of the challenges to inequality posed by globalization.
Let's go back for a moment. During the first globalization period between 1870 and 1914, a
strong international movement gradually took shape which sought to promote a new type of
redistribution and taxation. Based on a progressive taxation system on income, wealth and
inheritance, this new model was aimed at a better distribution of productivity gains and the
structural reduction of the concentration of property and economic power. It was successfully
implemented in the period 1920 to 1970, partly as a result of the pressure of dramatic
historical events, but equally thanks to a lengthy intellectual and political process.
We may perhaps today be witnessing the premises of a similar movement. Confronted with the
rise in inequality, awareness is gaining momentum. ...
"... The Trump Plan is actually the product of the former Goldman-Sachs investment bankers who have been in charge of Trump's economic policy since he came into office. Steve Mnuchin, the Treasury Secretary, and Gary Cohn, director of Trump's economic council, are the two authors of the Trump tax cuts. They put it together. They are also both former top executives of the global shadow bank called Goldman Sachs. ..."
"... Given that economic policy under Trump is being driven by bankers, it's not surprising that the CEO of the biggest US banks, Morgan Stanley, admitted just a few months ago that a reduction of the corporate nominal income tax rate from the current 35% nominal rate to a new nominal rate of 20% will provide the bank an immediate windfall gain of 15%-20% in earnings. ..."
"... Big multinational companies like Apple, i.e. virtually all the big tech companies, big Pharma corporations, banks and oil companies, pay no more than 12-13% effective tax rates today -- not the 35% nominal rate. ..."
"... Tech, big Pharma, banks and oil companies are the big violators of offshore cash hoarding/tax avoidance schemes. Microsoft's effective global tax rate last year was only 12%. IBM's even less, at 10%. The giant drug company, Pfizer paid 18% and the oil company, Chevron 14%. One of the largest US companies in the world, General Electric, paid only 1%. When their nominal rate is reduced to 20% under the Trump plan, they'll pay even less, likely in the single digits, if that. ..."
"... Tax cutting for business classes and the 1% has always been a fundamental element of Neoliberal economic policy ever since the Reagan years (and actually late Jimmy Carter period). Major tax cut legislation occurred in 1981, 1986, and 1997-98 under Clinton. George W. Bush then cut taxes by $3.4 trillion in 2001-04, 80% of which went to the wealthiest households and businesses. He cut taxes another $180 billion in 2008. Obama cut another $300 billion in his 2009 so-called recovery program. When that faltered, it was another $800 billion at year end 2010. He then extended the Bush tax cuts that were scheduled to expire in 2011 two more years. That costs $450 billion each year. And in 2013, cutting a deal with Republicans called the 'fiscal cliff' settlement, he extended the Bush tax cuts of the prior decade for another ten years. That cost a further $5 trillion. Now Trump wants even more. He promised $5 trillion in tax cuts during his election campaign. So the current proposal is only half of what he has in mind perhaps. ..."
"... Neoliberal tax cutting in the US has also been characterized by the 'tax cut shell game'. The shell game is played several ways. ..."
"... To cover the shell game, an overlay of ideology covers up what's going on. There's the false argument that 'tax cuts create jobs', for which there's no empirical evidence. There's the claim US multinational corporations pay a double tax compared to their competitors, when in fact they effectively pay less. There's the lie that if corporate taxes are cut they will automatically invest the savings, when in fact what they do is invest offshore, divert the savings to stock and bond and other financial markets, boost their dividend and stock buybacks, or stuff the savings in their offshore subsidiaries to avoid paying taxes. ..."
"... All these neoliberal false claims, arguments, and outright lies continue today to justify the Trump-Goldman Sachs tax plan -- which is just the latest iteration of neoliberal tax policy and tax offensive in the US. The consequences of the Trump plan, if it is passed, will be the same as the previous tax giveaways to the 1% and their companies: it will redistribute income massively from the middle and working classes to the rich. Income inequality will continue to worsen dramatically. ..."
"... Nothing will change so long as the Corporate Party of America is allowed to continue its neoliberal tax giveaways, its tax cutting 'shell games', and is allowed to continue to foment its ideological cover up. ..."
Contradicting Trump, the independent Tax Policy Center has estimated in just the first year half
of the $2 trillion plus Trump cuts will go to the wealthiest 1% households that annually earn more
than $730,000. That's an immediate income windfall to the wealthiest 1% households of 8.5%, according
to the Tax Policy Center. But that's only in the first of ten years the cuts will be in effect. It
gets worse over time.
According to the Tax Policy Center, "Taxpayers in the top one percent (incomes above $730,000),
would receive about 50 percent of the total tax benefit [in 2018]". However, "By 2027, the top one
percent would get 80 percent of the plan's tax cuts while the share for middle-income households
would drop to about five percent." By the last year of the cuts, 2027, on average the wealthiest
1% household would realize $207,000, and the even wealthier 0.1% would realize an income gain of
$1,022,000.
When confronted with these facts on national TV this past Sunday, Trump's Treasury Secretary,
Steve Mnuchin, quickly backtracked and admitted he could not guarantee every middle class family
would see a tax cut. Right. That's because 15-17 million (12%) of US taxpaying households in the
US will face a tax hike in the first year of the cuts. In the tenth and last year, "one in four middle
class families would end up with higher taxes".
The US Economic 'Troika'
The Trump Plan is actually the product of the former Goldman-Sachs investment bankers who
have been in charge of Trump's economic policy since he came into office. Steve Mnuchin, the Treasury
Secretary, and Gary Cohn, director of Trump's economic council, are the two authors of the Trump
tax cuts. They put it together. They are also both former top executives of the global shadow bank
called Goldman Sachs. Together with the other key office determining US economic policy, the
US central bank, held by yet another ex-Goldman Sachs senior exec, Bill Dudley, president of the
New York Federal Reserve bank, the Goldman-Sachs trio of Mnuchin-Cohn-Dudley constitute what might
be called the 'US Troika' for domestic economic policy.
The Trump tax proposal is therefore really a big bankers tax plan -- authored by bankers, in the
interest of bankers and financial investors (like Trump himself), and overwhelmingly favoring the
wealthiest 1%.
Given that economic policy under Trump is being driven by bankers, it's not surprising that
the CEO of the biggest US banks, Morgan Stanley, admitted just a few months ago that a reduction
of the corporate nominal income tax rate from the current 35% nominal rate to a new nominal rate
of 20% will provide the bank an immediate windfall gain of 15%-20% in earnings. And that's just
the nominal corporate rate cut proposed by Trump. With loopholes, it's no doubt more.
The Trump-Troika's Triple Tax-Cut Trifecta for the 1%
The Trump Troika has indicated it hopes to package up and deliver the trillions of $ to their
1% friends by Christmas 2017. Their gift will consist of three major tax cuts for the rich and their
businesses. A Trump-Troika Tax Cut 'Trifecta' of $ trillions.
1.The Corporate Tax Cuts
The first of the three main elements is a big cut in the corporate income tax nominal rate, from
current 35% to 20%. In addition, there's the elimination of what is called the 'territorial tax'
system, which is just a fancy phrase for ending the fiction of the foreign profits tax. Currently,
US multinational corporations hoard a minimum of $2.6 trillion of profits offshore and refuse to
pay US taxes on those profits. In other words, Congress and presidents for decades have refused to
enforce the foreign profits tax. Now that fiction will be ended by officially eliminating taxes on
their profits. They'll only pay taxes on US profits, which will create an even greater incentive
for them to shift operations and profits to their offshore subsidiaries. But there's more for the
big corporations.
The Trump plan also simultaneously proposes what it calls a 'repatriation tax cut'. If the big
tech, pharma, banks, and energy companies bring back some of their reported $2.6 trillion (an official
number which is actually more than that), Congress will require they pay only a 10% tax rate -- not
the current 35% rate or even Trump's proposed 20%–on that repatriated profits. No doubt the repatriation
will be tied to some kind of agreement to invest the money in the US economy. That's how they'll
sell it to the American public. But that shell game was played before, in 2004-05, under George W.
Bush. The same 'repatriation' deal was then legislated, to return the $700 billion then stuffed away
in corporate offshore subsidiaries. About half the $700 billion was brought back, but US corporations
did not invest it in jobs in the US as they were supposed to. They used the repatriated profits to
buy up their competitors (mergers and acquisitions), to pay out dividends to stockholders, and to
buy back their stock to drive equity prices and the stock market to new heights in 2005-07. The current
Trump 'territorial tax repeal/repatriation' boondoggle will turn out just the same as it did in 2005.
2. Non-Incorporate Business Tax Cuts
The second big business class tax windfall in the Trump-Goldman Sachs tax giveaway for the rich
is the proposal to reduce the top nominal tax rate for non-corporate businesses, like proprietorships
and partnerships, whose business income (aka profits) is treated like personal income. This is called
the 'pass through business income' provision.
That's a Trump tax cut for unincorporated businesses -- like doctors, law firms, real estate investment
partnerships, etc. 40% of non-corporate income is currently taxed at 39.6% (the top personal income
tax rate). Trump proposes to reduce that nominal rate to 25%. So non-incorporate businesses too will
get an immediately 14.6% cut, nearly matching the 15% rate cut for corporate businesses.
In the case of both corporate and non-corporate companies we're talking about 'nominal' tax rate
cuts of 14.6% and 15%. The 'effective' tax rate is what they actually pay in taxes -- i.e. after
loopholes, after their high paid tax lawyers take a whack at their tax bill, after they cleverly
divert their income to their offshore subsidiaries and refuse to pay the foreign profits tax, and
after they stuff away whatever they can in offshore tax havens in the Cayman Islands, Switzerland,
and a dozen other island nations worldwide.
For example, Apple Corporation alone is hoarding $260 billion in cash at present -- 95% of which
it keeps offshore to avoid paying Uncle Sam taxes. Big multinational companies like Apple, i.e.
virtually all the big tech companies, big Pharma corporations, banks and oil companies, pay no more
than 12-13% effective tax rates today -- not the 35% nominal rate.
Tech, big Pharma, banks and oil companies are the big violators of offshore cash hoarding/tax
avoidance schemes. Microsoft's effective global tax rate last year was only 12%. IBM's even less,
at 10%. The giant drug company, Pfizer paid 18% and the oil company, Chevron 14%. One of the largest
US companies in the world, General Electric, paid only 1%. When their nominal rate is reduced to
20% under the Trump plan, they'll pay even less, likely in the single digits, if that.
Corporations and non-corporate businesses are the institutional conduit for passing income to
their capitalist owners and managers. The Trump corporate and business taxes means companies immediately
get to keep at least 15% more of their income for themselves -- and more in 'effective' rate terms.
That means they get to distribute to their executives and big stockholders and partners even more
than they have in recent years. And in recent years that has been no small sum. For example, just
corporate dividend payouts and stock buybacks have totaled more than $1 trillion on average for six
years since 2010! A total of more than $6 trillion.
But all that's only the business tax cut side of the Trump plan. There's a third major tax cut
component of the Trump plan -- i.e. major cuts in the Personal Income Tax that accrue overwhelmingly
to the richest 1% households.
3. Personal Income Tax Cuts for the 1%
There are multiple measures in the Trump-Troika proposal that benefits the 1% in the form of personal
income tax reductions. Corporations and businesses get to keep more income from the business tax
cuts, to pass on to their shareholders, investors, and senior managers. The latter then get to keep
more of what's passed through and distributed to them as a result of the personal income tax cuts.
The first personal tax cut boondoggle for the 1% wealthiest households is the Trump proposal to
reduce the 'tax income brackets' from seven to three. The new brackets would be 35%, 25%, and 12%.
Whenever brackets are reduced, the wealthiest always benefit. The current top bracket, affecting
households with a minimum of $418,000 annual income, would be reduced from the current 39.6% to 35%.
In the next bracket, those with incomes of 191,000 to 418,000 would see their tax rate (nominal again)
cut from 28% to 25%. However, the 25% third bracket would apply to annual incomes as low as $38,000.
That's the middle and working class. So households with $38,000 annual incomes would pay the same
rate as those with more than $400,000. Tax cuts for the middle class, did Trump say? Only tax rate
reductions beginning with those with $191,000 incomes and the real cuts for those over $418,000!
But the cuts in the nominal tax rate for the top 1% to 5% households are only part of the personal
income tax windfall for the rich under the Trump plan. The really big tax cuts for the 1% come in
the form of the repeal of the Inheritance Tax and the Alternative Minimum Tax, as well as Trump's
allowing the 'carried interest' tax loophole for financial speculators like hedge fund managers and
private equity CEOs to continue.
The current Inheritance Tax applies only to those with estates of $11 million or more, about 0.2
of all the taxpaying households. So its repeal is clearly a windfall for the super rich. The Alternative
Minimum Tax is designed to ensure the super rich pay something, after they manipulate the tax loopholes,
shelter their income offshore in tax havens, or simply engage in tax fraud by various other means.
Now that's gone as well under the Trump plan. 'Carried interest', a loophole, allows big finance
speculators, like hedge fund managers, to avoid paying the corporate tax rate altogether, and pay
a maximum of 20% on their hundreds of millions and sometimes billions of dollars of income every
year.
Who Pays?
As previously noted, folks with $91,000 a year annual income get no tax rate cuts. They still
will pay the 25%. And since that is what's called 'earned' (wage and salary) income, they don't get
the loopholes to manipulate, like those with 'capital incomes' (dividends, capital gains, rents,
interest, etc.). What they get is called deductions. But under the Trump plan, the deductions for
state and local taxes, for state sales taxes, and apparently for excess medical costs will all disappear.
The cost of that to middle and working class households is estimated at $1 trillion over the decade.
Trump claims the standard deduction will be doubled, and that will benefit the middle class. But
estimates reveal that a middle class family with two kids will see their standard deduction reduced
from $28,900 to $24,000. But I guess that's just 'Trump math'.
The general US taxpayer will also pay for the trillions of dollars that will be redistributed
to the 1% and their companies. It's estimated the federal government deficit will increase by $2.4
trillion over the decade as a result of the Trump plan. Republicans in Congress have railed over
the deficits and federal debt, now at $20 trillion, for years. But they are conspicuously quiet now
about adding $2.4 trillion more -- so long as it the result of tax giveaways to themselves, their
1% friends, and their rich corporate election campaign contributors.
And both wings of the Corporate Party of America -- aka Republicans and Democrats -- never mention
the economic fact that since 2001, 60% of US federal government deficits, and therefore the US debt
of $20 trillion, are attributable to tax cuts by George W. Bush and Barack Obama: more than $3.5
trillion under Bush and more than $7 trillion under Obama. (The remaining $10 trillion of the US
debt due to war and defense spending, price gouging by the medical industry and big pharma driving
up government costs for Medicare, Medicaid, and other government insurance, bailouts of the big banks
in 2008-09, and interest payments on the debt).
The 35-Year Neoliberal Tax Offensive
Tax cutting for business classes and the 1% has always been a fundamental element of Neoliberal
economic policy ever since the Reagan years (and actually late Jimmy Carter period). Major tax cut
legislation occurred in 1981, 1986, and 1997-98 under Clinton. George W. Bush then cut taxes by $3.4
trillion in 2001-04, 80% of which went to the wealthiest households and businesses. He cut taxes
another $180 billion in 2008. Obama cut another $300 billion in his 2009 so-called recovery program.
When that faltered, it was another $800 billion at year end 2010. He then extended the Bush tax cuts
that were scheduled to expire in 2011 two more years. That costs $450 billion each year. And in 2013,
cutting a deal with Republicans called the 'fiscal cliff' settlement, he extended the Bush tax cuts
of the prior decade for another ten years. That cost a further $5 trillion. Now Trump wants even
more. He promised $5 trillion in tax cuts during his election campaign. So the current proposal is
only half of what he has in mind perhaps.
Neoliberal tax cutting in the US has also been characterized by the 'tax cut shell game'.
The shell game is played several ways.
In the course of major tax cut legislation, the elites and their lobbyists alternate their focus
on cutting rates and on correcting tax loopholes. They raise rates but expand loopholes. When the
public becomes aware of the outrageous loopholes, they then eliminate some loopholes but simultaneously
reduce the tax rates on the rich. When the public complains of too low tax rates for the rich, they
raise the rates but quietly expand the loopholes. They play this shell game so the outcome is always
a net gain for corporations and the rich.
Since Reagan and the advent of neoliberal tax policy, the corporate income tax share of total
US government revenues has fallen from more than 20% to single digits well below 10%. Conversely,
the payroll tax has doubled from 22% to more than 40%. A similar shift within the personal income
tax, steadily around 40% of government revenues, has also occurred. The wealthy pay less a share
of the total and the middle class pays more. Along the way, token concessions to the very low end
of working poor are introduced, to give the appearance of fairness. But the middle class, the $38
to $91,000 nearly 100 million taxpaying households foot the bill for both the 1% and the bottom.
This pattern was set in motion under Reagan. His proposed $752 billion in tax cuts in 1981-82 were
adjusted in 1986, but the net outcome was more for the rich and their corporations. That pattern
has continued under Clinton, Bush, Obama and now proposed under Trump.
To cover the shell game, an overlay of ideology covers up what's going on. There's the false
argument that 'tax cuts create jobs', for which there's no empirical evidence. There's the claim
US multinational corporations pay a double tax compared to their competitors, when in fact they effectively
pay less. There's the lie that if corporate taxes are cut they will automatically invest the savings,
when in fact what they do is invest offshore, divert the savings to stock and bond and other financial
markets, boost their dividend and stock buybacks, or stuff the savings in their offshore subsidiaries
to avoid paying taxes.
All these neoliberal false claims, arguments, and outright lies continue today to justify
the Trump-Goldman Sachs tax plan -- which is just the latest iteration of neoliberal tax policy and
tax offensive in the US. The consequences of the Trump plan, if it is passed, will be the same as
the previous tax giveaways to the 1% and their companies: it will redistribute income massively from
the middle and working classes to the rich. Income inequality will continue to worsen dramatically.
US multinational corporations will begin again to divert profits, and investment, offshore;
profits brought back untaxed will result in mergers and acquisitions, dividend payouts, and financial
markets investment. No real jobs will be created in the US. The wealthy will continue to pump their
savings into financial asset markets, causing further bubbles in stocks, exchange traded funds, bonds,
derivatives and the like. The US economy will continue to slow and become more unstable financially.
And there will be another financial crash and great recession -- or worse. Only this time, the vast
majority of US households -- i.e. the middle and working classes -- will be even worse off and more
unable to weather the next economic storm.
Nothing will change so long as the Corporate Party of America is allowed to continue its neoliberal
tax giveaways, its tax cutting 'shell games', and is allowed to continue to foment its ideological
cover up. More articles by:
Jack Rasmus
"... But judging from the last time it was tried, most of the cash Donald Trump would allow megacorporations to bring home from overseas at a bargain-basement tax rate would end up being used by corporate executives to inflate the prices of their stocks, thereby enriching themselves and their biggest investors - and doing little to employ Americans and grow the real economy. ..."
"... From 2004 to 2005, the Bush administration and Congress tried a one-time tax repatriation holiday, cutting the rate to 5.25 percent. ..."
"... So what did the companies use the money for? The report found that two things increased dramatically after repatriation: executive compensation and stock buybacks. ..."
As part of its radical but still mostly undefined tax plan, the Trump administration proposed a tax
holiday for corporate earnings stored overseas. Reporters have been hearing on background that the
tax rate would be slashed from 35 percent to 10 percent.
But judging from the last time it was tried, most of the cash Donald Trump would allow megacorporations
to bring home from overseas at a bargain-basement tax rate would end up being used by corporate executives
to inflate the prices of their stocks, thereby enriching themselves and their biggest investors -
and doing little to employ Americans and grow the real economy.
From 2004 to 2005, the Bush administration and Congress tried a one-time tax repatriation
holiday, cutting the rate to 5.25 percent.
A Senate
study in 2011 found that corporations brought $312 billion they had stashed overseas back to
the United States, avoiding $3.3 billion in taxes as a result of the repatriation rate. But the top
15 companies that took advantage of the holiday actually reduced their total U.S. employment by 20,931
jobs.
Meanwhile, the report surveyed studies of all 840 corporations that took advantage of repatriation
and concluded that there was "no evidence that repatriated funds increased overall U.S. employment."
So what did the companies use the money for? The report found that two things increased dramatically
after repatriation: executive compensation and stock buybacks.
"... Charles Hugh Smith is the owner/writer of the oftwominds.com blog and has written 11 books on our economy and society, including ..."
"... There's another systemic source of unfairness in the tax code: the gap between the high rates on earned income (wages and salaries) and the much lower rates on unearned income-what we might characterize as income generated by capital rather than labor: rents, capital gains, and so on. ..."
"... This more or less summarizes the state of taxation in America. Working for a living is for suckers. ..."
"... "Capital investments are at risk of a loss as well as a gain." ..."
President Trump's tax plan gives those of us with long
memories a strong sense of déjà vu. We've seen this play before, and the ending is
inevitably modest: a few of the pieces of a horrendously complex, unfair tax system are
moved around, victory is declared, and the creatures of the Swamp-those self-serving
elites that benefit from the complex, unfair monstrosity-continue raking in their
billions of dollars in fees while the rest of us are burdened with billions of dollars
in tax-preparation costs.
The opening act of
this tax-reform play always starts with a claim that by golly, this time we're really
going to simplify the tax code. Trump's plan calls for reducing the number of tax
brackets and eliminating all deductions other than those for charity and mortgage
interest; by way of compensation, the standard deduction will be doubled.
Such changes make for catchy headlines, but the
reality is the tax code will still run to thousands of pages. The Tax Foundation
explains
the
three layers of compliance complexity:
Title 26 of the U.S.
Code, the tax statutes enacted by Congress, runs to 2,600 pages.
The details are left to
the IRS (Internal Revenue Service), which publishes roughly 9,000 pages of
regulations.
If you end up in tax
court, there are around 70,000 pages of case law to pore over to make your case.
Simple changes like reducing the number of tax
brackets skirt the core problem with the U.S. tax system: the entire tax code is little
more than a clearinghouse of political bribes paid for with tax breaks and a complexity
thicket that requires the services of legions of accountants, tax attorneys, software
coders, and specialists in tax-avoidance strategies.
This clearinghouse and complexity thicket are
intrinsically unfair, as insiders and the super-wealthy can avoid taxes via political
influence and offshore tax havens. This systemic unfairness erodes the social contract's
key compact: that the playing field will be kept more or less level for all
participants.
But the U.S. tax system is anything but level. The
Institute on Taxation and Economic Policy (ITEP) recently
published
an
analysis of the corporate taxes paid by Fortune 500 companies over the past eight years.
Consistently profitable companies paid a federal tax rate of around 21 percent,
considerably lower than the nominal corporate tax rate of 35 percent. But 18 profitable
companies paid no federal taxes over the eight years, and about 50 corporations paid
rates of 10 percent or less.
Immensely profitable corporations such as
Apple
have
mastered the offshore tax-avoidance game. Others persuade (impolite term: bribe) members
of Congress to include obscure tax breaks tailored to them in legislation.
So the most successful at gaming the system pay
near-zero rates (saving tens of billions of dollars) while the chumps pay the top rate.
There's another systemic source of unfairness in the
tax code: the gap between the high rates on earned income (wages and salaries) and the
much lower rates on unearned income-what we might characterize as income generated by
capital rather than labor: rents, capital gains, and so on.
If you manage to earn $500,000 in wages, most of that
income is taxed at 33 percent, and the income above $415,000 is taxed at 39.6 percent.
(Trump's tax proposal calls for a top rate of 35 percent.) Meanwhile, the top rate for
long-term capital gains is 20 percent. Over time, that 15-point difference adds up.
In effect, the rich get richer because most of the
lower-tax-rate unearned income flows to them.
The
concentration
of unearned-income-producing wealth in the U.S. is remarkable. In 2016 the Congressional
Budget Office (CBO) reported that the top 10 percent of U.S. households held 76 percent
of all private wealth. The bulk of the sources of unearned income are owned by the top
10 percent: stocks, bonds, trust funds, business equity, and non-home real estate.
Unearned income also avoids the 15.3 percent Social
Security and Medicare
payroll taxes
(half paid by employers, half by employees). Self-employed taxpayers pay the entire 15.3
percent, and so all their earned income above $37,650 is taxed at a rate of 40.3 percent
or higher: 25 percent federal income tax and the 15.3 percent payroll taxes. That 40
percent is double the top tax rate on unearned income.
Those with earnings above $118,500 no longer pay the
Social Security tax. According to the
U.S. Census Bureau
,
80 percent of all households earn less than $117,000 a year, so the vast majority of
wage earners pay the full payroll tax rate on all earnings.
So while the top income tiers
famously pay
most of the federal income taxes (the top 1 percent pony up about 37 percent of the
total), the highly progressive income taxes are slightly less than half of all federal
tax revenues, while highly regressive payroll taxes make up roughly a third of federal
tax receipts.
In this larger context, how much impact will Trump's
signature tax cuts on the corporate rate (from 35 percent to 15 percent) or on the top
earned-income rate have on the inequities of the tax system?
A lower corporate tax rate that was applied more
uniformly would certainly reduce the necessity of costly tax avoidance schemes-but the
current Swamp enables some companies to pay near-zero, which is a lot less than 15
percent.
As for the modest reduction in the top earned-income
bracket: as we've seen, the bulk of the taxes paid by the bottom 80 percent are payroll
taxes on earned income, and the unearned income flowing to the wealthiest 10 percent is
taxed at a much lower rate than the combined payroll-income tax burden on wage earners.
This systemic unfairness of the status quo is one
reason why Trump was elected: the protected few (to use Peggy Noonan's phrase) are
benefiting at the expense of the unprotected many. The only meaningful tax reforms-the
elimination of loopholes, offshore tax havens, and the congressional privilege of
rewarding cronies with obscure tax breaks buried in legislation; radical simplification
of the code and a realignment of the asymmetry between the taxes paid on earned income
and unearned income-are a political impossibility, as the protected elites have a
stranglehold on the machinery of governance.
That said, it would have been refreshing if Trump's
team had called for a massive house-cleaning of a wildly unjust tax code, and a draining
of the particularly fetid tax-avoidance swamp.
Charles Hugh Smith is the owner/writer of the
oftwominds.com blog and has written 11 books on our economy and society, including
A Radically Beneficial World: Automation,
Technology & Creating Jobs for All
.
There's another systemic source of unfairness in the tax code: the
gap between the high rates on earned income (wages and salaries) and the
much lower rates on unearned income-what we might characterize as income
generated by capital rather than labor: rents, capital gains, and so on.
This more or less summarizes the state of taxation in America. Working
for a living is for suckers.
Sigh . . . same old Trump. After flip-flopping on NAFTA, NATO, Chinese
currency, etc., and hiring more top level-appointees from Goldman-Sachs than
any other President . . . are we surprised by what they all hurriedly produced
because they want something done by the 100th day?
I agree with much of the article, but disagree with the objection to the
capital gains tax rate. Capital investments are at risk of a loss as well as a
gain. If the taxes are raised on capital gains, the risk/reward calculations
will result in fewer investments. And another thing. Its totally dishonest for
the government to tax capital gains on long term holdings of real estate or any
other very long term investment without taking inflation into account. Think
about it. If you own a home for let say 40 years, when its sold, almost all of
the sales price is profit, since what you paid 40 years ago is almost nothing
in today's prices. Raising the capital gains tax rate will hurt a lot more than
just rich people.
It is good to see that there are actually some real conservatives left in this
country. I hope next year's elections reflect the current discontent and the
need for more public servants to be elected and fewer politicians.
"This systemic unfairness of the status quo is one reason why Trump was
elected: the protected few (to use Peggy Noonan's phrase) are benefiting at the
expense of the unprotected many."
Stuff and nonsense. The party that
nominated Trump is one of the key reasons for the "systemic unfairness".
Whatever Trump was elected for, this was not it.
The real question is why does anyone think that Trump meant it when he said
he wanted to "drain the swamp" – whatever that means – or that what he might
have meant about it (and it is questionable he had any real notion beyond the
slogan) is what his supporters thought he meant. What we are seeing from poll
after poll is that his supporters CHANGE their positions depending whether
Trump holds them; Trump was not elected as an embodiment of an idea, any idea,
or a policy, any policy; Trumpism is about the pose of the man, nothing more
and nothing less. If he comes up with a tax plan that dumps all of the tax
burden on the very voters that elected him, they will find a way to rationalise
this just as surely as they would support him if he shot a man in the middle of
Fifth Ave.
Trump might not know much; he knows his marks supremely well.
Bravo for this article. We're getting crony capitalism and gaming of the system
by rent-seekers on both left and right. Where is a political party that is
going to actually stand for those of us who don't have power and aren't trust
fund babies?
"Think about it. If you own a home for let say 40 years, when its sold, almost
all of the sales price is profit, since what you paid 40 years ago is almost
nothing in today's prices. Raising the capital gains tax rate will hurt a lot
more than just rich people.
"
For house sales, the first half million are excluded from capital gains
taxes. Median house price in the US is 200K. There is no problem here
whatsoever. This objection to capital taxes is from the same bag of tricks as
"estate taxes kill grandpa's family farm!." They don't unless that family farm
is the basis of an agro-industrial empire.
"There's another systemic source of unfairness in the tax code: the gap between
the high rates on earned income (wages and salaries) and the much lower rates
on unearned income-what we might characterize as income generated by capital
rather than labor: rents, capital gains, and so on".
No wonder the rate of return on capital has exceeded the rate of growth of GDP
since the 1980s (a major cause of inequality).
It is not just house prices that inflate. Financial assets do also. Taxing them
on the
nominal gains at ordinary rates, without correcting for inflation, is grossly
unfair,as in many cases would mean taxes owed on losses.
But the author also
fails to observe that the
tax plan provides special treatment for partnerships, those self employed, and
for
private companies. For these, the top rate is 15%, essentially dividing people
into
wage slaves and the privileged, undertaxed elite.
Mnuchin assured that the egregious carried interest loophole would be
closed. Great.
Except it will be eliminated by reducing the
taxation of these monies to 15%.
This plan, like the RINOcare bill pushed by
Speaker Ryan, is an example of either lax
thinking, or of perhaps of swamp behavior.
Thank you those that corrected me on the exemption of capital gains on houses.
My experience has been with farmland. I was not aware of the exemption for
house sales.
Of course, it always depends on whose ox is being gored, but eliminating almost
all deductions in return for an increase in the standard deduction, helps me
not at all. I usually itemize and last year had: medical, charity, mortgage
interest, state income tax, and real estate tax deductions. I expect my taxes
to go up under this proposal, unless the details of which there aren't any, are
very different. So much for tax relief for the middle class.
"The party that nominated Trump is one of the key reasons for the
'systemic unfairness.'"
