Tag Archives: Tax reform

Thank You, Mr. President, by Bill Bonner

Posted on January 4, 2018 | Leave a comment

Bill Bonner explains why he’s grateful to President Trump. From Bonner at bonnerandpartners.com:

BALTIMORE – We owe Donald Trump a hearty and sincere “thank you.”

Not only did he save us a lot of money (see below)… but he also helped us better understand how government actually works.

What “The Donald” understood better than the professional politicians was that democratic politics is basically a form of entertainment.

It’s a sordid part of show biz – all hocus pocus… suspension of disbelief… and performance art – closer to nude mud wrestling than The Crown.

Big Dog

The press still doesn’t get it.

In an article that appeared in The Washington Post on Tuesday, reporters had tallied 1,950 “false or misleading claims” the president made last year.

We were surprised; we thought he had made more than that. And why not?

No one expects a standup comic to tell the truth. No one checks Beyoncé’s lyrics for factual errors. And who worries about accuracy while watching Buffy the Vampire Slayer?

Another article tells us that Trump is “mocked on social media for bragging” about his nuclear button.

Of course, that’s not what President Eisenhower would have done. But these are not Ike voters. And this is not Ike’s Old Republic.

Today’s voters have lost faith in the system, with its solemn deceit and its counterfeit dignity. And they’re happy to hear someone speaking in a language they understand – the lowbrow media patois of Howard Stern, the Kardashians, and “The Big Dog” himself, WWE champ Roman Reigns.

Trump, a lifelong celebrity, sensed that the role of president has little to do with geopolitical facts, mastery of the federal budget, or knowledge of history.

It’s more like a reality TV show or a WWE wrestling match – with put downs… posturing… and fake fights.

In other words, it was right up his alley.

To continue reading; Thank You, Mr. President

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The Greatest Bubble Ever: Why You Better Believe It, by David Stockman

Posted on December 31, 2017 | Leave a comment

Here is David Stockman’s analysis of the US government’s spending, receipts, and the overall economy. From Stockman at davidstockmanscontracorner.com:

Part Two:

As we explained in Part 1, the most dangerous place on the planet financially is now the Wall Street casino. In the months ahead, it will become ground zero of the greatest monetary/fiscal collision in recorded history.

For the first time ever both the Fed and the US treasury will be dumping massive amounts of public debt on the bond market—upwards of $1.8 trillion between them in FY 2019 alone—and at a time which is exceedingly late in the business cycle. That double whammy of government debt supply will generate a thundering “yield shock” which, in turn, will pull the props out from under equity and other risk asset markets—-all of which have “priced-in” ultra low debt costs as far as the eye can see.

The anomalous and implicitly lethal character of this prospective clash can not be stressed enough. Ordinarily, soaring fiscal deficits occur early in the cycle. That is, during the plunge unto recession, when revenue collections drop and outlays for unemployment benefits and other welfare benefits spike; and also during the first 15-30 months of recovery, when Keynesian economists and spendthrift politicians join hands to goose the recovery—-not understanding that capitalist markets have their own regenerative powers once the excesses of bad credit, malinvestment and over-investment in inventory and labor which triggered the recession have been purged.

By contrast, the Federal deficit is now soaring at the tail end (month #102) of an aging business expansion. And the cause is not the exogenous effects of so-called automatic fiscal stabilizers associated with a macroeconomic downturn, but deliberate Washington policy decisions made by the Trumpian GOP.

During FY 2019, for example, these discretionary plunges into deficit finance include slashing revenue by $280 billion, while pumping up an already bloated baseline spending level of $4.375 trillion by another $200 billion for defense, disasters, border control, ObamaCare bailouts and domestic pork barrel of every shape and form.

These 11th hour fiscal maneuvers, in fact, are so asinine that the numbers have to be literally seen to be believed. To wit, an already weak-growth crippled revenue baseline will be cut to just $3.4 trillion, while the GOP spenders goose outlays toward the $4.6 trillion mark.

