Tax reform. Lower
taxes. More money in your pocket. Government taking less of your hard-earned
income. GREAT! Who wouldn’t want that, right? And, that’s the depth of thinking and
ego-centric mentality that this administration is counting on from the public. Luckily, it looks like most Americans are smarter
than given credit for and are capable and willing to ask the important question
‘at what cost?’ as proven by how unpopular the tax cuts are. Let’s take a closer look at some of the pros
and cons.
·
Yes, most people will have less of a tax
obligation over the next few years. This
will make many happy, of course. Speaking
for myself, it appears I start off by saving a whopping 1.4%, but over the
course of the decade that reverses to actually become a slight INCREASE in
taxes. Of course, I realize some other
middle-income earners get a bigger savings in the short term. If you just focus on that, it looks good for
the time being. However, at the same
time the healthcare premiums are expected to increase an extra 10% per year due
to revisions in the reform according to the nonpartisan CBO and other experts. This alone wipes out much of the benefits for
many in the lower to middle class. On top
of that, because this reform adds to the deficit, it’s highly likely that governmental
spending cuts will be proposed that will directly and negatively impact the
financial well-being of those in the lower to middle class the most.
·
One growing sentiment throughout this process
that I don’t like is the resentment toward the wealthy. While there are a group of rich folks that
are taking advantage of the system, using politics for personal gain, and performing
a blatant power grab, there are also many others in this exclusive club that aren’t,
that are doing positive things for the community, and are disgusted by what is
going on. I’m all for people succeeding
and happy for wealthy people who have earned my respect. That’s not the problem. The problem is how unfair the system, and
this new tax reform, is. On average, the
middle income earners get a tax cut worth 1.6% of their after-tax income where
as those making $308,000 to $733,000 get a 3.4% and the top 0.1% get a 2.7% cut
respectively. Besides just being a
higher percentage, you must realize that it is a higher percentage of a much
higher starting income number, which makes the tax gains that much more
skewed. Plus, meaningful cuts for the
wealthy are permanent but those for the rest are set to expire! While politicians say they will be made
permanent, that is far from a foregone conclusion. In my opinion, these percentages should be
swapped, it nothing else.
o
The widening gap between the upper and middle
class is well known, as are the damaging effects that are the result. This bill only exasperates this important
issue. It may make those in the middle
class happy to see a tax cut, but it exponentially increases the divide between
the classes as the top percentage get to take advantage of a system that largely
benefits them. In addition, it keeps unfair
advantages, such as those for hedge fund managers, that the President himself
has pointed out as excessive. Wall Street
will love these cuts and the stock market is likely to continue to grow due to
it. Of course, it is largely the wealthy
who have money invested in the markets further deepening the divide.
·
Yes, there will likely be growth to both the economy
and jobs due to the tax cut bill. The
question is how much and is it worth it?
As for how much, looking past the extremes from either side, the nonpartisan
Tax Policy Center estimates an increase in GDP by 0.8% in 2018 tapering to little
effect by 2027, creating $186 Billion in the first decade from a bill with a cost of $1.5 Trillion on which interest will have to also be paid, and
an increase debt as a share of GDP by 5 percentage points to 97% of GDP by 2027
and to 117% of GDP by 2037. So, even if
GDP grows at their estimated 0.29% per year, we are worse off. The number of full-time equivalent jobs created
is estimated by the Tax Foundation to be 339,000. That may sound good until you put it into
perspective: there were 261,000 jobs created in October alone, which is in line
with recent trends. For example, there
were 1.357 million jobs created in Obama’s last seven months and 1.189 million
in Trump’s first seven months. So, the relatively
small amount of job growth at such a large cost is staggering.
