Thursday, December 21, 2017

Tax Reform


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.








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