That’s right. Nine years into a business cycle expansion, the King of Debt and his unhinged GOP majority on Capitol Hill have already decided upon (an nearly implemented) the fiscal measures that will result in borrowing 26 cents on every dollar of FY 2019 spending. JM Keynes himself would be grinning with self-satisfaction.

Moreover, this foolhardy attempt to re-prime-the-pump nearly a decade after the Great Recession officially ended means that monetary policy is on its back foot like never before.

 

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Posted in Business, Collapse, Debt, Economy, Financial markets

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What Will the Tax Law Do to Over-Indebted Corporate America? by Wolf Richter

Posted on December 22, 2017 | Leave a comment

The new tax law will hurt heavily indebted companies. From Wolf Richter at wolfstreet.com:

A crackdown on excessive debt. Financial engineering gets more expensive.

The new tax law is larded with goodies for Corporate America, but there is one shift – a much needed shift – in this debt-obsessed world that will punish over-indebted companies, discourage companies from taking on too much leverage, and perhaps, just maybe, make these companies less risky: The new law sharply limits the deductibility of corporate interest expense.

Starting in 2018, a company can only deduct interest expense of up to 30% of its Ebitda (earnings before interest, taxes, depreciation, and amortization). Any amount in interest expense beyond it will no longer be deductible.

This will tighten further in 2022, when the deductibility of corporate debt will be capped at 30% of earnings before interest and taxes but after depreciation and amortization expenses. This is a much smaller number than Ebitda. And interest expense deduction is capped at 30% of that much smaller amount. This will raise the tax bill further.

Most impacted will be highly indebted companies, which often have a junk credit rating. And due to this junk credit rating, they also pay higher interest rates. This made the interest expense deduction very valuable. But now it is getting partially gutted.

Businesses have long been incentivized to borrow, not only by the extraordinarily low interest rates even for junk-rated companies, but also by the full deductibility of interest expense. And thus encouraged by the tax code, corporate debt has surged. Mergers & acquisitions, share buybacks, leveraged buyouts, and dividends have often been funded at least partially with debt. And over the years, companies have piled on an enormous amount of debt.

This chart shows this surge in US debts (bonds and loans) of nonfinancial businesses over the past decade:

According to estimates by the Congressional Joint Committee on Taxation, cited by The Wall Street Journal, the first phase of curtailing interest-expense deductibility – the phase that kicks in next year – would raise $171 billion in tax revenues over 10 years. The second phase that commences in 2022 would raise $307 billion over 10 years.

To continue reading: What Will the Tax Law Do to Over-Indebted Corporate America?

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Republicans Bet the Farm, by Patrick J. Buchanan

Posted on December 22, 2017 | Leave a comment

Patrick J. Buchanan may find that the Republicans bet the farm by not doing anything about Obamacare or immigration. From Buchanan at buchanan.org:

President Trump, every Republican senator, and the GOP majority in Speaker Paul Ryan’s House just put the future of their party on the line.

By enacting the largest tax cut since the Reagan administration, the heart of which is cutting the corporate rate from 35 to 21 percent, Republicans have boldly bet the farm.

They have rewritten America’s tax code to reflect their belief that cutting taxes on the private sector will produce the prosperity they have promised. If it happens, the GOP will reap the rewards, if not by 2018, then in 2020.

Democrats, as the Party of Government, egalitarian and neo-socialist, have come to see their role as redistributing wealth from those who have too much — to those who have too little. For, as men (and women) are born unequal in ambition, ability, talent, energy, personality and drive, free markets must inevitably produce an inequality of results.

The mission of Democrats is to reduce those inequalities. And as the very rich are also the very few, in a one-man, one-vote democracy the Democratic Party will always have a following.

Winston Churchill called this the philosophy of failure and the gospel of envy.

Republicans see themselves as the party of free enterprise, of the private not the public sector. They believe that alleviating the burden of regulation and taxation on business will unleash that sector, growing the economy and producing broader prosperity.

By how they voted Wednesday, Republicans yet believe in “supply-side” economics. In the early ’80s, this was derided as “voodoo economics” and “trickle-down” economics, and pungently disparaged by John Kenneth Galbraith as an economic philosophy rooted in the belief that, if you wish to feed the sparrows, you must first feed the horses.

