Now that Obamacare is dead and buried, at least for the near future, all eyes are on tax reform.
Can House Speaker Paul Ryan herd enough House cats in a tax bill that’s also acceptable to the Senate?
The Wall Street Journal reports Republicans’ Tax Overhaul Likely to Face Its Own Slings and Arrows.
Treasury Secretary Steven Mnuchin said Friday that a tax bill would be “a lot simpler” than a health-care overhaul. “There is very, very strong support.”
But scratch deeper, and the GOP quest for a full overhaul of the tax code is fraught with squabbles, procedural hurdles and difficult trade-offs. The party’s failure on health care—after having seven years to prepare—shows how hard it is for Republicans to write complex legislation that attracts support from their moderate and conservative wings.
“It’s just a reminder of how incredibly hard transformational legislation is,” said John Gimigliano, a former GOP congressional tax aide now at KPMG LLP.
To succeed, Republicans need to bridge at least three big gaps.
First, they need to balance competing desires to cut tax rates sharply and to slow the rise of national debt. Republican leaders in Congress say they want a revenue-neutral plan—one that brings in about as much money as today’s tax system. Faster economic growth might help, but it doesn’t fully bridge the divide. To accomplish revenue neutrality while sharply lowering rates, they will attempt to whack popular tax breaks, such as business deductions of interest on debt and individual state and local tax deductions. They will meet resistance from groups that want to protect those breaks.
Second, they have to reconcile alternate visions of what they are setting out to accomplish and who will benefit. Mr. Trump has said his priority is middle-class tax cuts for individuals. “Not the top 1%,” said Mr. Mnuchin. House Speaker Paul Ryan (R., Wis.) and Ways and Means Chairman Kevin Brady (R., Texas) want an overhaul primarily focused on promoting economic growth, even if that means tax cuts that favor the very top of the income scale. The plans they all campaigned on are tilted to the top, according to independent analyses.
Third, the party is at odds over the Ryan-Brady plan for border adjustment—taxing imports and exempting exports. The Trump administration has been ambivalent and sometimes critical of the idea. Senate Republicans are outright cold to it. Messrs. Ryan and Brady say it’s crucial because it provides about $1 trillion to offset corporate-tax-rate cuts and it discourages companies from shifting profits abroad.
“The notion that tax is easier than health is not borne out by the facts,” said a Senate GOP aide. “Having discussed health care for seven years, Republicans were 75% in agreement on the policy. On tax, none of the foundational questions have been answered.”
The big-picture tax debate—higher taxes vs. lower—breaks down along party lines, but little issues can quickly turn parochial. For example, Republicans from high tax states such as New York and New Jersey may be less willing to kill the state and local tax deduction than their counterparts from Texas and Florida, which lack income taxes.
“A million details come out of the woodwork that you never thought of,” Mr. Gimigliano said.
Trump Tax-Cut Trade Leaking Air
Based on a chart of a basket of high tax bracket corporations, the market has serious doubts that substantial tax cuts are on the way.
Here’s Goldman’s take:
The House Republican blueprint proposes a reduction in the statutory federal corporate tax rate to 20% from the current 35%. We estimate that a 5 [percentage point] reduction in the effective tax rate would boost ROE (return on equity) by 100 bp (basis points) and lift S&P 500 EPS (earnings per share) by about 6%. However, our Washington, D.C. economist expects the tax rate will be cut less than proposed to roughly 25%. Investors have also reduced expectations for the timing and size of tax reform. After outperforming the S&P 500 by 520 bp postelection, our basket of stocks with the highest effective tax rates has given back all of its postelection gains in the last three months.
Paul BAT Unlikely to Survive in the Senate
Ryan’s is strongly in favor of a Border Adjustment Tax (BAT). His problem is the same as he faced with Obamacare: Democrats will not vote for such a measure, and a number of Republican senators will abandon ship as well.
In the absence of a BAT, I strongly suspect something will pass. But if Ryan insists on a BAT, flames on another key piece of key legislation will likely bite the dust.
As of 2002, France has a lower effective corporate tax rate than the US according to the CBO. How pathetic is that?
I propose we slash the corporate tax rate to zero. In response, money held overseas by corporations will return in a second.
Fiscal Conservatives, Where Art Thou?
