People have asked me to comment on the GOP’s Unified Framework For Fixing Our Broken Tax Code.
I will do so honestly.
In the comments below I explain how the proposal benefits me personally, small business owners in general, and the average person.
First, let’s investigate other opinions starting with the ABC News report Trump plan promises huge tax cuts, but big questions remain
Promising big tax cuts and a booming economy, President Donald Trump and congressional Republicans unveiled the first major revamp of the nation’s tax code in a generation Wednesday — a sweeping, nearly $6 trillion tax cut that would deeply reduce levies for corporations, simplify everyone’s brackets and nearly double the standard deduction used by most Americans.
There clearly would be seismic changes for businesses large and small, with implications for companies beyond U.S. borders. The American middle-class family of four could take advantage of a heftier child tax credit and other deductions but face uncertainty about the rate its household income would be taxed.
“Under our framework, we will dramatically cut the business tax rate so that American companies and American workers can beat our foreign competitors and start winning again,” Trump boasted at a speech in Indiana.
Democrats predictably felt differently.
“Each of these proposals would result in a massive windfall for the wealthiest Americans and provide almost no relief to middle-class taxpayers who need it most,” Senate Minority Leader Chuck Schumer, D-N.Y., said at the Capitol.
Trump and the architects of the Republican plan insist that the overhaul is aimed squarely at benefiting the middle class and wouldn’t favor the wealthy. Still, a cut in the tax rate for Americans making a half-million dollars or more would drop by almost 5 percentage points as the wealthiest sliver of the nation reaped tremendous benefits.
Corporations would see their top tax rate cut from 35 percent to 20 percent. For a period of five years, companies could further reduce how much they pay by immediately writing off their investments. That’s all part of an effort that Trump said would make U.S. businesses more competitive globally.
The plan would collapse the number of personal tax brackets from seven to three.
The individual tax rates would be 12 percent, 25 percent and 35 percent — and the plan recommends a surcharge for the very wealthy. But it doesn’t set the income levels at which the rates would apply, so it’s unclear just how much change there might be for a typical family or whether its taxes would be reduced.
“My plan is for the working people, and my plan is for jobs,” Trump told reporters at the White House. “No, I don’t benefit. … I think there’s very little benefit for people of wealth.”
The plan would nearly double the standard deduction to $12,000 for individuals and $24,000 for families. This basically would increase the amount of personal income that is tax-free.
Deductions for mortgage interest and charitable giving would remain, but the plan seeks to end most other itemized deductions that can reduce how much affluent families pay.
A battle is already brewing among Republicans over a move to eliminate the deduction for state and local taxes, which is especially valuable to people in high-tax states such as New York, New Jersey and California. Republicans from those states are vowing to fight it.
Details Scant
The Washington Post reports GOP proposes deep tax cuts, provides few details on how to pay for them.
Republican leaders on Wednesday proposed slashing tax rates for the wealthy, the middle class and businesses while preserving popular tax deductions that encourage buying homes and giving to charity, hoping to unify the party behind a proposal to revamp the U.S. tax code.
But the nine-page framework they released to kick off negotiations left many key questions unanswered, including how they plan to avoid adding trillions of dollars to the government’s debt. The framework leaned heavily on limiting taxes paid by the wealthiest Americans, such as the alternative-minimum tax, and opposition to these changes from Democrats suggest it will be a battleground as negotiations intensify.
Republicans were also careful not to identify numerous tax breaks they might remove, focusing instead of promises to lower rates so much that President Trump estimated the effort would amount to the biggest tax cut of all time.
How Does It Affect Me?
This is easy. I stand to gain. My business income will go from being taxed via brackets to being taxed at a maximum of 25%.
How Does it Affect You?
I believe the average person benefits. I would agree that the wealthy benefit more.
Your results will vary. Please peruse the link at the top to see how you personally may be impacted.
Mish Alternative Proposals
I believe the GOP plan is a step in the right direction. How big a step is certainly debatable.
I make a set different set of far more sweeping proposals.
Mish Individuals Proposal
- Flat tax of 10% on income below $500,000.
- Flat tax of 25% on income above $500,000 up to $2,000,000.
- Flat tax at 35% on income above $2,000,000.
- No deductions for anything other than direct IRA contributions up to $7,500 annually without restriction.
- No tax credits.
- Tax filing is by individuals, not households.