The problem for Democrats is that Reaganomics worked, and is seen historically to have been successful. In 1984, growth was near 6 percent and Reagan rode to a 49-state landslide over Fritz Mondale who, at his San Francisco convention, had declared he would raise taxes.

Thus the importance of what happened Tuesday and Wednesday on Capitol Hill should not be underestimated.

To continue reading: Republicans Bet the Farm

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Debt, Taxes, Growth And The GOP Con Job, by David Stockman

Posted on December 2, 2017 | Leave a comment

David Stockman breaks down the tax package and finds there’s much less than meets the eye. From Stockman at davidstockmanscontracorner.com:

During more than four decades in Washington and on Wall Street it is quite possible that we never picked up any useful skills. But along the way we did unavoidably acquire what amounts to a survival tool in those fair precincts—-namely, a nose for the con job.

And what a doozy we have going now as a desperate mob of Capitol Hill Republicans attempts to enact something—anything— that can be vaguely labeled tax reform/tax cut. And for a reason that lies only slightly below the surface.

In a word, they are scared to death that the political train wreck in the Oval Office will put them out of business for years to come. So they are attempting to erect a shield of legislative accomplishment that can be sold in 2018 as the work of the GOP Congress, not the unhinged tweet-storm in the White House.

To be sure, some element of political calculus always lies behind legislation. For instance, the Dems didn’t pass the Wagner Act in 1935, the Voting Rights Act of 1965 or the Affordable Care Act of 2010 as an exercise in pure civic virtue—-these measures targeted huge constituencies with tens of millions of votes at stake.

Still, threadbare theories and untoward effects are just that; they can’t be redeemed by the risible claim that this legislative Rube Goldberg Contraption is being jammed through sight unseen (in ACA redux fashion) for the benefit of the rank and file Republican voters—and most especially not for the dispossessed independents and Dems of Flyover America who voted for Trump out of protest against the failing status quo.

To the contrary. The GOP tax bill is of the lobbies, by the PACs and for the money. Period.

There is no higher purpose or even nugget of conservative economic principle to it. The battle cry of “pro-growth tax cuts” is just a warmed over 35 year-old mantra from the Reagan era that does not remotely reflect the actual content of the bill or disguise what it really is: Namely, a cowardly infliction of more than $2 trillion of debt on future American taxpayers in order to fund tax relief today for the GOP’s K-Street and Wall Street paymasters.

To continue reading: Debt, Taxes, Growth And The GOP Con Job

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Posted in Debt, Economy, Government, Law, Taxes

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How the Deep State Squeezed America’s Wealth, by Bill Bonner

Posted on November 26, 2017 | Leave a comment

Funny money skews wealth. From Bill Bonner at internationalman.com:

NEW YORK – Salvator Mundi, said to be by Leonardo da Vinci, is the world’s most expensive painting.

Last Wednesday, at auction, each square inch was valued at nearly $1 million – including the bummed-up, restored, and damaged parts.

The painting may not be da Vinci’s work. Or perhaps, since it has been so heavily doctored up, little remains of his work. And whoever’s work it was must have been having a bad day.

And yet, it sold for over $450 million (including auction-house charges) – a lot of money for such a depressing work of art.


Donald Trump as da Vinci’s Salvator Mundi

The question on the table: Why?

But since we don’t know the answer to that question, we’ll answer another one: How come so many people have so much money?

Made in the Middle

The latest GOP “tax reform” proposals raise questions, too.

Though billed as a “middle-class tax cut,” the middle class gets almost nothing from the proposed plan.

Instead, almost all the benefits go to: (1) business owners, and (2) the rich.

And since the feds are unwilling to cut spending, the middle class ends up with about $2.2 trillion of extra debt, which it will have to reckon with eventually.

We bring up the tax cut because we think it helps explain the painting. Not for nothing are Republicans and the modern Salvator Himself, Donald J. Trump, setting up the middle class for a huge bamboozle.

A train ride we took on Monday – the Acela Express from Baltimore to New York – was subsidized by taxpayers from all over the country.