Yeah, it is great to see the author here calling for what amounts to the
Democratic view of progressive taxation. Basically, what Mr. Smith proposes
tracks HRC's tax plan issue by issue.
Re: Taxing them on the
nominal gains at ordinary rates, without correcting for inflation
Other than
indexing the tax brackets (which applies to all income) we tax wages on
inflationary gains too. The government's bills also increase due to inflation
so why shouldn't its revenue?
"Capital investments are at risk of a loss as well as a gain."
I
always have to laugh whenever someone trots out this old chestnut. So what? If
there is a loss, then there is no taxable gain. And any loss on one investment
is subtracted from any other investment gains. And the degree of "risk" in any
investment is balanced off by the expected "return" if it does pay off as
expected – the greater the risk, the bigger the return. So the risk factor has
already been accounted for. The bottom line is, income is income – no matter
where it came from.
I have to wonder about the comment made that increased taxes on capital gains
will over-stifle investment. An increase will likely have an impact but up to a
certain point, it will be less than the current cost to revenue/economy. The
question is what point will an increase be too much – and push away those
investment dollars to the next best option. Is there something magic about 15%
or is there still room above that point?
I sort of wonder why he is against estate taxes (although I prefer to rename them inheritance
taxes). I think they are IN GENERAL a good thing. Or does he think relatives are always better
managers?
Of course like the ideas behind progressive consumption taxes in general, I regard them as
requiring company taxes, land taxes and inheritance taxes for balance. Growing inequality of wealth
is a long term threat that should not be ignored.
It doesn't seem healthy to have a system that only functions well if other conditions are favorable.
Given uncertainty in general, anything saddling young people with debts that they may not be able
to repay is a bad thing, not just for those young people, but for the whole society. Society should
be looking to decrease economic security, not increase it.
Yes, it's Groundhog Day. Republicans are once again claiming that tax cuts will spur enough
economic growth to pay for themselves. Well, old-timers like myself remember Round I and Round
II when we tried this grand experiment. It didn't work.
Round I was under President Reagan when he put in big tax cuts at the start of the presidency.
These tax cuts were supposed to lead to a growth surge which would cover the costs of the tax
cuts. Not quite, the deficit soared and the debt to GDP ratio went from 25.5 percent of GDP at
the end of 1980 to 39.8 percent of GDP at the end of 1988. (It rose further to 46.6 percent of
GDP by the end of the first President Bush's term.)
Round II were the tax cuts put in place by George W. Bush. At the start of the Bush II administration
the ratio of debt to GDP was 33.6 percent. It rose to 39.3 percent by the end of 2008.
In addition to these two big lab experiments with the national economy, we also have a large
body of economic research on the issue. This research is well summarized in a study * done by
the Congressional Budget Office (CBO) back in 2005 when it was headed by Douglas Holtz-Eakin,
a Republican economist who had served as the head of George W. Bush's Council of Economic Advisers.
I commented ** on this study a few years back:
"In a model that examined the effects of a 10% reduction in all federal individual income tax
rates, the economy was slightly larger in the first five years after the tax cut and slightly
smaller in the five years that followed. In this case, using dynamic scoring showed the tax cut
costing more revenue than in the methodology the CBO currently uses.
"The CBO did find that dynamic scoring of the tax cut could have some positive effects if coupled
with other policies. In one set of models, policymakers assumed that taxes were raised after 10
years. This led the government to raise more tax revenue in the first 10 years because people
knew that they would be taxed more later, so they worked more."
In short, Holtz-Eakin considered the extent to which tax cuts could plausibly be said to boost
growth and found that they had very limit impact on the deficit. The one partial exception, in
which growth offset around 30 percent of the revenue lost, was in a story where people expected
taxes to rise in the future. In this case, people worked and saved more in the low tax period
with the idea that they would work and save less in the higher tax period in the future.
That is not a story of increasing growth, but rather moving it forward. I doubt that any of
the Republicans pushing tax cuts wants to tell people that they better work more now because we
will tax you more in the future. But that is the logic of the scenario where growth recaptures
at least some of the lost revenue.
Having said all this, let me add my usual point. The debt to GDP ratio tells us almost nothing.
We should be far more interested in the ratio of debt service to GDP (now near a post war low
of 1.8 percent).
Also, if we are concerned about future obligations we are creating for our children we must
look at patent and copyright monopolies. These are in effect privately imposed taxes that the
government allows private companies to charge as incentive for innovation and creative work. The
size of these patent rents in pharmaceuticals alone is approaching $400 billion. This is more
than 2 percent of GDP and more than 10 percent of all federal revenue. In other words, it is a
huge burden that honest people cannot ignore.
What Congress isn't Seeing When the Government Spends
By Dean Baker
The U.S. House of Representatives recently adopted a new rule that requires lawmakers to take
long-term macroeconomic effects into consideration when deciding how to vote on tax and spending
bills. In theory, this could show that tax cuts, particularly for billionaires, boosts the U.S.
economy, since expectations of paying fewer taxes would encourage people to work a little harder,
leading to more growth that would help offset revenues lost from tax cuts.
There is some truth to the logic behind this type of forecasting - what policymakers call 'dynamic
scoring.' But this approach put forth by the House has little to do with the way the economy actually
works. True, lower tax rates do give workers somewhat more incentive to work and save, but serious
analysis shows that the impacts of this incentive is small. This was the conclusion that the U.S.
Congressional Budget Office reached in 2005 when it examined this issue under economist Douglas
Holtz-Eakin. In a model that examined the effects of a 10% reduction in all federal individual
income tax rates, the economy was slightly larger in the first five years after the tax cut and
slightly smaller in the five years that followed. In this case, using dynamic scoring showed the
tax cut costing more revenue than in the methodology the CBO currently uses.
The CBO did find that dynamic scoring of the tax cut could have some positive effects if coupled
with other policies. In one set of models, policymakers assumed that taxes were raised after 10
years. This led the government to raise more tax revenue in the first 10 years because people
knew that they would be taxed more later, so they worked more. The House rule, however, does not
factor in that taxes could rise in the future.
In the other set of models, the CBO assumed that government spending was cut by enough in 10
years to make up for the revenue shortfall. This also showed more growth because CBO models assume
that cutting government spending will always lead to more growth. The way its models are structured,
the less money is spent by the government, the more money will be available for private investment,
which will lead to more productivity and growth.
This raises a far more serious problem. In the scenario just described, the CBO assumes government
spending has zero impacts on productivity, meaning that if the government shut down all the schools
tomorrow and stopped any spending to maintain or improve America's highways, airports and other
infrastructure, the economy would still keep growing. The model assumes no productivity loss from
having illiterate workers or dysfunctional roads and airports. It will only show gains, as some
portion of the money saved is shifted into private investments.
To better reflect economic reality, the CBO should incorporate the productivity effects of
public investment in it's models. There has been much work done over the years on the productivity
of different forms of public investment such as infrastructure, education, and research and development
spending. If the CBO incorporated this productivity impact into its economic projections they
would provide better predictions of the economic and budgetary impact of policy.
It would also be reasonable to include honest dynamic scoring of tax policy that includes future
tax increases rather than the current House rule, which just includes tax cuts. But as the CBO
analysis under Holtz-Eakin showed, this will lead to the opposite outcome desired by right-wing
Republicans. It certainly does not make sense to require the CBO to use phony numbers to justify
tax cuts for rich people, which appears to be the direction in which the Republican-controlled
House is going right now.
Actually Curbing Tax Avoidance by Companies Shifting
Profits Overseas Is Not Hard
The New York Times had an article * discussing various
efforts to deal with companies shifting profits overseas to
avoid paying the corporate income tax.The piece implies that
we don't know how to ensure that companies pay taxes on
foreign profits.
Actually, it is not hard to design a system where
companies cannot avoid paying taxes on their foreign profits.
If corporations were required to turn over an amount of
non-voting shares ** equal to the targeted tax rate (e.g. if
we want taxes to be equal to 25 percent of profits, then the
non-voting shares should be equal to 25 percent of the
total), then it would be almost impossible for companies to
escape their tax liability.
Under this system, the non-voting shares would be treated
the same way as voting shares in terms of payouts. If a
company paid a $2 dividend on its voting shares, then the
government's shares would also get a $2 dividend. If it
bought back 10 percent of its shares at $100 a share, it will
also buy back 10 percent of the government's shares at $100 a
share.
Under this system there is basically no way for a company
to avoid its tax obligations unless it also rips off its own
shareholders. In this case, it would be outright fraud and
the shareholders would have a large interest in cracking down
on its top management.
It understandable that those who don't want corporations
to pay income taxes would be opposed to this sort of
non-voting shares system, but it is wrong to say that we
don't know how to collect the corporate income tax.
Instead of Taxes, Make Corporations Give the Government
Stock
By Dean Baker - Los Angeles Times
President Trump and Congress will soon take up the job of
reforming the tax code, with particular attention to
corporate taxes. Since a substantial portion of the corporate
income tax is paid by wealthy shareholders, many of us are
concerned that "reform" actually means reducing the tax
burden for the 1% - and leaving a larger burden for the rest
of us.
But the need for true reform is real. Although the
corporate tax rate is 35%, companies generally pay around
23%. Giant loopholes save companies money, deprive the
government of money, and create money for people in the tax
avoidance industry.
Exotic schemes to game the system are constantly in the
news.
Take, for example, the corporate inversion strategy, in
which a U.S. company arranges to be taken over by a foreign
company in order to eliminate its liability on overseas
profits. These takeovers generate large fees for the
accountants and lawyers who engineer the process without
improving the broader economy.
"Dead peasant" insurance policies, made famous by the
documentarian Michael Moore, are another example. In that
scheme, huge companies like Wal-Mart take out insurance
policies on the lives of front line workers, such as checkout
clerks, to smooth out their profit flows and reduce their tax
liability. If a worker dies, the company gets the payout, not
the individual or his family. Someone undoubtedly got very
rich dreaming up dead peasant policies but, again, this
financial innovation does not contribute to economic growth.
Perhaps the greatest scheme of all is the private equity
industry, which loads firms with debt. Because the interest
on that debt is tax deductible, private equity firms can make
large profits even if they've done nothing to improve a
company's performance. Incidentally, many of the richest
people in the country made their fortune in private equity,
including folks like Mitt Romney, Pete Peterson, and many
other prominent billionaires or near-billionaires.
If the tax reformers are serious, and I hope they are,
here's one simple way to largely eliminate the gaming
opportunities that have made these people rich.
Instead of traditional taxes, the government could require
corporations to turn over a portion of their stock, say 25%,
in the form of non-voting shares. The government would
benefit from any dividends or share buybacks but would have
no voice in running the company.
This system would eliminate almost all opportunities for
gaming since a company would not be able to deny the
government its share of profits unless it also withheld
profits from its other shareholders. And we would not call
that "tax avoidance" but outright theft – the sort of thing
that gets people sent to jail.
Many companies might actually embrace this system. They
would save a huge amount of money on accounting and
bookkeeping, and they wouldn't have to take the tax code into
consideration when they decided their accounting procedures
for long-term investments. They could simply do what makes
the most sense for them....
"it is not hard to design a system where companies cannot
avoid paying taxes on their foreign profits. If corporations
were required to turn over an amount of non-voting shares **
equal to the targeted tax rate (e.g. if we want taxes to be
equal to 25 percent of profits, then the non-voting shares
should be equal to 25 percent of the total), then it would be
almost impossible for companies to escape their tax
liability."
Dean Baker has made this proposal before. When
he did - I said it was a good idea. I've seen a couple of
folks questioning this but their questioning of it was the
usual misunderstanding if not misrepresentation.
That's right. THe government should become a shareholder and
then can share in the capital gains when the company does
buybacks. They can then use these "on paper" gains to pay for
roads "on paper" and pay for healthcare and our army "on
paper"
way to go pgl. Now it is clear you are a junk bond
salesman. financial engineering is how we will move this
country forward. sarcasm...
It is clear to me that the centrist democrats like pgl
have joined the financial engineering crowd.
Can someone here explain this proposal? I don't understand
how this works. We already know that a company makes a profit
overseas, and we could tax it instead of deferring those
taxes until they repatriate the profit.
How would paying
the tax in stock instead of cash make any difference?
We already know that a company makes a profit overseas, and
we could tax it instead of deferring those taxes until they
repatriate the profit.
How would paying the tax in stock
instead of cash make any difference?
[ The value of corporate stock is determined by corporate
earnings. Whether corporate earnings are domestic and after
tax or overseas, whether earnings are distributed or retained
make no difference. An increase in overseas earnings then,
will increase the value of corporate stock. ]
OK, I think I understand it now: a corporation would be
directly owned by the government; the proportion of ownership
would be equal to the desired tax rate.
But the increase in
value does not put cash in the government's pocket. Does the
government borrow against the shares? sell them?
Or, more likely, hang on to the shares and use deficit
financing.
The idea that "this is a simple way to collect all taxes"
seems far fetched to me.
"Can't" be taxed? That's the part I don't understand. If they
can hide their profits, then Baker's proposal will not work
either. But if you know their profits, why can't you tax
them?
Right now it seems we know what the profits are, but they
don't get taxed until repatriated -- why? Transfer pricing
exploits this loophole, but why can't we just close it?
And, to my original question, how does Baker's proposal
make any difference?
(Inversions are a different thing: after the inversion, it
is no longer a US corp, so we can't tax their overseas
profits and I don't know if/how we tax any of their US
profits.)
The repatriation tax is not the same thing as transfer
pricing. I thought everyone knew that but I guess not you.
I'd explain the difference but then you would get all mad and
have to piss on some dead man's grave as usual.
A Progressive Way to Replace Corporate Taxes
By DEAN BAKER
Washington - JUST about every American chief executive has
the same dream: to get out from under the corporate income
tax. For many, that means lobbying Congress to change the tax
code. But for a growing number, it also involves increasingly
creative - and successful - tricks to avoid their liability.
The latest fad is inversion. Over the last few years, some
of the country's largest companies have arranged to be taken
over by smaller companies, conveniently headquartered in the
Bahamas or some other tax haven. A company then has to pay
tax only in the tax haven; it escapes American corporate
income taxes altogether. Pfizer, the huge pharmaceutical
company, is currently attempting to go this route, being
taken over by a much smaller company with headquarters in
low-tax Ireland.
While it's hard not to admire the ingenuity of these
tax-avoidance schemes, their success is a big problem for
federal revenues. Though the United States has the highest
statutory corporate income tax in the developed world,
write-offs and loopholes have eroded the government's take
for decades. Corporate income taxes were just 1.9 percent of
gross domestic product in 2014. That is down from an average
of 2.6 percent in the 1970s, even though profits are near a
postwar high as a share of national income.
The Obama administration is looking into ways to crack
down on inversions, but it's a losing battle. Other tricks
will be found. Which leaves us with two paths forward. If we
get less money from corporations, we have to make up the
shortfall from other sources of revenue, almost all of which
will be more regressive than the corporate income tax. Or we
can come up with a radically new approach to corporate
taxation....
mmm.. It is a bit hard to feel sorry for "Munchin". But I don't know what
the surprise is - in Trump's cabinet everybody undermines everybody else. It
is absolutely par for the course. Hasn't he noticed?
The reason is obvious. Trump hasn't a clue what he is doing, and he likes
to play one advisor off against another. In order to protect themselves they
do likewise.
Final
Class tax burden shares
are hard
to calculate most tax cuts are
guided by immediate shock effects
not long run system wide adjustments to the tax change shock
Bottom
line next years tax bill
not long run social Welfare
Their
donor class gets most of its income from capital income. Which is why
they really love gutting taxation on capital. Better for the Hampton
crowd to tax labor income or impose sales taxes. Only little people
pay taxes in their world.
[Yep, but tax breaks are a twofer, very effective dividends for the
donor class while still popular among the weebles as long as we gets
a little out of them too. Democrats are too noble (cough, cough) to
ever raise taxes on corporations and the wealthy while cutting taxes
below the median income or so.]
The Trump administration would double the
standard deduction, essentially eliminating
taxes on the first $24,000 of a couple's
earnings. It also called for the elimination of
most itemized tax deductions [drop dead, NY, CA
and IL] but would leave in place the popular
deductions for mortgage interest and charitable
contributions. The estate tax and the
alternative minimum tax, which Mr. Trump has
railed against for years [because, as David Cay
Johnston showed using DJT's 2005 return, it does
what it's supposed to do], would be repealed
under his plan.
The plan would include a special one-time tax
[just kidding – GWB did the same thing, with
predictable results that did not include a jobs
boom] to entice companies to repatriate cash
that they are parking overseas.
Mr. Trump also signaled support for changes
to the tax code that would help families with
child-care costs. His plan also would end the
3.8 percent tax on investment income [ka-ching!]
that was imposed by the Affordable Care Act.
Beyond cutting the tax rate to 15 percent for
large corporations, which now pay a rate of 35
percent, Mr. Trump also wants that rate for a
broad range of firms known as pass-through
entities - including hedge funds, real estate
concerns like Mr. Trump's and large partnerships
[i.e., working stiffs] - that currently pay
taxes at individual rates, which top off at 39.6
percent.
Acknowledging concerns that such a move could
potentially be used as a tax shelter, Mr.
Mnuchin insisted on Wednesday that the
administration's plan would not be used as a
loophole to allow people to pay less tax than
they should be paying. [And you can take Mr.
Mnuchin's word to the bank. Just ask the
customers
victims of OneWest.]
The concern would be that lawyers, doctors,
consultants or other wealthy people in
partnerships could structure much of their
personal income as business income, effectively
reducing their tax rate from 39.6 percent to 15
percent. [As could anybody else – just ask your
employer to fire you and hire you back as a
Chapter S corporation.]
The concern would be that lawyers,
doctors, consultants or other wealthy people
in partnerships could structure much of
their personal income as business income,
effectively reducing their tax rate from
39.6 percent to 15 percent.
I'm confused. I thought that S corporations
did not pay income taxes (they do pay FICA taxes
for employees, etc.), because they pass through
all profits to the individuals, trusts, or
charities that own the corporation. The
individuals then pay regular income tax at the
individual tax rate, not the corporate rate.
Have I misunderstood how this works?
"double the
standard deduction,
essentially
eliminating taxes on
the first $24,000 of
a couple's
earnings."
Now, if the first
$24,000 of earnings
were exempted from
FICA, with those
"earning" over
$200,000 paying
double FICA on
everything over
$24,000 just to keep
Social Security
well-funded and
healthy, you might
actually be talking
about a stimulus for
the economy. [I put
"earning" in quotes
because very, very
few people could
actually EARN more
than $200 grand in a
year.]
But I doubt
that's what Mnuchin
and company have in
mind.
Actually Curbing Tax Avoidance by Companies Shifting Profits Overseas Is
Not Hard
The New York Times had an article * discussing various efforts to deal with
companies shifting profits overseas to avoid paying the corporate income tax.The
piece implies that we don't know how to ensure that companies pay taxes on foreign
profits.
Actually, it is not hard to design a system where companies cannot avoid
paying taxes on their foreign profits. If corporations were required to turn
over an amount of non-voting shares ** equal to the targeted tax rate (e.g.
if we want taxes to be equal to 25 percent of profits, then the non-voting shares
should be equal to 25 percent of the total), then it would be almost impossible
for companies to escape their tax liability.
Under this system, the non-voting shares would be treated the same way as
voting shares in terms of payouts. If a company paid a $2 dividend on its voting
shares, then the government's shares would also get a $2 dividend. If it bought
back 10 percent of its shares at $100 a share, it will also buy back 10 percent
of the government's shares at $100 a share.
Under this system there is basically no way for a company to avoid its tax
obligations unless it also rips off its own shareholders. In this case, it would
be outright fraud and the shareholders would have a large interest in cracking
down on its top management.
It understandable that those who don't want corporations to pay income taxes
would be opposed to this sort of non-voting shares system, but it is wrong to
say that we don't know how to collect the corporate income tax.
Instead of Taxes, Make Corporations Give the Government Stock
By Dean Baker - Los Angeles Times
President Trump and Congress will soon take up the job of reforming
the tax code, with particular attention to corporate taxes. Since a
substantial portion of the corporate income tax is paid by wealthy shareholders,
many of us are concerned that "reform" actually means reducing the tax
burden for the 1% - and leaving a larger burden for the rest of us.
But the need for true reform is real. Although the corporate tax
rate is 35%, companies generally pay around 23%. Giant loopholes save
companies money, deprive the government of money, and create money for
people in the tax avoidance industry.
Exotic schemes to game the system are constantly in the news.
Take, for example, the corporate inversion strategy, in which a U.S.
company arranges to be taken over by a foreign company in order to eliminate
its liability on overseas profits. These takeovers generate large fees
for the accountants and lawyers who engineer the process without improving
the broader economy.
"Dead peasant" insurance policies, made famous by the documentarian
Michael Moore, are another example. In that scheme, huge companies like
Wal-Mart take out insurance policies on the lives of front line workers,
such as checkout clerks, to smooth out their profit flows and reduce
their tax liability. If a worker dies, the company gets the payout,
not the individual or his family. Someone undoubtedly got very rich
dreaming up dead peasant policies but, again, this financial innovation
does not contribute to economic growth.
Perhaps the greatest scheme of all is the private equity industry,
which loads firms with debt. Because the interest on that debt is tax
deductible, private equity firms can make large profits even if they've
done nothing to improve a company's performance. Incidentally, many
of the richest people in the country made their fortune in private equity,
including folks like Mitt Romney, Pete Peterson, and many other prominent
billionaires or near-billionaires.
If the tax reformers are serious, and I hope they are, here's one
simple way to largely eliminate the gaming opportunities that have made
these people rich.
Instead of traditional taxes, the government could require corporations
to turn over a portion of their stock, say 25%, in the form of non-voting
shares. The government would benefit from any dividends or share buybacks
but would have no voice in running the company.
This system would eliminate almost all opportunities for gaming since
a company would not be able to deny the government its share of profits
unless it also withheld profits from its other shareholders. And we
would not call that "tax avoidance" but outright theft – the sort of
thing that gets people sent to jail.
Many companies might actually embrace this system. They would save
a huge amount of money on accounting and bookkeeping, and they wouldn't
have to take the tax code into consideration when they decided their
accounting procedures for long-term investments. They could simply do
what makes the most sense for them....
"it is
not hard to design a system where companies cannot avoid paying taxes
on their foreign profits. If corporations were required to turn over
an amount of non-voting shares ** equal to the targeted tax rate (e.g.
if we want taxes to be equal to 25 percent of profits, then the non-voting
shares should be equal to 25 percent of the total), then it would be
almost impossible for companies to escape their tax liability."
Dean
Baker has made this proposal before. When he did - I said it was a good
idea. I've seen a couple of folks questioning this but their questioning
of it was the usual misunderstanding if not misrepresentation.
His paper provided a means for separating increases in the deficit into the part that represents
fiscal stimulus to offset a recession v. the part caused by the recession. His point was simply
the extent of fiscal stimulus during the Great Depression was a lot less than the rise in the
actual deficit.
Pinkybum earlier wrote:
"Debt as a percentage of GDP has doubled since 2009 so that has provided some relief."
Yes – we did have some stimulus in 2009 but not as much as reflected by the size of the deficit.
But let's not pick on him but cite something Max Sawicky wrote (in an otherwise great piece):
"Now here we are, in 2017, after the Obama Administration has brought the deficit down from $1.5
trillion in Fiscal Year 2009 to $621 billion in FY2016"
Max is rightfully complaining about the 2011 shift to fiscal austerity. But he is very aware
of Brown's paper and its logic. Some of this decline in the deficit came from an economy that
had actually grown somewhat.
Fiscal stimulus (austerity) is not well captured by simply looking at the rise (fall) in the
deficit. Brown's paper was written 62 years ago. Some folks need to finally read it.
My point wasn't to say that the debt increased therefore everything was OK. You also can't just
look at the nominal deficit and know what is going on. Back in Obama's first term unemployment
was sky high and that is the reason we needed to run deficits. How high should the deficits be?
Enough to employ all the people who want to be employed and that is true regardless of whether
there is a recession.
Why do we need to run deficits to keep people employed? The answer must lie in the distribution
of earnings which go to rich who have a lower propensity to spend and therefore the economy activity
is too low to support full employment.
That's my two cents now I will go and read the paper.
"What really matters
in all of this is how
many dollars you are
scraping from poor,
middle class, and rich
people. Consumption
taxes scrape more
dollars from people
who consume more and
it is the rich who
consume more.
According to the 2015
Consumer Expenditure
Survey, the richest
income quintile
consumes an average of
$110,424 while the
poorest income
quintile consumes an
average of just
$24,355. A 10 percent
consumption tax would
thus draw $2,435 from
the poorest quintile
and $11,042 from the
richest quintile.
Which is to say that
such a tax draws 4.5
times as much money
from the rich as the
poor."
This is an
incredibly bad metric.
If the rich have
incomes that an 10
times more than the
poor, then this
statistic shows how
regressive the tax is
- not how progressive
it is.
Peter using the
numbers from the 2015
CES cited by Bruenig,
and his prototypical
10% flat consumption
tax, the average
person in the top
quintile would pay
roughly $11,042, or
roughly 6.2% of their
pre-tax income, while
the average person in
the bottom quintile
would pay $2,435, or
roughly 22.3% of their
pre-tax income.
Presumably that person
in the bottom quintile
is also the recipient
of substantial
non-cash income,
enabling them to
consume more than
their earnings.
Nonetheless, anyway
you slice it, a flat
consumption tax as in
Bruenig's overly
simplistic example
seems to be obviously
very regressive.
May be if you refund them up to a certain income for
household (so that low income folk are exempt) and introduce
Veblen goods tax they are not that bad.
In my last post, I said that it would be good if the US
imposed a consumption tax such as the value-added tax (VAT).
Critics generally say that these kinds of taxes are bad
because they are "regressive." While it is true that they are
regressive under the way that word is generally used, that
entire way of thinking about taxes is confused and muddled
(as I've discussed previously in the case of the Nordics).
The standard response to those who raise the regressivity
objection is to say that it just depends on how the proceeds
of the consumption tax are spent. This is true, but only
because it is true of all taxes. Even progressive taxes are
only good if the proceeds are spent well. You could spend
them on bad things and even in ways that make inequality
worse.
The bigger problem with the regressivity objection, in my
view, is that dividing taxes paid by income seems to obscure
the more important point. What really matters in all of this
is how many dollars you are scraping from poor, middle class,
and rich people. Consumption taxes scrape more dollars from
people who consume more and it is the rich who consume more.
According to the 2015 Consumer Expenditure Survey, the
richest income quintile consumes an average of $110,424 while
the poorest income quintile consumes an average of just
$24,355.
A 10 percent consumption tax would thus draw $2,435 from
the poorest quintile and $11,042 from the richest quintile.
Which is to say that such a tax draws 4.5 times as much money
from the rich as the poor.
Whether the money drawn from the consumption tax
ultimately reduces inequality does depend on how it is spent,
but it is not like it needs to be spent in an especially
"progressive" way, i.e. in a way that is heavily targeted
towards the poor. Even if you spent this money in a way that
benefited all quintiles equally, you'd still see a pretty
significant net swing.
Of course, this graph features a rather simplistic
analysis as it assumes consumption does not change at all in
response to the tax and benefit reforms. But even if the
precise figures would be somewhat different in a real life
implementation, the basic pattern of the graph above would
still hold.
None of this is to say that a consumption tax is better
than other taxes. The US has plenty of room to increase its
tax level by upping income taxes, and so that's a natural
place to look. But to say consumption taxes are bad generally
is pretty clearly mistaken.
"What really matters in all of this is how many dollars you
are scraping from poor, middle class, and rich people.
Consumption taxes scrape more dollars from people who consume
more and it is the rich who consume more.
According to the 2015 Consumer Expenditure Survey, the
richest income quintile consumes an average of $110,424 while
the poorest income quintile consumes an average of just
$24,355. A 10 percent consumption tax would thus draw $2,435
from the poorest quintile and $11,042 from the richest
quintile. Which is to say that such a tax draws 4.5 times as
much money from the rich as the poor."
This is an
incredibly bad metric. If the rich have incomes that an 10
times more than the poor, then this statistic shows how
regressive the tax is - not how progressive it is.
On the fallacy of Trump's so-called "border adjustment
tax," and the Republican civil war it might spark.
BY MAX B. SAWICKY FROM APRIL 7, 2017
The history of the world used to be the history of class
struggle. Now the history of the world seems to be the
back-and-forth over the taxation of the 1 percent. Over the
decades, federal income tax rates have changed less for the
vast middle class than they have for the rich. In the
fabulous 1950s, the top marginal rate in the personal income
tax was 91 percent. Now it's just under 40 percent.
Meanwhile, the contribution of corporate income taxes to
federal revenue has gone down while that of the payroll tax
has gone up. And I needn't have to remind you that the share
of pre-tax income claimed by the rich has skyrocketed.
This has been a bipartisan exercise, but for the
Republican Congress, the work of lubricating the lubricated
is still not done. Under the Clinton Administration, budget
deficits were fought at great political cost and eliminated
by the end of the 1990s. This amounted to a swell gift to the
incoming Republican Administration after the (s)election of
2000: namely, an opportunity to cut taxes and jump the
deficit right back up. Which of course they did.
Now here we are, in 2017, after the Obama Administration
has brought the deficit down from $1.5 trillion in Fiscal
Year 2009 to $621 billion in FY2016, again at great political
cost. You don't have to think very hard to guess what the
Republican majority in Congress is up to next. But there is
still one problem.
The Republican Congress came in on the coattails of a
different kind of Republican. While Donald Trump has been
surrendering his populist commitments like clockwork, he
appears to still be of a mind to do something about trade, an
issue which might have been his strongest political card in
the primaries and general election. He has undone Obama's
Trans-Pacific Partnership, the infamous TPP, but he is
half-stepping on killing the North American Free Trade
Agreement. Moreover, replacing a single omnibus trade deal
like the TPP with a plethora of individual deals, one country
at a time, will be a gargantuan, time-consuming task, of
which the results will likely be a long way into the future.
What's left? Taxes. And the President has decided that he
wants to tax imports.
The leading vehicle for Trump's efforts to advantage U.S.
manufacturing is the so-called "border adjustment tax," known
to wonks as the "Destination-Based Cash Flow Tax" (DBCFT).
Since there seem to be no plans to invade Mexico yet, it is
not the border that would be adjusted, just the taxation of
imports and exports.
Less remarked about the DBCFT is that it
repeals-and-replaces the U.S. corporate income tax. More
specifically, it eliminates the tax on most corporate income
and, supposedly, recovers the revenue by taxing imports. Yet
the effective tax rate on capital (dividends, interest, rent,
capital gains) is reduced to zero. It is truly the populism
of fools.
