A Taxing Year’s End

We are nearing the end of 2017. This week Americans will celebrate Thanksgiving. I intend to adhere to my normal policy of not doing my version of “live blogging” at the end of December.  That doesn’t mean politics will stop. In fact I think one of the key topics will be taxes. Let’s explore.

Last Thursday the House passed its version of the Trump Tower Tax Cut. The Senate appears well on its way to putting its version on the floor for a vote this week. (Whip counting could change that especially if McConnell, not Trump makes the call.) The versions are different and, to put it in the vernacular, both stink! In fairness the Senate’s plan is still evolving but don’t expect this skunk to smell like a rose.

The Republicans main problems are that the economic philosophy they are trying to sell is false and they are trying to give a huge tax break to people who need a passport to visit their money and have to find a way to pay for all but $1.5 trillion of it. Even with the benefit of fuzzy math the only way to do that is to raise taxes on most of the 99%.

Part of the Republican spiel is trickle-down economics. I’m sorry for the graphic image, but every time I hear the term trickle-down economics I can’t help thinking of the statue of the urinating boy in Belgium. One video blew up the claim last week. The Wall Street Journal was hosting a CEO’s forum where Gary Cohn was a featured panelist. At one point the moderator asked for a show of hands from the audience of the CEO’s who would increase investment if corporate taxes were cut. Five hands went up in a room full of people that had to number in triple digits. Anyone who understood business would have anticipated that. Big business (one of the two big winners in the Trump Tower Tax Cut) is sitting on record cash. They don’t need more cash to invest; they need a reason to invest it.

For all the “economic geniuses” out there who say that a corporate tax cut will lead to more and higher paying jobs I have a fly in your implied ointment to point out. For the sake of argument I will momentarily stipulate to a wage increase in your scenario. If that were to happen it would not happen in a vacuum and unless you think you have somehow reversed the pattern of greed that has afflicted America since the Reagan administration. Prices would rise to offset the wage increases leaving the American worker where they are right now if not a little worse off.

Another feature that is likely to manifest itself in a final version (more about that below) is a provision to give a tax break to repatriated money. The argument is that all that money will flood the market spurring business investment and the whole trickle-down thing. The biggest problem is that we did that once before when America bought that argument. Corporations used the extra cash almost exclusively to increase dividends (remember the vast majority of that goes to the 1% and foreign investors) and/or buy back stock. It did virtually nothing to add jobs or increase wages. If one of the “economic geniuses” added a provision that required corporations to invest the money in their business they would likely follow Carrier’s lead when they were beneficiaries of the Mike Pence/Donald Trump giveaway of Indiana’s taxpayers’ money– they will invest it in job eliminating technology.

If you really want to help business, give a tax break to the middle and lower classes; they spend. Consumer demand still constitutes 70% of the American economy. When they can’t make enough widgets to meet consumer demand a business will seriously consider hiring more, adding a shift, along with building a new plant and warehouse.

The House version caps the deductibility of state and local taxes at $10,000. At this writing the Senate bill eliminates it completely. Especially in high tax states like New Jersey (which on net sends the most money to Washington that in turn helps finance most red states) this is a tax increase on the middle class.

Unless it dies a quick death in the Senate and assuming there is no resurrection I expect the Trump Tower Tax Cut to be a battle right to the end of the year. If the Senate passes their version of it (I give that less than an even chance at this point) the two bills, which will have significant differences, will then have to go to conference committee. There a compromise version would be worked out which would then need to be passed by each chamber without amendment. At that point it would go to Trump who will sign anything that he can spin as a win.

I think that Republican leadership in the House could probably scare up enough of their caucus to get the compromise version passed. The Senate is a much different story. Mitch McConnell needs 50 votes to pass it, (Mike Pence’s tie breaker is a given). He only has a two vote margin and at least six GOP Senators are to varying degrees question marks.

I have far from outlined all the evil in these bills! Strategic activism is one of the keys to defeating the final version of the Trump Tower Tax Cut. That is one of the main reasons the Republicans are trying to expedite it. I’ll leave you on an interesting and telling note: under the House plan the Trump family would see a $1 billion tax benefit.

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