The first rule of politics is feather your own nest. President Trump’s tax cut proposal always had this in mind.
Congress has passed a bill which tinkers at the edges but leaves most of Trump’s core proposal intact. It’s obvious to me that Trump has the political acumen of another brilliant U.S. politician, the loathsome Franklin Delano Roosevelt.
Yeah, I’m not a fan of FDR. But I do respect his political skill in the same way I respect the way sharks hunt their prey.
FDR repackaged Herbert Hoover’s Works Progress Administration as “The New Deal” which set him on a course of near perpetual re-election thanks to the wealth redistribution it engendered.
Am I saying the New Deal was nothing more than a vote-buying scheme? Yeah, pretty much. FDR knew that politicizing the Supreme Court and pushing the New Deal, even if he did it for the right reasons, would reshape the Federal election landscape for generations.
Trump’s tax plan will have similar effects. And it’s why there was such staunch opposition to it in Congress.
Democratic leadership understand that the triple-whammy of eliminating the State and Local Tax exemption, lowering corporate tax rate to 20% and incentivizing the on-shoring of corporate profits held overseas will gut their support at the electoral college level.
Why?
Mr. Trump, Tear Down that Blue Wall!
The incentives are now aligned to accelerate the exodus of workers and businesses from high tax, high-regulation states like New York, New Jersey, Illinois and California to low-tax, lower regulation states like Florida, Georgia, Tennessee and Texas.
In other words the Blue Wall will crumble.
The bill is not 48 hours old and already the mainstream media is trying to tell us how horrible this is. From CBS News via MSN.com comes a four-way case study of taxpayers under the new law, in three of their four case studies taxes drop significantly. In one they try and scare old people about how their health insurance costs will rise.
But, in gutting Obamacare, everyone’s health care costs are going to fall, so….
In that one case, John and Maya their “Married Couple with Two Kids” become the “Married Couple with One Kid from New Jersey,” does the taxpayer get the shaft.
The whole article is a mess of gamesmanship. A married couple with 1 kid making a combined $71,000 should not be living in a $600,000 house!
In New Jersey!
Putting 10% of their income into their 401k!
Do they eat dirt?
That version of John and Maya doesn’t exist. And if they do, they shouldn’t. And the tax code should not be gamed to allow them to do so, because then it’s a tax subsidy from the self-employed to the fake middle class.
In fact, another benefit of this tax code will be the bursting of over-priced middle class real estate in high-tax states as John and Maya face financial reality.
In software parlance, that’s not a bug, it’s a feature. It’s called political retribution.
In the current market John and Maya are better off selling their house, taking the equity, buying a nice house in a secondary market in Florida or Alabama and living mortgage free or nearly so while building new careers locally.
They could practically live on the child and EIC while working at Home Depot, thanks to 1) the increased exemptions for lower-income workers and 2) local construction will be booming.
Bringing Home the Bacon
Turning to the onshoring of corporate profits. All of that capital returning from overseas to invest in infrastructure and production won’t go to the big ‘Blue Wall’ states like New Jersey but to the new production belt in places like Chattanooga.
That’s where the jobs will be and that’s where the people will gravitate. Moreover, the effect I just described for John and Maya will become an epidemic in places like L.A. (where Hollywood will be getting smaller) and Seattle (software development is moving towards blockchain).
These people will see their overall tax bill rise unless they make the rational choice to sell their over-valued property to some European or Chinese ‘investor’ looking to flee economic chaos locally, pocket the profit and cut their tax bill in half.
Congress’ Joint Commission on Taxes severely low-balled the amount of capital U.S. firms will repatriate. According to this article by Larry Kudlow (not normally someone I would quote, but here he’s rational), the JCT estimated just $500 billion out of $3 trillion in offshore corporate profits will come home over 3 years.
And then they said 1-2% growth, which, with a tax structure like this, is a low ball. The JCT’s own rate of estimated repatriation ($280 billion in 2018) alone would add more than 1% to GDP as corporate savings is added to Gross National Spending. So, spare me the class-warfare histrionics.
This is mainly how they came to conclude the tax bill would cost us $1.4 trillion over ten years. That’s $140 billion a year. Surely, 1) we can cut spending by that much and 2) we waste ten times that in off-budget wars and subsidies every year.