- No tax or FICA on the first $15,000 in income, individually.
- Flat Fica Tax of 5% above $15,000.
- No FICA limit Cap.
- Stock option gains taxed at 40%.
- All stock market gains, short or long, taxed as ordinary income. (I do little or no short-term trading so this idea is not for me. Rather, it promotes market efficiency).
Corporations
- Flat tax rate of 10% in the US.
- Flat Tax rate of 15% on profits held overseas to encourage immediate repatronization of profits.
- Immediate write-offs to encourage investment.
- No corporate loss rollover to prevent year-end system gaming.
- To prevent S-corporations (like me) from becoming full corporations (taxed at 10%), corporations would have to hire a minimum of 15 non-family related employees.
Analysis
- The average person who does not switch jobs would not need to do anything other than check a single box. There would be no refunds or tax owed.
- Individuals making below $15,000 pay no tax. This encourages individuals to work, not take welfare.
- Most of the benefits accrue to lower and middle wage earners.
- Earned income fraud disappears.
- The incentive for corporations to move jobs and profits overseas is eliminated.
- Corporations that hire non-family members receive huge benefits. So do lower and middle wage earners.
- I put in hiring restrictions that would prevent S-corporations (such as me) from gaming the system.
- The high tax rate on stock options will reduce shareholder dilution.
- Note that FICA at 5% tax makes the real top effective tax rate 40% and the real bottom rate 15% on income above $15,000.
- IRA deduction encourages saving.
- Elimination of charitable contributions as a deduction stops overvaluing of assets (e.g. donating a piece of land or a painting worth $20,000 and valuing it at $200,000)
If my plan is not revenue neutral, I suggest tweaking it is until it is.
How do I personally fare?
I really do not know, especially at my age. I made a proposal that I believe is far better than the GOP proposal.
I would welcome analysis from the Tax Foundation.
If my plan is not revenue neutral (at a minimum), I would modify my plan until it is.
I was quite pragmatic about this, looking for a better bipartisan proposal than an ideal proposal that would have no chance.
Mike “Mish” Shedlock
Clearly your tax proposal is a step in the right direction. Though I think the revenue neutral thing is overrated. Instead of modifications on the tax side to make it revenue neutral, there should be cuts on the spending side to bring expenditures in line with lower revenues. Nothing at all wrong with lower revenues, as long as they aren’t simply replaced with increased borrowing or Fed monetization.
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Absolutely agree on the need for spending cuts
Both entitlements and military
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Dude,
like cut the Fed expense by 10% step f‘ing one
step 2 – eliminate business income tax. C and S corps don’t even need to file
step 3 – happiness and joy for everyone as investment flows into USA like water
step 4 – losers complain too much winning
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Thank you for your always-enlightening posts. I endorse your tax plan. Might you address the estate tax plan you advocate. ( I favor all unrealized capital gains be taxed at death—no estate tax.)
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I would agree with you
Perhaps a modest estate tax on large estates
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Federal Estate Tax – Right Now
is only on Estates above 6 million.
I doubt many of your readers have estates above 6 million that would be
subject to the tax – much less if they do with trusts they could reduce the
the estate to meet the threshold.
Accordingly The Federal Estate Tax is Only on large estates
and it should be. Trump has a plan, but there is no way to pay for
all the services with no Estate tax.
The Estate tax.death tax is sold by the media as effecting us all
but lets fact it – it effects very very few.
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SOULTION: NO Income Tax (which is nothing but theft)
Taxation?
A National Sales Tax of 5% on everything bought/sold.
5%……….. And a vicious nasty collection agency to enforce it.
Nor forms for the people to fill out. No intrusion. No IRS out to destroy peoples lives. No loss of privacy. Everybody pays in. The RICH pay far more. Simple, Easy, Fair.
(will never happen).
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Gee, does anyone remember the Simpson Bowles tax plan. It was a bipartisan effort and it was universally agreed that it was the correct solution to fix our chronic deficit problem and screwed up tax code. There was only one problem. It took away everyone free bees, like mortgage interest, charitable contributions, etc. Since we have spineless corrupt legislators who are more interested in staying on the gravy train they would never vote for something that is the right thing for the country but would be unpopular with the free shit army.
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The whole real estate industry has been lobbying hard since removing the mortgage tax deduction was first proposed! They think this would impact house sales and therefore realtors income. They do not care if the deduction is good for the USA or not.