The fun part is that to minimize the increase of federal
deficits, after Trump's months of ranting about the national
debt, the DBCFT makes itself affordable by goring the ox of
firms in the business of selling imported goods. This
includes all the big retailers such as Walmart and Target,
but also industries that import raw materials for further
processing. Among the latter is the petrochemical sector.
What this means is that the DBCFT is setting off a civil war
among conservative tax-cutters.
The sides line up roughly in the same way they did for
health care. The border tax was hatched in the House under
the tutelage of House Speaker Paul Ryan. The White House,
especially trade militants like Steven Bannon and Peter
Navarro, is on board. On the other side is a parade of
astro-turfy opposition groups and allied corporate interests,
including the formidable Koch network. Sound familiar? This
was the same gang that killed Ryan's replacement for
Obamacare. So we have reason to think we may already know how
this will end.
A relatively accessible discussion of the DBCFT by Alan
Auerbach and friends can be found at the Center for American
Progress. Auerbach describes it compactly (and misleadingly,
see below) as "a tax on consumption from sources other than
wages and salaries." This description may actually appeal to
some liberals. Like the original Hall-Rabushka flat tax, it's
actually an elegant idea. It simplifies the taxation of
corporations and it might reduce tax avoidance. It could
raise a great deal of money if the tax rate is kept close to
the current one.
On the minus side, it makes the distribution of the tax
burden less progressive, and under Republican authorship it
is unlikely to raise any net revenue. If history is any
guide, we can count on the contrary. Oh, and the DBCFT is
probably illegal under existing trade agreements.
But, more than that, Auerbach's claim that the tax only
falls on consumption by recipients of capital income
(dividends, interest, rent, capital gains) is misleading or
wrong for four reasons:
The notion that wages escape taxation rests on the
counterfactual wherein wages are part of the firm's tax base,
as under a value-added tax (VAT). But the actual
counterfactual in force is the U.S. corporate income tax
(CIT), which does not include wages in the tax base. Compared
to the CIT, there is in fact a shift in tax burden to wages
used for the consumption of imports.
At the time the new tax takes effect, those who have
savings based on wages do in fact bear the tax insofar as
they purchase imported goods, or goods that require imported
materials for manufacture. Only until they are all literally
dead will it be true that, in Auerbach's sense (but see #1),
only non-wage income is taxed when it is used for
consumption.
Those with non-wage income who are not necessarily rich
recipients of capital income, such as food stamp
beneficiaries, also bear the burden of the tax on imports.
So too do workers bear the burden of the tax who reap
above "normal" returns to investments based on their wages.
In summary, Paul Ryan's tax cut vehicle is a target-rich
environment for critics, many of whom will be found in his
own caucus. Nor can he expect much relief from his Democratic
counterparts.
Max Sawicky is excellent as always. You should read this
paragraph over and over until it finally gets through:
'Less remarked about the DBCFT is that it
repeals-and-replaces the U.S. corporate income tax. More
specifically, it eliminates the tax on most corporate income
and, supposedly, recovers the revenue by taxing imports. Yet
the effective tax rate on capital (dividends, interest, rent,
capital gains) is reduced to zero. It is truly the populism
of fools.'
It's because they're trying
to raise taxes with the DBCTF/BAT to somewhat offset the tax
cuts for the rich and corporations. Glibertarians and the
Freedom Caucus want nothing but tax cuts and to drown the
baby. Plus the BAT would raise taxes on importers like
Walmart and the Koch brothers who have been fighting it.
If you just read PGL the Facile you wouldn't understand
any of this, just "the Republicans are proposing tax reform
so you should oppose it" like you're a dumb trained monkey.
This will probably upset Darryl and PGL the Facile:
In my last post, I said that it would be good if the US
imposed a consumption tax such as the value-added tax (VAT).
Critics generally say that these kinds of taxes are bad
because they are "regressive." While it is true that they are
regressive under the way that word is generally used, that
entire way of thinking about taxes is confused and muddled
(as I've discussed previously in the case of the Nordics).
The standard response to those who raise the regressivity
objection is to say that it just depends on how the proceeds
of the consumption tax are spent. This is true, but only
because it is true of all taxes. Even progressive taxes are
only good if the proceeds are spent well. You could spend
them on bad things and even in ways that make inequality
worse.
The bigger problem with the regressivity objection, in my
view, is that dividing taxes paid by income seems to obscure
the more important point. What really matters in all of this
is how many dollars you are scraping from poor, middle class,
and rich people. Consumption taxes scrape more dollars from
people who consume more and it is the rich who consume more.
According to the 2015 Consumer Expenditure Survey, the
richest income quintile consumes an average of $110,424 while
the poorest income quintile consumes an average of just
$24,355.
A 10 percent consumption tax would thus draw $2,435 from
the poorest quintile and $11,042 from the richest quintile.
Which is to say that such a tax draws 4.5 times as much money
from the rich as the poor.
Whether the money drawn from the consumption tax
ultimately reduces inequality does depend on how it is spent,
but it is not like it needs to be spent in an especially
"progressive" way, i.e. in a way that is heavily targeted
towards the poor. Even if you spent this money in a way that
benefited all quintiles equally, you'd still see a pretty
significant net swing.
Of course, this graph features a rather simplistic
analysis as it assumes consumption does not change at all in
response to the tax and benefit reforms. But even if the
precise figures would be somewhat different in a real life
implementation, the basic pattern of the graph above would
still hold.
None of this is to say that a consumption tax is better
than other taxes. The US has plenty of room to increase its
tax level by upping income taxes, and so that's a natural
place to look. But to say consumption taxes are bad generally
is pretty clearly mistaken.
The smarter glibertarians like Dan Mitchell understand this
which is why they oppose the DBCFT and why it will fare about
as well as the Republicans' health care reform.
That's the
basic point of Krugmans' column which is correct.
Republicans' policies aren't that popular. Lucky for them the
Democrats put up bad candidates like Hillary Clinton to run
against them. Lucky for them center-left economists like
Krugman shill for Hillary and attack their own side with
their dishonest campaign against Sanders.
Dan Mitchell and you agree on one thing - you are both
supporting the end of the corporate profits tax. Oh - you
don't get the point that that is what DBCFT does? Go figure!
I don't support the end of the corporate profits tax. I don't
support the DBCFT. I supported Bernie Sanders who advocated
higher taxes than Hillary, your gal. You attacked Sanders and
his supporters unfairly, calling them Bernie Bros and
"unrealistic."
For the 20 millionth time - I never attacked Senator Sanders.
And for someone who does not support Ryan's little fraud -
you spend a lot of time hyping it. Of course your hype is
even dumber than his hype.
Dan Mitchell the glibertarian points out how in Europe the
VAT kept going up and up funding a larger and larger welfare
state. That's why the Glibs oppose the Ryan plan, kind of
like how the Freedom Caucus opposed Ryan's Obamacare Lite.
If you just read PGL the Facile, you wouldn't understand
these intricacies.
What is the corporate tax good for? If corporations don't pay
taxes (zero tax rate), extra earnings will just flow through
to the owners as dividends that they will pay tax on. Explain
how having an additional layer of taxes to get basically the
same amount is good?
I would think not taxing the means of
production would be better for jobs. If they pass the whole
thing on to the owners, it will get taxed there (just like
partnerships and individual ownership firms)
"If corporations don't pay taxes (zero tax rate), extra
earnings will just flow through to the owners as dividends
that they will pay tax on."
Seriously? I see you don't get
how it easy it is for owners of capital to dodge these taxes
with our Swiss cheese tax code. Now if we taxed all income as
it accrues at the same rate that we tax labor income -
progressives might drop the call for corporate taxes. You
think Paul Ryan will go along with my proposal?
" I see you don't get how it easy it is for owners of capital
to dodge these taxes with our Swiss cheese tax code."
This
is a serious question pgl. Somehow I do not see how owners of
capital - aka owners of shares - individuals, pension funds
etc are ANY MORE ABLE TO DODGE taxes than the companies
themselves.
Simplify the tax code, get rid of loopholes. Make capital
gains and income the same rate. Get rid of special treatment
of everything including interest paid on housing. Get rid of
the entire corporate tax code and replace sales taxes with
VAT. Sounds very logical to me.
Until the Great Recession that the Bush-Cheney job killing tax cuts created since 2001.....
I bought a house in 1980, paying an initial rate of 19+% on a variable rate mortgage, but the
economy was better from 1980 to 1983 than it was from 2000 to 2003.
Granted, job killing falling energy prices made the economy get worse through the 80s, making
Texas and neighboring States suffer economic decline for the working class, compounded by the
declines for older professions from tax cut driven cuts in investment.
But the 21st century has been the 80s on steroids, except in 1980, the real value median wealth
was much higher than in 2000. In 1980, people still paid off their mortgages and had a mortgage
burning party. Thanks to the free lunch economics ushered in by Reagan, in 2000 people had lavish
cash out refi parties to celebrate their new 30 year mortgage that is larger than the price they
paid for the home 20 years earlier.
(I had lots of coworkers, engineers with incomes circa $100K telling me I should refi instead
of paying off my 14 year old 30 year mortgage in the run up to 2000 to go shopping, go on a cruise,
expand my house, invest in the stock market to get rich. I was kicking myself for failing to sell
my stocks in 1986 and paying lots in capital gains taxes to pay cash for my current house I bought
that year instead of borrowing 70% of the cost. By 1987, my stocks and my house were priced 30%
less than in 1986. Oddly, objectively, both were more valuable - ie my housing costs, ie spending,
was lower, and the corporation was generating more free cash and making more investments in cutting
edge tech.)
The 80s were a decade of decline, but so was the 00s, except the 00s started from a lower base
so fewer people were impoverished in the 80s, with working class made lower middle class. The
00s made lower middle class into working poor.
At least in the 80s, most people believed you created wealth by building stuff by paying workers.
Republicans believed that. By the 00s, the dominant believe was wealth is created by not paying
workers so assets become scarcer and inflate in price. Look at the horrible outcome in places
thousands of houses were built compared to California where real estate prices simply inflated
during the 00s. As soon as all those new houses failed to inflate in price as fast as California
houses inflated in price, the housing market cratered and it is still dragging down those regions.
California hardly hiccuped.
We have the contrast of the tight credit 1930 to 1980 vs the easier and easier credit since
1980. The former forced Congress and State government to force money be spent paying workers,
by making those with money worse off it they failed to pay workers by taking their money and paying
workers.
The latter has rewarded not paying workers by providing easy credit to promote bidding up and
buying existing assets and then thwarting those trying to build new assets that will drive down
the assets you own to prices below your debt.
Think about the incentives for real estate agents in the greater Detroit area since 1980. They
steer people looking for housing away from the low priced, high value Detroit houses, to low value,
high priced housing in the suburbs that require borrowing lots more money. This has driven down
prices in Detroit making lending to Detroit home buyers extremely risky, but the inflating prices
of lower value housing in the suburbs making lending seem safer.
Without easy credit since 1980, people looking for housing would have been forced to buy in
Detroit because it was what they could afford. Housing prices would not have inflated in the 80s
or 00s to then crash. Billions would not have been borrowed building infrastructure with debt
that today needs investment, yet a lot of the debt from Federal funding by debt is still existing.
I see what you are referring to - this caption under the picture of St. Reagan:
'Ronald Reagan signing the Tax Reform Act of 1986, the second of two tax cuts during his administration.
The reductions were widely, perhaps optimistically, credited with spurring growth.'
You are right about that the 1981 tax cut. As far as the 1986 tax reform act - it was revenue
neutral. Tax cuts for the rich and big tax increases for the middle class. Whoever wrote that
caption did a great disservice to the actual story.
Peter K. said in reply to pgl...
Bush Jr. did tax cuts with Alan Greenspan's blessing, and it didn't spur growth. Greenspan
did give us a housing bubble though.
Understanding the Republicans' corporate tax reform
William G. Gale·
Tuesday, January 10, 2017
Republicans in the House are proposing sweeping corporate
tax reform. Their proposals would effectively repeal the
corporate income tax, currently levied at a 35 percent rate,
and replace it with a new "destination-based cash-flow tax (DBCFT)"
at a 20 percent rate for corporations and 25 percent for
unincorporated businesses. The new tax would be
border-adjustable – taxing imports and exempting exports.
The DBCFT has a lot to offer and it deserves a serious
look. But right now, the overall proposal is very poorly
understood. Here are 11 things to know:
1.The truly radical part is the proposal to effectively
abolish the corporate income tax. The United States would
become the only advanced country without a corporate income
tax, making it a very attractive location for international
investors.
2.The DBCFT is essentially a value-added tax (VAT), but with
a deduction for wages. Every advanced country except the U.S.
has a VAT alongside a corporate income tax. The U.S. would in
effect be replacing the corporate income tax with a modified
VAT. A VAT taxes consumption, not income – it has the same
effects as a national retail sales tax, but works better
administratively.
3.Unlike the corporate income tax, the DBCFT would not
distort investment or financing choices. Instead, it would
eliminate taxes on the returns to investment and would treat
debt and equity equally. It would also eliminate all
transfer-pricing issues and incentives to shift profits and
profitable activities offshore.
4.However, precisely because the DBCFT does not have the
negative incentive effects of the corporate income tax, there
is no good reason to reduce the tax rate to 25/20 percent.
Indeed, the tax rate should be equal to the top rate on
individual income, so as to reduce incentives to reclassify
wage income as business income.
5.Border adjustment of a VAT is not some wild, radical idea.
It is a natural and logical part of the tax. All advanced
countries with VATs employ border adjustments. In order to
focus the tax on domestic consumption, the VAT should exempt
exports – which are consumed abroad – and tax imports – which
are consumed here. Again, exactly like a retail sales tax.
6.Many economists – but very few non-economists – believe
that the international trade effects of border adjustments
will be small. In this view, taxing all imports and exempting
all exports will raise the value of the dollar relative to
other currencies. To a first approximation, this will leave
the level of imports and exports the same under the DBCFT as
they would have been without the tax. Border adjustments
alone should not be expected to change the trade balance. For
all of the reasons, there should be no expectation that the
domestic price level will change.
7.The deduction for wages makes the DBCFT progressive,
relative to a VAT. It only taxes consumption financed out of
holdings of capital, whereas a VAT burdens all consumption.
The new tax would also plausibly be more progressive than the
current corporate income tax, because it would not discourage
domestic investment. The investment disincentives in the
current corporate tax reduce capital per worker and hence
reduce wages.
8.One potentially thorny issue is that the DBCFT may create
negative net tax liability for some very big, very profitable
exporters. The DBCFT will only work as intended if those
exporters get full rebates, even if that means Treasury has
to write them a check. This is likely to create a serious
"optics" problem, given that many people think that big,
profitable corporations should be required to pay taxes.
Likewise, the DBCFT will raise tax payments for importers.
These are all perception issues, however; the border
adjustment won't affect the after-tax profitability of either
exporters or importers, because of the exchange rate
adjustment.
9.A second issue is that border adjustment and the resulting
exchange rate appreciation will reduce the value of American
investments overseas.
10.Another downside is that the World Trade Organization
(WTO) allows border adjustments for VATs but not for income
taxes. The wage deduction makes the DBCFT look like an income
tax (wages are deductible, for example, under the corporate
income tax). Many experts believe this would make the DBCFT,
as currently proposed, incompatiblewith WTO rules. If that
were the case, either: a new deduction or credit for wages
could be created elsewhere in the tax system; the wage
deduction could be dropped, making the DBCFT revert to a VAT
(which would make it more regressive); or the border
adjustment could be dropped, which would reintroduce
incentives for firms to shift profits and productive
activities abroad.
11.A final concern is that the corporate reform proposals
described above, even when coupled with some specified
corporate tax revenue-raisers, would reduce federal tax
revenue by about $900 billion over the next 10 years on a
static basis. Revenues would fall by somewhat less if the
changes were dynamically scored, but the proposals would
still represent a very large tax cut and would raise the
public debt.
Rough estimates suggest that setting the DBCFT rate at around
30 percent for all businesses would eliminate the revenue
shortfall. This would still leave it lower than the current
corporate rate or the top individual tax rate, and suggests
that an even higher DBFCT rate, coupled with a reduction in
the top individual income tax rate, could equate the top
individual and business rates and still be revenue-neutral
and probably fairly close to distributionally-neutral.
The corporate tax is ripe for reform. The DBFCT is an
excellent way to kick-start the needed discussion.
*
[You might say that all of my concerns are wrapped up in
item number 10. IOW, the DBCFT is number ten GI, number 10.]
[Here is more about the concerns over thing number 10 that
you should know about DBCFT from the Brookings article above.
Bottom line is that the stuff that makes DBCFT desirable for
the wage class majority are exactly those things that have
been hyped up in selling the bill to the electorate only to
be later discarded as non-conforming to WTO rules. This is a
classic bait and switch aimed at boosting corporate profits.
It may nonetheless shrink the trade deficit over time, but
working class people will not see any of it. The gains will
go to the owners of the robots that were financed by the
DBCFT.
The article linked below and highlighted by excerpts
comes from a conservative source, which somewhat surprisingly
saw fit to be honest about its consequences including the
eventual job killing changes required to enact the DBCFT into
law.]
Concerns About The 'Border Adjustable' Tax Plan From The
House GOP, Part I
...Concern #2: Is the DBCFT compliant with WTO obligations?
The United States is part of the World Trade Organization
(WTO) and we have ratified various agreements designed to
liberalize world trade. This is great for the global economy,
but it might not be good news for the Better Way plan because
WTO rules only allow border adjustability for indirect taxes
like a credit-invoice value-added tax. The DBCFT, by
contrast, is a version of a corporate income tax, which is a
direct tax.
The column by Charles Lane explains one of the specific
problems.
"Trading partners could also challenge the GOP plan as a
discriminatory subsidy at the World Trade Organization.
That's because it includes a deduction for wages paid by
U.S.-located firms, importers and exporters alike - a break
that would obviously not be available to competitors abroad.
Advocates argue that the DBCFT is a consumption-base tax,
like a VAT. And since credit-invoice VATs are border
adjustable, they assert their plan also should get the same
treatment. But the WTO rules say that only "indirect" taxes
are eligible for border adjustability. The New York Times
reports that the WTO therefore would almost surely reject the
plan.
"Michael Graetz, a tax expert at the Columbia Law School,
said he doubted that argument would prevail in Geneva.
"W.T.O. lawyers do not take the view that things that look
the same economically are acceptable," Mr. Graetz said.
A story in the Wall Street Journal considers the potential
for an adverse ruling from the World Trade Organization.
" Even though it's economically similar to, and probably
better than, the value-added taxes (VATs) many other
countries use, it may be illegal under World Trade
Organization rules. An international clash over taxes is
something the world can ill afford when protectionist
sentiment is already running high. ...The controversy is over
whether border adjustability discriminates against trade
partners. ...the WTO operates not according to economics but
trade treaties, which generally treat tax exemptions on
exports as illegal unless they are consumption taxes, such as
the VAT. ...the U.S. has lost similar disputes before. In
1971 it introduced a tax break for exporters that, despite
several revamps, the WTO ruled illegal in 2002.
And a Washington Post editorial is similarly concerned.
" Republicans are going to have to figure out how to make
such a huge de facto shift in the U.S. tax treatment of
imports compliant with international trade law. In its
current iteration, the proposal would allow corporations to
deduct the costs of wages paid within this country - a nice
reward for hiring Americans and paying them well, which for
complex reasons could be construed as a discriminatory
subsidy under existing World Trade Organization doctrine.
Concern #3: Is the DBCFT a stepping stone to a VAT?
If the plan is adopted, it will be challenged. And if it
is challenged, it presumably will be rejected by the WTO. At
that point, we would be in uncharted territory.
Would that force the folks in Washington to entirely
rewrite the tax system? Would they be more surgical and just
repeal border adjustability? Would they ignore the WTO, which
would give other nations the right to impose tariffs on
American exports?
One worrisome option is that they might simply turn the
DBCFT into a subtraction-method value-added tax (VAT) by
tweaking the law so that employers no longer could deduct
expenses for labor compensation. This change would be seen as
more likely to get approval from the WTO since credit-invoice
VATs are border adjustable...
[Since this criticism is written by a conservative then some
of his concerns regarding the DBCFT that you can read at the
link provided above make the DBCFT more attractive to liberal
elites. My concerns are more for the wage class majority
though.]
Let us make sure we see the forest and not get trapped in the
trees looking at their roots.
The goal is to shift the
design of the public's revenue system to one where the public
finance contributions are shifted away from income and
profits and wealth and on to the act of consumption where all
of us live.
Are societies, and its economic aspect, about living and
consuming? Should we burden this more and more so those with
already lightly felt burdens can control even more (of
economics and control of society)?
"The goal is to shift the design of the public's revenue
system to one where the public finance contributions are
shifted away from income and profits and wealth and on to the
act of consumption where all of us live..."
[That would be
your goal buddy, not mine. My goal is to reduce the
concentration of wealth and power that subordinates democracy
to corporate profits while simultaneously making work and its
commensurate rewards available to the broad wage class
majority. Corporatists think that they are just collecting
the spoils of war, but they forget who actually fights the
wars.]
After a second read of your reply I believe that you are
actually agreeing with me that the DBCFT is a regressive
sales tax. Clearly that is what Republicans want. Everyone's
take here at EV was that it is a regressive sales tax. So
then we took a second look at it to see if it will create
more jobs than it costs and it will not.
"How Taxes and Transfers Affect the Work Incentives of People
With Low and Moderate Income"
Last month, Members of Congress asked CBO a number of questions
about how federal taxes and benefits affect people's incentive
to work. This blog post provides additional information on that
topic.
Posted by Shannon Mok...March 17, 2017
"What Marginal Tax Rates Do Low- and Moderate-Income Workers
Face?"
In a 2015 report, CBO found that low- and moderate-income
workers-those with income below 450 percent of federal poverty
guidelines (commonly known as the federal poverty level, or FPL)-would
face, on average, a marginal tax rate of 31 percent in 2016..."
"The main reason may be a much more skeptical view of the role of government and of tax-and-transfer
policies that is now shared by the middle classes in many countries compared to their predecessors
half a century ago. This is not saying that people just want lower taxation or are unaware that without
high taxes the systems of social security, free education, modern infrastructure etc. would collapse.
But it is saying that the electorate is more skeptical about the gains to be achieved from additional
increases in taxes imposed on current income and that such increases are unlikely to be voted in."
I think he is mistaken about this. I believe that most people who want lower taxes, at least in
the US, are totally "unaware that without high taxes the systems of social security, free education,
modern infrastructure etc. would collapse." They have been told by Republican politicians for over
forty years that the government is full of waste, fraud, and abuse and that this is why our taxes
are so high without being contradicted by Democratic politicians to the point that the vast majority
of the population believe that this is where the problem lies rather than in the fact government
services have to be paid for and we don't collect enough taxes to pay for them.
Why should anyone believe otherwise in a world in which the need to pay taxes to sustain vital
government services is never acknowledged in the debate over waste, fraud, and abuse in providing
those services? See:
http://www.rweconomics.com/Deficit.htm
"... People making $200,000 to $999,999 a year would also get sizable tax cuts. In total, the two provisions would cut taxes by about $274 billion during the coming decade, virtually all of it for people making at least $200,000, according to a separate assessment by the committee. ..."
"... "Repeal-and-replace is a gigantic transfer of wealth from the lowest-income Americans to the highest-income Americas," said Edward D. Kleinbard, a professor at the University of Southern California law school and former chief of staff for the Joint Committee on Taxation. ..."
"... Tax economists point out that even tax cuts for the wealthy can have indirect benefits for others. For example, the additional cash can prompt extra spending and extra hiring. ..."
"... That said, "most of the benefit of getting rid of those two taxes would go to wealthy people," said Joel Slemrod, a professor at the University of Michigan Ross School of Business and former senior staff economist for President Ronald Reagan's Council of Economic Advisers. "It's not significant for me to add a caveat." ..."
"... One of the taxes targeted in the repeal bill is a 3.8 percent tax on investment income, like capital gains. The other is a 0.9 percent surcharge on the Medicare taxes imposed on high-income earners - individuals making more than $200,000 a year and married couples filing joint returns who earn more than $250,000 a year. That brings the Medicare tax levied on that income up to 3.8 percent as well. ..."
Wealthy Would Get Billions in Tax Cuts Under Obamacare Repeal Plan (link won't post)
NYT - JESSE DRUCKER - MARCH 10, 2017
Two of the biggest tax cuts in Republican proposals to repeal the Affordable Care Act would
deliver roughly $157 billion over the coming decade to those with incomes of $1 million or more,
according to a congressional analysis.
The assessment was made by the Joint Committee on Taxation, a nonpartisan panel that provides
research on tax issues.
It is not unusual for tax cuts to benefit mostly the wealthiest, but still save some money
for a majority of Americans. But the benefits of these reductions would be aimed squarely at the
top.
The provisions would repeal two tax increases on high earners enacted in 2010 to help pay for
the Affordable Care Act: an increase in capital gains taxes and other investment-related income,
and a surcharge on Medicare taxes.
People making $200,000 to $999,999 a year would also get sizable tax cuts. In total, the
two provisions would cut taxes by about $274 billion during the coming decade, virtually all of
it for people making at least $200,000, according to a separate assessment by the committee.
"Repeal-and-replace is a gigantic transfer of wealth from the lowest-income Americans to
the highest-income Americas," said Edward D. Kleinbard, a professor at the University of Southern
California law school and former chief of staff for the Joint Committee on Taxation.
Tax economists point out that even tax cuts for the wealthy can have indirect benefits
for others. For example, the additional cash can prompt extra spending and extra hiring.
That said, "most of the benefit of getting rid of those two taxes would go to wealthy people,"
said Joel Slemrod, a professor at the University of Michigan Ross School of Business and former
senior staff economist for President Ronald Reagan's Council of Economic Advisers. "It's not significant
for me to add a caveat."
One of the taxes targeted in the repeal bill is a 3.8 percent tax on investment income,
like capital gains. The other is a 0.9 percent surcharge on the Medicare taxes imposed on high-income
earners - individuals making more than $200,000 a year and married couples filing joint returns
who earn more than $250,000 a year. That brings the Medicare tax levied on that income up to 3.8
percent as well.
The tax repeal would solely benefit wealthy Americans because the taxes were imposed only on
the wealthiest. The increases were passed in 2010, when capital gains rates were near historical
lows. During the George W. Bush administration, Congress cut the rates to 15 percent from 20 percent.
With the 3.8 percent tax imposed by the Affordable Care Act, the top capital gains rate stands
at 23.8 percent for the wealthiest Americans. That still makes the rate lower it was for most
of the 1970s, 1980s and 1990s. ...
Revisiting the paradox of capital - Boz, Cubeddu, Obstfeld
They ignore the role of taxes in increasing savings.
The best way to increase savings is to tax worker income
and "save" it for them in infrastructure that repays their
"savings" with interest over time. And taxes plus tax dodges
and loopholes cause consumers to contribute savings that are
invested in factories and innovation capital that both pays
workers to work building capital so taxes are dodged, plus
drives down returns to capital resulting in workers getting
most of the revenue from product and service sales.
China is an example of an economy in transition which has
workers getting jobs from government mandates to build
capital that produce exports to pay for increased imports of
mostly raw materials, without providing the safety net to
eliminate the fear of returning to the poverty of farming.
The fear drives savings which is not destructive in the early
stage because it helps fund massive capital investment in
China, but eventually the amount of capital accrues to such a
high quantity that returns on capital pay savers nothing, and
no one wants to pay for more capital that will only go
bankrupt. The only solution is for Chinese workers to pay
Chinese workers for consumption. Factory economy workers must
stop consuming like hand to mouth farmers, or else the
economy will collapse and throw them back into hand to mouth
farm economy conditions. As Keynes pointed out in his
argument for government forcing savings going into building
capital with labor, mass thrift drives the thrifty into
poverty.
The economic charts, one in particular, shows the impact
of Clinton tax hikes and Bush tax cuts.
Complaining that the United States has one of the world's
highest corporate tax levels, President Trump and
congressional Republicans have repeatedly vowed to shrink it.
Yet if the level is so high, why have so many companies'
income tax bills added up to zero?
That's what a new analysis of 258 profitable Fortune 500
companies that earned more than $3.8 trillion in profits
showed.
Although the top corporate rate is 35 percent, hardly any
company actually pays that. The report, by the Institute on
Taxation and Economic Policy, a left-leaning research group
in Washington, found that 100 of them - nearly 40 percent -
paid no taxes in at least one year between 2008 and 2015.
Eighteen, including General Electric, International Paper,
Priceline.com and PG&E, incurred a total federal income tax
bill of less than zero over the entire eight-year period -
meaning they received rebates. The institute used the
companies' own regulatory filings to compute their tax rates.
The 100 companies that paid no taxes in at least one year
in the last decade.
(data at the link)
How does a billion-dollar company pay no taxes?
Companies take advantage of an array of tax loopholes and
aggressive strategies that enable them to legally avoid
paying what they owe. The institute's report cites these
examples:
Multinational corporations like Apple, Microsoft, Abbott
Laboratories and Coca-Cola have ways of booking profits
overseas, out of the reach of the Internal Revenue Service.
(Those companies were not among the 258 whose rates were
calculated by the institute, which said it could not verify
the breakdown of their profits between the United States and
other countries.)
Citing evidence in the report, Senator Bernie Sanders, the
Vermont independent, and Senator Brian Schatz, Democrat of
Hawaii, introduced a bill on Thursday to eliminate tax
loopholes that encourage companies to shift activities
offshore. "The truth is that we have a rigged tax code that
has essentially legalized tax dodging for large
corporations," Senator Sanders said. "Offshore tax haven
abuse has become so absurd that one five-story office
building in the Cayman Islands is now the 'home' to more than
18,000 corporations."
Others, like American Electric Power, Con Ed and Comcast,
qualified for accelerated depreciation, enabling them to
write off most of the cost of equipment and machinery before
it wore out.
Facebook, Aetna and Exxon Mobil, among others, saved
billions in taxes by giving options to top executives to buy
stock in the future at a discount. The companies then get to
deduct their huge payouts as a loss. Facebook used excess tax
benefits from stock options to reduce its federal and state
taxes by $5.78 billion from 2010 to 2015, the institute
found.
Individual industries have successfully lobbied for
specific tax breaks that function as subsidies: for instance,
drilling for gas and oil, building Nascar racetracks or
railroad tracks, roasting coffee, undertaking certain kinds
of research, producing ethanol or making movies (which saved
the Walt Disney Company $1.48 billion over eight years, the
report says).
Why do some industries make out better than others?
Continue reading the main story
(chart at the link)
Most of the 18 companies that managed to pay no total
income tax between 2008 and 2015 were in the energy sector.
Companies listed are among 258 whose rates were calculated
by the institute. It omitted companies for which it could not
verify the allocation of profits between the United States
and other countries.
