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I am a firm believer the ideal corporate tax rate is zero. Yet I was against Trump’s tax cut.
Why? I also believe in balanced budgets and I was certain the Tax cut would take us the opposite direction.
As a pass-through corporation, I believe I benefited from the cut. Most didn’t or at least won’t in the long haul.
Bloomberg writer Stephen Gandel explains Tax Cut Is Better (for Companies) and Worse (for Everyone Else).
President Donald Trump and the Republicans’ tax cut is proving to be vastly more generous for corporate America, and vastly more expensive for taxpayers, than expected. Worse, the Trump Slump is erasing the bump the stock market received from the tax cuts. And evidence is mounting that the promised economic boost isn’t materializing. The administration’s signature political achievement is being eclipsed by disarray over trade, immigration and a government shutdown.
First, the headline number: $600 billion, at least. That’s how much more than expected I estimate the companies in the S&P 500 are on pace to save. It is also how much more the tax cut is likely to add to the national debt if it runs as planned for 10 years. The total savings for all of corporate America will be well into the 13 figures.
In late 2017, soon before Congress passed the tax cut — which reduced the U.S. corporate rate to a flat 21 percent from a previous marginal rate that topped out at 35 percent — the Joint Committee on Taxation estimated it would cost $1.4 trillion over 10 years. White House officials criticized that estimate as being too high. In fact, it wasn’t nearly high enough. My current estimate, now that companies have completed 2018, is nearly $2 trillion, and that’s just for the S&P 500. That’s nearly $400 billion more than I calculated in May. And the actual bill could rise even more while the lasting benefits are still pretty questionable.
Questionable Numbers
The number 1 rule is don’t believe any government estimate on what something will cost. Had there been an accurate assessment at the time, the cut would have exceeded budget rules.
Effectively, the administration had to lie to get this passed.
Again, I am in favor of tax cuts. But I am not in favor of tax cuts based on lies even if I personally benefit.
Biggest Winners
Where’s the Benefit?
It is quite interesting that some of the most reviled companies like Facebook were the biggest winners. So where’s the benefit?
The more difficult question is whether the tax cut has provided an economic boost. In October 2016, analysts estimated that the companies in the S&P 500 would earn a collective $146.80 a share in 2018. Those earnings are now looking as if they will come in a good deal higher at $159.20 a share. That includes the tax cut, which lifted earnings by nearly $15.70 a share. Exclude the tax impact, and S&P 500 companies actually earned less last year, $143.50 a share, than they were expected to before Trump was elected president. That suggests that the tax cut hasn’t provided much income growth outside the actual tax savings. It is possible earnings missed expectations because companies paid raises or spent some of their tax savings in other ways. But even in the unlikely event that full $3.30 a share ended up in employees’ paychecks — an average raise of $10,000 per worker — that would still be a 20-80 split of the tax gains between workers and corporate America.
We can entertain the notion that a 20-80 split is better than nothing. But I studied the plan and found most of the 20% went to the very bottom end. In other words, this was a middle class tax hike, especially in later years.
Rise of the Socialists
It is studies like these that explain the rise of socialists like Democrat Alexandria Ocasio-Cortez who at age 29 became the youngest woman elected to Congress.
She has economically unsound ideas like “Free College” and “Medicare For All” and a “New Green Deal” that hide the cost of debt.
Estimate vs Reality
Her cost estimate to “save the planet” is $1 trillion. The reality is something like $40 trillion. Yet the Green New Deal has garnered significant attention and support from some members of the media, Congress, and even prominent senators considering 2020 presidential runs: Cory Booker, D-N.J.; Bernie Sanders, I-Vt.; and Elizabeth Warren, D-Mass.
This is precisely the kind of too good to be true nonsense that people want to believe. The message is powerful. We need to “save the planet”.
The plan is so idiotic that any Democrat running for president on that platform would lose.
Yellow Vest Movement
The same thing is happening in France right now with the Yellow Vest Movement now in its 10th Week of Violence.
The Complaint?
“How can we continue to live with so little?” said Bernard Grignan, a 65-year old retired manager who took part in the Paris demonstrations.
Meanwhile, back in the US, please note that Democrat Presidential Hopeful Wants to Give Everyone $1,000 a Month Free Money.
Democrat Presidential Hopeful Wants to Give Everyone $1,000 a Month Free Money
Wrong Hands
Starve the Beast
Proponents of the “Starve the Beat” theory believe we can cut social benefits, keep spending away, and keep deflating the dollar while spending trillions we no not have on illegal and insane military excursions that last forever.
It won’t last because it can’t. The system is broken.
If and When
If and when the middle class unites with the lower class against wealth and corporatism, we are going to see asset confiscation. It will not be pretty and it will not work.
Venezuela, Zimbabwe, and other examples explain why. But a global revolution is simmering.
Trump a Symptom of the Problem
Trump is not the problem. Nor is Marine Le Pen in France, nor Brexit in the UK, nor Lega in Italy.
All are symptoms of the problems: Global debasement of currency, central bank inflation tactics, bank bailouts, and government policies in general that favor the wealthy are the problems.
A revolt is coming. Don’t blame capitalism or Libertarianism. We have neither.
Instead, blame Fed and Government-sponsored monetary madness.
Mike “Mish” Shedlock