Trump Tax Plan

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Trump Tax Plan

Postby KeithE » Sun May 21, 2017 7:25 pm

Poll of 37 economists

Question B: The tax reform plan proposed by President Trump this week would likely pay for itself through higher economic growth.
Only 5% agree or strongly agree, while 95% disagree (67% strongly so).

About the Panel of Economists
This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.


Thus the annual deficit will increase and there is no reason to believe there will be more jobs (it contains no infrastructure or jobs programs). Big tax breaks for corporations (35% down to 15%) and those with the highest income (39.6% down to 35%).

So money will continue to flow upward even more so.

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Most of America can have it so much better.
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Re: Trump Tax Plan

Postby Sandy » Thu May 25, 2017 10:31 am

Lots of economic theory circulates around. It sounds reasonable to think that if you cut the taxes of the wealthiest individuals, and corporations, that the additional money will go into investments that will expand the businesses and create jobs and additional revenue. The motivation of the ownership would be, obviously, to make more money and expanding the business is what it takes to do that, which requires the additional revenue to invest in the expansion. That, in turn, creates jobs and adds additional revenue to the tax base. Except, every time its been tried, it has not only failed to produce the desired results, it has led to a deep and sustained economic recession. Why?

For one reason, the ability to expand the business is cut off at the bottom because the consumers who would be spending money to expand it don't have it to spend. They're paying for the infrastructure to support the expansion, and providing other free, tax supported services for the corporately wealthy. For another, business expansion requires market share expansion, and most businesses with new cash to invest will take it somewhere to get a return on investment much faster than here. It does create jobs, in another country. The wealth that is returned goes into the bank account of the corporate wealth here, not into the economy. Corporate investors are inclined to put their money where it benefits them the most, they're not interested in providing jobs or helping people.
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Re: Trump Tax Plan

Postby KeithE » Fri May 26, 2017 10:21 am

Sandy wrote:Lots of economic theory circulates around. It sounds reasonable to think that if you cut the taxes of the wealthiest individuals, and corporations, that the additional money will go into investments that will expand the businesses and create jobs and additional revenue. The motivation of the ownership would be, obviously, to make more money and expanding the business is what it takes to do that, which requires the additional revenue to invest in the expansion. That, in turn, creates jobs and adds additional revenue to the tax base. Except, every time its been tried, it has not only failed to produce the desired results, it has led to a deep and sustained economic recession. Why?

For one reason, the ability to expand the business is cut off at the bottom because the consumers who would be spending money to expand it don't have it to spend. They're paying for the infrastructure to support the expansion, and providing other free, tax supported services for the corporately wealthy. For another, business expansion requires market share expansion, and most businesses with new cash to invest will take it somewhere to get a return on investment much faster than here. It does create jobs, in another country. The wealth that is returned goes into the bank account of the corporate wealth here, not into the economy. Corporate investors are inclined to put their money where it benefits them the most, they're not interested in providing jobs or helping people.


Slight issue with the blue sentence above. It has not always led to recession (that is a continual recession), but it has always led to worsening conditions for the working poor and enhanced riches for the top few percent and more money on the sidelines (in corporate coffers and rich people’s investment accounts). Those company’s have not been great “job creators”; in fact in the last 20 years the companies have been laying off more than ever, moving jobs overseas, and, btw, avoiding taxes. "Trickle down" has become “pump up” (that’s original).

The red highlighted sentence is the key. If there are few buyers then the need to expand production (or even new products) and hire more just doesn’t exist - better to place the money in investments, their own corporate bank accounts, and CEO/Exec pockets. Thus we see the great growth in wage inequality and corporate coffers I have shown over the last 40+ years (look to lots two posts up). A properly functioning economy needs a better distributed work force / less inequality.

Government-funded (but construction company performed) infrastructure improvements (which requires moderate paid laborers) is the best way to get out of this upward cash flowing spiral we have been in. Particularly if, (1) the wages paid are above min livable wages - say $25/hour (so as to increase their buying power and increase aggregate demand) and (2) the infrastructure improvements are valuable to our nation’s future (e.g. education, retraining, bridge/road repair, fiber optics everywhere, alternative energy distribution, emergency services, accountability agents).

