Tag Archives: tax cuts

Those State “Laboratories”

Ah, federalism.

Life in the 21st Century challenges our federalist system in a number of ways; it gets more and more difficult to decide–at least at the margins–what sorts of rules should be applied to the country as a whole, and what left to the individual states.

However those issues get resolved, however, our federalist system pretty much guarantees that state governments will continue to be the “laboratories of democracy” celebrated by Justice Brandeis, who coined the phrase in the case of New State Ice Co. v. Liebmann.  Brandeis explained that a “state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”

Most recently, state governments have been “laboratories” for the GOP’s belief that low taxes are all that is needed to stimulate economic growth.

As David Leonhardt of the New York Times recently noted,

Until recently, Kansas offered the clearest cautionary tale about deep tax cuts. The state’s then-governor, Sam Brownback, promised that the tax cuts he signed in 2012 and 2013 would lead to an economic boom. They didn’t, and Kansas instead had to cut popular programs like education.

Now Kansas seems to have a rival for the title of the state that’s caused the most self-inflicted damage through tax cuts: Louisiana.

Those who follow economic news have been aware of the painful results of the  Kansas experiment for some time. Evidently, however, the news of its dire results and the subsequent, ignominious retreat by the Kansas legislature failed to reach Louisiana–and that state’s legislators appear unable to deal with the reality of their own failed experiment.

“No two ways about it: Louisiana is a failed state,” Robert Mann, a Louisiana State University professor and New Orleans Times-Picayune columnist, wrote recently.

A special session of the State Legislature, called specifically to deal with a budget crisis caused by a lack of tax revenue, failed to do so, and legislators adjourned on Monday. No one is sure what will happen next. If legislators can’t agree on tax increases, cuts to education and medical care will likely follow.

Leonhardt places the blame for this state of affairs on Bobby Jindal, who came to the Governor’s office having drunk deeply of his party’s ideological Kool-Aid:

Louisiana’s former governor, Bobby Jindal, deserves much of the blame. A Republican wunderkind when elected at age 36 in 2008, he cut income taxes and roughly doubled the size of corporate tax breaks. By the end of his two terms, businesses were able to use those breaks to avoid paying about 80 percent of the taxes they would have owed under the official corporate rate.

At first, Jindal spun a tale about how the tax cuts would lead to an economic boom — but they didn’t, just as they didn’t in Kansas. Instead, Louisiana’s state revenue plunged. The tax cuts helped the rich become richer and left the state’s middle class and poor residents with struggling schools, hospitals and other services.

Unfortunately, these “laboratories” aren’t working the way Justice Brandeis envisioned, because Republican representatives elected by the rest of the country refuse to learn from their failures. Ideology has once again trumped evidence– the tax bill passed by Congress and signed by Trump is patterned after those in Kansas and Louisiana.

The rich will get richer, and the poor and middle-class will pay the price. And those who refused to learn from the experiences of our “laboratories of democracy” will profess astonishment.

Corporations Will Use Their Windfalls To Create Jobs. NOT.

Part of the mantra obediently recited by advocates of the mis-named “tax reform” bill is their touching (or feigned) belief that corporations will use the funds being repatriated and/or saved from the tax collector to create jobs.

Brings to mind the old adage about the triumph of hope over experience.

Ed Brayton relays the recent, eye-opening response by corporate CEOs to a speech by Gary Cohn, Trump’s chief economic advisor.

Trump’s chief economic adviser, Gary Cohn, took part in an event hosted by the Wall Street Journal that featured an audience full of CEOs, and when a Journal editor asked for a show of hands by those leaders who would invest in new capacity if their taxes were cut, very few hands went up. Cohn seemed shocked.

Cohn really shouldn’t have been shocked. We’ve been here before, and there is no reason to believe that the fundamentals–or the economic incentives– have changed. As Brayton notes, corporate profits are already at record highs, and credit is very cheap and readily available.