These industry-specific subsidies mean that the goodies
were not evenly distributed. Utilities logged an effective
tax rate of just 3.1 percent over the eight-year period.
Industrial machinery, telecommunications and oil, gas and
pipeline companies paid roughly 11.5 percent. Internet
services paid 15.6 percent. In just two sectors - health care
and retail - companies paid more than 30 percent of their
profits in federal income tax.
"One of the things that jumps out pretty starkly is
there's a real gap between the tax rates paid by different
industries," said Matthew Gardner, a senior fellow at the
institute and a co-author of the study. "When the biggest
companies aren't paying their fair share, that means the rest
of us are left to pick up the slack. It means small business
and middle-income families are paying more."
But Tara DiJulio, a spokeswoman for General Electric,
called the report "deeply flawed and misleading."
"G.E. is one of the largest payers of corporate income
taxes," she said. "Over the last decade, G.E. paid $32.9
billion in cash income taxes worldwide, including in the
U.S., and pays more than $1 billion annually in other U.S.
state, local and federal taxes."
She added: "The tax code is complex and outdated, which is
exactly why tax reform must happen this year. G.E. has long
been advocating to simplify and modernize the tax system -
even if it means we pay more in taxes."
Tax reformers have long argued that the nominal 35 percent
federal rate on corporate profits more often than not
functions like a strike-through price - an artificially
inflated number that sounds high but rarely applies. Thanks
to a variety of loopholes and tax-dodging methods, those 258
corporations paid an average rate of 21.2 percent. (Other
studies, including a new one by the Congressional Budget
Office that compares corporate income tax rates in various
countries, have found that average and effective rates in the
United States are lower than the nominal rate.)
Who are the biggest beneficiaries?
Companies with the biggest tax subsidies over the eight
years, the institute's report said, included:
■ AT&T ($38.1 billion)
■ Wells Fargo ($31.4 billion)
■ JPMorgan Chase ($22.2 billion)
■ Verizon ($21.1 billion)
■ IBM ($17.8 billion)
■ General Electric ($15.4 billion)
■ Exxon Mobil ($12.9 billion)
■ Boeing ($11.9 billion)
■ Procter & Gamble ($8.5 billion)
■ Twenty-First Century Fox ($7.6 billion)
■ Time Warner ($6.7 billion)
■ Goldman Sachs ($5.5 billion) ...
Reply
Thursday, March 09, 2017 at 02:06 PM
"... corporate inversions is a gigantic canard. The easy way to do this is to eliminate the repatriation tax (another GOP goal) and to beef up transfer pricing enforcement. ..."
Auerbach goes US centric: "This reform should appeal broadly,
to Democrats and Republicans alike. The border adjustments
would strongly discourage the shifting of profits and
activities offshore and eliminate incentives for corporate
inversions."
(1) it would make the US a tax haven as it
effectively eliminates the corporate profits tax replacing it
with a sales tax - a long time Republican goal. Shifting of
profits would still occur but the transfer pricing
manipulation games would be at the expense of Canada, Mexico,
China, Japan, and Europe.
(2) corporate inversions is a gigantic canard. The easy
way to do this is to eliminate the repatriation tax (another
GOP goal) and to beef up transfer pricing enforcement.
There is a reason why many progressive groups oppose this
overly complex canard. We have not given up on taxing the
profits of the multinationals. Auerbach's tax is being pushed
by Paul Ryan as his goal to never tax corporate profits.
Alas, Paul Ryan cannot be honest about this goal so he sends
out Auerbach to muddle the discussion.
The border-adjusted tax seems like a clever way to manipulate
forex in the short-term, but I question the underlying
premise that the U.S. is such an important producer &
consumer that the rest of the world will be forced to play
the game.
It seems to me that a lot of countries, looking at
President Turnip's nixing of the multilateral deals, and his
insistence that separate countries must now go mano-a-mano
with him on a new TV show, "The Trade Apprentice", are far
more likely to suppress the nausea and say, "Forget it."
The Chinese should welcome the U.S. border adjustment as
another advertisement that it is better for these countries
to change the channel -- to join into a new global trade pact
without the U.S. Less instability, less nuttiness, less crass
behavior, and also, China is poised to become a world
technology leader.
At that moment, monies that Auerbach & Devereux are hoping
will be repatriated to the U.S. may decide to stay in
offshore accounts instead, looking to invest for a better
short-term ROI in a country that is dealing with the Chinese
pact.
"but I question the underlying premise that the U.S. is such
an important producer & consumer that the rest of the world
will be forced to play the game."
You may be right but
right now the U.S. has a trade deficit so it buys more from
other nations. These nations need the U.S.'s consumer market.
With the BAT, corporations like Apple and drug companies
couldn't play tax avoidance games and so would return
production to the U.S. This would boost U.S. manufacturing
employment.
If the Fed didn't tighten too quickly this would boost
wages and living standards.
Corporations would lose out on labor and regulation
arbitration with poorer nations like China which they
accomplish by outsourcing.
This is why Ryan's plan probably won't pass. Also
importers like the Koch brothers and Walmart don't trust that
a rising dollar would negate the competitive effect of the
import tax.
"corporations like Apple and drug companies couldn't play tax
avoidance games and so would return production to the U.S."
Neither statement is true. DBCFT would make tax avoidance
easier. And Apple would still assemble goods in China. BTW -
many drug companies outsource their production.
Would the Destination Based Cash Flow Tax make U.S. companies
more competitive and if so – why? It is not the effective
repeal of the corporate profits tax that would do the trick
as PeterK turned supply-sider is now asserting. No – it is
the implicit labor subsidy.
But wait – let's hear from the
architect of this proposal himself:
"On the other hand, border adjustments lack some other
apparent benefits that have been attributed to them. In
particular, border adjustments, in themselves, should not
influence international trade, either by discouraging imports
or encouraging exports. The belief that they do have these
influences on international trade has proved to be something
of a mixed blessing, not only generating support for their
adoption but also leading critics to conclude that they
violate generally accepted norms of international taxation."
He argues that the exchange rate would so appreciate as to
exactly offset the labor subsidy. Of course PeterK yesterday
tried to tell us that a dollar appreciate would boost
Boeing's exports. But what would you expect from a
supply-sider?
I guess there was a different PeterK who suggested repealing
the corporate profits tax would lead to an export boom just
yesterday. You are all over the map clueless as to what any
of this is about. As usual.
But I love this:
"PGL goes on and on about how tax reform would be a boon
to Boeing."
DBCFT is not exactly tax reform. It would eliminate
Boeing's tax bill entirely. Do you even have a clue what they
pay in Federal taxes now? Didn't think so.
New head of some of the best progressives covering tax
issues. Recently I put over at Econospeak an excellent
discussion of the Destination Based Cash Flow Tax where ITEP
and CTJ provides well thought out criticisms (shhh - don't
tell PeterK as he will just get angry):
ITEP and CTJ Boards
Announce Alan Essig as New Executive Director
Robert McIntyre, CTJ's long-time executive director, will
retire and former ITEP executive director Matthew Gardner
will be a senior fellow
The Institute on Taxation and Economic Policy Board of
Directors and the Citizens for Tax Justice Board of Directors
are pleased to announce that Alan Essig has been named the
next executive director of both organizations. Robert
McIntyre, director of CTJ, will retire effective March 31,
and Matthew Gardner, former executive director of ITEP, has
assumed the position of senior fellow. Mr. Essig will begin
his new role on April 3, 2017.
This transition comes after a national search and an
organizational review designed to consolidate, advance and
strengthen both organizations.
"ITEP and CTJ have been leading voices for progressive tax
policy on both the state and national levels for decades, and
I am honored to be the next executive director," Mr. Essig
said. "A fair and adequate tax system is the cornerstone of a
just society and has defined the work of these organizations.
I am excited to be leading a team of extraordinary
professionals who are working to assure that elected
officials, the media, and the public have access to the
accurate, timely, and accessible information that is
necessary to promote an equitable tax system."
pgl -> pgl...
, -1
My tribute to these progressives also addressed the weakness
of the Dean Baker BMW "classic example":
"Then there's corporate tax
reform - an issue where the plan being advanced by Paul Ryan,
the House speaker, is actually not too bad, at least in
principle. Even some Democratic-leaning economists support a
shift to a "destination-based cash flow tax,"* which is best
thought of as a sales tax plus a payroll subsidy. (Trust
me.**)
But Mr. Ryan has failed spectacularly to make his case
either to colleagues or to powerful interest groups. Why? As
best I can tell, it's because he himself doesn't understand
the point of the reform.
The case for the cash flow tax is quite technical; among
other things, it would remove the incentives the current tax
system creates for corporations to load up on debt and to
engage in certain kinds of tax avoidance. But that's not the
kind of thing Republicans talk about - if anything, they're
in favor of tax avoidance, hence the Trump proposal to slash
funding for the I.R.S.
No, in G.O.P. world, tax ideas always have to be presented
as ways to remove the shackles from oppressed job creators.
So Mr. Ryan has framed his proposal, basically falsely, as a
measure to make American industry more competitive, focusing
on the "border tax adjustment" which is part of the sales-tax
component of the reform.
This misrepresentation seems, however, to be backfiring:
it sounds like a Trumpist tariff, and has both conservatives
and retailers like WalMart up in arms.
...
They may give up on anything resembling a principled tax
reform, and just throw a few trillion dollars at rich people
instead.
But whatever the eventual outcome, what we're witnessing
is what happens when a party that gave up hard thinking in
favor of empty sloganeering ends up in charge of actual
policy. And it's not a pretty sight."
The American corporate tax system is broken. Faced with
one of the highest tax rates in the world, many multinational
corporations in the United States move their operations and
reported profits offshore or undertake "inversions" to
relinquish their American tax nationality. Elaborate
regulatory and enforcement measures have been unable to stop
this. Vilifying companies for their behavior hasn't worked,
either.
Fortunately, bipartisan support for corporate tax reform
has been growing in Washington. In place of the old system,
Republicans in the House of Representatives have proposed
adopting a tax - the destination-based cash-flow tax - that
would be levied on the domestic cash flows of all businesses
operating or selling here. (Your domestic cash flow is your
revenues in the United States minus the wages, salaries and
purchases you pay for in the United States.) This would mean
introducing "border adjustments" to the current system -
exempting exports from tax, but taxing imports.
This reform should appeal broadly, to Democrats and
Republicans alike. The border adjustments would strongly
discourage the shifting of profits and activities offshore
and eliminate incentives for corporate inversions. (The
proposal would also eliminate incentives for companies to
borrow excessively and strengthen the tax benefits for
investing in plants and equipment.) But there remains much
misplaced criticism of the reform and its potential, and much
misunderstanding about who the winners and losers will be if
it is adopted.
Some critics, including President Trump at one time, have
claimed that the new system would be too complicated. On the
contrary, the tax would be much simpler than our current
arrangement. By basing a company's tax liability exclusively
on its domestic cash flows, the new system would replace the
much more complex calculation of a company's income that
takes place now, which must also account for offshore and
cross-border transactions. And because the tax would
eliminate incentives for companies to shift operations and
profits offshore, it could dispose of the raft of complex tax
and regulatory measures developed over the years to
discourage such tactics.
Other critics, particularly those on the political left,
have expressed concern that the tax isn't progressive enough.
But it promises to be more progressive than the current
United States corporate tax system: Its burdens would fall
squarely on the owners of corporate capital rather than - as
happens to some extent now - on American workers, whose wages
suffer from the flight of productive investment capital to
lower-tax countries.
Importers have also criticized the tax, arguing that the
border adjustments would lead to a major redistribution of
income away from sectors of the economy based on import
shares and toward those based on export shares. This is the
biggest misconception about the tax. In truth, importing
industries should expect on the whole to experience a shift
in the composition of their costs rather than an overall
increase in their costs. The reason is that under the new tax
system, the dollar should appreciate relative to the
currencies of our trading partners (in response to the
changing incentives for American firms to export and import).
A stronger dollar would make imports cheaper, offsetting the
increase in taxes paid.
Of course, corporate tax reform would result in winners
and losers. But the gains and losses would derive mostly from
the increased profitability of American operations and the
lost opportunities to avoid paying United States taxes.
Free-market critics of the tax have suggested that border
adjustments are tariffs and would thus erect trade barriers.
This is also untrue. The border adjustments would merely
shift taxation from where products are made to where they are
sold. This, again, would encourage companies to locate their
productive activities and profits in the United States.
(Countries around the world use such border adjustments every
day as components of value-added taxes that are collected at
the location of purchases rather than production.)
For the United States corporate tax to be a viable source
of revenue, it must be reinvented. Intense tax competition
for profits, production and jobs, in the form of other
countries' sharply declining corporate tax rates and a host
of favorable tax provisions, has been little hindered by
international efforts to slow the process.
The United States faces a choice: to mark time as our
competitive position worsens, to join this race to the bottom
or to take forceful action that replaces our corporate tax
system with one that aligns with the national interest. Our
decision should be clear. We need to adjust to new ideas like
a destination-based cash-flow tax. In the end, the short-run
economic adjustments required would be a small price to pay
for an enduring, fair and rational tax system.
----------------------
Alan Auerbach is a professor of economics and law at the
University of California, Berkeley. Michael Devereux is a
professor at Oxford University's Said Business School.
Yes, profits are a form of income,
but at that point they indirectly touch wealth accumulation and sharing, and before that they fuel
wages for managers of capital and have historically been a measure that influence the price of stock,
an indirect touch on wealth accumulation. We know what has happened to basic wages/salaries, no reason
to expect they would get to share in the gains of further tax cuts, so let us face it, as you note,
huge drops in the tax rate on profits will directly benefit wealth and high income people (though
not because they would have earned it other than by lobbying).
So ok, harmonize rates with OECD,
but offset revenue losses on the personal income tax side so at least some of the upward redistribution
is in that proscribed tax base (which does not tax wealth, per the Pollack decision of the Court).
Know you know this, hope other readers get this too.
In 1913 the personal exemption
was $3K for singles and $4K for married couples and the tax rate was just 1% for the first
$20K of income. The highest bracket was $500K with a 7% income tax rate. We started off on
the correct foot anyway.
Under the 1913 law, income up
to $20,000 was taxed at 1% with a $3,000 personal exemption. The average wage was only $1,296,
which means only high earners were taxed at all. That is a big difference from today.
True. "We started off on the
correct foot" was in no way meant to imply that we were on our feet at all today. Back then
what you and I make today in relative terms would have put us in the 1% tax bracket and people
making $20 million or more today would have been taxed in the top bracket which was taxed at
a rate seven times higher than ours.
If profits are not income then somebody should explain to me
why all of business, finance, analysts, and almost all of
institutional and private society are obsessed, sometimes to
a pathological degree, with increasing them.
Hillary's former communications director says all of those
crowds protesting Trump don't want a $15 min. wage, it's all
about identity.
Reply
Friday, February 24, 2017 at 06:30 AM
RC AKA Darryl, Ron said in reply to Peter K....
[The comments there are a riot:]
Actually that is more like me back in my mid-twenties
after Viet Nam and two divorces.
Reply
Friday, February 24, 2017 at 09:23 AM
RC AKA Darryl, Ron said in reply to Peter K....
I agree.
There are two separate issues, bad pay AND bad
jobs in the service economy. Corporatism and the service
economy have other ways of sucking than just poor pay.
Applebaum gets to "the work is physically demanding and
emotionally draining," but then working in coal mines and
factories was not exactly uplifting either. So, Applebaum's
omissions regarding the minimum wage and the destruction of
unions was grievous and wrong. However, corporatism and its
assumptions were enough for me to rejoice in being retired,
in no small part because my pension income after reductions
in work related expenses has kept parity with my former work
income. For those less fortunate then mortality may still be
the only escape.
I had both good pay and a good job under very strange
conditions, working as a state paid worker managed by
outsourcer Northrop Grumman reporting in turn to the two best
supervisory managers that the program had just for as long as
those two lasted. I was a lucky dog right down to the end. My
wife has good pay and a series of terrible bosses at a firm
with operations confused and disrupted by serial mergers, but
her job might seem like a very good job taken abstractly
without consideration to the firm, coworkers, and bosses.
Working for a bad boss and low pay with a bunch of
back-stabbers would be the worst. So, job quality is a deep
matrix, where bosses, firms, coworkers and even the work
itself come into play as well as pay. Still though to have
life outside of work with a roof over your head and decent
food to eat then there is nothing that beats good pay.
Reply
Friday, February 24, 2017 at 06:53 AM
Peter K. said in reply to RC AKA Darryl, Ron...
"I was a lucky dog right down to the end."
From your online
personality, you seem to me to be smart, wise and a hard
worker. Employers would be lucky to have you. So it wasn't
all luck.
These conservative, corporate workaholics work very hard
and see no luck in their success. Or if they do see luck it's
with the philosophy, better me than some other poor sucker.
Dog eat dog. But I'm not telling you anything you don't
already know.
Reply
Friday, February 24, 2017 at 09:22 AM
RC AKA Darryl, Ron said in reply to Peter K....
Yep, but I was never smart or wise enough to get that yes man
thing down pat. I was lucky that was not my undoing. Where
the wisdom paid off was getting into a line of work that was
critical to financial objectives and that required more cross
discipline expertise than was readily found in one person
(particularly one younger person), in effect to be
indispensable. But I'm not telling you anything you don't
already know.
I was also lucky to have worked in
environments where my coworkers were decent people rather
than backstabbers with just two exceptions, one guy at F&M
Band for three months in 1978 and one guy at the VA state
Department of Computer Services (forerunner to Virginia
Information Technologies Agency) for four years, the latter
counter-intuitively a period in which my bosses were better
than usual. My last boss, the easiest going that I ever had
despite being a Northrop Grumman hire rather than legacy
state, retired just a few weeks before I was laid off.
A lot can go wrong in life that can be life altering or
career altering. Just getting home alive from Viet Nam was a
good break even though my first wife left me two weeks later.
One must both live and stay out of jail to have any chance at
all and some of that is always luck for most young men sewing
their wild oats.
Reply
Friday, February 24, 2017 at 09:48 AM
RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron...
F&M BANK - Band was just wishful thinking.
Reply
Friday, February 24, 2017 at 09:50 AM
cm said in reply to Peter K....
The luck part was to obtain a position where his merits
translated to good pay and good working conditions. Without
luck, no amount of preparation will amount to much.
A lot
of meritorious people have to take positions below their
intellectual potential or below what their college/academic
degree suggests - less they would get if they were more
"lucky".
Conversely, a lot of people get into positions either
above their level of preparation, or where somebody else
would have been a better fit. But once the position is taken
we won't know.
Reply
Saturday, February 25, 2017 at 12:09 AM
ken melvin said in reply to RC AKA Darryl, Ron...
No fan of Gates, but the taxing of labor to support
capitalism was always a scam. Yes, tax robots, tax the means
of production, tax profits, ...
Reply
Friday, February 24, 2017 at 07:04 AM
RC AKA Darryl, Ron said in reply to ken melvin...
The first US income tax was temporary to pay for the Civil
War. The permanent income tax started in 1913 was implemented
to replace Federal government tax income from tariffs that
were lost due to the free trade movement. Capital gains tax
rates have always been too low.
Reply
Friday, February 24, 2017 at 07:12 AM
Peter K. said in reply to RC AKA Darryl, Ron...
What I've found confusing is how sometime a tax on corporate
taxes is referred to as an income tax.
Reply
Friday, February 24, 2017 at 09:24 AM
pgl said in reply to Peter K....
"a tax on corporate taxes".
No such thing. It is a tax in
corporate profits. Profits are a form of income.
Reply
Friday, February 24, 2017 at 09:37 AM
Peter K. said in reply to pgl...
"Profits are a form of income."
Income for a legal
identity, the corporation, not for a person.
Do you think corporations should be given legal
personhood?
Reply
Friday, February 24, 2017 at 09:48 AM
pgl said in reply to Peter K....
No. But the shareholders of a corporation are people. And the
current tax code already gives them way too many deferral
benefits. End those benefits and we would not need this
corporate profits tax. Every progressive knows this. Well
everyone but you.
Reply
Friday, February 24, 2017 at 09:52 AM
Peter K. said in reply to pgl...
" Every progressive knows this. Well everyone but you."
Shove it up your a$$.
"They say don't feed trolls so I guess I shouldn't feed
you and your constant need for attention."
Reply
Friday, February 24, 2017 at 10:06 AM
Peter K. said in reply to pgl...
"No. But the shareholders of a corporation are people. "
No
kidding, but we were talking about a corporate tax being
called an income tax. We weren't talking about a shareholder
tax you dumbass.
The corporation makes the profits, not the shareholders.
Yes, profits are a form of income, but at that point they
indirectly touch wealth accumulation and sharing, and before
that they fuel wages for managers of capital and have
historically been a measure that influence the price of
stock, an indirect touch on wealth accumulation. We know what
has happened to basic wages/salaries, no reason to expect
they would get to share in the gains of further tax cuts, so
let us face it, as you note, huge drops in the tax rate on
profits will directly benefit wealth and high income people
(though not because they would have earned it other than by
lobbying).
So ok, harmonize rates with OECD, but offset
revenue losses on the personal income tax side so at least
some of the upward redistribution is in that proscribed tax
base (which does not tax wealth, per the Pollack decision of
the Court).
Know you know this, hope other readers get this too.
In 1913 the personal exemption was $3K for singles and $4K
for married couples and the tax rate was just 1% for the
first $20K of income. The highest bracket was $500K with a 7%
income tax rate. We started off on the correct foot anyway.
Under the 1913 law, income up to $20,000 was taxed at 1% with
a $3,000 personal exemption. The average wage was only
$1,296, which means only high earners were taxed at all. That
is a big difference from today.
True. "We started off on the correct foot" was in no way
meant to imply that we were on our feet at all today. Back
then what you and I make today in relative terms would have
put us in the 1% tax bracket and people making $20 million or
more today would have been taxed in the top bracket which was
taxed at a rate seven times higher than ours.
From the
Roosevelt Institute
comes this graphic on the overall reality of macro policies:
The Republicans' underlying assumption-that corporations invest more and create more jobs only
when they are relieved of burdensome tax rates-is false. American businesses already enjoy a historically
low cost of capital, and they have more than enough cash on hand to invest, raise wages, and create
jobs. Corporations are choosing to make dividend payments and stock buybacks instead of investing
because they face a lack of competitive pressure-itself the result of power and wealth shifting
toward rich shareholders. Another tax cut for the rich will only make the problem worse.
J. BRADFORD DELONG OCTOBER 23, 2008
In the middle of our market economy sits an island of central
planning, the Federal Reserve. No president or Congress dares
challenge the power of its chairman, Ben Bernanke.
Ben Bernanke is the closest thing to a central economic
planner the United States has ever had. He bestrides our
narrow economic world like a colossus. Unelected (he was
appointed by President George W. Bush and confirmed by an
overwhelming majority in the Senate) and unaccountable
(unless the Congress decides that it wishes to amend the
Federal Reserve Act and take the blame for whatever else goes
wrong with the economy), he is responsible only to his
conscience -- and his open-market committee of himself, the
other six governors of the Federal Reserve Board, and the 12
presidents of the regional Federal Reserve banks.
The fate of the economy in the next administration depends
far less on the president than on this
moral-philosopher-prince to whose judgment we have entrusted
a remarkable share of control over our destiny.
How did an ivory-tower academic whose specialty is the
details of the Great Depression get to this position? What
does he do all day? How did so much power come to rest in a
single institution, a single individual? The current system
is the product of a century and a half of evolution in the
role of a central bank, on both sides of the Atlantic,
through a series of accidents and crises. For a generation,
the idea of social democracy -- with government ownership,
control, and regulation of at least the "commanding heights"
of the economy -- has been in retreat. But in the middle of
this market economy is an immense island of central planning:
the Federal Reserve. In normal times, the Fed -- not the
market -- decides what the short-term interest rate is. The
interest rate is perhaps the key price in the economy. It is
the price at which we trade wealth in the present for wealth
in the future.
When the interest rate is low, our focus is on the future:
Businesses and consumers borrow and invest. When the interest
rate is high, our focus is on the present because
distant-future promises of cash are not worth very much in
today's dollars. You might think that if there were ever a
decision we would leave to the market and the aggregated
preferences of millions of individuals, it would be the terms
on which we trade present comfort off for future wealth. But
we don't. We leave that decision to the discretion of the
philosopher-prince Bernanke and his committee. And in
extraordinary moments like the September Wall Street crisis,
when the flow of funds through financial markets dries up, we
leave the decisions of which banks to nationalize, which to
close down, which to forcibly merge, and which to rescue and
on what terms to our financial overlords in the Eccles
Building on the National Mall.
***
Ben Shalom Bernanke is perhaps more aware of the complex
history that placed him in this role than any of his
predecessors were. The eldest child of a schoolteacher and of
a druggist and part-time theater manager, he was born in
Georgia and brought up in South Carolina before heading off
to Harvard in 1971. "What was it like being a southerner at
Harvard in the 1970s?" is reported to have been the thing
that George W. Bush was most interested in when he first
interviewed Bernanke for a slot as one of the Federal
Reserve's seven governors. Bernanke then went straight on to
graduate school at the Massachusetts Institute of Technology
and earned his Ph.D. in 1979, a student of Stanley Fischer's
during a near-decade when it seemed like all the excellent
young macroeconomists were students of Stanley Fischer's. His
first job was as a Stanford Business School professor, where
he became a star. After six years at Stanford and a year at
New York University, Ben Bernanke settled at Princeton. His
last six years at Princeton, 1996–2002, he was an
extraordinarily successful economics department chair.
"I always thought I would be an academic lifer," Ben
Bernanke said at a conference in 2005. "The sum of my
political experience consisted of two terms on the local
school board, six grueling years during which my fellow board
members and I were trashed alternately by angry parents and
angry taxpayers." In spite of this lack of experience, the
consensus was and is that he is one of the very best people
for his job. "[The choice of Ben Bernanke] as the next Fed
Chairman is a very good one: he is extremely bright ... a
first rate expert in macroeconomics and monetary policy ...
he has a broad and sophisticated -- if somehow controversial
-- understanding of international macroeconomic issues. ...
While being a Republican, he is not a partisan hack or too
closely associated with the White House. ... He is a wise and
pragmatic policy maker" -- so said Nouriel Roubini, perhaps
the fiercest critic of recent Federal Reserve policy, when
Bernanke was nominated nearly three years ago.
When Bernanke was appointed, the concerns about what he
would bring to the position were threefold: Would he be too
much of an inflationist -- too willing to "drop money out of
helicopters" to keep the economy going at a high-pressure
pace when recession threatened? Would he be too rigid --
likely to confine the Federal Reserve to an "inflation
targeting" straitjacket? Would his belief that America's
large trade deficit sprang from a "global savings glut"
rather than U.S. policy mistakes lead him to neglect the
problems created by those global imbalances? None of these
have proved relevant to understanding his tenure so far.
Instead, the most relevant thing has been his long interest
in the Great Depression and his judgment that the Federal
Reserve erred catastrophically in the Depression not just by
failing to stem the decline in those bank deposits necessary
to fuel consumer spending but also by allowing banks to fail.
In so doing, the Fed destroyed the organization and knowledge
base that made banks trusted intermediaries between the
myriads of savers with no knowledge of business prospects and
the thousands of businesses with no direct ability to draw on
individual savers' resources. Avoiding the mistakes made
during the Great Depression is Bernanke's highest priority.
"As an official representative of the Federal Reserve," he
said at the 90th birthday party for Milton Friedman, who in a
1963 book co-authored with Anna J. Schwartz argues that the
Federal Reserve's monetary policy was to blame for the
Depression, "I would like to say to Milton and Anna, You're
right, we did it. We're very sorry. But thanks to you, we
won't do it again."
In 2002 he left Princeton for Washington, where he was one
of the Fed's governors for three years, then one of Bush's
White House economists for a year, and then named chair of
the Federal Reserve on Feb. 1, 2006.
***
Now go further back in history to 1844, and pick up the story
that leads to Bernanke's current power and eminence. The
place is London. The occasion is the debate in Britain's
House of Commons over the terms on which the charter of the
Bank of England -- the government's bank -- is to be renewed.
The British government was then the largest economic
institution the world had ever seen, and Britain, the
fastest-growing economy ever seen: It was the age of the
original Industrial Revolution, with the first large-scale
automated factories, the first steamships, the first net of
railroads, and the first time that any national economy had
developed the chronic disease that we call the industrial
business cycle.
Before the 19th century the causes of times of economic
distress were obvious: war, famine, or disease, or a state
bankruptcy -- a government that decided that it was simply
not going to pay its debts. You could see what was going
wrong and what had caused it.
The industrial business cycle was different -- and
mysterious. Factories would be shut but not because of a lack
of raw materials or of workers who wanted the jobs or of
people who needed the products. Construction workers would be
idle but not because the country had enough railroads or
buildings or ports. People would be much poorer than they had
been a couple of years before but not because an invading
army had burned their cities or a plague of locusts had eaten
their crops.
What seemed to be happening was that the flow of funds of
individuals' savings into banks and then out to companies
that wanted to expand or maintain operations somehow dried
up. Sometimes the flow of money into the banks dried up
first, and so the interest rate the banks had to pay to
attract funds and deposits rose. As a result, the interest on
the loans the banks had made was suddenly less than the
interest they had to pay out on deposits. The banks then ran
short of cash, couldn't pay their obligations, and crashed.
This further dried up the flow of funds from savers: Why
deposit your money in a bank that might crash next week?
Sometimes the confidence of entrepreneurs in expanding their
enterprises flagged and faltered, and the value that they
paid each other for shares of ownership of factories and
railroads and office buildings fell. Then they could no
longer sell shares in their properties to pay back the banks
from which they had borrowed -- and the banks ran short of
cash, couldn't pay their obligations, and crashed. This too
dried up the flow of funds from savers. Before the Industrial
Revolution, these things didn't happen. Ever since, they have
happened roughly every five years, at varying levels of
severity.
In reaction to these first contractions, the Bank of
England developed a custom: In a panic, crash, or depression,
when smaller banks were running short of cash, the Bank of
England would print some up and lend it out to the other
banks. Nobody thought that Bank of England notes were bad
because nobody thought the Bank of England would crash: the
British Empire would never let it fail. So the Bank of
England lent to smaller banks that could not meet their
obligations, expecting repayment only after the crisis had
passed. This lending would keep smaller banks from crashing,
lower interest rates, and raise asset prices. Indeed, the
crises did pass. Savers reappeared, and the interest rates
banks had to pay to attract deposits fell. Entrepreneurs
returned from their rest cures, recovered their confidence,
and asset prices rose again. And the Bank of England got
repaid -- or at least got repaid enough of the time to keep
the system going.