There’s plenty of room to cover the ‘costs’ of this tax cut.
The FOMO Trade
The tax bill itself will make the U.S. more competitive than the sclerotic social welfare states in Europe and Japan. Capital flight into U.S. real estate as a safe-haven play will keep demand up as Americans migrate away from the taxes and Europeans and Asians flee currency devaluation and bursting debt bubbles.
The old tax system was designed to make us competitive with Europe. In other words, normalizing our tax system with theirs while we still pay for their defense, the U.N. and bear the burden of the world’s reserve currency and all the issues of Triffin’s paradox that entails.
In short, the tax code was designed to redistribute America’s wealth around the world in pure Marxist style. Raise our costs instead of forcing them to lower theirs.
In fact, this tax bill will only accelerate those processes already underway. The Dow is making new highs while the German DAX is struggling.
That fire under the Dow Jones and the cryptocurrency markets is only just beginning as the middle class is freed from the yoke of Obamacare to begin taking part in the current runaway bull markets.
This year’s tax refunds will fuel a whole lotta FOMO, folks.
A Good Start
The tax cut bill moving through Congress now is by no means perfect. Eliminating income taxes is the ideal. But, that’s not possible so in evaluating it I’m looking for whether it solves the big problem, namely the incentives to push capital out of the U.S.
It does this.
Lowering the corporate tax rate alone is a major win for Trump. Yes, personal tax rates need to go down. Yes, a lot more work needs to be done for small entrepreneurs and the self-employed who are still massively disadvantaged by the code. But, this bill is a major step in the right direction of reversing the flow of real wealth and incentivizing it to stay onshore.
Don’t let the Michael Moore’s of the world influence you one whit. That man has nine houses and is a multi-millionaire. He’s also a fat, stupid hypocrite and an economic ignoramus. Fix the business environment first. Invite capital back onshore. Get U.S. corporates spending at home.
Meanwhile Ted Cruz, Rand Paul and the incoming freshman class of MAGA guys can amend this bill to make it even better for the middle class. In Hollywood terms, they can fix this in post-production.
The cuts that Trump has ordered to the cabinet departments will begin having the biggest impact in the second half of his term.
The capital flight I just described will add to the mix, and for a short time, the U.S. will likely see an economic boom it hasn’t seen since the days of Volcker, Stockman and Reagan. And that, my friends, is what the Democrats truly fear, a 2020 election that puts Kamala Harris into the role of Walter Mondale.
FDR would be proud.
To best take advantage of Trump’s latest victory sign up for my Patreon Page and the Gold Goats ‘n Guns Investment Newsletter where I’ll chart you a path through these changes.
Re: “Invite capital back onshore”
“Offshore Corporate Profits: The Only Thing ‘Trapped’ Is Tax Revenue”
1-9-14
Recent investigations have revealed that multinational corporations are stockpiling trillions of dollars in “offshore” income, purportedly trapped overseas because of U.S. corporate taxes. This has created the illusion that there is a large stock of cash somewhere offshore, just waiting to be invested in our struggling economy, if only we could somehow unlock it. For example, House Majority Leader Eric Cantor (R-VA) asserted that “encouraging businesses to bring overseas earnings back home to America will spur investment, economic growth and job creation,” while Cisco Chairman and CEO John Chambers and Oracle President and CFO Safra Catz wrote that “by permitting companies to repatriate foreign earnings at a low tax rate—say, 5%—Congress and the president could create a privately funded stimulus of up to a trillion dollars.”
These arguments are wrong. They are based on a faulty premise; these “trapped overseas” profits are neither overseas nor trapped. It is true that for accounting purposes, multinational corporations keep these dollars off of their U.S. books. But in the real world, the money is often deposited in U.S. banks, circulating in the U.S. economy, and available for a wide variety of domestic investments. For nearly all practical purposes, that money is already here, being put to work in the U.S. economy.