If those businesses believed that investing in new factories or equipment that might create more jobs would result in higher profits for them, they would already be doing it. But they’re not. Indeed, while this poll was an informal one, formal surveys of CEOs find the same result.

This summer, Bank of America Merrill Lynch asked 300 companies what they would do if Congress passed a “tax holiday” that allowed them to bring back massive amounts of money being held overseas at a lower tax rate. 65% said they would pay down their debt. Second most popular option? Stock buyback. Neither of those things creates new jobs. Indeed, when George W. Bush did the same thing in 2004, about $300 billion in cash kept in overseas subsidiaries was brought back at a ridiculous 5.25% tax rate. 80% of it was used to buy back stock. Why? Because it makes the shares of CEOs, which are a huge part of their compensation package, much more valuable. So the rich people benefit but no one else does.

I don’t know whether the lawmakers who continue to push this theory have convinced themselves of its credibility through constant repetition, or whether they are knowingly putting the best possible spin on an economic policy that repeated experience tells us is bogus. It probably doesn’t matter whether they are venal or stupid (not that the two categories are mutually exclusive); the outcome is the same: the rich get richer, and their political donations reward the lawmakers who’ve carried their water. Economic inequality and popular resentments continue to grow, along with political cynicism and social distrust.

It’s a prescription for upheaval, for further splintering of our already strained social fabric–and plenty of wealthy people understand that social unrest shrinks, rather than grows, the economy. As the contours of the tax “reform” bill  have become known, more than 400 American millionaires and billionaires have signed a letter to Congress demanding that Republican lawmakers not cut their taxes.

These wealthy Americans argue that reducing taxes on the richest families at a time when the the nation’s debt is high and inequality is at the worst level since the 1920s would be a colossal mistake.

The letter calls on Congress to not to pass any tax bill that adds to the debt and that “further exacerbates inequality.” Instead of cutting taxes of the wealthy, the letter tells Congress to raises taxes on rich people like them.

If money talks, theirs is the money Congress should listen to.

 

This Is Why We Can’t Have Nice Things….

Economists like to talk about “opportunity costs”–if you do X, you’ve lost the opportunity to do Y. I’ve been thinking about what we could do with the taxes we don’t get on the funds rich people hide from the IRS in those tempting tax havens, as disclosed by the Paradise Papers.

A column in the New York Times explained

A treasure trove of documents given the name of the Paradise Papers was unveiled last week, giving us a clearer idea of how rich people and powerful companies keep their money from the prying eyes of the Internal Revenue Service.

It seems that–if you are rich enough to afford the right law firm and tax haven–you can navigate the Internal Revenue Code in such a way as to legally evade lots and lots of taxes. It turns out that sixty-three percent of foreign profits made by American multi-national corporations are squirreled away in those hideouts, out of the sight of those pesky IRS agents.

That disclosure was annoying enough, but what really pissed me off were a couple of estimates of what those evaded taxes might have paid for.

We worry a lot about the cost of social programs in this country, saying we simply can’t afford many things that we know could bring big rewards. But that missing $70 billion from corporate offshore tax avoidance would go a long way. A mere $140 million could replace the lead water pipes poisoning children in Flint, Mich. It would cost just an estimated $22.5 billion to end homelessness by providing all needy families with rental assistance. President Barack Obama asked Congress for $75 billion for his initial universal preschool plan; universal preschool for all 3- and 4-year-olds would cost $98.4 billion over 10 years.

Senator Bernie Sanders’s College for All Act doesn’t even require the federal government to cover the entire $70 billion cost of public college tuition, but it could if this money were available to the government. Divvying up $70 billion a year to each parent in the country would be a huge step toward ending childhood poverty. And the available pot of money, were offshore tax avoidance not an option, would be even larger if rich individuals were taxed at the rates we all face here at home.

According to The Hill, if those writing our tax laws didn’t prefer letting their donors off the hook for their fair share, we could afford pretty much anything. Here are just a few of the things The Hill says we could pay for if we weren’t rushing a $1.5-trillion debt-financed gift to billionaires through the legislative process:

What makes this effort to take from the poor to give to the rich especially galling is the hypocrisy of the GOP “deficit hawks.”