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On balance, the mortgage interest deduction has likely been bad for the USA. It further drives up home prices that are already overblown by easy credit and encourages all sort of malinvestment.
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Absolutely wrong. Interest is a legitimate business expense, and therefore it is a legitimate household expense. It was anti-consumer for Reagan to remove all other interest deductions – but it spawned the Home Equity Loan market and cash-out refi’s.
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Completely disagree. Its a govt subsidy to the building industry and penalizes renters. As the previous poster said the home mortgage interest deduction doesn’t save taxes, its an illusion. It has been proven that it has resulted in higher selling prices completely wiping out any tax savings. Even if this wasn’t true why should the govt favor homeowners over renters. I will tell you why, it buys votes and it what they do best. We have the best govt money can buy.
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Personally, family of four, $16,000+ in exemptions plus $34,000 in itemized deductions currently, to be replaced by a simple $24,000 standard deduction. I’m paying tax on $26,000 more in income. The 12% rate for married jointly better go extremely high.
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My assumption is the 12% rates would replace only the 10 & 15% brackets, which would only be about a $1,200 savings.
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thx!
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Wealthy & modest income earners would do better, but upper-middle income families – especially in Blue states get crushed. The elimination of the personal exemption increases taxable income by over $16,000 for a family of four. In New Jersey, typical property taxes run 10 to 12 thousand dollars. Throw in 6 or 7 thousand of state income taxes – that’s an additional $18,000 of taxable income. The new standard deduction will be a bit higher than deducting mortgage interest for most families, lowering their taxable income by a few thousand. But, a family with gross income in the $150 to $250 thousand range will remain in the same 25% tax bracket, but have increased taxable income of $20 to $30 thousand – increasing their tax bill a whopping $5 to $7 thousand dollars.
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and this is a problem how ?
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And, this is a tax cut how? I suppose you could call this text simplification a bit but this is hardly a flatter Tax. This increases the percentage of people who pay zero tax (47% to ?), increases the burden on middle income people while reducing the burden on wealthy people. The evaporation of the middle class not only continues, it accelerates.
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Agree, my family is upper middle class in Ohio and my quick calculations based on the info we have equates to a net tax cut of zero.
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You’d have to do something like making sure the taxes your corporation pays, plus the taxes your “employees” pay, adds up to more than what your individual tax would have been, in order to prevent frivolous incorporation by almost all senior partners and managing directors of professional services firms, as well as litigators, brokers and financial sector high flyers.
15 employees * $20K is only $300K. Even at $2.3 mill a year, it would be beneficial for someone to incorporate, if I’m reading your brackets right. Just hiring 15 crackheads for $20K/year each to sit around his house all day long. At $5mill, the gains would be almost $700,000. While with the $50mill payouts that aren’t’ that unheard of in good years in some places, you’d save near $12mil by incorporating………..
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I believe that could be covered if by no more than raising the number of employees.
Perhaps a few small corporations slip through but all they gain is paying 10% rather than 20%.
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If you ake the number high enough, sure. But at some level, you’d be left with Walmart the only company in a position to incorporate……
I really think tax parity (your corporate tax + the income tax of your “employees”) must equal or exceed the amount you would have paid sans incorporation, is a lot cleaner and less abuse proof.
Of course, the whole idea of an “income tax,” along with the necessary spy apparatus in place to make sure noone “cheats,” is a feature of totalitarian hellholes only, no matter the exact rule set for determining who gets robbed of what. But I recognize, ta-da, we do live in a totalitarian hellhole, where such horrors are a given; and that you are trying to be realistic about what can be accomplished.
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“Just hiring 15 crackheads for $20K/year each to sit around his house all day long” – it is that aspect that introduces a brilliance to Mish’s plan. Crackheads have to be occupied and paid for somehow after all and this way they are offered genuine opportunities and become less of a burden to the community at large. #Crackhead lives matter!
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Nice proposal, Mish.
I’ll suggest a microtax on equity transactions – a fair disincentive for HFT and other algo-driven shenanigans.
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I read that AMT goes away. Hurray!
I also read that tax deduction for state (and local?) taxes goes away. Hurts in the short run but over time maybe we can get legislators to cut back and spend wisely.