But that does not mean the system is working perfectly. On the contrary, there is in fact something trapped on the balance sheets of U.S. multinationals. But it is not corporate profits—it is federal tax revenue. Profits characterized as overseas for accounting purposes may be little different economically from any other profits, but because of a provision known as deferral, explained in the next section, these profits can accumulate for years, sometimes indefinitely, without being taxed. According to Joint Committee on Taxation estimates, this costs the federal government $50 billion per year, and this cost is growing over time as corporations find ever more creative ways to make their U.S. profits look like offshore income. The problem with these accumulated corporate profits is not that they are “offshore”—it is that they are untaxed. This problem is real and serious.
https://www.americanprogress.org/issues/economy/reports/2014/01/09/81681/offshore-corporate-profits-the-only-thing-trapped-is-tax-revenue/
https://www.americanprogres…
“Firms Keep Piles of ‘Foreign’ Cash in U.S.” – WSJ
1-22-13
There’s a funny thing about the estimated $1.7 trillion that American companies say they have indefinitely invested overseas: A lot of it is actually sitting right here at home.
https://www.wsj.com/articles/SB10001424127887323301104578255663224471212?mg=prod/accounts-wsj
Re: “FDR repackaged Herbert Hoover’s Works Progress Administration as “The New Deal” which set him on a course of near perpetual re-election thanks to the wealth redistribution it engendered.”
Roosevelt’s National Industrial Recovery Act (enacted 6/33) (https://www.ourdocuments.gov/doc.php?doc=66) was the deal organized by Wall Street to implement the plans that had been made by Bernard Baruch and Gerard Swope, the latter the head of General Electric, in the 1920s.
The object was to waive all antitrust laws and permit trade associations of major corporations to set the federal regulatory trade rules while buying off labor by legalizing and protecting union organizing and requiring good faith bargaining under federal law (these rights were reinstated after the National Industrial Recovery Act was declared unconstitutional in May 1935 by the Supreme Court with the passage of the National Labor Relations Act, aka the Wagner Act, (enacted in 7/35) (https://www.ourdocuments.gov/doc.php?flash=false&doc=67) and Social Security etc. In other words, Wall Street got its way–it’s version of socialism–and the rest of us got what are now usually called “entitlements.” (See: http://rooseveltinstitute.org/chamber-and-ge-have-plan-restore-business-confidence-and-jobs-1931/ )
Democrat Roosevelt was Wall Street’s candidate in 1932 after Hoover– who was the winning Republican candidate for president in 1928 against Al Smith–refused to implement the form of fascism (Hoover used the word fascism to describe this program in his autobiography) contemplated under The Swope Plan (https://www.garynorth.com/SwopePlan.pdf), consistent with Bernard Baruch–the national industrial czar under Wilson during World War1 –(https://en.m.wikipedia.org/wiki/War_Industries_Board ) and his assistant Hugh Johnson’s (http://spartacus-educational.com/USARjohnson.htm)
efforts and research in the 1920s. This research paved the way for the implementation of The Swope Plan by means of the NIRA in the 1930s.
Roosevelt agreed to the plan when he ran in 1932 and Wall Street contributions flowed to Roosevelt, the Democrat. Yes, the New Deal was a Wall Street plan enacted under a Democratic Wall Street oligarch. And yes, that was after Wall Street financed both sides of the Russian Revolution and the fascists in Italy and Germany. But I digress.
Baruch’s assistant Johnson became the head of the National Recovery Administration (NRA) under Roosevelt. Walter Teagle, the president of Standard Oil, Gerard Swope, the president of General Electric and Louis Kirstein, vice president of William Filene’s Sons of Boston (a big department store in Boston) became Johnson’s assistants administering the NRA–which in a coupla years was declared unconstitutional by The Supremes. Just a technicality.
Today Wall Street is calling off the deal and the troglodyte neocons and “conservatives” get to accuse the rest of us —on what is now the side of the deal holding the burning bag of shit– of being just a bunch of losers and economic parasites.
See: “Wall Street and F.D.R” (hard copy: “Wall Street and FDR: The True Story of How Franklin D. Roosevelt Colluded With Corporate America”
Franklin Roosevelt as an agent of Wall Street financiers
— by: Antony C. Sutton, 1975, source: Reformation.org
http://modernhistoryproject.org/mhp?Article=WallStFDR
The offshore profits are sitting idle because of the taxes.. They are not being put to productive use. Period. They are savings that are locked away due to punitive tax rules.