BTW, Trump’s budget (just released this week) calls for $200B over 10 years infrastructure (less than the $1T he belatedly promised in campaign and Keynesian economists urge). He says that private concerns will make up the $800B over ten years in a “private-public” manner. Nonsense - companies have no incentive to start infrastructure programs if there is not a fairly immediate profit (watch out for toll roads/bridges everywhere and non-free schools if they do). Also there is no hint at how much will be spent in the next few years in the just released budget. Obama’s stimulus (extra $800B spread over his first three years) ended up cutting the annual deficit by 2/3rd ($1.5 T down to $450B) within five years. We badly needed more stimulus NOW to bring that deficit down to near nothing within 5-8 years. That is what most economists urge. Austerity has not worked and wreaked havoc on on poorer people.

I've been saying such things on BL for over 10 years. Thanks Sandy for an affirmative voice.
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Re: Trump Tax Plan

Postby Haruo » Fri May 26, 2017 12:38 pm

Automation is the killer. Over the next 20 years we need to cut back from an eight hour standard day to at most four, with no loss of weekly income. Good luck getting capitalism to do that without government pressure and added regulations. But the bureaucrats need to cut back to four-hour days, too, and eventually to two. Or maybe a two-day, ten-hour-shift standard will work best...
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Re: Trump Tax Plan

Postby KeithE » Fri May 26, 2017 2:27 pm

Haruo wrote:Automation is the killer. Over the next 20 years we need to cut back from an eight hour standard day to at most four, with no loss of weekly income. Good luck getting capitalism to do that without government pressure and added regulations. But the bureaucrats need to cut back to four-hour days, too, and eventually to two. Or maybe a two-day, ten-hour-shift standard will work best...

Automation has certainly killed many manufacturing jobs. Retail jobs are now falling as well (to the benefit of the delivery businesses). When the electric cars and/or drones take over, these workers will drop as well (probably 10+ years from now).

But there is much left undone - tear down/clean up inner cities and much of rural America, rebuild, fix roads/bridges, more mass transit, more educators/smaller class sizes, expanded retraining educators, more home health care workers, more fiber interconnects installed, facilitate the distribution of alternative energy sources (solar, wind, biomass, geothermal), accountability agents, I could go on.

These do not get done without jobs. Throughout our country’s history, jobs have changed and people must adapt (and they should be helped in doing so).

In the mean time those who are doing without should receive help (food, shelter, health care) while being urged on and retrained into doing work made possible by government identified and funded jobs.

When that is accomplished, we can move to smaller work weeks with same salaries. That would not be in our lifetimes, but maybe within today’s children lifetimes.
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Re: Trump Tax Plan

Postby KeithE » Fri May 26, 2017 3:26 pm

The Trump Income Tax Plan has only three tax rates (20%, 25% and 35%) - no details of where the tax breakpoints are. The Alternative Minimum Tax, the Estate Taxes, and the ObamaCare surcharge (3.8%) are eliminate - all 3 apply to the rich (e.g incomes over $179,500/yr for the AMT and estates over $5.49M and incomes over $250,000/yr fro the ObamaCare surcharge). Below is the summary of Trump Tax Plan released to the public:

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Outside of this page, there is also an increased tax deduction of $12,00 for singles and 24% for married-joint filers. So in effect there is a no tax on those couples making less than $24,000 a year. That is an unlivable income - they will need it. And Trump is mentioning that in selling this plan in saying he is cutting taxes on all people. That is not true. Let me explain.

Below is a useful diagram that shows what would have happened under the Trump Tax Plan that he proposed during the campaign which also had only 3 tax rates (12%, 25%, 33%).

Image

If the tax rate break points (married-joint filers) are the same as before ($75K and $225K), we see that the majority of working Americans (annual income more than $24K but less than $75K) will see a tax rate increase from 15% to 20%. This points out the lie that his tax plans cuts taxes on everyone.

And the richest (annual incomes over $415,050) will see a tax rate drop from 39.6% down to 35%. The Trump plan also offers the ability to for high income earners to declared themselves corporations and their income be said to be long-term capital gains and be taxed at 15% (instead of 35%). Most will make that move.

I don’t think this tax plan will stand even through the House. But it is working in the wrong direction. Do not be duped. A much better deal for ordinary Americans is needed.

Also the Trump Budget is cruel (ending most social programs (more on this later), scaling back cancer and other health research), irrational (assuming a 3% GDP growth rate) and has a major $2T/year mathematical error.
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