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The AMT “goes away” by becoming, effectively, universal. The AMT is a bit complicated, but basically what it does is gradually illuminate the benefit of state and local property taxes and work related expenses for higher earners. This tax proposal doesn’t really eliminate the AMT it makes it universal! Everyone is under the AMT, basically.
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Taking away state/local tax deductions, would at least help a little bit towards waking a few more zombies up to the fact they are overtaxed.
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Pray tell who the congressional Republicans are from California, New York, and New Jersey who are going to fight for state and local tax deductibility? LOL.
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My quick count finds 12 Republicans from California, seven from New York and six from New Jersey. That by itself itself eliminates the Republican majority without counting any Republican congressmen from Massachusetts Maryland or Virginia, other high tax states.
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I would enlarge the standard deduction even more for married couples with children. Corporate tax should be zero for US based corporations, with mandated dividends taxed at the regular rates…
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It’s easy for politicians to make all sorts of fantastic tax proposals if they don’t have to be concerned with paying for tax cuts or worrying about debt increase!
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“It’s easy for politicians to make all sorts of fantastic tax proposals if they don’t have to be concerned with paying for tax cuts…”
Tax cuts are not paid for. Tax payers pay taxes. Politicians are not concerned with spending other people’s money, which is why government spending goes up and up and up.
“Teachers Demand $3,200 From Each Kentucky Household To Fund Pension Ponzi For 2 Years”
“Six-Figure Pensions For University Of California Teachers Surge 60% Since 2012”
“As the Los Angeles Times recently pointed out, there are over 5,400 retirees in the UC system drawing over $100,000 per year, a 60% surge since 2012. Moreover, there are nearly 3 dozen former teachers drawing over $300,000 per year.”
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Why We Must Raise Taxes on Corporations and the Wealthy, Not Lower Them
Saturday, September 23, 2017
When Barack Obama was president, congressional Republicans were deficit hawks. They opposed almost everything Obama wanted to do by arguing it would increase the federal budget deficit.
But now that Republicans are planning giant tax cuts for corporations and the wealthy, they’ve stopped worrying about deficits.
Senate Republicans have agreed to cut taxes by $1.5 trillion over the next decade, which means giant budget deficits.
Unless Republicans want to cut Social Security, Medicare, and defense, that is. Even if Republicans eliminated everything else in the federal budget – from education to Meals on Wheels – they wouldn’t have nearly enough to pay for tax cuts of the magnitude Republicans are now touting.
But Republicans won’t cut Social Security or Medicare because the programs are overwhelmingly popular. And rather than cut defense, Senate Republicans want to increase defense spending by a whopping $80 billion (enough to fund free public higher education that Bernie Sanders proposed in last year’s Democratic primary, which deficit hawks in both parties mocked as being ridiculously expensive).
….
http://robertreich.org/post/165663034195
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If you’re wealthy you can afford alternatives to paying taxes like hiring accountants. As long as the accountant is able to “earn his keep” it will remove tax revenue. The rest of us can either do it ourselves or just pay up.
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“But now that Republicans are planning giant tax cuts for corporations and the wealthy…”
Giant tax cuts cannot happen unless someone is paying giant taxes.
The biggest giant in the room is government spending.
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Simplified tax code won’t happen.
Complexity of tax rules equals unlimited employment for the “professional class” and
an opportunity to game the system for profit.
Imagine a flat tax rate of 13% and Tax form 1040 one page only :
name, SS#, total income x 13% = tax due , signature, date
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A complex tax code gives incumbents more power to shake down wealthy constituents for campaign contributions in exchange for slipping in an item into a tax reform bill that would benefit only one or a few taxpayers. Being on a tax writing committee was especially valuable in the days when Dan Rostenkowski was Chairman of the House Ways and Means Committee.
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‘Competitive’ distractions
Cutting corporate tax rates will not create jobs or boost incomes for the vast majority of American families
Report • By Josh Bivens and Hunter Blair • May 9, 2017
Download PDF
What proponents of corporate tax cuts argue: A central argument proponents of corporate tax cuts make is that U.S. corporations face higher tax rates than those of our peer countries; they claim that this differential hurts U.S. “competitiveness” (a word they rarely define) and discourages companies from investing in the U.S. Consequently, they further claim that cutting corporate tax rates would increase American companies’ “competitiveness,” which they imply (but rarely argue directly) would redound to the benefit of most American families.