Re: “The capital flight I just described will add to the mix, and for a short time, the U.S. will likely see an economic boom it hasn’t seen since the days of Volcker, Stockman and Reagan ”
“WHY TAX PLAN MIGHT NOT PUT US FIRMS’ OVERSEAS CASH TO WORK”
11-3-17
It may be more likely to land with an economic thud and provide a windfall to tax attorneys scouring the Byzantine bill for tax breaks on behalf of corporate clients.
“Every tax lawyer in town is going to get a new car,” says Martin Sullivan, chief economist for Tax Analysts and a former U.S. Treasury Department economist.
The bill is designed to solve a vexing problem: Many big U.S. companies earn fat profits overseas. But they don’t want to return the money to the United States because they would have to pay the hefty 35 percent U.S. corporate tax. So an estimated $2.6 trillion remains stranded abroad.
“You don’t have to pay U.S. tax as long as you leave it offshore,” says Kimberly Clausing, an economist at Reed College. “But your shareholders get upset if you leave it there forever.”
Enter the House Republican tax plan.
Besides reducing the U.S. corporate tax rate to 20 percent, the plan would let companies repatriate their existing overseas profits at much lower rates — 12 percent for profits that have been kept in cash and 5 percent for profits from investments that are hard to sell.
Once the bill took effect, most overseas profits could be returned to the United States tax-free. Some very high overseas profits would incur a U.S. tax of 10 percent.
“For a lot of these companies you are talking about tens of billions, or in the case of Apple, hundreds of billions of dollars,” says Scott Kessler, analyst with CFRA Research, referring to untaxed profits overseas.
Apple has more than $230 billion overseas, Microsoft $124 billion, according to the Institute on Taxation and Economic Policy.
Returning those overseas profits to America, the Republicans say, would give the economy a healthy jolt as companies put their newly available cash to work.
But critics note that a similar one-time “tax holiday” on overseas profits generated little economic oomph 13 years ago. The 2004 American Jobs Creation Act temporarily cut taxes on repatriated profits to 5.25 percent from 35 percent. About 9,700 companies were eligible for the tax break and 843 took advantage of it, bringing back $312 billion.
Fifteen companies, led by Pfizer, Merck and Hewlett-Packard, accounted for 52 percent of the repatriated money.
A 2011 Congressional Research Service report found that the tax holiday “did not increase domestic investment or employment.”
Instead of expanding operations or hiring, companies tended to use the money to buy back shares of their own stock — purchases that disproportionately benefit wealthy investors, who are less likely to spend any extra income.
“It has almost no payoff to the economy,” says Adam Looney, senior fellow in economic studies at the Brookings Institution.
A Senate subcommittee report concluded, in fact, that 10 of the 15 companies that repatriated the most money actually cut jobs after the tax holiday. Pfizer slashed 10,000 jobs in 2005 and 2006, Merck 7,000 and Hewlett-Packard 14,500.
“The experience from the 2004 tax holiday suggests that most of this money will be distributed to shareholders, not invested in U.S. business assets,” says Edward Kleinbard, professor at the University of Southern California’s Gould School of Law.
http://www.apnewsarchive.com/2017/House-Republican-tax-plan-seeks-to-draw-overseas-profits-back-to-US-but-economic-payoff-may-be-slight/id-a123b0193fb44b5cbc950af24e4dd448
“Myths and Facts About Corporate Taxes, Part 3: Are American Companies’ Profits Trapped Overseas?”
10-29-14
However, what American multinationals actually pay in taxes belies these concerns. First, American companies get a credit for the foreign taxes they pay on foreign profits; the tax they pay on repatriated income represents the difference between the foreign tax rate and the U.S. rate. Moreover, the Government Accountability Office found that large, profitable American multinationals pay just more than 17 percent in taxes worldwide. And both Japan and the U.K. included provisions in their new tax systems that brought them far from what U.S.-based multinationals are calling for, which former Joint Committee on Taxation chief of staff Ed Kleinbard has deemed “a cartoon version of the territorial tax policies followed by other nations.” (Japan, for instance, taxes foreign income if it is earned in a country with a tax rate lower than 20 percent.) Further, the U.K. may not be an apt comparison, as it was backed into making the transition to a territorial tax system because of European Union rules that prevent member countries from enacting anti-inversion provisions.