What about the spending side? Where are all the fiscal conservatives tired of massive budget deficits now that they are in control? Are they hiding in the woodwork as with Obamacare?
Mike “Mish” Shedlock
Seems like the Repubs could get more done if they passed bills that have one item at a time, instead of trying to bundle too many things in one bill, which results in there being something in there that certain congresscritters don’t like. It’s the “one bad apple spoils the barrel” problem.
From what I understand, in order to pass a controversial bill with only 51 votes they must use the reconciliation process. Controversy leads to filibuster otherwise.
They have (if i got it right) only 2 chances to do reconciliation: for 2017 and 2018 budgets.
So they have to do large bills.
Maybe Sessions can save a bunch of money shared with cities that want to keep their Sanctuary status. 3 billion is allotted and there are some 300 of them.
They can Use reconciliation only once per budget cycle.
Trump was counting on Ocare revision to provide some of the tax cut financing. Tax reduction will be slow to roll out and provide modest benefit. Corp tax if lowered will be argued by rest of globe as unfair.
As if anyone cares….Russia has a 13% flat tax.
Monaco has 0% flat tax.
Russia also only devotes 32% of gdp to gov’t
USA devotes 42% !
Russian trolls or what? Anyone who thinks Russian economy and budgeting is a useful model for US needs to go back to nursery school.
john clark said:
Festering O’bamacare will be a deficit driver, Trump has promised additional military funding and fiscal integrity. I’d say you can only pick 2 out of 3 from the above and Ocare has been kinda picked already.
Can’t make it up with import duties and gutting unloved departments like Energy and education.
Mumu Bobby said:
There are approximately zero politicians that are interested in the debt these days. And why would they? Not worrying about the debt is how they keep getting re-elected: more goodies, no pain.
With that dynamic you would think the media would feel some responsibility. But you’d be wrong. Unless a Republican is President……which means it’s precisely worthless because the right doesn’t care what a hypocritical media thinks.
Obamacare revision was a tax cut but for the wrong people. A corporate tax cut is for the right people so should get some traction.
Tax reform will be a much better Bill than Ryancare, so it will get the conservatives who voted against Ryancare.
Tony Bennett said:
maybe so … but whatever they come up with will likely lead to $trillion deficits … CBO in the next few years forecasts deficits in $600 billion to $700 billion range as is … and that is with fanciful economic outlook (ie: no recession).
Ed Bear said:
The swamp is winning, and the Deep State goes merrily along with business as usual.
The only thing that will matter is voting out every incumbent, every election to eliminate the career politician.
Wishful thinking.. as long as the Parties control who we get to choose from, voting anyone out isn’t meaningful. We will just get a clone of those we voted out.
Tony Bennett said:
“Republican leaders in Congress say they want a revenue-neutral plan—one that brings in about as much money as today’s tax system.”
what a joke …. whatever they pass will MASSIVELY increase deficits … unless cuts to defense and entitlements on the table … and ZERO chance of either happening.
The minor dent of Budget Control Act (sequester) cutting into deficit led to all sorts of “horror” on Capital Hill.
Mumu Bobby said:
Entitlement reform will be part of Trump’s 2nd term pitch. A simple sell it is: I’ve spent the last four years pounding on the non-entitlement side of the budget and we still have a problem. Don’t want to but we have to………………….
Tony Bennett said:
“I’ve spent the last four years pounding on the non-entitlement side of the budget and we still have a problem”
Really? ….. REALLY!?!
My not too far out on the limb prediction – Trump will spend like a drunken sailor his first 4 years.
Steve O said:
In other words, “Ryan and I just spent 4 years making our rich buddies richer, so lets drive the the last nail in the coffin of the middle class and voucherize Medicare and privatize Social Security”.
Jon Sellers said:
We’ve been cutting tax rates since Reagan. When has that ever lead to a lower deficit? A corporate tax cut just gives us higher earnings and therefore a bigger opportunity for stock buybacks. It gives us nothing else.
And we still have uncompetitive corporate tax rates that do not attract global capital because regulations and other hurdles to entry have been built so high by big corporate donors that buy favors and loopholes. Even if lower taxes only resulted in buybacks it would still stay in the private sector and be available for lending. Anything is better than letting the most inefficient entity ever created getting their hands on it.
eliminate the corporate income tax
it generates little revenue and the dead weight loss of implementing it ( lawyers & accountants plus behavior distractions ) outweigh any benefits
let a thousand flowers bloom
Eliminate ALL taxes, and reduce spending by the exact same amount. That would be revenue neutral. It would also unleash massive restructuring as attorney and accountants found something useful to do.
