Posted by: Bruce Allen | December 20, 2017

Tax Reform 2017 LOL

Dear Mr. BruAl–

What’s up with this big tax bill the Republicans just passed? Am I going to see more money in my paycheck?

–Confused in Columbus

Dear Confused–

Excuse me while I wipe the tears of laughter from my eyes about your “more money in my paycheck” question. But yes, maybe $15 or even $20 a month, starting in February. You may be thinking about all the lifestyle changes that extra dough is going to provide you and your family, but probably not.

From a macro point of view, the only POV of which I’m capable, the bill amounts to a “wealth transfer” in the amount of $1.5 trillion from the vanishing middle class to the wealthy. THE MARGINAL TAX RATE ON PASSIVE INCOME IS LESS THAN THAT ON MOST WORK INCOME. Which means the tax “reform” Republicans are crowing about, the new and improved U.S. Tax Code, now values wealth over work. If you’ve already got it, you’ve got it made. If you don’t, good luck getting there.

The expansive effects of the bill are overstated for several obvious reasons. One, the wealthy have a lower propensity to spend additional marginal income, instead tossing it into vaults on top of the wealth they’ve already accumulated. In many cases, they are unable to spend all the money they have, regardless of how hard they try. So, with 80-some percent of the $1.5 trillion going to people who’ve already got plenty, less of it will find its way back into the economy than if it were given to people who actually need it.

Second, business owners who have been paying a 37% marginal tax rate (now 21%) may find themselves with a formidable annual windfall of  investable cash beginning later in 2018. Most are not going to use it to create new jobs. The smart ones are going to take a bunch home and stash it and use what’s left to buy technology that will REPLACE jobs, reducing head count in the future while maintaining production rates and improving quality.

Finally, as we’ve observed here before, the economy is at full employment–disregarding the huge disconnect between the skills the millions of unemployed have and the skills that companies with openings are seeking. The stock markets are at or near all-time highs. Interest rates are already rising in advance of the tax cut. Any of the $1.5 trillion that does find its way into the economy is likely to be inflationary, in that the economy is already strong.

The Republicans are at risk of over-heating the economy the way the Democrats did in the 60’s. A series of hard left jabs from The War on Poverty combined with the knockout overhand right of The Vietnam War resulted, after a lag of several years, in “stagflation,” elevated unemployment, a stock market wipeout and the highest interest rates in modern history. Such is unlikely to re-occur, but why give it a chance?

The newly-“reformed” tax code itself will remain what it’s always been–a tool for implementing social policy. Our collective social conscience has just taken a large hit in this reverse Robin Hood scenario, these hypocrites stealing from the poor to give to the rich, while telling their somewhat gullible Base that they’re making out like bandits. One can only hope that the few positive changes working people see next spring, after they’ve filed their returns, will allow them to understand they’ve been had, and remind them they can express their displeasure during the mid-term elections in November.

Republicans now own tax and healthcare policy. No more blaming Obama or Hillary or Harry Truman. If people become upset, they need to be upset with Republicans.

My grandson asked me last night if the new tax bill was good for me. I told him no. I lied. It will be good for us, only because our situation is somewhat different from most taxpayers. It is the only tax bill ever passed in the Senate without support from at least one minority member. It removes the individual mandate for 13 million healthy people, guaranteeing significant health insurance premium increases for those insured under what’s left of the ACA. Guys like Trump and Mnuchin and Ross make out like BANDITS. Bandits, I tell you.

It is lousy legislation and should come back to haunt Republicans next year. Before they have a chance to steal from everyone’s Social Security and begin effing with Medicare. Republicans are free, willing and able to break their own promises–paging Bob Corker–but they should not be able to break promises made by American statesmen and politicians since the 1930’s.

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