http://www.epi.org/blog/myths-and-facts-about-corporate-taxes-part-3-are-american-companies-profits-trapped-overseas/
[Part 1: “Myths and Facts about Corporate Taxes, Part 1: Do American Corporations Pay the Highest Taxes in the World?” http://www.epi.org/blog/myths-facts-corporate-taxes-part-1-american/%5D
Part 2: :”Myths and Facts About Corporate Taxes, Part 2: Will Congress’s Idea of “Base-Broadening, Rate-Lowering Tax Reform” Fix What’s Wrong With Our Corporate Tax Code?” http://www.epi.org/blog/myths-facts-corporate-taxes-part-2-congresss/
Part 4: “Myths and Facts About Corporate Taxes, Part 4: Should We Just Scrap the Corporate Tax Code?” http://www.epi.org/blog/myths-and-facts-about-corporate-taxes-part-4-should-we-just-scrap-the-corporate-tax-code/%5D
Reblogged this on Today,s Thought.
The examples cited by whoever did the analysis of how the tax reform bill will affect us were obviously cherry-picked. My husband and I, firmly in the 12% bracket, will pay more because more of our income will be exposed to taxation. And lowering our tax rate won’t help that. Neither will raising the Standard Deduction to $24,000 as our Schedule A deductions exceed that amount. Between the loss of those Deductions and the loss of the Personal Exemption (which almost no one seems to talk much about or to have even noticed) our taxes will go up. We’ll be getting a middle class tax increase, not a cut, because more of our income will be taxed. It’s simple math, but almost none of my circle of friends and family gets it. And I received validation for this view when my missives to the White House, Congress, and the various conservative PACs (all imploring me to support this monstrosity) went unanswered; they weren’t even acknowledged, which is unprecedented in the case of my representatives in Congress. Maybe they did the math, too.
My husband and I love our state. We were both born and raised here and have no desire to move. But it may come to that. BTW, we’re also both life-long Republicans who voted for President Trump. But if this thing costs us more of the hard-earned money we worked so long and hard for we may just sit out the next election.
Suzanne you are unfortunately making my case. The pronlem lies mot with the federal tax code but the states that also take a cut. If they want you to stay then they need to give you a reason to.
I understand the thought that this tax reform will motivate voters to dump the liberal state politicians who have raised their SALT, but I don’t believe it has much chance of becoming a reality. In our state the voters in our largest cities invariably choose democrats who will insure an uninterrupted flow of taxpayers money into their liberal social programs. And the counties immediately surrounding them are populated by liberals who fled the cities but still espouse the social policies of the left. So the probability that any of that large voting block will suddenly begin to vote for the GOP is very low. The numbers and the voter fraud are all in their favor. There is also the danger that red states will experience a rush of liberals fleeing high taxes who will continue to vote for liberal democrats in their new districts. Those voters don’t seem to understand that voting as they did in their previous homes will only result in the same financial mess they left behind. So if we were to move to a red state we aren’t guaranteed better policies, at least not for long. It’s a conundrum that many in our position will have to face in the coming year.
Tom,
If you are correct and this moves a material number of people out of blue states and into red states, the plan may well backfire. Already we are seeing the “purpling” of places like Florida, which is so close to turning blue that there’s speculation that the exodus of Puerto Ricans by itself will turn Florida blue, at least in presidential elections. And there’s certainly no likelihood of Republicans moving to these high-cost blue states. So if this is a political bet that it will empty out blue states, it may be correct, but back fire anyway. We shall see.
Kim G
Redding, CA
Yes, but many of he states we’re looking at are ones that are solidly red like Alabama or Tennessee… moving 5% of NJ into Alabama wouldn’t change that state at all.
Also, Don’t think for a second FL is as ‘purple’ as it looks… the vote fraud down here is awful… and Trump is set to blow that scam wide open as well. But, I hear you, it’s a worry but only if the deep state continues to win through gaslighting and fraud… which is being torn apart.
Alabama…solidly red?