The Republican tax bill got worse: now the top 1% gets 83% of the gains

[Amica Nostra 4,803]

5 minutes ago, Italian_in_NYC said:

The VAT has nothing to do. Do your homework before playing tax professor.

 

Investing #Economy

NOV 27, 2017 @ 01:42 PM 6,641 The Little Black Book of Billionaire Secrets

Why A Corporate Tax Cut Won't Boost Economic Growth

I’m a senior editor at Mauldin Economics, helping John Mauldin publish his unique economic and investment analysis. I also co-edit the firm’s Macro Growth & Income Alert service. I started my career with another financial publisher right after Black Monday in 1987, then went on to work for a private fund manager where I helped develop an offshore currency fund, two private equity funds, three commodity pools and a tactical asset allocation program. From there I joined a boutique portfolio manager and learned about sector rotation, momentum trading and ETF executions. Over the years I’ve written, ghosted and edited countless newsletters, reports, investor updates and commentaries. My favorite topics are macroeconomics, geopolitics, financial technology, alternative currencies, cybersecurity, crowdfunding, clean energy and venture capital. I live and work in the Texas Hill Country near Austin.

The author is a Forbes contributor. The opinions expressed are those of the writer.

Shutterstock

The House and Senate are considering tax legislation that will add $1.5 trillion to annual deficits over the next 10 years, according to their own numbers.

This is okay, we're told, because the tax cuts will stoke economic growth, delivering added tax revenue that offsets the rate reductions.

Note the bigger point here.

Republicans still say they don’t like deficits — but apparently, this particular plan lets them cut taxes without adding more debt. It’s a miracle.

Is their claim really true? Will the GOP tax plans boost economic growth?

That’s the 1.5-trillion-dollar question.

 

 

 

Theory vs. Reality

The Republican plan’s centerpiece is a reduction in corporate tax rates from a 35% top bracket to only 20%. That would put the U.S. more in line with other countries.

What you seldom hear is that most other developed countries also have value-added tax (VAT), a kind of consumption tax. The U.S. doesn’t. Our tax system will remain different, and not necessarily better, under the new proposal.

 

Anyway, the theory is that lower tax rates will entice businesses to bring back operations they currently conduct overseas. They will build new factories and hire more U.S. workers. Those workers will spend their higher incomes on consumer goods, and we’ll all be better off.

Unfortunately, that thinking has several flaws.

For one, as we saw in the NFIB Small Business Economic Trends report, business owners say that finding qualified workers is their top challenge right now. Reducing corporate tax rates won’t make new workers magically appear, nor will it improve the skills of those already here.

What increasing labor demand might do is spark that inflation the Federal Reserve has wanted for years. There’s also a good chance it could spiral out of control, forcing the Fed to hike interest rates even faster than planned—which could offset any benefit from the tax cuts.

Fortunately, such added labor demand will appear only if businesses respond to the lower tax rates by expanding US production capacity.

Will they? Let’s ask.

A Corporate Tax Cut Won’t Incentive Businesses to Expand

This month, in one of its regular business surveys, the Atlanta Federal Reserve Bank asked executives, “If passed in its current form, what would be the likely impact of the Tax Cuts and Jobs Act on your capital investment and hiring plans?”

Only 8% of the executives surveyed said the bill would make them increase hiring plans “significantly.” Only 11% said they would significantly increase their capital investment plans. A solid majority answered either “no change” or “increase somewhat.”

Other surveys reached similar conclusions.

White House Economic Advisor Gary Cohn had an awkward moment last Tuesday at a Wall Street Journal CEO Council meeting. Sitting on stage to promote the tax cuts, Cohn watched as the moderator asked the roomful of executives whether their companies would expand more if the tax bill passed.

When only a few hands rose, Cohn looked surprised and said, “Why aren’t the other hands up?”

So maybe they were distracted or needed a minute to think. Fair enough. A few hours later, White House Economist Kevin Hassett appeared at the same event and asked the same audience the same question.