What this report finds: We find their central argument—that U.S. corporations face high corporate taxes—to be empirically false. While U.S. statutory tax rates are higher, the effective tax rate paid by corporations is in fact roughly equivalent to the effective tax rates of our peer countries, due to loopholes in the U.S. tax code. Further, we find that even if the effective corporate tax rate were higher (if loopholes were closed), economic theory and data do not support the idea that cutting these rates would encourage further investment in the U.S. or benefit Americans in general; we find that such cuts would primarily benefit a small number of high-income capital owners while increasing the regressivity of the tax system overall.
Recommendations: If we wish to reform corporate tax policy to benefit the vast majority of Americans—and not just a wealthy few—we should not be talking about lowering corporate tax rates or offering other tax breaks to corporations; we should instead be focusing on closing loopholes in the system that have eroded the corporate income tax base, to ensure the corporate sector is paying its appropriate share of taxes.
….
http://www.epi.org/publication/competitive-distractions-cutting-corporate-tax-rates-will-not-create-jobs-or-boost-incomes-for-the-vast-majority-of-american-families/
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“… we should instead be focusing on closing loopholes in the system that have eroded the corporate income tax base, to ensure the corporate sector is paying its appropriate share of taxes.”
Just what is an appropriate share of taxes, when the government increases and increases and increases spending over any objection by those tax payers?
It wasn’t business owners who created the California paid leave law. But it was a democrat legislator who said that eventually businesses will have to pay their “fair share” of the cost of something being forced on them.
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What appropriate?
Corporations don’t really pay corporate taxes- consumers do
Corporations do hire people and pay their FICA and typically medical benefits
Arguably fair share of corporate taxes is zero
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But you well know that the taxes corporations pay are really a stealth tax on top of everyone’s usual tax.
IF they do away with corporate taxes and/or tighten the loopholes so that less revenue comes in from corporations, then the lowly tax payer IS going to have to make up the difference because Congress rarely makes any meaningful spending cuts.
Be careful what you wish for. It might come true.
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We all know these fantasy spending plans are not going to go anywhere. Until Obamacare gets repealed (not replaced) — tax reform can’t be paid for.
The reason Trump’s proposal doesn’t explain how it will be paid for, is the same reason Bernie Sanders’ senile daydream doesn’t mention how he hopes to pay for it… there is no way to make it work. Same reason the crazies in California admitted they aren’t getting universal health care. Same reason Mayor Bernie Sanders said universal health care would fail in Vermont (and he was right, it did fail). The money simply is not there, and raising taxes would crush the economy to the point where no politician could survive.
Spending cuts are necessary. Elimination of Obamacare is necessary. Phasing out of all the ponzi schemes (social security, medicare, etc) is necessary. The viability of the federal government depends on it.
We all know Congress is too selfish; its not going to happen
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I assume when you say no other deductions that you are still allowing credit for US taxpayers who have paid taxes on income earned (or taxable) by other, foreign jurisdictions? This includes corporations. Your 15% rate for foreign profits sounds politically soothing, at least in theory, but one of the reasons so much cash is held offshore is because it is first taxed offshore and the US tax code only recognises that to the extent the local taxation exceeds the effective US rate on earnings repatriated. It is worse for individual US taxpayers working abroad, because they cannot set themselves up as a foreign entity to keep their earnings out of Uncle Sam’s reach (there’s a host of regs and inter-governmental agreements to cover reporting on foreign legal entities controlled by US taxpayers to specifically defeat this), and the credit they receive for foreign taxes paid does not necessarily cover all of the US liability, especially if they live in a low-tax jursidiction like Singapore, but also in higher-tax locations like pretty much all of Europe.
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US citizens living in a foreign country end up with the worst of each country’s income tax code e.g. muni bond interest which is tax exempt in the US is fully taxable in Canada. Income from a tax free savings account in Canada would be fully taxable in the US.
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since benefits are a federal redistribution of taxes, any proposal is half-baked.
combine (your) tax cuts, with cuts in welfare spending of 20% and iterate until the fiscal deficit of 2-3% of GDP in perpetuity, turns into fiscal surpluses of the same UNTIL debt to gdp gets to around 40%, then start cutting taxes further.
it would be far simpler to collect ONLY indirect taes and set a federal VAT/GST on every goods and services transaction at, say, 25% for a one off hit on inflation in exchange for no collection of income or corporate taxes or reliefs, allowances, deferrals etc.(in the indirect tax system, companies pay indirect tax on what they buy, receive the 25% indirect tax on what they sell and pay the net to the IRS).
this would be a tax on levels of gdp activity (currently 18 trillion bucks).
just a thought.