 After spending eight years railing against the evils of deficits, after blocking numerous important investments because we “couldn’t afford it” and after swearing time and again that debt was our No. 1 enemy, most Republican representatives have tossed their anti-deficit positions aside in the blink of an eye. That is galling, yes.

But perhaps even more galling is that, having thrown their fiscal caution to the wind and having decided that now, with a Republican in the White House, debt is no longer a concern, their best idea for spending hundreds of billions of dollars is to give it all to the rich. For that, they should be truly ashamed of themselves.

When you wonder why Americans can’t have universal health care, or great trains that run every 20 minutes on tracks that are smooth and well-maintained, or other public services and amenities that citizens of other developed countries enjoy, just remember: we give  money to our billionaires instead.

 

 

Tax Policy Winners And Losers

I’ve posted previously about the GOP’s tax “reform” plan, and some of the truly despicable provisions hidden in the fine print. As more details emerge, it appears that my list–like the one below–barely scratches the surface.

Whatever the arguments in favor of the $1 trillion in corporate tax breaks contemplated by the measure, the original idea–the justification for reducing the rate– was that the rate could be lowered if the loopholes that allow large profitable corporations to pay little or no tax despite the published rate were eliminated. Somehow, however, the current version of the “reform” bill leaves corporations with both lower rates and their loopholes.

Speaking of corporations, Dana Milbank reported a revealing exchange in a recent Washington Post column.

Individuals lose the ability to deduct state and local taxes, tax preparation, moving expenses and most medical expenses. But corporations — think of them as Very Important Persons with superhuman privileges — can still deduct these same expenses.

At Monday’s markup, Rep. Suzan DelBene (D-Wash.) quizzed a tax expert on this corporate exceptionalism:

“Will a teacher in my district who buys pens, pencils and paper for his students be able to deduct these costs from his tax returns under this plan?” He will not.

“Will a corporation that buys pens, pencils and papers for its workers be able to deduct those costs from its tax returns?” It will.

“Will a firefighter in my district be able to deduct the state and local sales taxes that she pays from her tax return?” She will not.

“Will a corporation be able to deduct sales taxes on business purchases?” It will.

“If a worker in my district had to move because his employer was forcing him to relocate . . . can he deduct his moving expenses under this plan?” He cannot.

“Can a corporation under this plan deduct outsourcing expenses incurred in relocating a U.S. business outside the United States?” It can.

We Americans just love our corporations….they’re people, you know.

And isn’t it nice that Republican Americans are so “pro-life”? (Well, they’re pro pre born life; once that little bugger emerges from the womb, they are considerably less solicitous.) Among the non-fiscal measures in the tax “reform” bill is one intended to “protect babies”–aka fetuses and fertilized eggs. You’d think these pro-life men (they’re all men) would do anything they could to support  adoption as an alternative to abortion. But you’d be wrong.

The House Republican tax reform bill would completely eliminate the adoption tax credit, which has been in the tax code since 1997. It was a bipartisan achievement pushed through by former Texas Republican Rep. Bill Archer, who was chair of the House Ways and Means Committee. Designed to help cover “reasonable and necessary adoption fees, court costs, attorney fees, and other expenses,” the credit is available for up to $13,460 per child.

Some employers also offer adoption assistance in the form of financial aid and paid leave time. As of now, this type of assistance is tax-exempt, but the proposed bill would make such benefits subject to taxation.

The bill would also make adoption assistance from employers — which usually takes the form of financial aid and paid leave time — taxable.

Words fail.

I’m less surprised by the measures that would effectively destroy graduate education; the current crop of Republicans considers educated people snotty elitists. GOP officeholders sneer at scientists, oppose research funding, and think college professors are unAmerican.