He got the same result: only a few raised hands.

Higher Profit Margins Will Land in Executives’ Pockets

None of this should surprise us. Tax rates are only one factor businesses consider when deciding to expand.

The far more important question is whether consumers will buy whatever the new capacity produces.

Think about it this way: if you’re a CEO and you have difficulty selling your products profitably now, why would lower taxes make you produce more? Even a 0% tax rate is no help if you lack customers.

Former Brightcove CEO David Mendels explained how big companies view this in a November 10 LinkedIn post.

A tax cut for corporations will increase their profitability. Why we should believe that this increase in profitability will lead to wage increases when we have already seen that increases in profitability over the last 10 years did not, but rather went to stock buybacks and dividend increases that benefitted the investors?

As a CEO and member of the Board of Directors at a public company, I can tell you that if we had an increase in profitability, we would have been delighted, but it would not lead in and of itself to more hiring or an increase in wages. Again, we would hire more people if we saw growing demand for our products and services. We would raise salaries if that is what it took to hire and retain great people. But if we had a tax cut that led to higher profits absent those factors, we would ‘pocket it’ for our investors.”

By “pocket it,” Mendels means executive bonuses, share buybacks, or higher dividends. That’s what 10 years of Federal Reserve stimulus produced. A corporate tax cut would likely have a similar effect.

[Italian_in_NYC 259]

Thanks, but I didn't need to read through a bunch of nonsense to find out that we don't have VAT.

VAT kills the individuals (who are the vast part of final consumers) economically and sometimes corporations financially.

Most Europeans countries have high VAT to finance low corporate rates. Then they overtax the individuals.

Ehm, no thanks. This is exactly why I came to the US to work almost 20 years ago.

Also we have States here, with their own budget and their own tax systems. Almost no one has that in Europe.

[Amica Nostra 4,803]

1 hour ago, Italian_in_NYC said:

Thanks, but I didn't need to read through a bunch of nonsense to find out that we don't have VAT.

VAT kills the individuals (who are the vast part of final consumers) economically and sometimes corporations financially.

Most Europeans countries have high VAT to finance low corporate rates. Then they overtax the individuals.

Ehm, no thanks. This is exactly why I came to the US to work almost 20 years ago.

Also we have States here, with their own budget and their own tax systems. Almost no one has that in Europe.

that's fine. Invest your time in the areas that appeal to your curiosity.  I think it is fair to say that you are a million times more qualified to do my taxes than I am. It is also fair to say that tax policy is part and parcel of economic policy and I happen to have another view of how effective this bill will be in driving the promised growth to offset the loss of revenue. 4% growth for an economy of our size is near impossible and 5 % will never happen ( based on what I read from economists)

 

 I also think the benefit will be focused on my income class and above, which has seen a gravy train in the stock market and growth of income in recent years.  I don't see the Economic benefit for those below the median, particularly when you see that their kids are paying this 1 to 1.5 trillion back. But of course, Economics is a social science and not precise.  I hope I am wrong and If I am not I hope Congress has the wherewithal to come back and make corrections.  There is no way corporate America will give this back so it will come out of individual income taxes.    While I do not have your technical skill with taxes, I am not unread on this topic, and it appears that the majority of the publicized economic opinion I have read land closer to my opinion than the to party line we hear coming from the Republicans in Congress.  The reasons for this Tax bill have everything to do with politics and less to do about an effective economic policy.

[Ebunoluwa 6,136]

The people who bought Trump want to get something back for their 'investment'.
This (never expiring) tax break for the top was simply a thank you handshake for his donors that the rest of the peasants will ultimately have to pay for.
Peasants expire. Oligarchy rules.

 

[Italian_in_NYC 259]

31 minutes ago, Ebunoluwa said:

The people who bought Trump want to get something back for their 'investment'.
This (never expiring) tax break for the top was simply a thank you handshake for his donors that the rest of the peasants will ultimately have to pay for.
Peasants expire. Oligarchy rules.