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Never view tax proposals individually. That is the way to the cliff edge. We have a situation of rising interest rates and proposals that will increase the budget deficit significantly (on top of the outlays caused by the hurricane season not over yet). The result will be lower spending because credit will be more expensive and government spending more constrained. This for an economy that is barely standing. In addition the CCP Congress in China is almost upon us and the China Beige Book, the price of copper, of steel rod, house prices etc. already indicating a softening economy.
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Trump wants to reform taxes? He should do en executive order banning income tax withholding and requiring people to write checks to the IRS monthly or quarterly and see how long the rest of the code goes unreformed.
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Real tax reform most likely going nowhere.
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So, since we know spending cuts especially from the $700 Billion a year we spend on defense are not going to happen. Can someone explain why the deficit of $20 TRILLION does not matter as it makes not sense to cut taxes. It has never turned into the promised economic growth and the tax rates are or are almost as low percentage wise on income as they have been at any time since the early 1940’s?
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I did a quick plug and play with the proposed tax plan on my family and business income. The results are a big net ZERO.
What I gain from the $24K married/joint filing deduction is offset by the loss of State Prop taxes and loss of personal exemptions.
Current income tax bracket of 25% would stay the same and wife’s business tax rate will stay the same, the so called pass-thru tax rate 25%.
Winners, the very, very wealthy.
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I haven’t read too much about this yet but wondering if this proposal does more to equalize the differences between wage slaves (hourly rate and traditional employees) and self-employed. I always kind of envy all the deductions the self-employed folks can take, and the fact they can make quarterly payments while I basically see half my income ripped from my paycheck before it ever gets in my hands, only to beg for it back in January.
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If you have to beg for a refund in January, you are not claiming enough exemptions at work. Check with your personnel department.
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True, except that my per-paycheck pay is all over the place due to overtime, on-call and the occasional performance bonus payout.
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The best I can tell so far, business deductions in schedule C are not being changed. If anything, the proposed business rate of 25% (pass-thru) will reduce taxes for wealthy individual 1099’ers.
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Deductions for self-employed’s are business expenses. They are nothing to be envious of. Do you envy your employer deducting his rent, workmen’s compensation insurance, equipment?
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I don’t expect the proposed changes to affect me much one way or the other. But perhaps it will be a little easier to claim my foreign tax credit (Form 1116). The big winners will be the future heirs of the Forbes 400 billionaires because of the elimination of the estate tax. Also benefitting will be the heirs of mere multi-millionaires, but not so much. The current taxes on an estate valued at $50 million are a lot lower than on an estate worth $2 billion.
The big losers will be future taxpayers of the US. Eventually, the butcher’s bill (the national debt) will have to be paid, whether it is through much higher taxes or through runaway inflation. In the meantime, the poorly paid Alabama employee with no fringe benefits will see his medical insurance premiums go up a lot next year, if he can afford insurance at all.
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No estate tax? Sorry, but I have known too many spoiled rich kids over the years. The only thing that will ever get them off their smug little asses is the fear that they won’t be able to make it without mommy and daddy’s money.
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It depends on what they do with the child tax credit. My household is a family of 4 and i am the sole money maker at $80k. If the child credit stays the same i pay 1500 more in taxes. Unless im reading it wrong mish plan would cost me even more.
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Same situation, when I heard about the doubled std deduction I was happy till I found out that exemptions were eliminated. Effectively reducing standard deduction down to $8K compared to $12K old system. I wonder if the promised increase in child tax credits will even come close to the missing $4k . Then there will be assorted restrictions in collecting the credit such as limiting to children under 18. Putting a kid through college and paying for the increased taxes should be a new challenge to add to obtaining family health coverage.
I suppose most will not notice that their taxes have not dropped and increased a bit. I really never found the whole thing about exemptions all that complicated. It seemed like a fair way to account for some families needing to spread a paycheck further. Higher taxes, yet another reason to encourage new families to be smaller. Less crowds but I don’t think it will improve the economy.
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We need to raise taxes. Too bad populist Trump can only tell the truth when it feels good.