The train runs from one end of today’s modern economy to the other. It goes from Washington, D.C. – the center of politics – to New York – the center of money.

In between is nothing but poverty and dereliction. There are factories that last made a product in the ’50s. There are workers’ houses almost unchanged in half a century. There are abandoned warehouses… wrecked cars… junk steel… and burly men in orange vests working with machines.

To continue reading: How the Deep State Squeezed America’s Wealth

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Posted in Business, Debt, Economy, Government, Investing, Money, Taxes

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The Fetid Swamp of Tax Reform, by Charles Hugh Smith

Posted on November 10, 2017 | Leave a comment

Why true tax reform will never happen. From Charles Hugh Smith at oftwominds.com:

The likelihood that either party will ever drain the fetid swamp of corruption that is our tax code is zero, because it’s far too profitable for politicos to operate their auction for tax favors.

To understand the U.S. tax code and the endless charade of tax reform, we have to start with four distasteful realities:
1. Ours is not a representational democracy, it’s a political auction in which wealth casts the votes that count. Those seeking political influence over issues such as taxation place their bids in the political auction via campaign contributions and lobbying. The winner of the political auction gets favorable treatment, and everyone else ends up subsidizing the gains of the winner.
2. The wealthy pay the vast majority of federal income taxes (as opposed to payroll taxes, i.e. Social Security and Medicare), so tax cuts end up benefiting the wealthy.
In 2014, people with adjusted gross income, or AGI, above $250,000 paid just over half (51.6%) of all individual income taxes, though they accounted for only 2.7% of all returns filed.
By contrast, people with incomes of less than $50,000 accounted for 62.3% of all individual returns filed, but they paid just 5.7% of total taxes.
After all federal taxes are factored in, the U.S. tax system as a whole is progressive. The top 0.1% of families pay the equivalent of 39.2% and the bottom 20% have negative tax rates (that is, they get more money back from the government in the form of refundable tax credits than they pay in taxes).
3. The unseen burden of the tax code is the complexity tax levied on small business, the self-employed and domestic corporations with no access to global tax-avoidance schemes.
4. This complexity is necessary to hide all the special favors won in the political auction. The tax code could be a few pages long: all accounting of income and expenses must conform to accepted accounting rules, and here are the tax rates on net income/earnings.
To continue reading: The Fetid Swamp of Tax Reform

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Will Tax Reform Increase or Limit Liberty? by Ron Paul

Posted on October 9, 2017 | Leave a comment

Congress will occasionally cut a tax or two, but will almost never cut spending on anything. From Ron Paul at ronpaulinstitute.org:

President Trump and the congressional Republican leadership recently unveiled a tax reform “framework.” The framework has a number of provisions that will lower taxes on middle-class Americans. For example, the framework doubles the standard deduction and increases the child care tax credit. It also eliminates the alternative minimum tax (AMT). Created in the 1960s, the AMT was designed to ensure the “wealthy” did not use “loopholes” to “get out of” paying taxes. Today the AMT is mostly a means to increase taxes on the middle class.

The framework eliminates the “death tax,” thus enabling family-owned small businesses and farms to remain family owned. It also helps the economy by lowering the corporate tax rate to 20 percent, reducing taxes on small businesses. The framework also adopts a territorial tax system, which means US companies would only pay tax on profits earned in the United States.

However, the framework is far from a total victory for liberty. Concerns have been raised that, depending on what income levels are assigned to what tax brackets, the plan could increase taxes on many middle- and lower-income Americans! This is largely due to the framework’s elimination of most tax deductions.

The framework also contains a stealth tax increase imposed via the chained consumer price index (chained CPI). Supporters of chained CPI clam the government is currently overstating inflation. The truth is exactly the opposite: government statistics are manipulated to understate inflation.

Chained CPI enhances the government’s ability to lie about inflation. One way it does so is by claiming that inflation does not lower our standard of living if we can substitute cheaper goods for goods made unaffordable by inflation. So inflation does not harm you if you can’t afford a steak dinner as long as you can still buy a cheeseburger.

To continue reading: Will Tax Reform Increase or Limit Liberty?