People always project things in a straight line.. Yet the world is round and we have cycles. Spring, Summer, Fall and Winter. The entire world is in a giant bubbled up economic speculative debt mess. Anyone who thinks that we won’t have some kind of major economic crisis in the next 4 years is delusional. All the budget projections and estimates are worthless. The Trump administration will be luck to survive it. If Russiangate or all Trump’s conflicts of interest and nepotism don’t take his administration out first.
Democrats always hang together through thick and thin. Every vote gets the same 100% buy-in from every democrat in Congress.
The Republicans routinely argue among themselves and can’t even push through conservative legislation with the large majority in the House, the majority in the Senate and a Republican in the White House. lol.
At some point we have to conclude that the GOP is tied to the liberal agenda.
Mumu Bobby said:
I wonder what Pelosi and Reid/Schumer tell their members to keep them on the reservation? Or do they just jump to the horse head in the bed?
Jon Sellers said:
Saw an article that stated that Freedom Caucus leader from North Carolina is primarily funded by the medical community and had everything to gain by seeing Obamacare continued.
CzarChasm Reigns said:
Democrats…Republicans…”Fing worthless.” —LFOldTimer
Can NOT argue with that!
They are most charitable, however, playing the Blame Game…
as “Blame is better to give than to receive.” —Rush “Freewill”
Totally dysfunctional government.
There will be no “tax reform” or “reform” of any kind.
The U.S. is well along on the path to eventually become “a failed state”.
I see a military coup and martial law in our future.
Nigel Farage Sets His Sites on BREAKING CALIFORNIA into TWO STATES “East and West”
Trump is hated on both sides of the aisle. What will make things worse is his failures will likely make his demeanor even more unlikable. Hate to say it, but I’d be surprised if he’s still president Jan 1, 2019.
Mumu Bobby said:
You do now that Trump supporters are big 2A folks, right? And they have cars.
Your line of thought is risible. The most you get is a few random nuts who frighten or injure civilians (like the lunatic firing off an assault rifle in a pizza shop.) That’s the quality of your compatriots.
“I propose we slash the corporate tax rate to zero. In response, money held overseas by corporations will return in a second.”
Good idea but how do you convince the average voter who believes cutting corporate taxes is “welfare for the rich”? Trump will have a hard enough time just convincing his own supporters about that.
I might suggest cutting the corporate rate to that which the average person pays after deductions, eliminating the corporate deductions, and eliminating the tax on dividends entirely. Maybe companies would pay more dividends if their boards of directors, who make the decisions, didn’t have to pay so much in dividend taxes that they opt for options benefits, etc.
Whatever you cut from the corporation taxes has to be paid by someone else – that would be the general taxpayers whose taxes will rise to compensate. Do you like this idea now? [roflol]
Nahhhh. They will just cut all those bullshit welfare programs to shreds instead.
Zero Corporate tax could be sold by making all income the same, except for maybe long term capital gains (5 or more years).. And taxing it accordingly. Don’t tax the corporations, just tax all money that go to the benefactors of corporations as they take that money out. Salaries, stock options, compensation of any kind could be taxed… Then the corporations would have a choice to either invest the money in future productive capacity or divest it to the workers, executives or shareholders who would pay taxes on it.
The failure of RyanCare was a strategic success. Obamacare premiums and deductibles will rise to punish the 20 million who voted Democrat. They will beg for repeal or be left without any health care. Win Win.
Border adjustment promotes exports and job creation. Taxes shift from workers to leeches.
I love your wishful thinking. Keep up your chin, sparky.
Courts ruled O’care subsidies illegal. Subsidies have not been cut yet. 20 million welfare O’care policies are about to get shocking revisions. The good news is those 20 million voters would not vote Republican if he were a black Kenyan. Trump loses nothing. Nada. Zilch.
You don’t get it. That can happen, and suddenly the news is full of stories about suffering sick old people, poor children dying of treatable illnesses, hospitals screaming about not being able to afford emergency room services, and people are going to blame the guys holding all the levers. There is nothing good coming for Republicans out of this.
