Thursday, October 26, 2017

Why Now?

Republican tax reform, if passed, will score political points and please donors.  What it will not do is benefit the middle class.

Adding a trillion and one half dollars to the deficit is a glass that should only be broken in case of an emergency.  Democrats smashed the glass during the great depression, and more recently, during the great recession.  Republicans are ringing the alarm when the country is on a path towards low unemployment and finally, wage escalation. Even if drastic action is justified an infrastructure bill would be the more obvious path to high paying jobs and long term economic growth.

Ending the estate tax provides no such benefit.     The tax is progressive, only applying to estates over 11 million for married couples, and half of that for singles.  With tax planning and exemptions, the number is actually higher.  The estimate is that it only applies to the upper 1/5 of 1 percent of all families.  Even that is deceptive since the tax is graduated, and is rather nominal under 20 million dollars.  Among the few who would benefit from repeal are the President, and most of his billionaire cabinet.

The accumulation of wealth by entrepreneurs and innovators may well create jobs and opportunities--tax free inheritance by their heirs, not so much.  Will the country really benefit if Eric, and Donald Jr. inherit one billion, rather than 600 million each?  Trust fund babies will not make this country great again.

Republican arguments for repeal are frivolous.  If any of the few remaining large family farms are lost, the fault lies not with the tax, but with their tax planner.  Many strategies, including forms of insurance, protect farms and businesses.  If double taxation was a GOP concern, eliminating deductions for state income tax would not be on the table.

Cutting corporate rates is only a little better.  For a free market party, the GOP has little understanding of corporate allocation of resources.  The Board of Directors establish goals, backed by incentives for senior management.  Salary is usually the smallest part of executive compensation.  The goals seldom include increasing the work force or raising wages.  A CEO is rewarded for increases in earnings and stock price.  The latter is reinforced with stock option awards.  The benefit of reduced corporate taxes will be a gusher for shareholders, and as a result, for executives, but only a drop in the bucket for workers.

Once again the GOP is crying wolf while the sheep prosper.  The stock market and corporate profits are at record highs.

Will lower corporate rates bring some jobs back to America?  That is not a fully answered question.  If Congress is serious, they will have the issue investigated through extensive hearings.  Lobbyists earn their keep.  Company, and industry specific, tax exemptions mean that the nominal tax rate is seldom the rate paid.

Taxes are only one of many factors determining the location of factories and offices.   Before we pay the first installment we should know what we are buying.

What we are selling is social programs.  As the debt increases, Republicans will not raise taxes.  Rather they will push for reductions in Social Security, Medicare and Medicaid.  


1 comment:

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