 

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Another Win for the “One Percent”, by Bill Bonner

Posted on October 4, 2017 | Leave a comment

The 1 percent will do well under Trump’s tax plan. From Bill Bonner at bonnerandpartners.com:

POITOU, FRANCE – We pause. We take a deep breath. We cease our normal sarcasm and kvetching.

Today, we give thanks to the global elite… the people to whom we owe so much.

Historic High

The thought came to us after our research department passed along this tweet from Holger Zschaepitz, a markets editor at German national newspaper Die Welt:

We’ve never had it so good: Global equities now worth $84.8trn, highest value ever in history. Equals to ~110% of world GDP.

And then, CNBC reinforced our gratitude with this:

America’s top 1% now control 38.6% of the nation’s wealth, a historic high, according to a new Federal Reserve Report.

The Federal Reserve’s Surveys of Consumer Finance shows that Americans throughout the income and wealth ladder posted gains between 2013 and 2016. But the wealthy gained the most, driven largely by gains in the stock market and asset values.

The top 1% saw their share of wealth rise to 38.6% in 2016 from 36.3% in 2013. The next highest nine percent of families fell slightly, and the share of wealth held by the bottom 90% of Americans has been falling steadily for 25 years, hitting 22.8% in 2016 from 33.2% in 1989.

Wait a minute… How much income do you need to be in the top 1% of earners in America?

We looked it up. If you and your spouse earn $343,927 or more, you’re there.

Hallelujah! And yippy tai yai yay! Those book royalties pushed us over the top. It’s great to be in the 1%!

Break out the party favors. Pop the champagne corks. Open a Swiss bank account.

Oh… and don’t forget the people who made this possible. Contact your congressional team. Be sure to make a contribution to their re-election campaign fund… and book a night or two at Trump Tower Hotel, while you’re at it.

To continue reading: Another Win for the “One Percent”

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Posted in Debt, Financial markets, Government, Taxes

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Trump’s 1,500-word Airball, by David Stockman

Posted on September 30, 2017 | Leave a comment

Donald Trump has merely set up a massive tax reform scrum among the Washington supplicant and lobbying class. From David Stockman at dailyreckoning.com:

The Donald’s strong point isn’t his grasp of policy detail.

The nine page bare-bones outline released yesterday is nothing more than an aspirational air ball that lacks virtually every policy detail needed to assess its impact and to price out its cost.

It promises to shrink the code to three rates (12%, 25%, 35%), for example. But it doesn’t say boo about where the brackets begin and end compared to current law.

Needless to say, a taxpayer with $50,000 of taxable income who is on the 15% marginal bracket today might wish to know whether he is in the new 12% or the new 25% bracket proposed by the White House. After all, it could change his tax bill by several thousand dollars.

Similarly, to help pay for upwards of $6 trillion of tax cuts over the next decade, it proposes to eliminate “most” itemized deductions. These “payfors” would in theory increase revenues by about $3 trillion.

Then again, the plan explicitly excludes the two biggest deductions — the charitable deduction and mortgage deduction — which together account for $1.3 trillion of that total.

And it doesn’t name a single item among the hundreds of deductions that account for another $1 trillion of current law revenue loss. They’re just mystery meat to be stealthily extracted during committee meetings after Congressman have run the gauntlet of lobbyists prowling the halls outside.

Stated differently, after nine months of work these geniuses have come up with $6 trillion of easy to propose tax rate cuts and virtually no plan whatsoever to pay for them.

In fact, this latest nine pages of puffery contains just 1,500 words — including obligatory quotes from the Donald and page titles.

I hate to get picky, but the Donald’s team has been on the job for 250 days now. And all they came up with amounts to just three words each per day in office.

Worse still, even as this “framework” opens the door to unrelenting demagoguery from the Dems about helping the rich, it does virtually nothing for Flyover America.

And it surely leaves the rust belt workers who voted for Trump in western Pennsylvania, industrial Ohio, the Michigan auto belt and the manufacturing centers of Wisconsin and Iowa with absolutely nothing to show for their efforts.

To continue reading: Trump’s 1,500-word Airball

 

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