·
Only the most biased/conservative estimates have
the bill coming anywhere close to paying for itself. Most republicans who voted for the bill even
recognize the increase to the deficit that it will cause. It’s been interesting to hear how they’re
tying to spin it. I found myself chuckling
when I heard one senator say that it’s only increasing the deficit something
like 1-2%, realizing that some people will hear it as a small number when put
into percentage terms and think it’s not a big deal. But, yes, of course it is a big deal when you’re
ADDING up to a TRILLION DOLLARS to an already high deficit and to what is already over
a $20 TRILLION DEBT! The interest alone
is unfathomable. They know this. But, they wanted to push this bill through
and then say that spending is out of control to make other cuts that will
predominately end up hurting the lower to middle class yet again. I know that sounds like a democratic talking
point, but it’s a very logical and likely conclusion here. There is a reason the AARP and American Public Health Association have spoken out against this bill (https://www.apha.org/news-and-media/news-releases/apha-news-releases/2017/tax-legislation-and-health-care)
·
Some say that we’re already seeing the wage benefits! AT&T, Comcast, and Boeing have already agreed
to give employees a bonus! This is good,
but it’s funny how many people jump on it as proof that the tax plan is going
to work. First of all, let’s think about
this. AT&T is currently in the
government’s crosshairs over an immense merger dispute. Comcast, along with AT&T, just benefited
immensely from last week’s net neutrality ruling. And, Boeing is engrossed in a major international
governmental trade dispute with Bombardier.
Everyone knows that it really helps to get on Trump’s good side and it’s
no surprise that these three would be among the first to praise the tax
reform. Besides, it’s a one-time bonus. And, yes, some wages are likely to go up
slightly. However, it has been observed time and time again that most companies don’t turn over the majority of their profits to their
employees, but to shareholders, investors, and top executives. Paul Ryan has been fond of saying that a
supposed survey of companies say that they will invest otherwise. But, that’s like a first grade teacher
surveying a group of students asking if they’ll behave if they were to be given
a bag of candy during class. Of course,
they’re going to say they will! We have
seen for many years that executives give themselves disproportionate bonuses
and salaries over other employees and push profits to investors. This is well known and many of those passing
this bill are among those that have lamented on this fact in the past.
·
Unemployment is at a 17-year low. Growth is at a 3-year high. Companies are more profitable than ever1. Tax reform was perhaps needed, yes. But, the measures taken were unnecessary and simply
irresponsible. Not only is it not likely
to stimulate enough growth to help the deficit, it will add to it. But, to make matters worse, when a downturn
happens we now have frighteningly little room to maneuver to offer a stimulus. So, yes, while companies get even bigger
profits, which are rewarded to wealthy shareholders, those in the middle class
are getting at least a little bit of income back as well. However, just as an example of their irresponsibility,
at the same time congressmen celebrate this rush to tax reform they are pushing
off funding for the Children’s Health Insurance Program and decision on
Dreamers. Wealth of the rich over the health
of the less fortunate. It was also irresponsible
because they failed to listen to or to represent the majority of their
concerned citizens, which they are supposedly elected to do.
·
Finally, the simple-minded President literally showed
how little he cares if he causes people to suffer from his actions when one of
the first things he said after the passage of the bill was “Obamacare
has been repealed in this bill.” (as an
aside - IT HASN’T) “We didn’t want to bring it up,” he said. “I told people
specifically, ‘Be quiet with the fake-news media because I don’t want them
talking too much about it.’ Because I didn’t know how people would —.” Trump
didn’t finish that thought, but he said he could admit what had been done “now
that it’s approved.”2
First of all, he thinks we are a bunch of idiots. But, he also shows that he knew how wrong his
action was, or at least how unpopular.
However, people did know that the healthcare provision was added as part
of the bill and the majority were very much against it. It was widely publicized how many on both
sides reacted negatively to the fact that congressmen were trying to include
healthcare into a tax reform bill just because they thought it would pass. The fact that the President would purposely include
a provision knowing that it could cause our healthcare system to falter,
hurting millions of Americans, is disturbing, albeit predictable from this
President (I, among many others, literally did predict he would undermine the ACA). But, for him to brag about the fact that he
(or so he thinks) did it in such a way as to hide it from the very people he is
supposed to represent is reprehensible.
Most will see some tax benefits over the next several years, there will likely
be a boost to our economy, and there may be some job creation and wage
increases. These are all good things. However, it adds to an out of control
deficit, exacerbates the divide between the ‘haves’ and ‘have-nots’, and leaves
little room for stimulus when needed.
My prediction is that between this tax cut and jobs act and the extreme
deregulation of this administration, we will see a slight boon for a short
while followed by either a stagnate or, more likely, faltering economy within
the next 5-10 years and perhaps sooner.
I hope I’m wrong or hope that changes will be made so that we won’t see
that prediction come to fruition.