My bleeding heart goes out to you. May I borrow your handkerchief?
Don’t worry for me, worry for 36… that’s not the number of his presidency, its his approval rating.
“…and suddenly the news is full of stories about suffering sick old people, poor children dying of treatable illnesses, hospitals screaming about not being able to afford emergency room services, and people are going to blame the guys holding all the levers.”
News stories? You think Trump/Tea Party are threatened by media spin?
Here’s a news story for you: the MSM is dead. Nobody reads/listens/fears/believes the mainstream media anyone, least of all conservative/tea party voters.
YOU don’t get it, Phil.
BAT will just be paid for by US consumers and will be highly inflationary. When re-adjusting manufacturing jobs back home people should get rid of their emotions and look at what that means..
Mostly foreign workers make 10 cents on the dollar of what US workers make. Some places much less than that.
So we repatriate the manufacturing sector and what happens to the cost of every thing being manufactured? This isn’t a one way street where we get all the benefits. Sure we get some good paying jobs back but at what end cost? Can the US consumer pay that much more for washers and dryers and refrigerators and automobiles when they are already over their heads in debt? We are having enough trouble with health care and housing costs going up, can we afford a steeper inflation curve?
I personally think that any additional costs to the already shrinking middle class will just push the US economy over the edge off the cliff..
Watch out for what you wish for.. emotional decisions are seldom good ones!
Inflation always transfers wealth from the workers to those who control the assets and control the money supply.. So do you want inflation?
everybody favors tax cuts, so there will be no problem.
the media wishes there was a problem.
it will be real easy to run against somebody opposing tax cuts.
Reagan got tax cuts through a Democrat House. Trump must turn his whole agenda into a string of tax cuts!
Again I say, the opportunity to do just that was when that darn tax return of his got leaked!
Yes but more money for the top will do nothing but hurt the middle and the bottom. Ryan just wants to make his rich friends richer.. Trickle down has always been a lie. A consumer society is based upon consumers buying and if they don’t have the disposable income, they don’t buy.. If anyone really wants the economy to grow, any changes in the tax code must benefit the majority, not those who don’t need the money and won’t spend it on consumption..
Sessions made public today that he intends to punish sanctuary cities (300 of them in the US) by withholding and clawing back DOJ funds (total about $27 billion).
Some black robed a-hole will throw a turd into that punch bowl too.
Watch and learn.
This country is in steep decline.
51 votes for Gorsuch say Sessions wins and withholding holds.
Medex Man said:
@LFoldtimer – “Some black robed a-hole will throw a turd into that punch bowl too.”
The judiciary neutered themselves when they became just another branch of politics. Ask four judges the same “legal question”, you will get at least two answers (according to the judge’s political beliefs). Which only proves it is not a question of law at all — just another op-ed piece pretending to be law.
In short, legal opinions are like a-holes, everybody has one — and your legal (political) opinion carries just as much weight as the supreme court’s opinion.
Ask a cop to put their life on the line to protect their community, you will get lots of volunteers. Ask a cop to put their life on the line for a political opinion, you just get the rioters that work for George Soros.
“In response, money held overseas by corporations will return in a second.”
LOL! Yes, it would “return” pretty quickly because it isn’t actually overseas. It’s already sitting in U.S. banks! It’s simply classified as an overseas account for accounting (tax haven) purposes.
David Boudreau said:
Replacing a complex system that evolved to its current state over a long period is extremely difficult. Having spent many years working to replace complex ‘legacy’ computer systems, I faced the problem again and again. The most practical approach is to replace the system piecemeal, in accordance with a master plan, build temporary bridges between the old and the new where needed.
Andrew Anderson said:
Speaking of taxes, the debt of a monetary sovereign like the US, being risk-free, should yield no more that 0% to avoid welfare proportional to account balance. And that’s for the longest maturities (e.g. 30 yr Treasury Bonds). Shorter maturities should thus have negative yields with account balances at the Federal Reserve (aka “reserves” in the case where the account owner is a depository institution), having no maturity wait at all, should be charged the highest interest.
So, except for a $250,000 or so individual citizen exemption*, how about we quit providing welfare proportional to wealth and charge the banks and other large account owners** for the risk-free storage of their fiat?