Most graduate students get through their degree programs depending on assistantships, tuition waivers and lots of ramen noodle dinners. As Forbes reports,

Currently, these tuition waivers are paid by the college directly to itself, on behalf of the graduate student, and are not counted as taxable income. Under the current “reform” proposal, tuition waivers would be taxed as regular income, making graduate school an unaffordable proposition except for those already independently wealthy.

And then there’s that pesky little detail that the Congressional Budget Office finds problematic: this monstrosity will add 1.7 trillion to the deficit. (And that’s evidently after robbing Medicare and Social Security…) If you are looking for some of those Republican “deficit hawks” of yore, you are probably out of luck.

On the other hand, if you’re wondering why Paul Ryan is reportedly optimistic about passing this Thanksgiving turkey, Representative Chris Collins explained it the other day.

Rep. Chris Collins (R-NY) got points for honesty Tuesday while advocating for Republicans’ tax bill to slash the corporate tax rate and eliminate the estate tax, among other things.

“My donors are basically saying, ‘Get it done or don’t ever call me again,’” Collins said.

I’m sure those donors are selfless patriots who simply want to see middle-class Americans get some tax relief. (And if you believe that, I have a swamp in Florida to sell you…)

The Horrific Truth

The GOP’s tax “reform” bill has now been unveiled. Reform it isn’t.

I guess all sentient beings already knew what was coming…but Krugman’s accurate prediction distills its awfulness.

Republicans in Congress know perfectly well that Trump is utterly unfit for office and has been abusing his position for personal gain…

If they nonetheless circle the wagons around Trump… there will be one main reason: Trump offers their big opportunity to cut taxes for the very wealthy. Indeed, the nonpartisan Tax Policy Center estimates that almost 80 percent of the Trump tax cut would go to people with incomes over $1 million; these people would get an average cut of around $230,000 a year.

Now that Ryan and crew have unveiled the plan’s specifics, there is something for everyone to hate. According to Americans for Tax Fairness, the plan jeopardizes Social Security, Medicare, Medicaid and public education; it repeals the Alternative Minimum Tax (which insures that rich people with write-offs pay at least something), slashes corporate taxes and vastly increases the deficit (whatever happened to those GOP “deficit hawks”?)

Talking Points Memo zeroed in on what it identified as the five most controversial provisions; although I agree their chosen provisions are horrible, there are arguably others that are even worse. (I’m particularly incensed by the utterly insane attack on environmentally-friendly provisions; the bill eliminates tax credits for electric vehicles, and raises taxes on clean energy.)

TPM points out that changes to the treatment of mortgage interest and property taxes will have a negative effect on the value–and sales price–of homes. Those of us who factored in these deductions when we bought a home will be selling them to people who won’t get those deductions–and won’t be willing to pay as much.

The bill eliminates a deduction for medical bills that currently only benefits very sick people with high medical costs. It will hit senior citizens and the critically ill, giving new meaning to “kick ’em when they’re down.” It will also eliminate deductions for contributions to  certain medical savings accounts, and the tax credit for companies that make drugs that treat extremely rare diseases. (Without that tax credit, even fewer pharmaceutical companies will bother…)

The enormous amount of student loan debt has been identified as a major drag on the economy, so the “reform” bill makes it worse, eliminating the deductibility of interest on those loans.

We will no longer be able to take a deduction for state and local income taxes. I’ll just leave that one here for you to ponder.

And in the “fine print,” our happy theocrats buried repeal of the  “Johnson Amendment”—the 50-year-old policy that churches lose their tax exempt status if they endorse candidates or engage in partisan politicking from the pulpit.

Repealing the Johnson Amendment isn’t the only culture war provision hidden in the dry language of tax policy. Welcome to “Fetal Personhood.”

Congressional Republicans are using their new tax plan for more than tax breaks for corporations and the rich. Their plan gives fetuses federal benefits in an apparent attempt to codify the view that life begins at fertilization—and to take another swipe at legal abortion.

Let me go on record as favoring a first-trimester abortion for this bill, which was conceived through incestuous relations between America’s plutocrats and their legislative prostitutes.