See all the latest videos and articles patriots need to watch and read at Discern.tv.
The Trump administration’s “tax reform” plan is the darling of Wall Street. The stock market is breaking records and the president is all too quick to take credit (every president does this, and blames his predecessor for the bad stuff). But corporate earnings and taxes are, shall we say, very closely coupled, and therefore any serious plan to reduce corporate taxes will “prime the pump” on capital investment and business growth.
Background
It’s not tax reform. Here’s the plan, in a nutshell.
- Go from seven to three tax brackets, making the first $12,000/$24,000 for single/married taxpayers free of federal tax.
- Eliminate the marriage penalty and increase the Child Tax Credit. This may or may not benefit the middle-class, depending on the size of the increase.
- Create a $500 tax credit for adult/elder care dependents.
- Expand the use of the so-called “EZ”-style, one page form to encompass up to 90 percent of taxpayers.
- Cut the corporate tax rate from 35 to somewhere in the 20 percent range.
- Cap small business rates at 25 percent
- Change amortization rules to allow businesses to fully expense some equipment in the year purchased.
Analysis
Changing brackets and credits (Number 1 through 3) isn’t reforming anything. It’s just playing with marginal tax rates based on a booming job market where we expect more people in the labor pool, earning enough money to pay for the ever-growing budget. And even if they don’t, the administration has a “who cares?” attitude about the federal debt. Let it hit $25 trillion, or $30 trillion, seems to be their position–and as long as the economy is growing, and the growth rate doesn’t contract, I suppose it could go on forever.
Unfortunately, nothing lasts forever, so if tax revenues fall, at some point the rates will go up again. Bank on that. And that’s not tax reform, it’s pandering.
Moving on, Number 4 is simply wishcasting. People in the U.S. like to itemize because they think it’s saving them something, and the number of “free” services like H&R Block that exist really to finance tax refunds already makes most taxpayers returns a snap. Tax reform means changing the way federal income tax is calculated, assessed and collected. It doesn’t mean making the form one page–although that could be a goal if they were really pursuing tax reform.
The Japanese have a one page tax return, and most people have nothing to file at all. The government keeps track of income and takes what is required. At the end of the year, if there’s an adjustment to be made, Japanese taxpayers can request a form after they receive their tax email (or a postcard for the unconnected). But there’s no way America can do that without a complete rewrite of the tax code.
And that’s not going to happen, not with the enormous financial lobby, along with retail and other sectors that benefit from the current system, with most middle-class taxpayers getting some kind of refund. Those refunds get financed, they are used to buy cars, all kinds of gear, electronics, insurance and other products. I worked in insurance for a decade, and there’s a reason February is the biggest month for new policies (auto, homeowner, etc.). These businesses will fight tooth-and-nail against a disruption that would disadvantage them, not to mention H&R Block, TaxSlayer, Intuit and other companies that make a living off the current tax system.
The striptease
The biggest tease is the corporate tax rate cut. A 15-point cut in the corporate tax rate is huge–enormous. It alone will keep the stock market breaking records for a year or two. And even if Americans don’t have money in the stock market, a rising market means more capital, which means more jobs (generally, but not in every location or every sector). It means more money for consumers to spend, which means more spending. As long as inflation is kept under control, that means good things for the economy–and the government.
Here the Laffer curve of “trickle-down” comes into effect.
But the real effect of an economic boost will be money put into the pockets of small business owners. Capping the small business rates at 25 percent will take many marginal businesses that never get started or never grow, and allow them to grow, invest, and hire more people. That should more than make up for the big company lost revenue, if inflation is kept under control.
All of this is logical, but it’s a tease. Capping small business tax rates and slashing corporate rates is not tax reform, and after an initial wave of investment and growth, the market will adjust. If government spending doesn’t shrink, or if inflation or global markets and currency values change (they will), we will eventually find that capital finds a home offshore again.
No economic nationalism
This is where Bannon’s economic nationalism comes in. But Democrats would never buy into it, and there isn’t even enough GOP support for an American hegemony of that kind. So the next administration could simply undo Trump’s tax cut. I wouldn’t be surprised if Congress puts a time limit and an authorization expiration on any tax plan, which lets them off the hook later without actually passing a tax increase.
It’s all a striptease to companies to make “deals” that Trump can then take credit for.
Perspectives
Trump floats bipartisan tax reform group – POLITICO
President Donald Trump also suggested his tax reform effort will generate so much revenue that it will pay for a massive infrastructure bill. I think we’ve got all the tools we need.” Republicans already have a partisan tax framework to reduce corporate rates, alter individual tax brackets and increase the standard deduction. Trump also suggested his tax reform effort will generate so much revenue that it will pay for a massive infrastructure bill, according to one senator in attendance.
3 things you should know about Trump’s tax reform plan – TheBlaze
Simply put, Trump said his tax reform plan will cut taxes for working families, it will simplify the tax code and significantly reduce corporate taxes for small- to medium-sized businesses. It will put about $4,000 back in the average American’s paycheck and businesses will “stay, hire and grow in America,” he said. No. 1: Cut taxes for working families The administration’s plan: ● Reduce the number of tax brackets from seven to three, which means the first $12,000 for an individual and $24,000 for a married couple would be tax-free.
Why the stock market keeps rising as Trump policies stall – Business Insider
Business Insider spoke with three big money managers who provided a wide range of alternative reasons for the stock market’s continued excellence. The stock market doesn’t revolve around Donald Trump, regardless of what the president tries to claim. This much should be clear to anyone who’s enjoyed a seemingly endless series of record highs, even as Trump has failed to make progress on the policies he’s been proposing for months.
Final thoughts
Cutting taxes is good for politicians. Cutting corporate taxes is good for business. Cutting small business taxes is good for the economy. But it’s not tax reform. And without spending cuts, it’s just a striptease–a temporary thrill.
Covid variant BA.5 is spreading. It appears milder but much more contagious and evades natural immunity. Best to boost your immune system with new Z-Dtox and Z-Stack nutraceuticals from our dear friend, the late Dr. Vladimir Zelenko.