*Since some risk-free capital formation and liquidity is legitimate.
** All citizens, their businesses, organizations, State and local governments, etc. should be allowed accounts at the central bank too.
“Where are all the fiscal conservatives tired of massive budget deficits now that they are in control?”
Same place ‘they’ have been for decades, as you well know, Mish. Both parties complain about deficits when they don’t have the checkbook. And write checks at will when they do.
It’s surprising we’re deep in to March and the Democrat’s headlines aren’t yet, “Deficit, deficit, deficit! The world is ending!” Just like the Republican headlines suddenly became 8 or 10 years ago.
Andrew Anderson said:
Where are all the fiscal conservatives tired of massive budget deficits now that they are in control? Mish
You really should study MMT a bit, Mish. Then you’d understand that deficit financed tax cuts are a win-win for the rich:
1) the tax cuts themselves.
2) the new positive yielding, inherently risk-free sovereign debt, i.e. additional welfare for the rich.
Didn’t you get the memo?
MMT is belief in something for nothing – pure idiocy
Andrew Anderson said:
Something for nothing? Like a risk-free return on inherently risk-free sovereign debt?
MMT is just another “something-for-nothing” scheme dreamed up to make the big-government, socialist agenda appear to be economically feasible. In reality, it is of course 100% bullsh*t.
Medex Man said:
@Mish — you are getting a lot of sociallsts babbling on about free lunches under various labels… why are the George Soros trolls suddenly commenting?
No one is listening to the media anymore, and these losers (that is what ALL socialists are) are desperate for attention.
This is happening on almost every comment board/forum across the Internet. Much of it is paid agit-prop – no doubt from India and elsewhere. One article I read on David Brock indicated a force of 162 million ‘internauts’ has already been assembled.
It’s easy to spot. Just ignore it.
This is what 36% approval rating headed south feels like. You remember how people felt about the right wing by the end of dubyas second term? Trump is getting us back there in months, not years,
Rufus T Firefly said:
So France has the lowest effective corporate tax rate?
Trader Joe said:
Travel restrictions — Strike 1
Replace Obamacare — Strike 2
Tax reform — Steeeeeerike ?????
Off topic but is this true?
“Donald Trump handed the German chancellor Angela Merkel a bill — thought to be for more than £300bn — for money her country “owed” Nato for defending it when they met last weekend, German government sources have revealed.
The bill — handed over during private talks in Washington — was described as “outrageous” by one German minister.”
Medex Man said:
I heard about Trump handing Merkel a “bill” of $350 billion or some such number.
No one actually thinks Merkel is able to pay that much, never mind whether she would or won’t. Its a negotiating tactic that puts free-loaders like Merkel in her place. At the end of the day welfare recipients need to understand how much they are already taking.
Merkel has a really big problem. She claims NATO is absolutely critical, but at the same time she (like most of NATO) does not fund NATO’s obligations. Which is it lady? Is this NATO thing important or not?
Forget about what the USA thinks or what Trump thinks. Is NATO important to Europe? Is NATO important to Germany? Than get out your checkbook you freeloading dumkopfs.
If Germany (as the wealthiest freeloader in the EU) won’t step up — than the US has every right and every motivation to reduce its NATO commitment. And Europe cannot complain about it, because Europe doesn’t meet its own promises.
Trump sent Merkel a bill… but what he really sent was a message: put up or shut up.
Every day that Europe fails to keep their 2% GDP contribution promise is another excuse for the US to reduce its NATO spending as well.
Don’t worry, the US military has LOTS of other places in the world where they are needed and to be blunt they would better serve US interests.
Trump is going to reduce (not eliminate) NATO spending, and redirect it to where it will better serve US interests. And the only way Europe can prevent this is to meet their treaty obligations (which they won’t: they don’t have the money or the spine).
That is the message Trump sent. Yeah, the US media is not good at reading between the lines, they have enough trouble with basic reading comprehension
Stuki Moi said:
The important thing is to reduce spending. If you don’t do that, all you’re left with is trying to rearrange deck chairs on the Titanic.
Pretending you’re going to get some magical “growth” from reduced taxes on those in prime lobbyists’ tax brackets, if you simply turn around and borrow the lost revenue, is either folly or a premeditated scam. Particularly when debt is already at strangulation levels.