 

That's cute, but get your facts straight (did not vote for Trump btw).

Corporate rates are all about being competitive. And the breaks for (all except millionaires on salary) individuals are not permanent only because a handful of democrats could not override ideology to vote for a good tax bill. It will be on them to extend them in 10 years.

Watching pitiful senators like Warren and Sanders spewing falsity and nonsense on the Senate floor was hilarious tonight.

Go beyond the ideology and run your 2017 return with the new rules. I did it at work and I'd be paying over $9k less in federal taxes this year.

[Amica Nostra 4,803]

25 minutes ago, Ebunoluwa said:

The people who bought Trump want to get something back for their 'investment'.
This (never expiring) tax break for the top was simply a thank you handshake for his donors that the rest of the peasants will ultimately have to pay for.
Peasants expire. Oligarchy rules.

 

Everybody knows that the dice are loaded 
Everybody rolls with their fingers crossed 
Everybody knows that the war is over 
Everybody knows the good guys lost 
Everybody knows the fight was fixed 
The poor stay poor, the rich get rich 
That's how it goes 
Everybody knows 

[Italian_in_NYC 259]

I watched the bill pass the Senate yesterday night and then I went into the kids' room and I kissed them calling them by name. "Good night, enhanced child tax credit #1, and enhanced child tax credit #2."

[smilesammich 10,727]

well that explains it. 

[Italian_in_NYC 259]

17 minutes ago, smilesammich said:

well that explains it. 

How's that for a scam?

I'll take it.

[smilesammich 10,727]

Just now, Italian_in_NYC said:

How's that for a scam?

I'll take it.

straight from your kids, sorry, tax credits. they'll be paying for it.

[LionessDeon 2,060]

11 hours ago, Italian_in_NYC said:

That's cute, but get your facts straight (did not vote for Trump btw).

Corporate rates are all about being competitive. And the breaks for (all except millionaires on salary) individuals are not permanent only because a handful of democrats could not override ideology to vote for a good tax bill. It will be on them to extend them in 10 years.

Watching pitiful senators like Warren and Sanders spewing falsity and nonsense on the Senate floor was hilarious tonight.

Go beyond the ideology and run your 2017 return with the new rules. I did it at work and I'd be paying over $9k less in federal taxes this year.

Incorrect. I work with large corporations daily. These tax cuts are not about being competitive. Of course that’s what they want you to think.  

[Dashinka 24,793]

3 minutes ago, LionessDeon said:

Incorrect. I work with large corporations daily. These tax cuts are not about being competitive. Of course that’s what they want you to think.  

It’s not?  Please elaborate?

[LionessDeon 2,060]

12 hours ago, Ebunoluwa said:

The people who bought Trump want to get something back for their 'investment'.
This (never expiring) tax break for the top was simply a thank you handshake for his donors that the rest of the peasants will ultimately have to pay for.
Peasants expire. Oligarchy rules.

 

You are right on target.  My Ohio senator Sherrod Brown made a live video last night about this exact thing.  He said the hallway to

Mitch McConnells office was filled

with lobbyists and big corporate advisors taking turns going into his office. They stand to benefit the most from this. It is not reform  to truly help the middle class 

[Italian_in_NYC 259]

3 minutes ago, LionessDeon said:

Incorrect. I work with large corporations daily. These tax cuts are not about being competitive. Of course that’s what they want you to think.  

I am an international tax principal at a top 50 accounting firm. I know the international provisions of the tax code like the back of my pockets (unfortunately, that's my line of business). Do you have any idea of how archaic and anti-business is our current corporate tax code? We're (not for long) the only industrialized country with a corporate worldwide taxation system. And with the highest marginal tax rate. That's a big reason (if not the only one) why there were many corporate inversions in the past decade.

[Italian_in_NYC 259]

29 minutes ago, smilesammich said:

straight from your kids, sorry, tax credits. they'll be paying for it.

How does the cool aid taste?

I like wine more, sorry.