All of this was illegal. The notes the Bank of England
printed were supposed to be backed by gold in its vaults. The
1844 parliamentary debate was about whether the Bank of
England's charter should be amended to make legal what the
bank was already doing. Prime Minister Robert Peel said no:
If the Bank of England had the legal power to print extra
notes to rescue banks in a crisis, he said, then the banks
would get into more crises, taking more risks because they
knew that the Bank of England would rescue them. But, Peel
said, if the governor of the Bank of England decided, in a
panic, to rescue banks or lend them money to prevent the
panic from snowballing into a crisis and then into a
depression -- then the government would not prosecute its
bank for violating its own charter. As Charles Kindleberger
puts it in his book Manias, Panics, and Crashes, the
principle was that the central bank should always show up
when it was really needed, but beforehand, and in normal
times, its appearance should always be in doubt.
As the 19th century passed, the Bank of England began to
exercise its power to set the key price in the economy. There
had always been a "bank rate" -- a rate at which other banks
could borrow from the Bank of England. At the start, the Bank
of England would periodically adjust the "bank rate" to
follow the general price in the free money market in normal
times, but it found that the other banks were waiting for it
before they would change their own lending rates. By the end
of the 19th century, the short-term interest rate in Britain
was an administered rather than a market price all the time
-- not just in the panics when the Bank of England lent money
in emergency-rescue operations.
The United States in the 19th century did without a
central bank and had the world's severest panics and deepest
depressions -- in 1857, 1873, 1884, 1893, 1896, and 1907. In
1907, the financier J.P. Morgan said "enough" and constituted
himself as a pick-up central bank because nobody doubted that
his and his partners' fortunes were so large that their
credit was good. In 1913 Congress created the Federal
Reserve. The Federal Reserve did not acquit itself well
during the Great Depression: Milton Friedman and Anna J.
Schwartz always blamed that on the untimely death in 1928 --
just before the crash -- of the Fed's leader, New York
Federal Reserve Bank President Benjamin Strong, and the lack
of competent replacements. Other central banks also did not
acquit themselves well during the Great Depression: They all
seem to have decided that maintaining the gold standard was
more important than rescuing banks, which is why we no longer
have a gold standard.
After World War II, the Federal Reserve found its footing.
Eight times a year, and in emergencies, the Federal Open
Market Committee met to assess the levels of the federal
funds rate and the Federal Reserve discount rate -- the
American equivalents of Britain's "bank rate." The Reserve
set its interest rates with an eye, first, to maintaining
price stability (because inflation makes all other tasks much
more difficult); second, to minimizing the danger of a future
financial crisis; and, third, to keeping the economy's level
of growth as high and unemployment as low as possible given
the other two objectives.
In the first decades after World War II, the Federal
Reserve came under heavy political pressure: Members of
Congress would denounce the Fed for keeping interest rates
too low and thus triggering inflation; other members of
Congress would denounce the Federal Reserve for keeping
interest rates too high and thus creating high unemployment
and low real wages; presidents prodded the Reserve to lower
interest rates to produce an economic boom at re-election
times. But the 1970s taught members of Congress that
criticizing the Federal Reserve is likely to backfire: If it
takes your advice, you cannot then blame it for what has gone
wrong in the economy. The 1980s taught presidents and their
staffs that getting into a fight with the Fed is likely to
shake business confidence and risk either higher inflation or
higher unemployment or both. The memory of the 1970s and the
1980s created a culture inside the Federal Reserve of
resistance to political pressure. Many in the Fed believe
that the root cause of our only post–World War II depression,
in 1982, had been caused by then Federal Reserve Chair Arthur
Burns' willingness to bow to pressure from his political
patron Richard Nixon to create a booming economy for Nixon's
re-election campaign in 1972.
The last even semiserious political effort to pressure the
Federal Reserve came in 1991, when George H.W. Bush's White
House delayed Alan Greenspan's reappointment as chair and
threatened to find a replacement if Greenspan and his
committee did not lower interest rates far and fast enough to
suit the White House -- what then–White House counsel C.
Boyden Gray told me were "counterproductive and pointless
games." Since Paul Volcker's appointment as chair in 1979,
the Reserve has been effectively independent from the rest of
the government. And whenever it makes a decision, the word
comes down to all executive-branch officials to stay on
message, as we were told when I worked at the Treasury in the
1990s:
"Our role at the Treasury Department is to support the
independent regulators. ... The Treasury Department supports
the actions taken by the Federal Reserve Bank of New York and
the Federal Reserve. We believe the actions taken were
necessary and appropriate."
All this evolved not by design but by accident. The Bank
of England did not start out thinking its job was to rescue
the banking sector in crisis; it just found there was a
crisis and thought it could do some good. Robert Peel did not
set out to create a central bank, but prosecuting the Bank of
England for charter violations seemed a mistake at the time.
The Bank of England did not set out to supplant the market
and turn the interest rate into a centrally planned and
administered price, but monetary management in extraordinary
times led to monetary management in unusual and then in
ordinary times. The 1913 U.S. Congress did not set out to
turn Ben Bernanke into a philosopher-prince, but the absence
of an American central bank was blamed for the dire panics
and depressions that struck between the Civil War and World
War I. And post–World War II presidents and congresses did
not set out to cede all effective powers of national
macroeconomic management to the philosopher-princes of the
Federal Reserve; it just seemed like the least-bad idea at
the time.
But just because central banking is independent of
politics does not mean that politics is independent of
central banking. "You may not be interested in the
dialectic," Leon Trotsky once said, "but the dialectic is
interested in you." That we now have independent central
banks run by technocratic philosopher-princes like Ben
Bernanke, and that we have these central banks because
elected legislators and executive politicians do not want to
challenge their authority or change their charters, has
powerful implications for the freedom of action and choices
that presidents and elected governments can make. Let me give
three examples:
At the start of the Clinton administration in 1993, Alan
Greenspan as Federal Reserve chair was firmly and genuinely
convinced that the federal budget deficit, at its level at
the time, was inflationary. Deficits raise debt. One of the
things governments do to get from under the burden of a high
national debt is inflate the currency. Greenspan was firmly
convinced that if he wanted to maintain price stability --
and he wanted to maintain price stability -- then he had to
offset the upward pressure on inflation coming from
expectations that someday the government would start printing
money to ease its debt. To offset inflation, he raised
interest rates and so created a supply imbalance in the labor
market: You can't have durable inflation without rising
wages, and you can't have rising wages with an excess supply
of workers looking for jobs in the labor market.
Thus, the debate about the economic policy of the Clinton
administration carried out in the fall and winter of
1992–1993 -- how to find the proper balance among
middle-class tax cuts, public-investment expenditure
increases, upper-class tax increases, and deficit reduction
-- was brought to a sharp and immediate halt by the Federal
Reserve. Because Alan Greenspan was committed to keeping
inflation low, any Clinton administration economic policy of
benign neglect applied to the deficit would be very likely to
produce a substantial recession. Greenspan, of course, said
that he was not an unelected technocrat imposing his policy
preferences on the elected president but merely an informant
about the reality of the bond market -- which generated James
Carville's crack about how he wanted to be reincarnated: "I
used to think if there was reincarnation, I wanted to come
back as the president or the pope or a .400 baseball hitter,
but now I want to come back as the bond market. You can
intimidate everybody."
A similar process had the opposite effect between 1995 and
2000. Greenspan's belief -- over the objections of many if
not most of the members of his committee -- in the "new
economy" of the Internet revolution led the Fed chair to
reduce interest rates below what standard Federal Reserve
reactions found appropriate for the late-1990s levels of
inflation and unemployment. This action generated the
high-productivity, high-employment boom of the late 1990s
that then turned into the dot-com bubble.
The current financial crisis has its roots in Greenspan's
decision to keep interest rates very low in 2002 and 2003 to
head off the danger of a deflation-induced double-dip
recession, and his subsequent decision that the costs of
cleaning up after a housing bubble were likely to be less
than the costs of the high unemployment that would be
generated by a preemptive attempt to pop a
housing-speculation bubble. Two years ago, I would have said
that Greenspan's judgment here was correct. Six months ago, I
would have said that his judgment was probably correct. Today
-- in the middle of the largest nationalizations in history
-- I can no longer state that Greenspan made the right calls
with respect to the level of interest rates and the housing
bubble in the 2000s.
In all three of these episodes, the president and the
Congress -- neither of them wishing to erode confidence by a
public disagreement with the Federal Reserve -- had about as
much power to set or influence policy as the Queen of England
does in Britain: They had the power to talk to the decider --
Greenspan then and Bernanke today -- and nothing more.
The great financial crisis of 2007–2008 does not weaken
but strengthen the Federal Reserve's independence in the
short and medium run, no matter how one apportions blame
among the Fed, the SEC, other regulatory agencies, and the
overpaid princes of Wall Street. A strong economy is in the
president's policy interest: policy initiatives, especially
expensive policy initiatives, cannot be enacted and
implemented when the economy is weak. And a strong economy is
in the president's and the current Congress' political
interest: Weak economies lead to re-election defeats. The
policy and political dangers of challenges to the Reserve's
authority, independent status, and leading role are thus now
unusually high and likely to remain unusually high for the
duration of the current financial crisis and for a year or
two thereafter. The next administration will find itself
advising, warning, privately admonishing, and publicly
partnering with an independent Federal Reserve that will see
itself as rightfully and legitimately taking the leading role
in economic policy.
Cicero said that the problem with his political ally Cato
was that he thought they lived in the Republic of Plato while
they really lived in the Sewer of Romulus. It is either our
curse or our blessing that we live in the Republic of the
Central Banker.
Reply
Saturday, February 18, 2017 at 11:08 AM
Neil Irwin Warns of Financial Crisis from Corporate Tax
Reform
This is really getting over the top. Republicans in
Congress are debating an overhaul of the corporate income tax
which would eliminate many of the opportunities for gaming
the current tax code. To my mind this is great news, because
the tax gaming industry is where many of the richest people
in the country, like private equity fund partners, make their
money.
This means that the current corporate tax code is a
mechanism for transferring money from the rest of us to the
likes of Mitt Romney and Peter Peterson. It's understandable
that these people would be very upset by a plan to end their
tax gaming windfalls, but why is Neil Irwin at the New York
Times so upset?
The story he pushes is that border adjustability rules in
the proposed reform would create enormous disruptions in the
economy because it would lead to a sharp rise in the value of
the dollar. Irwin tosses around a hypothetical 25 percent
increase in the value of the dollar which he warns:
"could shift trillions of dollars of wealth from Americans
to foreigners; set off an emerging markets financial crisis;
wreak havoc in global oil markets; and cause sustained harm
to the American higher education and tourism industries
(including, as it happens, luxury hotels with President
Trump's name on them)."
Okay, this is more than a little bit silly.
Let's start with the 25 percent number. The idea is that
the dollar would rise enough to leave our trade balance more
or less unaffected even though we have imposed the tax on all
imports and refunded it on all exports. So if we were talking
about a tax rate of 25 percent on both, this sort of increase
in the value of the dollar would leave the price of U.S.
imports unchanged to people in the United States and the
price of U.S. exports unchanged for people living in other
countries.
The first problem with this story is that we're not
talking about a 25 percent tax, the number most often floated
is 20 percent. Furthermore, the amount rebated on exports
would be a small fraction of this number since the tax is not
assessed on wages, interest or dividend payments, or profits
that are reinvested. This likely means that the tax would be
in the range of 1 to 2 percent of the final price of the
product.
If we assume that the dollar fully adjusts to leave our
trade balance unchanged and we split the difference between a
2 percent fall in the price of our exports and a 20 percent
increase in the price of imports, we are looking at an 11
percent rise in the value of the dollar. If we assume that
the adjustment is less than 100 percent, say something like
75-80 percent, then we would be looking at a rise in the
value of the dollar of 9.0 percent.
If this sort of increase in the value of the dollar would
lead to a financial crisis in emerging markets, then we
should be seeing one now, because the dollar has risen by
roughly that amount against the currencies of our trading
partners since last spring. If there has been a crisis the
NYT has neglected to cover it.
Movements of this size happen all the time. They certainly
can cause problems, but the financial system generally deals
with it.
The global oil markets comment is especially annoying
because it repeats the ridiculous line about it being
important that oil is priced in dollars. It isn't. The
pricing in dollars is simply a convention. It is like we were
writing the price of oil up on a chalkboard. We need a unit
in which to measure the price. It could be euros, it could be
yen, it could be bushels of wheat. Due to the dominance of
the U.S. economy, the tradition has been to use dollars.
As a practical matter, oil is traded in whatever currency
is convenient for the trading partners. Most often this is
dollars, but it can be other currencies if the two parties
choose. Also, if the price of the dollar rises against other
currencies, then the dollar price of oil will typically fall.
The exception will be in situations where companies have
signed long-term contracts specified in dollars. In this
case, the buyer will take a hit and the lender will get a
windfall.
In this context, a 9 percent rise in the value of the
dollar matters, but nowhere near as much as the sixty percent
drop in the price of oil between 2014 and 2016 or even the 25
percent increase in the price of oil between the summer of
2016 and end of the year.
As far as the impact of the 9 percent rise in the value of
the dollar on U.S. higher education, well life is tough. The
same is true for our tourism industry (including the U.S.
based Trump hotels -- the foreign ones benefit). They can
console themselves with the fact that the hit is smaller than
what they just endured over the last eight months.
The basic story here is that this tax reform offers the
opportunity to eliminate a major channel through which income
is transferred from the rest of us to the very rich. We will
have to see the real life legislation to pass judgement. But
anyone who doesn't work for the private equity boys and the
rest of the tax shelter industry should be happy to see
Republicans in Congress considering something along these
lines. It should not be shot down for bogus reasons.
The Major
Potential Impact of a Corporate Tax
Overhaul
https://nyti.ms/2jOlTE9
via @UpshotNYT
NYT - Neil Irwin - January 7, 2017
The United States system for taxing businesses is a mess.
If there's one thing nearly everyone can agree upon, it is
that.
The current corporate income tax manages the weird trick
of both taxing companies at a higher statutory rate than
other advanced countries while collecting less money, as a
percentage of the overall economy, than most of them. It is
infinitely complicated and it gives companies incentives to
borrow too much money and move operations to countries with
lower tax rates.
Now, the moment for trying to fix all of that appears to
have arrived. With the House, Senate and presidency all soon
to be in Republican hands and with all agreeing that a major
tax bill is a top priority, some kind of change appears
likely to happen. And it may turn out to be a very big deal,
particularly if a tax plan that House Republicans proposed
last summer becomes the core of new legislation.
Among Washington's lobbying shops and policy analysis
crowd, it's known as a "destination-based cash flow tax with
border adjustment." It's easier to think of it as the most
substantial reworking of how businesses are taxed since the
corporate income tax was introduced a century ago. And it
could, if enacted, have big effects not just in the tax
departments of major corporations but in global financial
markets and the aisles of your local Walmart.
This possible revamping of the corporate tax code is less
politically polarizing than the debates sure to unfold in the
months ahead over health care, or even over individual income
taxes. But the consequences for business - and for the
long-term trajectory of the economy - are huge.
The basic idea behind a D.B.C.F.T. (to use the
abbreviation that has taken hold in a particularly nerdy
corner of Twitter) is this: Right now companies are taxed
based on their income generated in the United States. But
there are countless tricks that corporate accountants can
play to reduce the income companies report and to reduce
their tax burden, and those tricks distort the economy.
Two prime examples are transferring intellectual property
to overseas holding companies and engaging in corporate
inversions that move a company's legal headquarters to a
country with lower taxes. Moreover, because interest payments
on debt are tax-deductible, the current system makes it
appealing to take on as much debt as possible, even though
that can increase the risk of bankruptcy when a downturn
comes along.
The House Republicans' approach, instead of taxing the
easy-to-manipulate corporate income, goes after a firm's
domestic cash flow: money that comes in from sales within the
United States borders minus money that goes out to pay
employees and buy supplies and so forth. There's no incentive
to play games with overseas companies that exist only to
exploit tax differences or to relocate production to
countries with lower taxes because you'll be taxed on things
you sell in the United States, regardless.
"With an income tax, one of the key issues is 'how do you
measure income,' " said Alan Auerbach, an economist at the
University of California, Berkeley, who is a leading advocate
of the idea. "But with cash flow you just follow the money."
And the tax, Mr. Auerbach argues, could spur business
investment while not encouraging companies to rely on debt.
It allows companies to enjoy the tax savings of capital
investments immediately rather than depreciating them over
time. And it doesn't give favorable treatment to debt, as
opposed to equity.
That alone would amount to a major shift in the tax
system. Congressional staff members, the incoming
administration and armies of lobbyists will spend countless
hours hammering out the details of any such proposal: how it
might be phased in, and how to treat financial services, and
much more.
Some of the most complex, and politically problematic,
elements of the plan revolve around its treatment of
international trade, which creates winners and losers. And
some of those potential losers are powerful.
Consider what border adjustment means: When an American
company exports goods under this new tax system, it would not
pay any taxes on its international sales, while its imports
would be taxed. So a company that spent $80 making something
that it sold overseas for $100 would pay no tax on its
earnings. A company that imported goods worth $80 from abroad
and them sold them domestically for $100 would pay tax on the
full $100.
At first glance this looks as if it would boost exports
and reduce the trade deficit. Indeed, it might prove
politically promising for advocates of the strategy to pitch
the plan as one that would do this.
Many economists think it won't work that way, however.
That's because as soon as a cash-flow-based tax with border
adjustment looks likely to become law, the value of the
dollar should rise in currency markets. And that stronger
dollar could eliminate the apparent pro-export, anti-import
effects of the tax. The dollar could rise by, say, 20 to 25
percent, and the trade balance could remain about where it
started.
Essentially, moving to this system means betting on a
"textbook economic theory," as analysts at Evercore ISI put
it, becoming a reality even though the effect hasn't been
tested in practice.
If the dollar doesn't strengthen as expected, for example,
import-dependent industries, especially those with lean
profit margins, could face disaster. That helps explain why
some of the stiffest opposition to this tax overhaul is
coming from the retail industry. Essentially, economists are
telling them "trust us, our models say the currency will
adjust and it will all come out in the wash," but if the
models are wrong, for companies like Walmart, Target and many
others that sell large volumes of imported goods, their
viability could be threatened.
If the models turn out to be right, there is a different
set of risks. The United States dollar is the linchpin of the
global financial system, and a large move in its value
triggered by changes in domestic tax policy could have
unforeseen effects.
Many companies worldwide, especially banks and especially
in emerging markets, have debt denominated in dollars, which
would become more of a burden after a new dollar
appreciation. A big dollar rise would also effectively shift
trillions in wealth from American investments overseas toward
global investors with assets in the United States.
As Jared Bernstein of the Center on Budget and Policy
Priorities has noted (*), we don't really know what the
distributional consequences of this tax overhaul would be. It
could increase the costs of imported goods that the poor
spend a disproportionate portion of their income on, like
clothing and gasoline. That would be bad news for poorer
Americans even as it makes the overall economy more
efficient.
There's still a lot of work to be done to understand the
far-reaching consequences of the D.B.C.F.T. (also, work to be
done to find a catchier name). But there's a broader point
about the nature of any major policy reform. The benefits of
a reworked corporate tax code would emerge slowly; these
disruptions and costs could arrive almost instantly.
No matter the outcome, 2017 will be a fascinating year in
which core components of the tax system - with long-lasting
economic consequences - will be up for grabs.
* My take on the Republicans' new, interesting corporate
tax plan
https://wpo.st/m-8b2
Jared Bernstein - December 30
A lot of folks - okay, four people, but that's a lot for
this sort of thing - have asked me what I think of this new
tax idea Republicans are pushing to replace the current
corporate tax: a destination based, border-adjusted tax on
cash flow. (Let's call it a BAT - border-adjustment tax - as
does the CNNMoney team in this useful explainer (*); it even
has a hashtag: #DBCFT.) Sounds tricky, but the basics are
straightforward, and have more appeal than you might think.
But there are also legitimate concerns, not the least of
which is that the BAT is one potentially good part of a
really damaging tax package. ...
... the main problem with the BAT is that it's part of a
big, highly regressive tax plan that ultimately delivers
virtually all of its benefits to the top 1 percent while
stiffing the Treasury, on net, of much needed revenue. As
I've written in many places, both this plan and
President-elect Donald Trump's plan are nothing more than the
latest entries in the failed trickle-down tax cut experiment.
Their ultimate goals to further enrich the wealthy, shrink
government and force large deficits could well put social
insurance programs on the chopping block.
If so, the BAT, for all its potentially useful attributes,
is a swing and a miss.
* Trump's tariffs or tax reform: Which will Congress pick?
http://cnnmon.ie/2iEdcMP
via @CNNMoney - Dec 28
"Right now companies are taxed based on their income
generated in the United States. But there are countless
tricks that corporate accountants can play to reduce the
income companies report and to reduce their tax burden, and
those tricks distort the economy. Two prime examples are
transferring intellectual property to overseas holding
companies and engaging in corporate inversions that move a
company's legal headquarters to a country with lower taxes."
DBCFT would make this form of tax evasion even easier.
Solution? Don't think so.
A spike in inflation is their criticism? There are all sorts
of real issues with respect to the proposed tax change. A
little expected inflation is not really one of them. And even
if expected inflation went up a bit - I would argue that
would be a good thing as real interest rates are still too
high for my taste.
Liberals Can't Wait for Republicans to Adopt the Border-Adjusted Tax
by VERONIQUE DE RUGY February 7, 2017 4:25 PM
I have already expressed some of my objections with the border-adjusted tax included in the otherwise
very good House Republican's Tax Blueprint. But I think it is important to revisit the utter enthusiasm
of liberals at the prospect of a Republican Congress implementing a Destination Based Cash Flow Tax
(DBCFT).
Exhibit number 1: This article in the U.S. edition of The Independent called "Deluded Republicans
are accidentally pushing for progressive corporation tax reform." It reads:
"Indeed, we find ourselves in the paradoxical situation where a reform being presented by deluded
right-wing American politicians as a way of sticking it to cheating foreigners actually represents
the world's best chance for lancing the boil of rampant tax evasion by multinational companies. .
. .
But the great advantage of this reform is that it would eliminate the incentive for multinational
firms to dodge their US corporate taxes through accounting tricks, such as registering profits at
subsidiaries abroad and relocating their corporate headquarters to tax havens.
No matter where they based their headquarters, multinationals would be liable for a hefty US tax
bill if they sold plenty of products and services in America."
This is correct. No matter how high the rate goes (as I we will see below under a Democratic Congress
and White House, it could go high), companies will have nowhere to go and will lose their escape
valves, i.e., they will be stuck with "a hefty US tax bill." That's what tax harmonization does.
Dan Mitchell has a good speech here about how the DBCFT undermines tax competition.
According to the author, the best part of the tax plan is that other governments will copy it
and the bad system will be imposed everywhere. Tax competition gives you a virtuous cycle of countries
adopting better and cheaper tax systems to compete with other countries. Under a destination-based
border-adjustment regime, you instead get tax harmonization and a vicious cycle that spreads a bad
system everywhere. He concludes:
"Back to the paradox. Republicans care little about the iniquities of tax havens. They want firms
to pay more in corporation tax in the same way that Donald Trump wants judges in Washington to influence
immigration policy. And they seem terribly confused about the reform they are championing and about
what it would entail, not least the progressive outcomes.
Yet, for all that, what they have ended up pushing is the right thing, not just for the US but
the world. Treason or not, we should wish them good speed on this one."
Exhibit number 2: At a recent Tax Foundation event on the issue, Bill Gale of the Brookings Institution
made this remarkable endorsement of the destination-based border-adjustment tax. He said (at the
43:40 mark): "It essentially makes the government a shareholder in every corporation in America.
The government shares all the losses, and it shares all the profits."
You can tell from the video that Douglas Holtz-Eakin is obviously uncomfortable with his comments.
He even says something to the effect of "are you trying to kill it?"
But then it gets better. Gale then reiterated his call for a much higher rate than the Republican
plan's 20 percent. And as he said at the 45:33 mark, "If something is non-distortionary, you should
tax the hell out of it." That has the merit of being honest and transparent.
Now, never mind that a very likely less than perfect adjustment of our currency will actually
create plenty of distortions in the form of, among other things, higher prices for consumers. And
never mind that the adjustment of the currency itself will be painful and destroy a whole lot of
wealth. But he is right that if there is no escape valve, then lawmakers are likely to try to tax
the hell out of it.
As I wrote last week:
"When you think about it, it is not surprising that many, not all, liberals like the new tax idea."
Republicans in Congress should think about this carefully.
...................
Classicals vs Neoclassicals: Tax and Rent
Posted on 8 January 2011
At the university I attended, a few of the academics were
strongly influenced by Classical Political Economy,
especially that of Smith and Ricardo. Prior to my student
days, one of them had published a paper in the Cambridge
Journal of Economics entitled "On the origins of the term
'neoclassical'" (no free link available), which is quite well
known in heterodox circles. In it, he argued that the
'classical' in the term 'neoclassical' is a misnomer and that
neoclassical and classical economics actually have little in
common, despite attempts by neoclassicals to claim Smith, in
particular, as their forefather.
The classical-influenced economists at my university
happened to belong to the Sraffian School. This school
attempts to synthesize Classical value and distribution with
Keynesian output and employment determination, and is also
known for its key role and victory in the Cambridge Capital
Controversy. The school is named after Piero Sraffa, whose
interpretation of Classical Political Economy, particularly
Ricardo's work, has been highly influential.
Sraffians are not the only modern-day economists
influenced by Smith and Ricardo. Another prominent example is
Michael Hudson. In a recent interview (h/t to Tom Hickey),
Hudson discusses one big difference between the Classical
economists and the neoclassicals: their analysis of taxation
as applied to economic rent.
Hudson touches on a number of noteworthy points during the
interview. He draws attention to a historical correspondence
that would probably surprise many, between high top tax rates
and strong economic growth, and observes that the top rates
were high in the period prior to WWII. Importantly, the focus
of taxation in Classical Political Economy, which Hudson
argues influenced US government policy in the late 1800s and
much of the first half of the 1900s, was on confiscating
economic rents. These rents include income that derives from
ownership of assets that appreciate in value merely because
of the growth in national income and/or improved public
infrastructure, and not due to any participation in the
production process (they arise especially in the real estate
and financial sectors).
It is not mentioned in the interview, but profit, of
course, is also income that derives from the mere ownership
of assets – the means of production. However, the classical
economists were engaged in a class war with rentiers, not
capitalists. It was Marx who drew this reasoning out to its
logical conclusion, and this probably goes a long way to
explaining why neoclassical theory, rather than being a
continuation of classical economics (as was often claimed
once it was established), was an escape into a different
conceptualization of a capitalist economy that sought to
reframe the distribution of income as the result of marginal
contributions (an attempt that failed and was the chief
target and theoretical casualty of the Cambridge Capital
Controversy). Even so, there does remain a significant
distinction between profit, which relates to assets employed
in the production process, and economic rents. For this
reason, Marx also distinguished between these two categories
of income and spent a great deal of space in volume 3 of
Capital analyzing the various forms of surplus value,
including different types of rent.
Hudson goes on to stress that the taxation imposed in the
late 1800s and first half of the 1900s was highly
progressive. Initially only the top 1 percent of income
earners were required to submit tax returns. The purpose of
this was to keep taxes on wages and profit low to promote
price competitiveness against lower wage countries. This can
be contrasted with neo-liberal policies of today which seem
to be designed almost with the opposite intent: to tax wage
and profit income (and also consumption) but provide
loopholes or tax breaks for the recipients of economic rents.
Above all, Hudson distinguishes between what the classical
economists meant by the term "free market" and what that term
has come to mean in the neo-liberal period. Hudson emphasizes
that, for the classical economists, "free market" meant a
market unencumbered by rent-based claims on income that would
draw economic activity away from income production and toward
speculation. The aim of the classical economists was to
incentivize production. This is a very different notion than
the neo-liberal one of labor-market "deregulation" (meaning
regulation in favor of employers over employees), which is
really just code for union smashing and an attack on real
wages, or the neo-liberal deregulation of financial markets,
which is a euphemism for enabling financial parasitism.
Hudson makes another observation in passing. The
observation is not central to his argument in the interview,
but is relevant to current debates over deficits and public
debt, and consistent with MMT. He notes that immediately
prior to the commencement of the only extended period of high
capitalist growth (WWII until the late 1960s), the US
population was not in debt, and in fact had pent up savings
from the war that it was waiting to spend.
By little or no debt, Hudson clarifies that he means
little or no private debt. There was, of course, a large
public debt – larger as a percentage of GDP than the current
US government "debt". This public debt did not matter, in
spite of the familiar opposition to deficits and public debt,
the echoes of which can be heard today, simply because the
budget deficit shrinks endogenously once private-sector
activity and income growth resume. This is precisely what
happened in the immediate postwar period.
Today, with the US government the monopoly issuer of its
own flexible exchange-rate fiat currency, public "debt" is –
or rather should be – even less of an issue. Unlike in the
immediate postwar period, the government is not subject to
the constraints of Bretton Woods or a similar
commodity-backed money system. It is free to utilize its
fiscal capacity to the extent necessary to restore full
employment.
Government "debt" is nothing other than the accumulated
net financial wealth of the non-government. Once the
non-government is ready to spend, income growth will deliver
stronger revenues, reducing the deficit. But the private
sector needs to have its debt under control before it will
resume spending at levels sufficient to sustain strong
economic growth.
In addition to the absence of significant private debt at
the end of WWII, there were other factors that contributed to
the strong growth of the immediate postwar period, including
Keynesian demand-management policies, a progressive tax
system, and significant financial regulation. All these
beneficial features of the economy were gradually undermined,
and then exposed to outright attack from the 1970s onwards.
Hudson discusses how, over time, much of the progressivity
in the tax system was removed, paving the way for the
construction of the inequitable and anti-productive monster
of today. Keynesian demand-management policies were also
largely eschewed throughout the neo-liberal era on the basis
of an opportunistic misinterpretation of the stagflation of
the 1970s. All this took place alongside deregulation of the
financial sector and an aggressive dismantling of worker
employment protections.
The result of this neo-liberal policy mix was an
increasing financialization and "rentification" of the
economy, widening income inequality, and an adherence to
fiscal austerity that directly corresponded, as a matter of
accounting, to an unsustainable build up in the only US debt
that matters – private debt – and culminated in the Global
Financial Crisis and Great Recession.
If the aim is to restore sustainable growth under
capitalism (which is not my preferred social system, but
presumably the one commanding the allegience of
policymakers), the insights obtained from the classical
economists in conjunction with the lessons of the postwar
period would seem to suggest some combination of the
following policy responses: tighter regulations of
speculative activities; a more steeply progressive tax system
targeted at the confiscation of economic rents and the
incentivization of production and consumption; stronger
worker protections; and the abandonment of the faulty
construct of a 'government budget constraint' and a return to
deficit expenditure sufficient to underpin non-government net
saving and full employment.