Realistically, the only plans that will boost growth, are plans that include defaulting on current federal debt. Hard enough on lenders, so that growth in future debt is severely constrained by the risk faced by anyone lending to government.
You have to show lenders that the Fed will stand by and let the federal government default, without using their powers of debasement to de facto bail out the feds on the back of the productive sector. Which is what the whole “risk free” mantra really does: Promise to rob everyone else barren, so they can’t service their debt, before the government fails to make a single payment.
When well capitalized and ran corporations (and individuals for that matter) face meaningfully lower borrowing costs than their spendthrift host government, capital at least has a shot at being allocated efficiently. And conversely, until that time, capital simply is not.
Indeed. But replacing socialist RINOs with hard headed fiscally conservative Republicans is a sixteen year project. RINO Ryan stepped up for his castration. Good start.
NOTHING that any of us want will EVER happen proactively, because it would risk politicians getting reelected. Therefore, we must vote out every incumbent, every election to eliminate the career politician. Then, and only then will we see a Constitution Amendment to eliminate deficit spending or the elimination of interest-bearing debt to run govt, or necessarily restructuring the debt, as it can NEVER be paid off.
“Will Tax Reform Fare Any Better Than Obamacare Reform?”
Nope! Looking forward to more Trump/Pub failures! [lol]
Chelsea Clinton seals her fate on Twittier… this is the funniest thing I’ve seen in years,
Ron J said:
Affordable college, fail.
Affordable medical, fail.
Affordable housing, fail.
Not sure why you are laughing about failures.
Will Tax Reform Fare Any Better Than Obamacare Reform?
Depends upon how much of the legislation is written by the people who actually own the Congress.
John k said:
Corps hold no money overseas. Their subsidiaries holding the profits have most of it invested in Ny ant treasuries.
Medex Man said:
The collapse of Paul Ryan’s legitimacy is a good thing. Actually its a great thing. Obviously it neuters him, but it also makes the democrats weaker.
Congress members are supposed to represent their state, not represent the central party planners. Plenty of traditional democratic party groups have pointed out how the DNC doesn’t represent democrat voters anymore. The republicans have their tea party and this freedom caucus thing, etc … because the RNC doesn’t represent anyone but themselves.
Central planning always fails — and there are no exceptions. Congress (both parties) have failed, and seeing Ryan unable to force obedience is just the most visible (recent) manifestation of that.
Its a good thing that some Congress members are looking out for their local interests instead of blindly obeying the criminals in Washington DC.
Mish has another post today about 2% economic growth “as good as it gets” … but 2% growth is death to an economy that requires more than that to meet existing obligations.
The environment in Washington DC has changed. Its no longer about allocating growth of the pie, not its about redistributing a shrinking pie…. 2% is not even stall speed.
Trump seems to understand this new reality. So-called “senior” Congressional leaders (both parties) are stuck in the past.
Somewhere, at some event, sometime soon, somebody will catch a video of him playing. “I’m really a Democrat” to an audience of his constituency back home in Democratic Wisconsin. I’m betting on it. might happen this recess. He saved Obamacare for them is in the playbook.
Medex Man said:
Ryan failed both as a democrat and as a republican. I doubt he is suddenly going to have a singing voice
Medex Man said:
PS — Obamacare (or Ryancare if it had any support) is actuarially bankrupt. We can argue how long it will circle the drain, but it isn’t going to survive.
Be honest: if any of the democrats believed in obamacare, they wouldn’t have exempted themselves. As a trained comedian, I am sure Al Franken can spout one liners. But at the end of the day, actions speak louder than words. Pelosi, Reid and Obama all exempted themselves from obamacare when they were in power. They don’t believe in it.
We don’t pay no stinkin’ taxes!
“Although the top corporate rate is 35 percent, hardly any company actually pays that. The report, by the Institute on Taxation and Economic Policy, a left-leaning research group in Washington, found that 100 of them — nearly 40 percent — paid no taxes in at least one year between 2008 and 2015. Eighteen, including General Electric, International Paper, Priceline.com and PG&E, incurred a total federal income tax bill of less than zero over the entire eight-year period — meaning they received rebates. ”
Trump just dissed off the dems with his climate EO….
so any help from the dems on tax reform is gone.
I think Trump did that on purpose.