Thursday, September 7, 2017
Trump's Tax "Plan" - As Certain To Be A Disaster As TrumpCare
Even as the Donald's clueless dolt cheerleaders have fawned over his tax "reform" nonsense, e.g. Kimberley Strassel writing ('Making Growth Great Again', WSJ, Sept. 1, p. A13):
"The president formally opened the tax wars on Wednesday with his speech in Missouri challenging Congress to meet his principles for reform."
What "principles"? This moron - who Sen. Bob Corker again reminded us yesterday isn't qualified for the job of president - doesn't know a principle from a pretzel. For those who missed it, in his Missouri debacle he actually tried to sell the gathered working stiffs on corporate tax cuts which would ultimately "benefit" them. Trickle down on steroids, in other words. From the assorted grunts and groans it didn't appear as if his spiel got very far.
Strassel, doubtless on another MJ edibles binge, babbled:
"His opening salvo has given Republicans the cover to push ahead, as well as valuable pointers on selling growth economics."
In fact, Trump's "salvo" gave Repubs a big reason to run for cover - given Trump knows no more about tax reform than he did about the details of health care. Pointers on selling growth economics? How about pointers on selling more trickle down snake oil to make American workers even more impoverished? This bottom up flow of wealth coming as their bosses, companies reap the rewards while they rot. (See also my Labor Day post on the American worker kept on the productivity treadmill.)
Even the WSJ's straight (i.e. non op-ed distorted) account ('Trump Champions Tax Overhaul', Aug. 31, p. A3) noted:
"Although the president has called for doubling the standard deduction, the administration's vagueness on other tax provisions important to middle income households makes it hard to calculate how a typical family would benefit; he didn't offer any such details on Wednesday."
Of course he didn't because he doesn't KNOW any! Even Repub political strategist Rick Wilson commenting on this latest fiasco Wednesday night, crisply observed that it was clear Trump didn't know the difference between tax reform and tax cutting. Tax reform, for example, is always more complicated than mere tax cutting and entails not only tax code simplification but also offsetting different loopholes and deductions (e.g. the mortgage deduction) and their special interests, with the broader revenue and public interest (standard deductions, child tax credits, earned income tax credit etc.). But Trump clearly has no clue because he doesn't know anything. The man hates to read and - if he does - only wants bullet points, confined to one piece of paper.
More alarming, Trump's playing at tax reform and growth economics could send the bond markets into perdition. According to a recent WSJ piece (Sept. 2-3, 'Tax Plan Raises Red Flag For Bond Market' p. B1):
"Ironically, a tax revamp meant to boost U.S. competitiveness and bring overseas earning home may weaken a central pillar of the U.S. capital markets."
This is because any U.S. limits on interest write-offs would clearly diverge from similar policies in other wealthy nations. This would then prompt companies to shift borrowing to places where deductibility would remain in effect. And let us point out here that many big corporations, like Apple, Microsoft etc. routinely borrow billions of dollars in the U.S. knowing that interest payments will lower their bills.
But as Matt King, a credit analyst at Citigroup Inc. points out:
"If you remove interest deductibility in one location and retain it in others , then companies will want to move their borrowing."
This then will adversely affect bond markets, sending them into turmoil. According to Mr. King, removing interest deductibility would "create a strange and ironic echo of corporate inversion strategies in which firms move headquarters overseas but keep main operations in the U.S."
Add to that the fact an inevitable "debt boom" after the financial crisis has now driven the U.S. to be the largest bond market in the world. As the WSJ piece notes:
"The U.S. bond market is almost triple the size of the euro -corporate debt market."
Why is this bond debt so popular? Well, because it is cheaper than selling equity.
The danger is that as debt explodes and its manipulation gets out of control - say via Trump's insane top down trickle tax "plan", the bond markets could become as unstable as they were right after the credit meltdown in 2008. At that time it was credit derivatives that roiled the bond markets and sent stocks crashing, now it is companies borrowing with madcap bonds in anticipation of certain tax changes later- that may not come to pass.
In a way, the 2008 credit default swaps bets played the same role in destabilizing bond markets then that companies' free-for-all bond bets are now. Every company now it seems is going hog wild to make big bond bets in the hope of lowering tax bills. (Siemens AG has borrowed $21.25 billion in the U.S. investment grade market since 2015) But what if it all blows up? Can't happen? Don't be so sure. he WSJ didn't reference a "red flag" in its header for nothing.
Trump has no answers and can provide no details, any more than he could on tax provisions for middle income households. It isn't even clear that he knows whether his tax plan is "revenue neutral". If not, it basically blows up the federal budget according to the Committee for a Responsible Federal Budget. That is, the federal debt as a percentage of GDP would explode through the roof - exceeding the size of the entire U.S. economy within ten years. The debt incepted - in order to be even relatively controlled- would necessitate draconian cuts in every federal "entitlement" program including: Social Security, Medicare, Medicaid, Tricare, and all VA programs, departments. With such astounding debt there would be no "winners". If this is a basis for "growth" in Kimberley Strassel's nomenclature, one wonders how she'd defines a financial disaster.
Indeed, if Trump's "plan" (as originally defined after the election) really goes through, it would mean scrapping in turn: 1) the AMT or alternative minimum tax, 2) the estate tax and 3) the 3.8% surtax on investment income. None of this even includes the proposed 20 percent cut in corporate tax rates.
If it does go through, your kids and their kids will basically have to work as indentured servants for the rest of their days. Oh, and forget about paying back any college loans. The best job of all in such a new economic world order might be a Starbucks barista. (One who didn't take on college debt before landing the job).
This deformed plan is what Kimberley Strassel praises as "pro growth". It may also be the one for which Republicans are again hitching their forlorn "wagons" to in the hope of emerging from the legislative wilderness.
Well, they had better look for another gig, or better, a more knowledgeable leader of their party!