But the actual policy response has instead been to
manipulate financial markets to engineer a massive transfer
of wealth to the rentiers and exacerbate income and wealth
inequality; to continue with the approach of taxing wage and
profit income along with consumption rather than economic
rents; and possibly even to revert foolishly to austerity
while the private sector remains deeply indebted.
Corporate income tax is an inefficient way to generate tax
revenues. A) Large corps can avoid it and B) the incidence
matters and I'm not sure we are always taxing who
left-wingers think we are taxing (it is not who pays the tax
but who bears the incidence of the tax that matters).
VAT
is much smarter and can be made less regressive A) exclude
essentials like non-prepared food bought at grocery stores B)
provide fixed rebate across the board.
And at the end of the day even if VAT is on net
"regressive" on the tax inflow side, remember that the
benefits are "regressive" too, that is to say the people at
the bottom of the income scale receive benefits that as a
percentage of income are much much much higher than the well
to do.
Important note: I am all for cutting our military spending
by say 50% (I know arbitrary number but it will certainly be
Yuge). Bring the troops home and stop playing world police
men. We shouldn't be militarily picking sides in Yemen or
Syria. Offer humanitarian aid at a fraction of the cost.
GM could instead have its foreign subsidiaries pay $1 billion
less for the cars they buy from the US branch of the company.
That wipes out GM's US profits, leaving it with no US tax
liability and shifting the profits to the subsidiaries
abroad.
"If done well, it could eliminate a lot of the tax
shenanigans that companies like Apple and Google use, and
raise a lot of revenue that could be used to either lower the
corporate tax rate"
Companies that export their goods and intellectual
property will pay less not more. OK – Apple and Google game
the current system. But then there are companies like
Starbucks and Boeing who currently pay a lot in US taxes.
Under this proposal – they will pay a lot less.
Lawrence Summers says the gaming under this proposal will
be yuuge. It will be but it will be different as I noted in
my Trump Toaster Oven story. PeterK has read it and went off
in one of his incoherent rants. But I guess he really did not
read it as he says Summers and I have not explained our
position. Just wow. But back to Dylan:
"Proponents don't think it would raise taxes for companies
that import goods like avocados, and so wouldn't drive those
companies to raise prices to compensate. If all goes
according to plan, your guac would be safe. Shareholders in
corporations would be paying for the border wall (just as
they pay the bulk of corporate taxes today), not US
consumers."
This seems to contradict itself. Dylan has conflated the
trade protection issue and the tax issue. Forgive him as what
the proponents say needs to be scrutinized carefully which
has been my point from day one. Think of the shareholders of
Fresh Del Monte who import a lot of fruits and source a lot
of profits abroad. Their corporate taxes will go up under
this proposal, which is fine by me. But if anyone thinks they
will not game the new system – then they are clueless. One
cheer to Dylan for trying but this falls really short.
"For
example, suppose that a car company - let's just call it, uh,
General Motors - makes $1 billion in profit manufacturing
cars in the US and selling them domestically and exporting
them to subsidiaries abroad. That would normally subject it
about $350 million in taxes, since the US has a 35 percent
corporate tax rate. But GM could instead have its foreign
subsidiaries pay $1 billion less for the cars they buy from
the US branch of the company. That wipes out GM's US profits,
leaving it with no US tax liability and shifting the profits
to the subsidiaries abroad. If those subsidiaries are in
countries with a low or nonexistent corporate income tax,
that could wind up being a very good deal. Same goes for
companies that import goods.
Imagine a company - call it Chiquita Banana - that has
subsidiaries in Latin American countries, buys up bananas
from banana farmers, and then sells them to the US branch for
resale. Suppose it too makes a $1 billion profit doing this.
It could then just have its Latin American subsidiaries
charge $1 billion more for the bananas, leaving the US branch
with no profits and shifting them to Latin America. These are
very, very simplified examples; most corporate tax evasion
schemes are vastly more complicated. But in broad strokes,
this is how most of it works: You manipulate transactions
between US and non-US branches of the company so that the
money winds up abroad.
A destination-based tax makes all of this impossible."
Very simplified? This first one is a very incorrect
example. GM and Ford bring most of their profits back to the
US. Under DBCFT – they get a major tax break. Chiquita is
doing this but then they import bananas whereas GM exports
cars. YUUUGE difference. DBCFT would make what impossible.
GM's income from exports would go to zero. How does this
help? And if Dylan has bought into Auerbach's spin that DBCFT
ends transfer pricing games, he is wrong as I have noted. I'm
sorry but this is a really, really dumb discussion. But
PeterK thinks it is great? Just wow!
"Lawrence Summers says the gaming under this proposal will be
yuuge. It will be but it will be different as I noted in my
Trump Toaster Oven story. PeterK has read it and went off in
one of his incoherent rants. But I guess he really did not
read it as he says Summers and I have not explained our
position"
PGL said this was insignificant and unworthy of comment.
Krugman apparently disagreed.
FEB 1 12:49 PM Feb 1 12:49 pm
16
Germany, the Euro, and Currency Manipulation
by Krugman
Peter Navarro, the closest thing Trump has to an economic
guru, made some waves by accusing Germany of being a currency
manipulator and suggesting that both the shadow Deutsche mark
and the euro are undervalued. Leaving aside the dubious
notion that this is a good target of US economic diplomacy,
is he right?
Yes and no. Unfortunately, the "no" part is what's
relevant to the US.
Yes, Germany in effect has an undervalued currency
relative to what it would have without the euro. The figure
shows German prices (GDP deflator) relative to Spain (which I
take to represent Southern Europe in general) since the euro
was created. There was a large real depreciation during the
euro's good years, when Spain had massive capital inflows and
an inflationary boom. This has only been partly reversed,
despite an incredible depression in Spain. Why? Because wages
are downward sticky, and Germany has refused to support the
kind of monetary and fiscal stimulus that would raise overall
euro area inflation, which remains stuck at far too low a
level.
So the euro system has kept Germany undervalued, on a
sustained basis, against its neighbors.
But does this mean that the euro as a whole is undervalued
against the dollar? Probably not. The euro is weak because
investors see poor investment opportunities in Europe, to an
important extent because of bad demography, and better
opportunities in the U.S.. The travails of the euro system
may add to poor European perceptions. But there's no clear
relationship between the problems of Germany's role within
the euro and questions of the relationship between the euro
and other currencies.
And may I say, what is the purpose of having someone
connected to the U.S. government say this? Are we going to
pressure the ECB to adopt tighter monetary policy? I sure
hope not. Are we egging on a breakup of the euro? It sure
sounds like it - but that is not, not, something the US
government should be doing. What would we say if Chinese
officials seemed to be talking up a US financial crisis? (It
would, of course, be OK with Trump if the Russians did it.)
So yes, Navarro has a point about Germany's role within
the euro. And if he were unconnected with the Bannon
administration, he would be free to make it. But in the
current context, this is grossly irresponsible.
"Because wages are downward sticky, and Germany has refused
to support the kind of monetary and fiscal stimulus that
would raise overall euro area inflation, which remains stuck
at far too low a level."
"And may I say, what is the
purpose of having someone connected to the U.S. government
say this?"
If Germany engaged in enough fiscal stimulus to boost
growth and inflation, eventually the economy would boom and
the ECB would be forced to raise rates, maybe even higher
than the Fed, drawing in capital and appreciating the Euro.
I doubt Navarro is saying this though. (although Trump is
promising a large fiscal expansion....)
Queue incoming tirade, rand and temper tantrum from PGL.
Can't we just have a calm discussion about the facts and
theory. Why the need to have flame wars and get personal?
I mean, in essence Navarro is correct. Europe weak economy is
making the American economy look strong by comparison.
Germany and Europe need to get their act together and so
they'll buy more import from America. Instead Germany is
beggaring its neighbors with overly tight macro policy and
fiscal targets.
Box 1: MAGA ideal: made in
America, by Americans, for Americans. Tax will be collected
on profits earned by selling goods produced & sold
domestically. The DBCFT most resembles an income tax in this
scenario (though expensing and non-deductibility of interest
still moves it toward a consumption base); it will also be
the easiest to collect.
Box 2: Exports. Tax exemption for sales abroad will create
(possibly permanent) NOLs to carry forward indefinitely. This
will require deciding on loss-shifting policy. This is
obviously not an income tax but it not a VAT either.
Box 3: Imports. Sales in the US of goods produced abroad
are taxed on a gross basis, more like an excise tax (or yes,
a tariff). With an estimated $1.2 trillion trade deficit,
this part of the DBCFT is expected to raise the most revenue
but the success of that strategy depends to some degree
(maybe a large degree) on remote sellers collecting tax
(that's complicated--see Europe).
Box 4: Foreign Sales of Foreign Products. Neither costs
nor revenues are counted for goods produced and sold abroad,
even if produced and sold by a US-based company. This part of
the DBCFT would be more or less consistent with either a VAT
or territorial income tax.
That, in a nutshell, is the basic skeleton of the DBCFT as
proposed in the Ryan plan. It will be interesting to see
what, if any, of this ends up enacted IRL.
* There is absolutely zero chance that the proposal will
be enacted as described. Still, it is helpful to understand
the basic vision. I do not claim to be an expert on the DBCFT
and offer here no analysis or predictions about the incidence
of the tax, or the impact such a tax would have on US or
world capital flows, investment, consumption, economic
growth, or international relations. This paper by Wei Cui, or
this one by Wolfgang Schoen are helpful in addressing many of
these issues.
"Think of the shareholders of Fresh Del Monte who
import a lot of fruits and source a lot of profits abroad.
Their corporate taxes will go up under this proposal, which
is fine by me. But if anyone thinks they will not game the
new system – then they are clueless."
Box 3. How will they game the system exactly? Something
with remote sellers collecting taxes?
The Major Potential Impact of a Corporate Tax Overhaul
by NEIL IRWIN JAN. 7, 2017
The United States system for taxing businesses is a mess.
If there's one thing nearly everyone can agree upon, it is
that.
The current corporate income tax manages the weird trick
of both taxing companies at a higher statutory rate than
other advanced countries while collecting less money, as a
percentage of the overall economy, than most of them. It is
infinitely complicated and it gives companies incentives to
borrow too much money and move operations to countries with
lower tax rates.
Now, the moment for trying to fix all of that appears to
have arrived. With the House, Senate and presidency all soon
to be in Republican hands and with all agreeing that a major
tax bill is a top priority, some kind of change appears
likely to happen. And it may turn out to be a very big deal,
particularly if a tax plan that House Republicans proposed
last summer becomes the core of new legislation.
Among Washington's lobbying shops and policy analysis
crowd, it's known as a "destination-based cash flow tax with
border adjustment." It's easier to think of it as the most
substantial reworking of how businesses are taxed since the
corporate income tax was introduced a century ago. And it
could, if enacted, have big effects not just in the tax
departments of major corporations but in global financial
markets and the aisles of your local Walmart.
This possible revamping of the corporate tax code is less
politically polarizing than the debates sure to unfold in the
months ahead over health care, or even over individual income
taxes. But the consequences for business - and for the
long-term trajectory of the economy - are huge.
The basic idea behind a D.B.C.F.T. (to use the
abbreviation that has taken hold in a particularly nerdy
corner of Twitter) is this: Right now companies are taxed
based on their income generated in the United States. But
there are countless tricks that corporate accountants can
play to reduce the income companies report and to reduce
their tax burden, and those tricks distort the economy.
Two prime examples are transferring intellectual property
to overseas holding companies and engaging in corporate
inversions that move a company's legal headquarters to a
country with lower taxes. Moreover, because interest payments
on debt are tax-deductible, the current system makes it
appealing to take on as much debt as possible, even though
that can increase the risk of bankruptcy when a downturn
comes along.
The House Republicans' approach, instead of taxing the
easy-to-manipulate corporate income, goes after a firm's
domestic cash flow: money that comes in from sales within the
United States borders minus money that goes out to pay
employees and buy supplies and so forth. There's no incentive
to play games with overseas companies that exist only to
exploit tax differences or to relocate production to
countries with lower taxes because you'll be taxed on things
you sell in the United States, regardless.
"With an income tax, one of the key issues is 'how do you
measure income,' " said Alan Auerbach, an economist at the
University of California, Berkeley, who is a leading advocate
of the idea. "But with cash flow you just follow the money."
And the tax, Mr. Auerbach argues, could spur business
investment while not encouraging companies to rely on debt.
It allows companies to enjoy the tax savings of capital
investments immediately rather than depreciating them over
time. And it doesn't give favorable treatment to debt, as
opposed to equity.
That alone would amount to a major shift in the tax
system. Congressional staff members, the incoming
administration and armies of lobbyists will spend countless
hours hammering out the details of any such proposal: how it
might be phased in, and how to treat financial services, and
much more.
Some of the most complex, and politically problematic,
elements of the plan revolve around its treatment of
international trade, which creates winners and losers. And
some of those potential losers are powerful.
Consider what border adjustment means: When an American
company exports goods under this new tax system, it would not
pay any taxes on its international sales, while its imports
would be taxed. So a company that spent $80 making something
that it sold overseas for $100 would pay no tax on its
earnings. A company that imported goods worth $80 from abroad
and them sold them domestically for $100 would pay tax on the
full $100.
At first glance this looks as if it would boost exports
and reduce the trade deficit. Indeed, it might prove
politically promising for advocates of the strategy to pitch
the plan as one that would do this.
Many economists think it won't work that way, however.
That's because as soon as a cash-flow-based tax with border
adjustment looks likely to become law, the value of the
dollar should rise in currency markets. And that stronger
dollar could eliminate the apparent pro-export, anti-import
effects of the tax. The dollar could rise by, say, 20 to 25
percent, and the trade balance could remain about where it
started.
Essentially, moving to this system means betting on a
"textbook economic theory," as analysts at Evercore ISI put
it, becoming a reality even though the effect hasn't been
tested in practice.
If the dollar doesn't strengthen as expected, for example,
import-dependent industries, especially those with lean
profit margins, could face disaster. That helps explain why
some of the stiffest opposition to this tax overhaul is
coming from the retail industry. Essentially, economists are
telling them "trust us, our models say the currency will
adjust and it will all come out in the wash," but if the
models are wrong, for companies like Walmart, Target and many
others that sell large volumes of imported goods, their
viability could be threatened.
If the models turn out to be right, there is a different
set of risks. The United States dollar is the linchpin of the
global financial system, and a large move in its value
triggered by changes in domestic tax policy could have
unforeseen effects.
Many companies worldwide, especially banks and especially
in emerging markets, have debt denominated in dollars, which
would become more of a burden after a new dollar
appreciation. A big dollar rise would also effectively shift
trillions in wealth from American investments overseas toward
global investors with assets in the United States.
As Jared Bernstein of the Center on Budget and Policy
Priorities has noted, we don't really know what the
distributional consequences of this tax overhaul would be. It
could increase the costs of imported goods that the poor
spend a disproportionate portion of their income on, like
clothing and gasoline. That would be bad news for poorer
Americans even as it makes the overall economy more
efficient.
There's still a lot of work to be done to understand the
far-reaching consequences of the D.B.C.F.T. (also, work to be
done to find a catchier name). But there's a broader point
about the nature of any major policy reform. The benefits of
a reworked corporate tax code would emerge slowly; these
disruptions and costs could arrive almost instantly.
No matter the outcome, 2017 will be a fascinating year in
which core components of the tax system - with long-lasting
economic consequences - will be up for grabs.
"Amgen CEO Robert Bradway told President Trump at today's
White House meeting that his company is adding 1,600 jobs in
the U.S. this year."
Amgen had $21,662 million in sales in 2015 with $7978
million in profits. Its worldwide taxes were only $1039
million for an effective tax rate of only 13 percent. How did
they pull the trick off? Their 10-K filing is a little sparse
in information but does admit:
"The effective tax rates for the years ended December 31,
2015, 2014 and 2013, are different from the federal statutory
rates primarily as a result of indefinitely invested earnings
of our foreign operations. We do not provide for U.S. income
taxes on undistributed earnings of our foreign operations
that are intended to be invested indefinitely outside the
United States."
Did the White House discuss this massive base erosion to
tax havens with no repatriation of earnings? Of course one
has to wonder about their transfer pricing profile. All I
could get from their 10-K was:
"We perform most of our bulk manufacturing, formulation,
fill and finish activities in our Puerto Rico facility and
also conduct finish activities in the Netherlands. We also
utilize third-party contract manufacturers to supplement the
bulk, formulation, fill, and/or packaging of certain Amgen
principal products ... We operate distribution centers in the
United States-principally in Kentucky and California-and the
Netherlands for worldwide distribution of the majority of our
commercial and clinical products. We also use third-party
distributors to supplement distribution of our products
worldwide ... We have major R&D centers in several locations
throughout the United States (including Thousand Oaks and San
Francisco, California and Cambridge, Massachusetts), Iceland
and in the United Kingdom, as well as smaller research
centers and development facilities globally."
So we have three basic functions here: (1) production
offshore; (2) local distribution; and (3) R&D done in the
U.S. ...
couple of points -- as no doubt you know, Puerto Rico is
offshore if you want it to be (e.g. no US corporate income
tax until profits repatriated, can operate your puerto rican
operations as a foreign controlled company etc). but was
still interested in the use of PR and the Netherlands.
Personal interest, given my work on Puerto Rico, as PR has
been losing out to Ireland. but key point is that export
income from PR can be tax deferred indefinitely as I
understand it.
and i am increasingly interested in how destination based
cash flow taxation would change firms incentives. Export
income is entirely untaxed, so effective tax rate would be
what -- 20% of profits on US sales and 0% of profits on
global sales, so still very low. Actually I wonder if the
reform might even reduce Amgen's US tax, as export income is
excluded from revenues, potentially creating a tax loss on
the portion of RnD that generates global revenues (US costs,
zero taxable income on exports, = tax loss on exports i
think, but i am still not sure on this angle). curious what
you think"
Of course expect PeterK to launch another one of his
pointless rants since he has no clue what any of this means.
BTW - Amgen would see this as a major reduction in taxes.
Other Big Pharma would also see this as a tax break. Which is
why all progressives should oppose this.
Brad is right
about changing incentives. The international tax sharks are
already circling the wagons on how to game DBCFT. Alas Dean
Baker has been confused by Alan Auerbach's claims to to the
contrary. Of course when I point out this reality, PeterK
accuses me of insulting people. Alas, this is the kind of
nonsense one gets when one tries to contribute to the
discussion here.
Billionaire Koch Brothers Launch Effort to Kill Republican
Border Tax Plan
Reuters
6:07 AM Eastern
Billionaire industrialist Charles Koch is launching a
campaign to sink a border tax under consideration by
Republican leaders in Congress, a move that could complicate
the lawmakers' efforts to find a way to pay for President
Donald Trump's proposed wall on the U.S. border with Mexico.
Americans for Prosperity, a conservative political
advocacy group founded by Charles Koch and his brother David,
plans to use its network of wealthy political donors and
activists to kill the proposal, which aims to raise $1.2
trillion over 10 years on goods coming into the United
States, according to officials from the group, which gathered
this weekend for a conference.
Republican House of Representatives Speaker Paul Ryan is
pushing the tax as part of a broader overhaul of the U.S. tax
code.
The White House has given mixed signals on whether Trump
supports the approach, but proponents say revenue collected
from the border tax could finance Trump's drive to build a
wall along the southwestern U.S. border. Proponents also say
it would discourage U.S. manufacturers from moving abroad.
On Thursday, AFP sent a letter expressing its opposition
to the border tax to a House panel in charge of writing tax
legislation.
AFP Chief Executive Officer Luke Hilgemann, in an
interview, called the measure "a massive tax increase" on
U.S. consumers, who would pay more for foreign goods. He
urged Ryan to "go back to the drawing board."
AFP and its offshoot organizations have become a powerful
force in U.S. politics, bolstering candidates and issues on
federal and state levels.
Besides defying Republican leaders on the border tax, the
Koch-led organization on Sunday challenged Trump on a policy
he implemented on Friday to stop the movement of people from
countries with large Muslim populations from traveling to the
United States.
"The travel ban is the wrong approach and will likely be
counterproductive," said an official of the Koch network.
Koch refused to endorse Trump during his presidential
campaign, differing with the candidate over his positions on
immigration and trade policy, and his practice of singling
out companies for possible retribution if they move jobs
abroad.
Nevertheless, Hilgemann said AFP had a "developing
relationship" with the Trump White House, which he said had
reached out to his organization to discuss some policy
matters.
At the same time, former AFP officials have landed
high-level jobs in the Trump administration, giving the group
a conduit for airing its policy wishes.
Looking toward the 2018 congressional and gubernatorial
elections, AFP officials said they planned to boost the
network's spending on policy and political activities to
between $300 million and $400 million, up from an estimated
$250 million for the 2016 campaigns. Hilgemann also said AFP
was laying plans to mobilize activists to help win Senate
confirmation of Trump's pick for the Supreme Court nominee.
The White House said Trump was planning this week to announce
his pick to replace the late Justice Antonin Scalia.
1. Impose a retail sales tax on consumer goods and
services, both domestic and imported.
2. Use some of the proceeds from the tax to repeal the
corporate income tax.
3. Use the rest of the proceeds from the tax to significantly
cut the payroll tax.
Before moving on, ask yourself: Do you like this plan?
As I understand it, this plan is, in effect, what the
Republicans in Congress are proposing.
Note the words "in effect." There are a few differences,
which are more important administratively than in their
economic effect. One is that the consumption tax is not
collected at the retail level but rather along the chain of
production (much like a value-added tax). Once this is done,
you need border adjustments to ensure the tax is really like
a retail sales tax: imports must be taxed, and exports have
to get a rebate. In addition, the payroll tax is not cut but
rather firms get a deduction for labor payments, but that
deduction is much the same as a payroll tax cut.
Personally, I like the three-point plan listed above, and
I therefore like the reform proposal being discussed in
Congress. A lot of confusion about things like border
adjustments might disappear if commentators realized that
what is being discussed is largely equivalent to this
three-point plan.
"...Because of this uncertainty, big retailers like Walmart and Target, firms whose business model
depends on cheap imports, are fighting hard against the BAT, and let me assure you that their lobbyists
are neither amused nor entertained by elegant theories of full dollar adjustment. My strong suspicion
is that they'll kill this tax.
If so, wiping out a big payfor will severely crimp the full plan (as described by the TPC in the
link above) so I'm not sure what happens next. I like many aspects of this idea, especially the sales-based
destination part and the elimination of interest deductibility (unless you're running a private equity
firm, you should agree with me that heavily subsidizing leverage is a really bad idea). Also, if
the dollar doesn't fully adjust, the plan is likely to lower the trade deficit, though part of that
would be reflected in higher consumer prices, which probably catches the Fed's attention, and so
on into all sorts of unknowns.
But the main problem with the BAT is that it's part of a big, highly regressive tax plan that
ultimately delivers virtually all of its benefits to the top 1 percent while stiffing the Treasury,
on net, of much needed revenue. As I've written in many places, both this plan and President-elect
Donald Trump's plan are nothing more than the latest entries in the failed trickle-down tax cut experiment.
Their ultimate goals to further enrich the wealthy, shrink government and force large deficits could
well put social insurance programs on the chopping block.
If so, the BAT, for all its potentially useful attributes, is a swing and a miss."
"He serves on the board of two
cutting edge financial services startups-Square and Lending Club-and also serves on the board
of Premise. He chairs the boards of Citizen Schools and the Center for Global Development.
He serves on the board of Teach for America and ONE. He is an advisor to The Hamilton Project,
The Hutchins Center on Fiscal & Monetary Policy and the Peterson Institute for International
Economics. He is a distinguished senior fellow at the Center for American Progress and recently
co-chaired the Commission on Inclusive Prosperity."
"Trump-era tax reform could be coming for your toys"
Trump said the border tax is too complicated. But who
knows what he'll do, he's so mercurial. But notice how the
Koch brothers are opposed. This is where EMichael is wrong.
He wrote today:
"Amazes me that even now people keep thinking that Trump
voters are anything but loyal GOP voters."
Trump voters and his allies in Congress are economic
nationalists (plus cultural nationalists). The establishment
GOP isn't. From the piece:
"Woldenberg is part of a chorus of voices urging lawmakers
to walk away from the idea of a border adjustment tax. The
National Retail Federation, for example, has been criticizing
this tenet of the plan, saying it would simply result in
consumers seeing higher prices on store shelves.
"Economic theorists are playing with fire and it's the
consumer who ultimately will lose," said David French, NRF's
senior vice president for government relations, in a news
release issued this month.
Other groups, too, have expressed similar concerns,
including Americans for Prosperity, an advocacy group backed
by the Koch brothers.
"Border adjustability is nothing more than a tax on
American consumers," Tim Phillips, the group's president,
said in a statement. "We are against this approach because in
the end, it is making life more expensive for all Americans,
especially low and fixed-income families."
But they may face a tough audience on Capitol Hill. Rep.
Kevin Brady (R-Tex.), chairman of the House Ways and Means
Committee, is talking up the the border adjustment plan as a
framework for helping U.S. exporters. According to a
transcript of prepared remarks he made to the U.S. Chamber of
Commerce this month, Brady said, "This tax disadvantage on
'Made in America' products and services destroys true
competition. Worse, it often means the best location for a
U.S. company to sell to America is overseas. Why accept such
an unfair and job-killing tax code?"
The Washington Post is not a reliable arbiter. As Dean
Baker points out, they're often misleading.
Grover Norquist supports the deal because of the overall
package it comes in.
"Grover Norquist, famous for persuading members of
Congress to pledge that they won't raise taxes, says he's OK
with the so-called border adjustment tax being proposed by
the House GOP.
Norquist, head of Americans for Tax Reform and creator of
the Taxpayer Protection Pledge, made the announcement Tuesday
morning on CNBC, though he added that he supports the tax
only because it falls within a much larger package of tax
reform.
"If it was stand-alone, it would be no," but as part of a
"several trillion-dollar tax reduction package, the whole
package is pro-growth," he said."
This is kind of why PGL opposes it, because of the overall
deal, if I understand him correctly. So if it was
stand-alone, it wouldn't be so bad? He doesn't say.
GOP's border adjustment tax divides conservatives, pits
House against Trump
By Stephen Dinan - The Washington Times - Tuesday, January
24, 2017
"Congress's chief tax-law writer threw his support Tuesday
behind the House GOP's plans for a border adjustment tax,
igniting a ferocious debate that's already dividing
conservatives and pitting them against President Trump.
The president has said he wants to see punitive tariffs
aimed at companies that move operations outside the U.S., an
action he says will convince firms to build and sell here
instead.
But Ways and Means Chairman Kevin Brady said he'll work
instead on a border adjustment policy, which he said will
even out taxes between imports, exports and purely domestic
goods and services, making U.S. companies more competitive
without having to turn to a tariff.
"Eliminating the 'Made in America' tax is a simple but
powerful action we can take that will dramatically simplify
our international tax system and level the playing field for
American businesses and workers," the Texas Republican said
in a speech Tuesday at the U.S. Chamber of Commerce.
House Speaker Paul D. Ryan has been pushing the border
adjustment for weeks, clashing with the new president, who
has said the system is too complicated. Mr. Trump's been
pushing to instead impose "major" tariffs to boost the price
of foreign goods, which he believes would make American
manufacturers more competitive."
"yuan" and PGL think Ryan and House Republicans will
prevail over Trump. I doubt it.
Trump tantrums aside, you may be finding the whole border tax adjustment discussion confusing.
If so, you're not alone; I've worked in this area my whole life, I co-wrote a widely cited paper
* (with Martin Feldstein) on why a Value Added Tax isn't an export subsidy, and I have still had
a hard time wrapping my mind around the Destination-Based Cash Flow Tax border adjustment that
sort-of-kind-of constituted the basis for the Mexico incident.
But I have what I think may be a (relatively) easy way to think about it, which starts with
the competitive effects of a VAT, then analyzes the DBCFT as a change from a VAT.
So, first things first: a VAT does not give a nation any kind of competitive advantage, period.
Think about two firms, one domestic and one foreign, selling into two markets, domestic and
foreign. Ask how the VAT affects competition in each market.
In the domestic market, imports pay the border adjustment; but domestic firms pay the VAT,
so the playing field is still level.
In the foreign market, domestic firms don't pay the VAT, but neither do foreign firms. Again,
the playing field is still level.
So a VAT is just a sales tax, with no competitive impact.
But a DBCFT isn't quite the same as a VAT.
With a VAT, a firm pays tax on the value of its sales, minus the cost of intermediate inputs
– the goods it buys from other companies. With a DBCFT, firms similarly get to deduct the cost
of intermediate inputs. But they also get to deduct the cost of factors of production, mostly
labor but also land.
So one way to think of a DBCFT is as a VAT combined with a subsidy for employment of domestic
factors of production. The VAT part has no competitive effect, but the subsidy part would lead
to expanded domestic production if wages and exchange rates didn't change.
But of course wages and/or the exchange rate would, in fact, change. If the US went to a DBCFT,
we should expect the dollar to rise by enough to wipe out any competitive advantage. After the
currency adjustment, the trade effect should once again be nil. But there might be a lot of short-to-medium
term financial consequences from a stronger dollar.
I think this is right, and I hope it clarifies matters. Oh, and no, none of this helps pay
for the wall.
" If the US went to a DBCFT, we should expect the dollar to rise by enough to wipe out any competitive
advantage. After the currency adjustment, the trade effect should once again be nil. "
This is the big lie the progressive neoliberals like Krugman and PGL are pushing. Why? To combat
Trump's economic nationalism.
Trump told his advisers the tax is too complicates so it probably won't see the light of day.
He'll do the 20 percent import tax on Mexico to pay for the wall. Then he'll do something with
China.
Paul Krugman and the Republican Corporate Income Tax
Proposal
The current corporate income tax is a massive cesspool.
There are so many routes for avoidance that it is almost
becoming voluntary. This matters not only because we don't
get the revenue we should from the tax, but also because it
has created a massive tax avoidance industry.
The tax avoidance industry is a big deal. This is an
industry that contributes nothing to the economy. It involves
people designing clever tricks to allow corporations to avoid
paying their share of taxes.
The tax avoidance industry is also an important source of
inequality since it is possible to get very rich designing
clever ways to avoid taxes. My colleague Eileen Appelbaum
(along with Rose Batt) show how the private equity industry
is largely a tax avoidance industry in their recent book.
"Private Equity at Work." Many of the very richest people in
the country got their wealth as private equity fund partners.
In his movie, "Capitalism: A Love Story," Michael Moore
highlighted "dead peasant" insurance policies. This is when a
major company like Walmart buys life insurance policies on
tens of thousands of front line workers, like checkout
clerks. Usually the insuree doesn't even know of the
existence of the policy, but if they die, the company
collects.
Moore emphasized the morbid nature of this game, but
missed the real story. The point of these policies is to
smooth profits, partly to manipulate share prices, but also
for tax purposes. The real highlight of this story is that
there is someone who likely got very rich by developing dead
peasant insurance policies, rather than contributing anything
productive to the economy.
I mention this as background to the corporate income tax
discussion since to my view a major goal of corporate tax
reform is to eliminate the enormous opportunities for gaming
that currently exist. These opportunities are making some
people very rich and are a complete waste from an economic
standpoint.
For this reason, I am sympathetic to the plan the
Republicans are debating. In its conception it would be
enormous simplification relative to the current system. Of
course, that is the conception, we will have to see the plan
as it is drafted in legislation to reach any final judgement.
In this vein, I have been unhappy to see some of the
attacks leveled by people for whom I have considerable
respect, notably Paul Krugman. In a post * yesterday, Krugman
makes the case that the basic tax proposal would be a subsidy
for domestic production and therefore inconsistent with free
trade principles.
While I don't disagree with the logic, I question its
importance. He contrasts the border adjustment with the
Republican tax proposal with the border adjustment with a
traditional value-added tax (VAT), pointing out that the
latter doesn't give a domestic production subsidy in the same
way. There are two important points left out of Krugman's
discussion.
The first is the issue of size. VATs in our trading
partners typically raise well over ten percent of GDP in
revenue and sometimes more than 20 percent. By contrast, the
corporate income tax has raised less than 1.7 percent of GDP
in recent years. The Republicans are undoubtedly looking to
reduce this amount further in their tax reform (hopefully
they will not succeed), but the imposition of a tax equal to
15 percent of GDP matters much more for trade than a tax
equal to 1.7 percent of GDP. (Suppose the dollar falls or
rises by 1.7 percent in a week, as it often does. This has
the same impact.)
The second issue is the point of reference. We don't
currently have a VAT in the United States. We have various
taxes that are assessed in the production process, including
the income tax workers pay on their wages, that get passed on
in the price of the product. If we snapped our fingers and
replaced the income tax with a value added tax, we would then
refund this tax on exported products. That would look like an
export subsidy, relative to our current system. Similarly, we
would slap the VAT on all items that are imported. That would
look like an import tariff, relative to our current system.
Conventionally, economists urge us not to worry about this
issue, since changes in currency values will even things out.
This is probably true, at least over the long-run if not
immediately in a transition process. This is a situation
where we should accept the economists' conventional wisdom on
the net effect on trade, remembering that the amount at stake
as an export subsidy or import tariff is just not that large
in any case.
The Republican tax proposal, when it is actually put on
the table, should be evaluated based on the extent to which
it eliminates the waste associated with the tax avoidance
industry and also for the amount of revenue it raises.
Arguing for its rejection based on it being an unfair subsidy
for domestic production is just silly.
There are plenty of very real reasons not to like the
things Republicans are putting forward in the Trump
administration. We don't have to invent fake ones.
The Clintons, Robert Rubin, Larry Summers, tech execs and
lots of other Democrats really like the current tax system,
although most of them advocate tweaks to burnish their
liberal credentials.
Did you bother to read what Summers wrote in the Financial
Times on January 7? Cochrane linked to it. He wants a real
reform of the tax code. Just not the Destination Based Cash
Flow Tax. So your comment here is simply false.
Too bad Summers and you wanted Hillary b/c she ended up
losing to a laughable reality TV star and now you won't be
able to do real reform of the tax code.
International Trade Effects of Value-Added Taxation
By Martin Feldstein and Paul Krugman
There is a well-understood economists' case for a value-added tax (VAT). As a consumption tax,
a VAT would not impose the bias against saving that is inherent in income taxation and could therefore
help promote capital formation and economic growth. Against this advantage must be weighed possible
disadvantages resulting from higher administrative costs and greater difficulty in providing an
acceptable degree of progressivity to the overall tax-and-transfer structure as well as the possible
political costs (or benefits, depending on one's point of view) of a tax that is relatively invisible
and thus easy to raise.
Among many businessmen, however, the case for a VAT is often stated quite differently. They
view such a tax as an aid to international competitiveness since VATs are levied on imports but
rebated on exports. The case is often stated as follows: an income tax is paid by producers of
exports but not by foreign producers of the goods we import, while a VAT is paid on imports but
not on exports. Surely, say the proponents of this view, this means that countries that have a
VAT have an advantage in international competition over countries that rely on income taxation.
In fact, this argument is wrong. A VAT is not, contrary to popular belief, anything like a
tariff-cum-export subsidy. Indeed, a VAT is no more an inherently procompetitive trade policy
than a universal sales tax, to which an "idealized" VAT, levied equally on all consumption, is
in fact equivalent. The point that VATs do not inherently affect international trade flows has
been well recognized in the international tax literature. This point is also familiar to tax policy
practitioners; McLure (1987), to take a recent example, dismisses the competitive argument for
a VAT as evident nonsense. Yet the belief that VATs are important determinants of international
competitiveness persists among laymen.
In large part, the belief that VATs are trade-distorting policies reflects a failure on the
part of noneconomists to understand the basic economic arguments. There is also another factor,
however: in reality, VATs will not be neutral in their effect on trade, for at least two reasons.
First, VATs are a substitute for other taxes, especially income taxes, that do affect trade. Second,
in practice, a VAT will not be neutral; concern over distributional issues, as well as administrative
difficulties, inevitably leads to a tax whose rate varies substantially across industries.
To acknowledge that in practice a VAT will indeed affect trade flows is not the same as saying
that the lay view is right. In fact, the widespread view that a VAT enhances the international
competitiveness (in some sense) of the country that adopts it may well be the reverse of the truth.
To the extent that a VAT taxes traded goods more heavily than nontraded, which is normally the
case, a VAT in practice probably tends to reduce rather than increase the size of a country's
traded goods sector. Against this may be set the favorable effect on saving and hence on a country's
trade balance in the short run of substituting a consumption tax for taxes, like the income tax,
that distort intertemporal consumption choices.
The purpose of this paper is to lay out a simple analytical approach for thinking about the
effects of a VAT on international trade. The paper begins by laying out a simple three-good, two-period
model that has the minimal elements necessary to discuss the international trade effects of a
VAT. The first section describes the model and shows how equilibrium is determined in the absence
of taxation. The second section introduces a VAT and demonstrates in the context of our model
the well-known fundamental point that an idealized VAT that is levied on all production is nondistortionary,
in particular having no effect on the allocation of resources between tradable and nontradable
sectors. We can also show that such an idealized VAT would leave nominal factor prices measured
in foreign currency unchanged; this argues, in effect, that even in the short run under fixed
exchange rates a VAT should not be expected to have any effect on trade.
We show next that the absence of distortionary effects from a VAT depends on precisely the
feature that is often alleged to constitute an unfair trade advantage, namely, the rebate of value-added
taxes on exports. In the absence of an export rebate, a VAT would act like an export tax-which
in general equilibrium is equivalent to an import tariff. Thus, the export rebate is necessary
if a VAT is not to be protectionist.
The remainder of the paper is devoted to reasons why in practice the introduction of a VAT
may not be neutral in its trade effects. First, a VAT may substitute for an income tax; since
an income tax is not neutral in its effects, the substitution will have allocative effects, tending,
other things being equal, to improve the trade balance in the short run. Second, and offsetting
this effect in the short run and persisting in the long run, a VAT in practice will tend to be
levied more heavily on traded than on nontraded output and will therefore tend to shift resources
out of the traded goods sectors.
On balance, the substitution of value-added taxation for income taxation is likely to have
an uncertain short-run effect on a nation's net exports but is likely to reduce net exports in
the longer term. This does not constitute an argument either for or against introducing a VAT;
indeed, even if the effect on competitiveness were unambiguous, it is by no means clear what policy
moral ought to be drawn. The point of this analysis is more modest; we want to show that the common
belief that a VAT is a kind of disguised protectionist policy is based on a misunderstanding....
It drives me nuts to see opening premise statements that invoke this notion of savings and capital
formation as leading to something called investments, and this is the rationale for why we skew
policy toward encouraging more of everything in the sentence.
First off, the financial crisis clearly revealed that the financial community creates investment
monies via its privilege to create credit and lending accounts.
It is sophistry, in my view, to premise public policy discussions with this stupid, non-real
world ideology about why we need tax and other economic policies that favor capital formation
when this privilege exists in its unregulated mode (well, since the crisis more supervision has
come and common sense has come back to this privileged community, of course until the Admin signals
a laissez faire on this privilege again, leading to places I dont want to go, again).
So I said, first, above. So the second related point is about how economists seem to not understand
how the statistical program under NIPA is a looking backward program using definitions, like identities
(such as the defined one where Savings equals Investment) to bring cloture to the stat program,
and that is what it surely does - but its structure as a statistical program must be used with
great caution when you look forward and talk about how the economy actually works.
As for the VAT rationales, if they start with these premises they will clearly end with the
conclusion that is built in, that the taxing of the incidence of buying/selling, consumption,
is not just ok, but that it is better because the application of the tax is not on Savings or
on Investment. It places the burdens on consumption, do not believe this sophistry, it is a shift
in revenue raising system design away from wealth and high incomes, shifting the burdens on to
basic consumption where all of us live.
Krugman is helping to justify this shift. He should be wailing in opposition to such a shift
(especially in light of a clear memory about how tax grants of huge magnitude were already given
to the highly mobile people of wealth and high income).
I agree. Touting increasing savings as good thing as a means of increasing investment is the wrong
idea. Especially when economic recessions are mostly due to falling consumption demand caused
by a desire to increase savings. This is Keynes' paradox of thrift.
"The Austerity Tax " was instituted by the GOP as soon as the Brown Guy became president. 8 years
earlier, the same GOP pushed a huge Tax cut as Greenspan worried that the surplus was too big.
The GOP can always be counted on to put party before country. Good riddance.
By 2015, federal spending was 454% higher and the national debt was 20 times greater than
when Pres. Reagan took office in 1981. The result: Real GDP gained 153% and jobs increased
by more than 50 million from 1981.
In total, our debt is now 875 times greater than in 1933 at the bottom of the Great Depression.
Were we better off then?
And no, we are not like Greece because we print our money and all our debt is in U.S. dollars.
As former Fed chairman Alan Greenspan said: "The U.S. can pay any debt it has because we can
always print money to do that. So there is zero probability of default."
The real limit on printing money and increasing the debt/budget deficit is high inflation
which is well controlled by increasing interest rates as the Fed did in 1980 when it cut inflation
from 14.6% to 1.6% in 6 years. Interest on the debt is now 1.2% of GDP (national income) and
has never exceeded 2% during this century.
If Greece is in danger to go under - there are all these other nice Europeans - who save the
Country...
BUT if the almighty US of A is threatening to go under -(like in 2008) - the whole world is
in danger to go under with it too... so we desperately need this Greenspan dude - with his wonderful
printing machine - and if the American people don't trust him -(because the printing machine seemed
to have been not very effective in 2008) - let's tell the people there is always TRUMP - who will
put his name in Gold ON IT -
Oh ja!! - let's get the Greenspan dude out of retirement to print US... some!!
And especially for the people - who really need the dough - like all these depressed workers
-
Let's call up Greenspan and tell him to print RIGHT AWAY - and not waisting any time anymore -
or America will be called 'TRUMP' forever!!
The Fed and other central banks have been demonstrating that they do not have the ability to print
money. Massive QE and record low interest rates have not resulted in the lending by commercial
banks which actually expands the money supply. In practice inflation and expansion of the money
supply have been brought about in the US and other advanced countries in most cases (excluding
the commodity shocks of the 70's) by government spending, especially in wars (or after them as
in Germany in 1922). And when the government spends it obviously increases debt.
It's past time to be relying on the supposed ability of central banks to "print money". The
assumptions involved in the monetary "theory" about this are just wrong.
If the Fed can control inflation, why did it let inflation increase to 14.6% in the first place?
It raised rates continuously from 1977 to 1980 to historic record levels as inflation increased
to its peak. As Dean has pointed out before, inflation began to fall rapidly in early 1980 when
oil price stabilized, not when the Fed raised rates. The squabbling about the true value of NAIRU
is pointless since the Fed has never demonstrated an ability to control inflation.
Inflation increased due to an external shock - the quadrupling of oil and thus food prices. Once
they stopped rising, once prices had permeated through the economy, price rises would have tapered
off without the horrid recession the Fed imposed on the American people.
and seriously - let's raise interest rates 21 percent for everybody who invests her or his money
in speculative assets -(like stocks or downtown SF apartments) - and in exchange let's lower the
interest rates for every credit card holder down to -1 percent.
How does that sound?
-(should be a piece of cake for Dame Yellen!)
As long as you understand - that it would be really a great idea if the low interest rates
would really help 'the people' -(Credit Card holders) - and some high interest rates would help
'the people' too -(all these retirees who would love to get 21 percent from their savings accounts)
- that's OK.
It is nonsense to claim that shrinking national debt is harmful or that the economy only does
well when it is growing. The US debt shrank from its WWII peak in 1947 of 120% of GDP down to
31% in 1975 while the economy was doing very well. There was plenty of spending on things like
infrastructure and housing as well as the military. The British debt shrank from over 250% of
GDP at the end of the Napoleonic wars down to 30% at the start of WWI - this was the period of
British world economic domination.
The shrinkage of debt/GDP was not brought about by running surpluses, it was because of nominal
GDP growth. And that growth was not just inflation - inflation in Britain (and the US) during
the 19th century was generally low. Obviously tax rates were highly progressive during and after
WW II in the US (and in Britain also, whose debt also shrank).
The lesson is that debts can be controlled with appropriate tax rates (if it is important to
do so) and that such rates do not impair growth. There is an enormous amount of foolish economic
discourse which deliberately ignores the basic facts about taxes, debt and economic growth.
"It is nonsense to claim that shrinking national debt is harmful."
During the 1920s, we had a budget surplus every year and 4 separate recessions during that
decade with the last one causing the worst depression in a century.
We had our highest debt-to-GDP ratio after WW II then increased the federal debt 82% and spending
725% over the next quarter century from 1948, producing our greatest prosperity ever: a 168% gain
in Real GDP and a 70% increase in jobs.
It is nonsense to ignore the facts that are undeniable.
When I refer to "national debt" I mean debt/GDP. There is no need to run surpluses to shrink this,
but there is no reason to think that small surpluses are harmful. Spending can be high, as it
was in the post-WWII period, without running large deficits, provided tax rates are adequate.
Surpluses occur - or used to - when the economy is booming and revenues increase and also expenditures
for unemployment relief, etc. are low. It is a fact that booms tend to be followed by recessions
- they don't go on forever. So the correlation you refer to is an inevitable result of the cyclical
nature of economies.
The recessions of 1957, 1960, 1970 and 2001 were all immediately preceded by budget surpluses.
The Great Depression was preceded by a decade of record budget surpluses and the "Roosevelt Recession"
of 1937-38 was caused by FDR's virtual balancing of the federal budget (a deficit of 0.1% of GDP
in fiscal year 1938) while the economy was still very weak.
whitehouse.gov/omb/budget/hist...
Keynes analyzed this situation and his conclusion was unequivocal: "a change-over from a policy
of Government borrowing to the opposite policy of providing sinking funds (for paying off the
principal of a debt) is capable of causing a severe contraction of effective demand." The General
Theory of Employment, Interes, and Money p. 95.
I ended last week's
post by asking whether anyone knows which human beings ultimately pay the corporate income tax.
An intuitively appealing answer is that the tax is levied on profits, which are a return on capital
invested in a corporation. Therefore, those who made that investment - the shareholders - absorb
the tax fully in the form of a lower after-tax return on their investments.
That impression would be reinforced by the short-run,
partial-equilibrium model of the individual company that we sometimes trot out in freshman economics
courses.
In the partial-equilibrium model, the company's capital stock is assumed to be fixed in the short
run. Imposing or raising a tax on the profits will not change the company's decisions on prices and
production, because to maximize after-tax profits the company would take the same steps as to maximize
pretax profits.
But economics professors quickly add that all bets are off in the longer run, when the company's
capital stock relative to the input of labor can change and when the owners of investable funds can
decide whether to invest their money at home or abroad or in enterprises not subject to corporate
taxation.
General-equilibrium
models accommodating this wider view of the economy and the longer run go much beyond the compass
of a freshman course and show that who actually pays the corporate income tax - the owners of capital
or labor - is driven by a number of factors in complicated ways that elude simple intuition.
A fine review of these extended models can be found in Jennifer Gravelle's recent paper, "Corporate
Tax Incidence: Review of General Equilibrium Estimates and Analysis." A broader review of the
economic literature on all facets of the corporate income tax, not just its incidence, can be found
in a paper by Jane G. Gravelle and Thomas L. Hungerford, "Corporate
Tax Reform: Issues for Congress." Be warned: while both papers avoid formal mathematical modeling,
they might be a tough slog for anyone who did not major in economics in college.
The models in question typically divide a country's economy into a corporate sector (the "taxed
sector") in which businesses are treated and taxed as if they were individuals, a concept known as
legal persons,
and another "non-taxed sector" in which business entities are not taxed as legal persons. Furthermore,
the models can be for either a "closed economy" that does not trade goods or services and investable
funds with the rest of the world or an "open economy" that engages in trade and financial capital
flows with other countries.
Looking at the open-economy model, exactly how corporations shift the corporate tax either to
labor or to the investors in the company, or to both in some proportion, depends upon the
interplay of a number of factors, the most important of which are:
1. the relative ease with which investable funds can be shifted to other countries and how responsive
such capital flows are to changes in the after-tax rate of return to capital in the taxing country;
2. how easy it is in the taxing country to substitute imported goods and services for all domestically
produced goods and services;
3. how easy it is in the taxing country's taxed and untaxed sectors to substitute labor for capital,
and vice versa, in the domestic production of goods and services;
4. the relative capital intensity of production in the taxed and untaxed sectors of the taxing
economy;
5. the size of that economy relative to the rest of the world's economy. It matters, for example,
whether the country is small, like Ireland, or large, like the United States.
The earliest formal general equilibrium model, published in 1962 by a University of Chicago economist,
Arnold C. Harberger, in the Journal of Political Economy, assumed a closed economy. In that model,
the burden of the corporate income tax ultimately fell entirely on the owners of capital.
When the model was modified as an open economy in which capital in the taxed country can escape
by flowing abroad to untaxed or lower-taxed countries, some or all of the burden of the corporate
income tax shifted to labor. Under the assumption of perfect international capital mobility and perfect
substitutability of imported goods and services for all domestically produced goods and services,
labor would then bear the entire corporate income tax, because labor is the only immobile factor
than cannot escape the tax.
Other modeling efforts since that time, or
econometric estimates
inspired by these models, have ranged between these extreme incidence models.
Economists are divided on the issue. Some (including
Gregory
Mankiw) are persuaded that the corporate income tax ultimately falls
mainly on labor, rather than on the presumably wealthier owners of capital. One can actually
make a case for cutting the tax in the name of a more progressive income-tax structure, which should
appeal to voters and politicians left of center.
Other economists, including the authors of the surveys cited above (Jane Gravelle, Jennifer Gravelle
and Thomas Hungerford), are persuaded by the available empirical evidence on the five factors I note
that the burden of the corporate tax ultimately rests
mainly on the owners
of capital. That also appears to be the operative assumption of the Congressional Budget Office,
the Treasury and other agencies when
they analyze
the distributional impact of various forms of taxation.
So, given that even economists cannot agree on who actually bears the burden of the corporate
income tax, why not abolish the tax altogether and instead tax human beings directly? The arguments
against such a move are twofold.
First, even bringing in only 12 percent or so of total federal taxes, the corporate income tax
represents the third-largest source of federal revenue and could not easily be replaced with an alternative
source, especially in these times of fiscal pressures.
Second, if the profits of corporations were not taxed, the corporate form of enterprise would
become one more major tax shelter through which wealthy people could shield their income from taxation.
That probably is the main reason why abolishing the corporate tax has never had any political traction,
in the United States or abroad.
In addition, corporations themselves
use or benefit from public services such as the courts, national defense, fire protection, etc. It
makes sense to tax them.
Why not eliminate corporate income tax altogether. To make up for lost revenue, tax capital gains
and dividends at a higher rates instead. Corporations could then make decisions based on product
and marketing considerations rather than for tax purposes. And since corporations would no longer
be taxed, we could pass laws in good conscience making it illegal to lobby the government, thus returning
the concept of government by and for the people.
Politicians love the corporate income tax because it gives them more opportunities for shakedowns
for tax breaks, while voters think fat cats pay it, when in fact it's a tax on jobs.
Take away the corporate income tax and a whole industry of lobbyists, accountants, and tax lawyers
goes away, and corporate spending on first class plane tickets, junkets and expense account restaurant
meals will no longer be subsidized.
Gee, I'm sure any "two bit" "uba monied" so called politician can use your reasoning as another
line of academic "BS" and, platform it so as to continue to turn the country into a slogan of "More
Money For Everybody Means Money More For Me"! Thanks for sharing the insight.......................
I look at the Corporate Tax from a different angle. If it were abolished where would the money
go? Let's assume it would not remain in the corporate coffers forever due to excess accumulations
policy (the build up would be deemed excessive and a putative divideb deemed declared and taxed)
and the owners would at vsome point want to use the money, not have it to stare at on a bank statement.
If it went to the owners (shareholders) there would be a tax on the dividends. Or paid to management
as salaries and bonuses and taxed as ordinary income. And the extra receipts would likely enter the
stream of spending and re-spending that repeatedly generates activity and taxation. I wouldn't expect
all would go under a mattress.
If the Corporation kept it it would find itself spent for business purposes, and the extra might
be used for more investment, expansion, hiring, productivity improvements and the like. And this
spending creates both jobs and the spending cycle as it is spent, and later re-spent.
The risk here is that the excess gets expatriated and spent or distributed elsewhere, so that
the economic benefits and the velocity concept don't apply to us, and we have lost the tax revenues.
But multinationals can move their revenues and expend them in many creative ways in many jurisdictions
to mitigate US corporate taxation now.
The tax arbitrage discussed at the end is dealt by tax authorities in the UK by having
the corporate tax rate plus the dividend tax rate equal the income tax rate.
Taxing corporate profits is a major incentive for companies to borrow,
because of the tax deductibility of interest. If one concurs that the high leverage
of the bubble years should be avoided, then reducing or eliminating taxation on corporate profits
makes sense - or at least the dividends they pay out so that corporations would be indifferent to
how they finance themselves. Lastly, the article could be more clear: corporations don't pay taxes,
people pay taxes, and taxes on corporations are borne by their shareholders, customers, workers,
and suppliers, and sometimes even other taxing bodies. Take the UK banker bonus tax, it shrank the
distributable wages of US investment banks, hence NYC, NYS and the IRS received less because the
impact of the UK bonus tax was spread by these firms over their entire workforces or net income that
is either paid out in dividends or growing book value which should translate into capital gains.
First, abolish the entire legal person concept. Eliminate corporate taxation and raise top marginal
tax rates and treat corporate income more like the income of corporations taxed under subchapter
S so that all or nearly all the income is passed through to the shareholders.
Another possible approach would be to make dividend distributions deductible to the corporation
and enforce requirements that profits not reasonably required to be retained for future business
purposes be distributed as dividends.
Why is there no corporate alternative minimum tax? So many corporations using vast loopholes pay
miniscule taxes. Why are vast tax breaks (depletion allowances, etc.) allowed the most profitable
corporations in the world the ooil companies?
Dividends and capital gains are currently taxed at less than ordinary income based on the argument
that they are a form of double taxation on corporate profits and thus on capital owners. If the corporate
tax were eliminated, taxing dividends and capital gains as ordinary income would surely offset some
of the revenue loss, and arguably would lead to a more equitable tax burden all around.
Of course the big tax accounting firms would lose revenue as well, but that is a different matter.
Ahh yes, the old adage that figures can lie and liars can figure, proven again... Anyone who has
ever run a small business and had to meet the weekly payroll understands this issue right down to
their bones...
If you add another tax onto my costs:
I cannot ask more money for my product because my competition will then undercut me...
I cannot continue to reduce the wages of my employees because eventually they will go work elsewhere...
I cannot pay my suppliers less because they will refuse to sell me any more materials...
I can only cut my own paycheck (stockholder's) and live on less...
Eventually the living I am making off the business reduces to the point that I either sell it
(sell the stock which collapses the value of the company), move the business out of the USA (dump
the employees) to reduce my tax load, or simply close the doors and walk away (bankruptcy)...
There is no upside to a corporate tax... It is the dead hand of the government dragging the company
down... In the end it is the citizens (you and me) who pay that corporate tax for it in the form
of unemployment checks, welfare, broken families, and collapse of local governments that thought
it was a great idea to tax those nasty, rich companies...
This is another good analysis of economic fundamentals. In this case I admit it is above my pay
grade to completely understand, but I get the general drift.
I have never had a problem with corporate income taxes in theory, though I have no answer to the
real world problems involved in defining what income is for corporations or any significant size.
The real problem comes when you have double taxation of dividends. I don't have a major problem
with Uncle Sam grabbing a 30% slice off the top of income. I do have a problem when he does it twice.
If I am not mistaken, tax policy is about to revert from the Bush years policy of 50% taxation
of corporate dividends back to a full double taxation.
Perhaps in a future column or post you will offer your opinions on the desireablity of such a
policy being implemented in a weak economy.
The notion of an Income Tax has got to be ended! It provides one of the prime motivators for "corporations"
and the wealthy to be involved in buying Congressmen, better known as politics! For all intents and
purposes, the Income Tax code has become a mechanism used by the bribed to pay back the bribers;
that is "our" Congress folks use the Tax Code to pay back their corporate and wealthy "contributors"!
A VAT is the best replacement and it could be implemented immediately as all software supports VAT,
the mechanisms are well understood, and the rates and rules could be established in a 1 page bill;
not the thousand page monstrosities our Congress likes to write to hide the many, many payoffs! Retain
and increase the tax on income greater than 1 million to something like 85%;and treat all income
from all sources as just that... income! The transfer of the natural common wealth of the nation
into useless, bloated bank account balances is certainly the crime of the millennium; it has to stop!!
By the way, use the VAT as a import duty adjusted to reflect valid and verified expenses in the originating
country; this would do wonders to level the "playing field" and make trade, fair trade!
Mr. Reinhardt overlooks several issues and implications in his article on "who ultimately pays
the corporate income tax?" These issues and implications stick out like a sore thumb when one puts
them into the context of the kind of capitalism we have in America. What we have is corpocratic,
or undemocratic capitalism, not democratic capitalism. The former has numerous and unique features,
including an open economy of global exploitation by large corporations, an economy whiplashed by
financial speculation, an economy controlled by large corporations in partnership with our government
under the guise of "a free-market" system, an economy of perpetually excessive and intolerable unemployment,
an economy that provides an unacceptable, pitiably low minimum wage, an economy that sacrifices our
general welfare for the special welfare of the few, including unconscionable corporate welfare, and
a system propped up by the erroneous legality of legal person and corporate personhood. And what
is the democratic capitalism that we don't have. It is the mirror image of undemocratic capitalism,
and the only way Americans are going to get it is to exercise in mass and in a coordinated and strategic
way their "democracy power." That is a big subject, so I'll set it aside here.
One overriding issue is that of legal person and corporate personhood. They go together and they
are both erroneous at best and harmful at worse. The concept of legal person is unnecessary as a
justification for taxing corporate income. Corporations depend on public services and use up nonrenewable
common resources and must be made to help pay for those benefits like real persons do. Corporate
personhood, an absolute abomination in law was created through a sleight of hand by the court recorder
in complicity with Chief Justice Morrison Waite in the infamous 1886 case of the Southern Pacific
railroad company versus Santa Clara County, and has been sanctified by what will become another infamous
case of the corporatized U.S. Supreme Court, its ruling of this last January 21 that grants corporations
the constitutional right of free speech. Corporate personhood bestows on corporations certain protections
that enable corporations to commit a variety of harmful acts with impunity.
The second overriding issue, and I'll close my comments by briefly discussing it, is the issue
of corporate welfare. They represent unconscionable government hand outs of taxpayer money to corporations.
These handouts come in the form of bailouts of "companies too big to let fail;" debt forgiveness;
discounted insurance; excessive government payments for contract work; giveaways of public resources;
loan guarantees; privatization; price support loans; quotas; subsidies; supply restrictions; tariff
protections; tax breaks, and "warfare welfare." Corporate welfare is a "veiled dowry" received yearly
from our government, veiled because our government, which deliberately does not track corporate crime
also deliberately hides much of total cost of the yearly hand-outs to corporations. Warfare welfare
is the most shameful and destructive part of the dowry. If we define welfare for the defense industry
as any money not absolutely necessary for defending our shores from foreign invasion, then most of
the military budget spent on off-shore militarism is a warfare/welfare budget. There is nothing defensive
and everything offensive, needless, and senseless about the Iraq War and the Afghanistan War. The
latter (where there are vast mineral resources, naturally) has now lasted longer than the Vietnam
War, another offensive, needless, and senseless war.
Corporate welfare, in any form, is criminal not just immoral when corporations repeatedly defraud
the government and still stay on the dole or egg on our government to start needless wars as was
the case for example with Iraq. Corporate warfare/welfare costs lives. Corporate tax breaks cost
Americans more than corporations pay in taxes. Without corporate welfare the ordinary citizen would
pay less in taxes (listen up Tea Party people). Corporate welfare is addictive. Corporate welfare
is a huge waste of money and lives that subtracts rather than adds real value to the wealth of our
country, a value that cannot adequately be measured in economic terms. Nor can the subject of corporate
income taxes be fully understood from an essay by an economist.
So I would rephrase Mr. Reinhardt's question to read, "Who ultimately pays for corporations not
paying their fair share of income taxes and for getting the rest of their yearly hand-outs?" And
the answer clearly is, the American people, at the terrible expense of their general welfare.
Mr. Reinhardt reminds me why I always disliked Econ tests. His question "Who Ultimately Pays the
Corporate Income Tax?" is poorly worded.
I assumed pay meant: "To discharge a debt or obligation", not "to suffer the consequences of an act"
(Both m-w.com)
I wish he had asked the more precise (and less catchy) title: Who bears the burden of a country's
corporate income tax"?
In the long term, it also depends on how the Corporate Income Tax is spent.
If spent on infrastructure improvements, making the country more productive; there isn't ultimately
a tax. Ie, a corporation is taxed 30 cents on the dollar, and receives national infrastructure improvements
worth 40 cents, then it's an investment.
Similarly, if a corporation is taxed 30 cents; and a gov't dividend is granted to all people who
have a job, then it's just a pass through transaction.
(PS - The word Pay should be eliminated from econ literature. There's too many competing definitions.)
Who pays the tax depends upon who's in the drivers seat. If the corporation is making something
people really want, they'll be able to pass the tax on to the consumer. If the corporation is struggling,
they'll eat the tax unless they find some Congressman to help them out.
The real problem is the corporate tax transfers wealth from the private sector which faces competition
to the public sector which doesn't. Not a good thing in the best of times.
And, as Arthur Franke says, a really bad thing in lousy times.
In Reinhardt's penultimate paragraphy, if personal and corporate income taxes are two of three
major sources of federal revenue, are excise taxes the third? What is the citation?
It appears that Bart, in his answer to the Reinhardt's first post, correctly predicted the consensus
economic opinion of the rather theoretical question "who pays the corporate income tax'. The question
might more accurately be posed "who ultimately pays", but this seems to echo Keynes' saying that
ultimately we are all dead. In this context, if we are looking at how tax policy affects economic
decision making, it is likely the effect on the proximate payers is more important.
Key questions here are what the appropriate rate of corporate income tax should be, whether it
should be taxed twice, and whether there has ever been any movement to abolish it. With respect to
the first question, I would posit that the rate of tax on business profits (corporate or otherwise)
should approximate the rate on other types of income. Currently, profits of taxable C corporations
in the United States are taxed twice and at a combined rate that greatly exceeds other forms of doing
business. Why should this be so? As the reader from London writes, it is not necessarily the case
in the UK and other jurisdictions that utilize an "imputation system' that gives shareholders at
least a partial credit for the underlying tax paid by the corporation. And, why should profits of
such corporations be taxed at a cumulatively higher rate than profits that can be earned on exactly
the same types of activities earned through partnerships, S corporations, llimited liability companies,
real estate investment trusts (REIT's) etc which are taxed only once at individual tax rates? And,
I'm not convinced that double taxation is justified solely on the basis that corporations use public
services. This ignores the fact that other business forms use those same services to a comparable
extent and don't pay additional income tax for it.
Reinhardt indicates that no country has never attempted to abolish tax at the corporate level.
This is not completely true as my examples above indicate. In particular, the relatively recent introduction
in the US of the limited liabiity company, which does not suffer entity level tax (unless its owners
elect so,) is a case in point. The LLC is in most respects indistinguishable from an ordinary corporation
but is treated as a partnership for tax purposes and thus tax is only paid at the owner level. The
same is true for the S Corporation, but this corporation is severely restricted in the number of
owners they can have.
So, why not just tax C corporations as we do partnerships?. This would make very good economic
sense--the problem is that it is not very practical. It is extremely impractical to report to shareholders
their distributive share of corporate income particularly when those owners change constantly and
many of them are not American tax residents. The correct answer is that we have abolished the corporate
level tax to the extent it is practicable to do so.
Reinhardt's statement that we need corporate income tax to prevent the wealthy from sheltering
their income likewise is a bit misleading because the statement presumes that if corporate income
tax would be abolished we would at the same time allow shareholders to defer reporting that income.
Obviously, that would be untenable. But, as the examples above of the LLC etc demonstrate, this need
not be the case. No sheltering is possible because no deferral would be possible if the corporation
were merely ignored as a separate entity for tax purposes.
So, we get back to the original question. If we must have taxable corporations due to practical
considerations, must we necessarily tax their business income twice at rates substantially higher
than other forms of doing business? We could adopt an imputation system as in the UK, or we could
subject corporate income to the same rate as individual income and not tax it at all when it is distributed
to shareholders. Or, we could stick with the current system that taxes the income twice at considerably
higher rates. The question before Congress shortly will be whether that differential in rates should
be increased or narrowed or left as it is.
Economists just amaze the crap out of me. They take something entirely simple and make it complex.
Every nickel, every single one, comes from the consumer one way or another, so all profits stem from
consumers, and thus any tax on those profits stem from consumers. One might argue that some profits
come from investments, but profits from investments ultimately come from consumers as well. Corporate
income tax is a tax on the consumer. All taxes are taxes on consumers, individual income taxes, sales
taxes, tariffs, ultimately it boils down to what the consumer spends for everything they buy. If
we actually cared to solve the many fiscal problems in this country, we'd scrap all the taxes and
replace them with one tax, a sales tax that everyone sees every time they buy anything. Then we'd
know how high our taxes really were.
From what you wrote, it sounds like free trade agreements have an impact on the effects of certain
taxes, and these impacts were discussed by economists, but did any of that find its way into our
tax system?
The "argument" made by Dr. O @11, would only be relevant if other businesses had a way of avoiding
the taxes, making Dr. O's theoretical company less competetive, or if there was an alternative way
for Dr. O to make a living, that required him to pay less taxes while earning the same income.
Presumably, this gives rise to the call for a flat tax, but the trump card of the wealthy is always
- if you tax me too highly, I will move my wealth/money to another country that taxes less. Like
Monoco.
Is there any way to avoid this? Have we even gotten rid of offshore tax shelters? Is there any
kind of discussion about some kind of universal/international tax and what it would look like? If
all countries agreed to some kind of wealth tax that would apply no matter where you put your money,
wouldn't that eliminate any disincentive to work? Is it possible?
"There is no representation without taxation." I feel a pervasive attitude throughout the society
that those who pay no income or property taxes really have no legitimate voice in the flow and blow
of public funds. Of course, everyone pays various consumption taxes, these are often concealed and
resistant to numeration. I think that virtually all taxes should be "income taxes." If every citizen
could regard his/herself as a taxpayer with a legitimate voice, this would be a different country,
for the better.
#11: "I cannot ask more money for my product because my competition will then undercut me...
I cannot continue to reduce the wages of my employees because eventually they will go work elsewhere..."
If your competition is similarly taxed, then they will not be able to undercut you. You will likely
pass the increased costs on to your customers (at least until a substitute begins to be attractive).
But if you have competition from another tax jurisdiction, the difference will obviously have to
come from somewhere else.
If your retail market is limited by competition, but the companies with whom you compete for labor
are all subject to the same tax, then the burden will likely fall on the employees. They can't move
to another employer, because all other employer are paying the same tax increase.
As to the default scenario, where the owner absorbs the costs, obviously this would not be possible
if the added costs exceed pre-tax profits. In this case, the company will be immediately squeezed
out of existence. In a softer scenario, where taxes merely eat into profits, if the company is unable
to generate a competitive rate of return, then it will be unable to compete for capital. The investors
will move elsewhere, so the company will be squeezed out of existence more slowly.
#14: "And what is the democratic capitalism that we don't have. It is the mirror image of undemocratic
capitalism..."
I'm not sure I like the sound of this... What is the mirror image of freedom to shop, cheap long
distance service, cheap computer and telecommunications products, and so on...?
First of all, nobody is productive enought by themselves to generate millions of dollars
worth of revenue by themselves. People who are that rich are benefitting from the labors of others
- if they own the business, they earn money from the work of their employees. If they made their
money in investments, then they are earning money from the labors of the workers whose companies
they invest in.
People who make huge amounts of money are already rewarded with opportunities to invest that
most of us don't have. The opportunities to make a lot of money when you already have alot of
money are enormous. Why do we need to reward extremely rich people further by giving them extra
tax breaks?
The founder of the company I work in earns millions in dividends from the company (privately
held) stock and he barely even works he anymore. If he never worked another day in his life, he
would still be earning more in one year than I will in a lifetime. Why shouldn't his dividends
be taxed?
As for the contention that they create jobs my question is where and what kind of jobs? Walmarts
created lots of low paying jobs. How many people are going to get rich working at Walmarts?
And as for free markets insuring a vibrant middle class, where is the evidence of that?
Don't unfettered markets tend to concentrate wealth in the hands of a few? Isn't that why we had
to bust up trusts? Isn't that why we guard against monopolies? Monopolies appear to be a natural
phenomenon of a free market system, which I think happens when one company gains enough of an
advantage to be able to exploit it's larger market, economy of scale, and then it takes off from
there.
From our history, we have seen that without taxes, wealth gets concentrated in the hands of
a very few people.
Many people who actually 'create' wealth - the scientists, engineers, doctors, researchers
who create new technologies/drugs/materials that are truly life changing, are not billionaires,
maybe not even millionaires.
Millions of people in this country don't have healthcare, millions are never going to recover
from their extended unemployment, millions are facing foreclosure, and you are worrying about
multi millionaires?
A trove of data obtained by a US-based journalists' group that details thousands of offshore
accounts reveals several instances of swindles and other financial crimes, The Washington Post newspaper
reported Sunday.
Among the 4,000 US individuals listed in the records, at least 30 were American citizens accused
in lawsuits or criminal cases of fraud, money laundering or other serious financial misconduct, the
report said.
They include billionaire hedge fund manager Raj Rajaratnam, who was convicted in 2011 in one of
the biggest insider trading scandals in US history, and Paul Bilzerian, who was convicted of securities
fraud, the paper noted.
The report was the latest by prominent newspapers around the world which were given copies of
the data for scrutiny by the Washington-based International Consortium of Investigative Journalists.
The head of the ICIJ, Gerard Ryle, obtained the data - involving 2.5 million records of more than
120,000 companies and trusts set up by two offshore companies operating in the British Virgin Islands
and in Asia and the South Pacific - on a hard drive after investigating a fraud and offshore haven
case in Australia.
Several newspapers, including France's Le Monde and Britain's Guardian, have been publishing revelations
based on the data.
The Washington Post's report said the records contained information on at least 23 companies linked
to an alleged $230 million tax fraud in Russia that was investigated by a Moscow-based lawyer named
Sergei Magnitsky.
After Magnitsky informed Russian authorities of his findings, he was accused of fraud himself
and thrown in prison, where he died in 2009 under suspicious circumstances.
One of the companies mentioned in the records was used to set up Swiss bank accounts, into which
the husband of a Russian tax official deposited millions in cash, the paper said.
Today, there are between 50 and 60 offshore financial centers around the world holding billions
of dollars at a time of historic US deficits and budget cuts, The Washington Post said.
Groups that monitor tax issues estimate that between $8 trillion and $32 trillion in private global
wealth is parked offshore, according to the paper.
According to fraud experts, offshore bank accounts and companies are vital to those wishing to
conceal complex financial crimes.
For example, Allen Stanford, who ran a $7 billion Ponzi scheme, used a bank he controlled in Antigua,
The Post noted.
And Bernard Madoff, who ran the largest Ponzi scheme in US history, used a series of offshore
"feeder funds" to fuel the growth of his scam.
The Washington Post quoted a top official in the US Justice Department's fraud section, Paul Pelletier,
as saying US owners of offshore accounts were sometimes trying to hide money from US tax authorities,
law enforcement or regulators.
"As a prosecutor, it was very difficult pursuing these people," he said.
We live in a nation where the well connected (Jon Corzine) can pillage at
leisure without fear of prosecution.
Where his former parasitical employees (like Lisa Jackson of the EPA) can be promoted into
higher federal office and show the nation true "transparency" by conducting government business
via anonymous email accounts under the name of Richard Windsor.
Where David Gregory can smuggle contraband into the nations capitol, show the world he is in
possession of it on national television and have no fear of arrest or even charges brought.
A nation where, the top law enforcement officer in the land (Eric Holder) needs to have presidential
protection for engaging in international gun smuggling even as the president seeks to ban guns
domestically.
The criminals are not in jails, they're operating the jails.
It's hard to miss these days. The headlines tell the story - repetitively.
Everyone, it seems, is on the take. The Securities and Exchange Commission has
charged Goldman
Sachs with securities fraud for creating and selling "a mortgage investment that was secretly intended
to fail" - and then betting against its own customers. JPMorgan Chase which, in a pinch in 2008,
happily
took taxpayer dough, just reported
$3.3 billion in profits for the first quarter of 2010, a jump of 55% over the previous quarter.
The bank set aside
$9.3 billion in what's called "compensation and benefits" for its employees in 2009.
Even when they lose, they win. According to James Kwak of the
Baseline Scenario website, on a deal in which JPMorgan swallowed $880 million in losses, its
bankers still
managed to
walk away with up to $10 million in compensation. As he wrote, "JPMorgan's bankers did
just fine, despite having placed a ticking time bomb on their own bank's balance sheet." Meanwhile,
Robert Rubin, who helped create the world that led to the 2008 financial meltdown as Treasury Secretary
under Bill Clinton, then took a top position at Citibank and made
more than $100 million before it tanked on his watch. As economist Dean Baker
puts it, "In the fall of 2008, when Citigroup was saved from bankruptcy with a taxpayer bailout,
Rubin quietly slipped out the back door (with his money), resigning from his position at Citigroup."
Only recently Rubin made the headlines for offering the
least apologetic
(non-)apology imaginable for taking the American people to the cleaners.
And when it comes to taking,
according to Eric Lichtblau of the New York Times, "more than 125 former Congressional
aides and lawmakers are now working for financial firms as part of a multibillion-dollar effort to
shape, and often scale back, federal regulatory power." In other words, the regulators and
their aides legislate the rules and then simply step through that infamous revolving door and pick
up a handsome check on the other side. There are, in fact, at least
11,000 well-employed registered lobbyists in Washington today. A $3.4 billion "industry"
in 2009, lobbying is definitely a field to get into, even in bad times, and
according to the Christian Science Monitor, "when the cost of grass-roots efforts and
of strategic advisers are all counted, total spending on influencing policy in Washington approaches
$9.6 billion a year."
As for the money flowing into politics from corporate deep pockets, 2008 not only saw the first
billion-dollar presidential campaign, but at
$1.7 billion, more than doubled the 2004 campaign's costs, and no one expects 2012 to be anything
but more expensive. All this is, of course, known to anyone who glances at the front page of
a daily newspaper, but what exactly do we make of it all? What does it add up to? William
Astore, historian and
TomDispatch regular, has a suggestion, but before you start his piece, you might want to close
your purse or button that back pocket with your wallet in it. Otherwise, they could be picked
bare by the time you're done. Tom
Kleptocracy -- now, there's a
word I was taught to associate
with corrupt and exploitative governments that steal ruthlessly and relentlessly from the people.
It's a word, in fact, that's usually applied to flawed or failed governments in Africa, Latin America,
or the nether regions of Asia. Such governments are typically led by autocratic strong men
who shower themselves and their cronies with all the fruits of extracted wealth, whether stolen from
the people or squeezed from their country's natural resources. It's not a word you're likely
to see associated with a mature republic like the United States led by disinterested public servants
and regulated by more-or-less transparent principles and processes.
In fact, when Americans today wish to critique or condemn their government, the typical epithets
used are "socialism" or "fascism." When my conservative friends are upset, they send me emails
with links to material about
"ObamaCare" and the like. These generally warn of a future socialist takeover of the private
realm by an intrusive, power-hungry government. When my progressive friends are upset, they
send me emails with links pointing to an incipient
fascist takeover of our public and private realms, led by that same intrusive, power-hungry government
(and, I admit it, I'm hardly innocent
when it comes to such "what if" scenarios).
What if, however, instead of looking at where our government might be headed, we took
a closer look at where we are -- at the power-brokers who run or influence our government,
at those who are profiting and prospering from it? These are, after all, the "winners" in our
American world in terms of the power they wield and the wealth they acquire. And shouldn't
we be looking as well at those Americans who are losing -- their jobs, their money, their homes,
their healthcare, their access to a better way of life -- and asking why?
If we were to take an honest look at America's blasted landscape of "losers" and the far shinier,
spiffier world of "winners," we'd have to admit that it wasn't signs of onrushing socialism or fascism
that stood out, but of staggeringly self-aggrandizing greed and theft right in the here and now.
We'd notice our public coffers being emptied to benefit major corporations and financial institutions
working in close alliance with, and
passing on remarkable
sums of money to, the representatives of "the people." We'd see, in a word, kleptocracy on
a scale to dazzle. We would suddenly see an almost magical disappearing act being performed,
largely without comment, right before our eyes.
Of Red Herrings and Missing Pallets of Money
Think of socialism and fascism as the red herrings of this moment or, if you're an old time movie
fan, as Hitchcockian MacGuffins
-- in other words, riveting distractions. Conservatives and tea partiers fear invasive
government regulation and excessive taxation, while railing against government takeovers -- even
as
corporate lobbyists write our public healthcare bills to favor private interests. Similarly,
progressives rail against an emergent proto-fascist corps of private guns-for-hire,
warrantless
wiretapping, and the potential government-approved
assassination of U.S. citizens, all sanctioned by a perpetual, and apparently
open-ended, state of war.
Yet, if this is socialism, why are private health insurers the government's go-to guys for healthcare
coverage? If this is fascism, why haven't the secret police rounded up tea partiers and progressive
critics as well and sent them to the lager or the gulag?
Consider
this: America is not now, nor has it often been, a hotbed of political radicalism. We have
no substantial socialist or workers' party. (Unless you're deluded, please don't count the
corporate-friendly "Democrat" party here.) We have no substantial fascist party. (Unless
you're deluded, please don't count the cartoonish "tea partiers" here; these
predominantly white, graying, and
fairly affluent
Americans seem most worried that the jackbooted thugs will be coming for them.)
What drives America today is, in fact, business -- just as was true in the days of Calvin Coolidge.
But it's not the fair-minded "free enterprise" system touted in those freshly revised
Texas guidelines for American
history textbooks; rather, it's a rigged system of crony capitalism that increasingly ends in what,
if we were looking at some other country, we would recognize as an unabashed kleptocracy.
Recall, if you care to, those
pallets
stacked with hundreds of millions of dollars that the Bush administration sent to Iraq and which,
Houdini-like, simply disappeared. Think of the ever-rising cost of our wars in Iraq and Afghanistan,
now in excess
of a trillion dollars, and just whose pockets are
full, thanks to them.
If you want to know the true state of our government and where it's heading, follow the money
(if you can) and remain vigilant: our kleptocratic Houdinis are hard at work, seeking to make yet
more money vanish from your pockets -- and reappear in theirs.
From Each According to His Gullibility -- To Each According to His Greed
Never has the old adage my father used to repeat to me -- "the rich get richer and the poor poorer"
-- seemed fresher or truer. If you want confirmation of just where we are today, for instance,
consider this passage from a
recent piece by Tony Judt:
In 2005, 21.2 percent of U.S. national income
accrued to just 1 percent of earners. Contrast 1968, when the CEO of General Motors took home,
in pay and benefits, about sixty-six times the amount paid to a typical GM worker. Today the
CEO of Wal-Mart earns nine hundred times the wages of his average employee. Indeed, the wealth
of the Wal-Mart founder's family in 2005 was estimated at about the same ($90 billion) as that of
the bottom 40 percent of the U.S. population: 120 million people.
Wealth concentration is only one aspect of our increasingly kleptocratic system.
War profiteering by corporations (however well disguised as heartfelt support for our heroic
warfighters) is another. Meanwhile, retired senior military officers typically
line up to cash in on the kleptocratic equivalent of welfare, peddling their "expertise" in return
for
impressive corporate and Pentagon payouts that supplement their six-figure pensions. Even
that putative champion of the Carhartt-wearing common folk, Sarah Palin, pocketed a cool
$12 million last year without putting the slightest dent in her populist bona fides.
Based on such stories, now legion, perhaps we should rewrite George Orwell's famous tagline from
Animal Farm as: All animals are equal, but a few are so much more equal than others.
And who are those "more equal" citizens? Certainly, major corporations, which now enjoy
a kind of political
citizenship
and the largesse of a federal government eager to rescue them from their financial mistakes, especially
when they're judged "too big to
fail." In raiding the U.S. Treasury,
big banks and investment firms, shamelessly ready to
jack up executive pay and bonuses even after accepting billions in taxpayer-funded bailouts,
arguably outgun militarized multinationals in the conquest of the public realm and the extraction
of our wealth for their benefit.
Such kleptocratic outfits are, of course, abetted by thousands of lobbyists and by politicians
who thrive off corporate campaign contributions. Indeed, many of our more prominent public
servants have proved expert at spinning through the
revolving door into the private sector. Even ex-politicians who prefer to be seen as sympathetic
to the little guy like former House Majority Leader
Dick Gephardt eagerly cash
in.
I'm Shocked, Shocked, to Find Profiteering Going on Here
An old Roman maxim enjoins us to "let justice be done, though the heavens fall." Within
our kleptocracy, the prevailing attitude is an insouciant "We'll get ours, though the heavens fall."
This mindset marks the decline of our polity. A spirit of shared sacrifice, dismissed as hopelessly
naïve, has been replaced by a form of tribalized privatization in which insiders find ways to profit
no matter what.
Is it any surprise then that, in seeking to export our form of government to Iraq and Afghanistan,
we've produced not two model democracies, but two emerging kleptocracies, fueled respectively by
oil and opium?
When we confront corruption in
Iraq or
Afghanistan,
are we not like the police chief in the classic movie Casablanca who is
shocked, shocked to find
gambling going on at Rick's Café, even as he accepts his winnings?
Why then do we bother to feign shock when Iraqi and Afghan elites, a tiny minority, seek to enrich
themselves at the expense of the majority?
Shouldn't we be flattered? Imitation, after all, is the sincerest form of flattery.
Isn't it?
William J. Astore is a
TomDispatch regular; he teaches History at the Pennsylvania College of Technology and served
in the Air Force for 20 years, retiring as a lieutenant colonel. He may be reached at
[email protected].
One of its most detrimental effects has been on our culture and society, where only money is made
the measure of men and women, and other qualities are downgraded.
So, when the money fails, there is no learning, wisdom, cultural solace... just the ugly detritus
of the corporate world
Great article, great read, if Americans is to truly learn and understand, in order that we can
be awaken, everyone need to take classes and courses in International Relations, Comparative Politics
and Conflict Resolution. In doing so, one would be able to compare goverments and political systems
and see that the US is currently where Russia was before Putin. There is a plutocracy, oligarchical
system in the US. They have fleece Americans and now are doing so with the treasury. The system
of taxation without any representation lives, the current teab partying tea baggers are indeed
white rich and ignorantly stupid, no clue at all, or if they have a clue are working for their
corporate cabal and they are then the lackeys. I enjoy reading this piece, great timing, I have
emailed it to a few friends, I hope it catches on, because we are in a fights currently against
the same slave owners and their system of merciletialism. The election of OBAMA wasn't planned
it happened and now they want us to believe he is a socialist, facist, when all along they are
the ones who take over 6 thrillion dollars and plunge the economy. Americans, got stuck with the
bill, the truth is we need to raise taxes on all Americans making 1 million or more. 10 million
Americans holds 98% of the nations wealth! NO HOPE, except a Revolution of the minds!
"The system of taxation without any representation lives" ~ SPQR1775
You make a very excellent point.
Congress is virtually bought and sold in our "free market" and they then vote according to the
highest bidder - capitalism at its finest. Voting by the people, therefore, has become basically
meaningless - nothing more than a quaint, futile exercise in "democracy", a nostalgic tradition
giving us the illusion that we have real choices and a voice.
Nothing could be further from the truth. Seeing as Congress is bought and paid for with cold,
hard cash, our "votes" are worthless. We will never have enough currency to play with the big
dogs. Piggy banks can never compete with vaults. Our democracy has become a massive sham.
Our representatives no longer speak for us, even as they pretend to listen to our concerns and
demands - they represent, speak for and aggressively promote their benefactors' special interests.
We are indeed being taxed without true representation.
We have been made voiceless by default, even as we are still expected to hand over a blank check.
But we remember the last time that tyrannical crap happened...1776.
America's Neo-Aristocracy ignores our rebellious history at their peril.
gmb007: "The system of taxation without any representation lives" ~ SPQR1775
The opening poem of the Tale of the Heike goes something like this:
The sound of the bell of Gionshoja echoes the impermanence of all things.
The hue of the flowering of the teak tree declares that they who flourish will be brought low.
Yay, the proud ones are but for a moment, Like an evening dream in springtime.
The mighty are destroyed in tne end.
They are as dust before the wind.
The American kleptocracy is very young and has begun it's career like the Ebola virus. It devastated
its host too quickly to provide for itself for many generations. This is not a nation of serfs.
We will fight back.
grouseless54: The opening poem of the Tale of the Heike goes
What are you not getting about the definition of "fascism"? Look at the Wiki
http://en.wikipedia.org/wiki/Fascism.
Fascism is the government structuring itself to serve corporate interests. I don't like the Tea
Partiers any more than you do. They demonstrate rank ignorance, hollering "Keep the government's
[expletive] hands off my Medicare" and other non-sense chants. They think the national debt to
be unpayable even though it is less than it was in 1950 in real GDP dollars, and a simple repeal
of the Bush tax cuts rapidly reduces it to a manageable level.\
But when they say "fascism" as an expletive, they are exactly right. Government working with,
aligned with, and coopted by corporatist interests, they get it right. Like they say, even a stopped
clock is right twice a day.
Brooks_Gracie: What are you not getting about the definition of "fascism"?
Like Tea Partiers deserve comparison with a stopped clock! Clock without an hour hand is more
like it. The definition of Fascism is not as reductive as you make out.
And Tea Partiers couldn't care less about corporate power - they LIKE corporate power, they'll
defend the rights of rich people to be as rich as possible to the death, or at least until another
Republican president is elected.
OhTheHumanities: Like Tea Partiers deserve comparison with a stopped clock! Clock
"And Tea Partiers couldn't care less about corporate power - they LIKE corporate power..."
Especially the power of the corporations they own stock in. Remember what is written in the Bible:
NO ONE CAN SERVE TWO MASTERS, and in the world of corporate investors, PROFITS WILL ALWAYS COME
BEFORE THEIR FELLOW AMERICANS.
RS: "And Tea Partiers couldn't care less about corporate power -
We have supported kleptocracies in south and central america for year. That is why they all want
to come here. There are no decent paying jobs or industry in those countries. We can look at them
and see our future if we don't wake up to what is going on.
awake108: We have supported kleptocracies in south and central america for
" Indeed, the wealth of the Wal-Mart founder's family in 2005 was estimated at about the same
($90 billion) as that of the bottom 40 percent of the U.S. population: 120 million people."
Yes, socialism is terrible: it would prevent hunger and poverty by taxing an obscenely rich family.
Imagine how horrible not to have slums and urban blight as a norm.
Oh I'm sure they have a nice little foundation or two assuaging their guilty consciences, if they
have them. If you look at the annual Forbes richest list, most of the wealthiest women are of
the Walton clan. Didn't have to do a thing! How sweet is that?
What's especially galling about
the most kleptocratic companies is that they's remaking themselves green.... eco, not money. Because
eco IS money. The next time I hear Exxon/Mobil or Coca-Cola crowing about their "environmental
stewardship" I'm going to barf. Unfortunately, that would be very soon.
In this way, they please investors, infuriate true environmentalists, and lull everyone else
into a false sense that they and we are moving in the right direction, when nothing could be further
from the truth. We're living on Planet Orwell.
muhair: Oh I'm sure they have a nice little foundation or
Unquestionably, the more we learn about our publicly traded corporations, the more we understand
that competition has come to mean who can get by with the most abuse of the nation that granted
them the status of crown jewels -- a kind of race to the pits of ugliness, where companies compete
not with one another but together as an industry against other industries for the spoils -- the
wealth of the nation.
Similarly, in government we've come to understand that ideas of smaller government meant abandoning
citizen protections and shelling out our money and borrowed trillions to profiteers who would
cost us much more than what our formerly constrained government required -- this appears to account
for the other $4 trillion in debt beyond war costs accumulated during the Bush era, and that doesn't
even count the costs of recovering from an imploded financial system.
Ok, you got me started. It makes me feel sorry for any who have integrity and ideals -- they will
hardly be recognizable and might possibly be in danger amidst all this unfettered greed. Yet,
I know this is not who the vast majority of American people truly are.
Linda_from_Deerfield: Unquestionably, the more we learn about our publicly traded corporations,
Good article - couple of errors in thinking -- "Consider this: America is not now, nor has it
often been, a hotbed of political radicalism. We have no substantial socialist or workers' party."
Exactly what is SEIU if it isn't a wokers party, and the ol' Gal that heads up Acorn was really
spouting off to the Young Democratic Socialists Organization the other day, saying they would
all be rounded up into camps for their socialist views (paraphrasing). And not a hotbed of political
radicalism - the country was founded on it for crying out loud. But yes, both political sides
appear to be profiteering unethically ands I do disagree with that. But it isn't illegal, immoral,
or unethical have at it - the only reason it's called greed is because we didn't think of it first.
R_M_G: Good article - couple of errors in thinking -- "Consider
The key word is "substantial". We have one Socialist senator. That ain't substantial.
And the country wasn't quite as "radical" at its founding than you're making it seem. "Radical"
would've involved giving others besides white male landowners the right to vote. Mao was radical,
Lenin was radical. Che was radical. Compared to them, our Founding Fathers were a set of fairly
laid-back men with a handful of innovative ideas. They did a pretty d@mn good job of it, but they
definitely weren't radical.
philko: The key word is "substantial". We have one Socialist senator.
I agree that corporate personhood is at the root of many current financial problems. The question
is: What is the alternative in a world so populous and interconnected? A return to family farms
worldwide? A total reliance on small businesses for all of our needs? Moreover, there is no denying
that some of our biggest advances in technology, agriculture, science, and standard of living
have in some measure come from the corporate system. I have contemplated this problem for many
years, but I just do not see a viable solution to our current situation.
chendri887: I agree that corporate personhood is at the root of
Look up the Mondragon Corporate Collective for an alternative.
Democracy is good enough for governments, its good enough for corporations. There would be a lot
less outsourcing and downsizing if American workers had a vote in how the corporations they work
for are run.
Ken_Freedom: Look up the Mondragon Corporate Collective for an alternative. Democracy
Excellent thought provoking article. Thank you. I agree with most everything you wrote, except
the following:
"Is it any surprise then that, in seeking to export our form of government to Iraq and Afghanistan,
we've produced not two model democracies, but two emerging kleptocracies, fueled respectively
by oil and opium?"
I'm not sure this really an accurate representation of the history in Irag and Afghanistan. It
seems to me these countries, especially Iraq, were already rather "kleptocratic" before 2001.
But that's a minor quibble.
I look forward to your next article.
Daphydd: Excellent thought provoking article. Thank you. I agree with most
The Last but not LeastTechnology is dominated by
two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt.
Ph.D
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Soaring by $38,000 per second: US national debt now exceeds $21.5 trillion
Consider this: America is not now, nor has it often been, a hotbed of political radicalism. We have no substantial socialist or workers' party. (Unless you're deluded, please don't count the corporate-friendly "Democrat" party here.) We have no substantial fascist party. (Unless you're deluded, please don't count the cartoonish "tea partiers" here; these predominantly white, graying, and fairly affluent Americans seem most worried that the jackbooted thugs will be coming for them.)