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Mish,
What about the demand side of the economy…
In Reagan’s time the economic constraint could be argued to be on the supply-side due to crushing tax rates. Today, everywhere I look the constraint is not the supply-side but the demand side. Corporations (supply-side) who blow their cash and take on debt for buybacks are not suffering from lack of money to invest.
Our economic data was jerry-rigged when supply-side and inflation were concerns and controlling inflation “expectations” to bring down interest rates became the objective. Several decades of under-stating inflation by half a percent has put a squeeze on the working class (demand side).
Take a look at the CPI sub-component for computers – the “quality adjustments” alone knock a tenth of a percent off overall CPI while new standard iphones have held steady at $650.
Much of the research used to justify tax cuts comes from an era when the supply-side was the constraint. Today lack of wage growth, lack of earnings on savings and at some levels taxes is denting demand. No one studies the demand side, they just keep pushing supply-side policies to the extremes – negative interest rates anyone.
Any cuts, whether fair or not, to entitlements will negatively impact the economy immediately. Pensions are part and parcel to future demand and the economy. Low interest rates transfer wealth from the demand side (savers) to the supply side.
Your tax plan takes away some of the incentive for businesses to invest. They will just pay their low tax and then engage in buybacks unless they perceive strong demand. Do not underestimate the effect of tax avoidance on keeping the economy moving in profitable companies.
On the other hand, Amazon pays no taxes today and they are bulldozing jobs across America (demand side) because they avoid profits! Local taxes and economies are going to suffer in the new economy.
I would be for a national tax on revenue on goods sold in America and the phasing out of corporate taxes. It could deal with the import/export issue, level the playing field with the Amazon & internet sales, etc.
For businesses, I would support a very basic single-payer plan and take the weight of health-care off the backs of business. Then work to drive down the cost of health-care.
There are no simple solutions, but I wish we could see more diagnosis of the demand side of the economy before engaging in very disruptive tax policy changes.
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Your tax plan takes away some of the incentives for businesses to invest.
I give 100% tax writeoff immediately for investment.
I punish stock options – taking away some incentive by executives to drive prices higher
I do not allow loss rollovers, eliminating rigged filings
Was that not clear?
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Good, good, don’t fully understand, what about the demand side.
A 10% flat tax with 100% write off with no loss rollovers would force the slow down of investment if I understand you to spread expenses out. I may not understand you.
Profits = Revenue – Expenses. You can still monkey around a lot with expenses in this equation. While not perfect, revenue is harder to monkey with. Corporations need to get out of the monkeying around business and focus on operations and growth.
I choose a C Corporation for tax purposes for my small business. Loaded with losses in first years with no write-off against other income. I would want to go back many years and refile as a pass through if I had to stop carrying losses forward.
How would capital intense business handle high upfront expenses with no loss carry-over?
As a small business I would rather they stay revenue neutral, but get rid of the bureaucracy of healthcare, unemployment taxes, and other paperwork. Collect taxes at the transaction and eliminate expense tracking and other write offs. Streamline business startup and paperwork. Lower the cost of hiring workers for businesses.
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Agree 100%, In theory the national sales tax is the best solution but theory and practice usually aren’t the same. A single payer system will ultimately be what is done to fix the system only when all other dysfunctional solutions are exhausted until everything is fubb. This will reduce the burden on business also.
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Sent from my iPad. Actually, I sent that by myself. I think it’s time to level things a bit with corporations. So the bit about pass through small business tax was good. And I don’t see how we will keep corps based here unless we shrink the end tax rate, and yes, I liked the penalty to American corps if they were based abroad. I also think we need to repatriate the money and am willing to be generous to do it—waiting around on this has cost us dearly, and the euro zone is about to get the tax instead. Of all things our 80 year old Mercedes car mechanic, the owner of a several square mile Columbian plantation with his siblings, is the father of a young lady lawyer who represents these corps in the Brussels euro court. Who knew. Three girls, one nun, one doctor, and the one in Europe. He was drafted during graduate school in the US to Vietnam and was instead assigned to designing tanks in Detroit. Then sent to Germany to teach the army how to run them, and fell in with Mercedes. His mother was a Brit, her father in Columbia to build I-5 and his wife is German, a Mercedes export from Stuttgart. Trust me, he’s in better shape than any of us, but massively active. M
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With all these tax cuts who the hell is going to pay off the debt. Are you comfortable with trillion dollar spending deficits?
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Tax cut will pay for itself? How stupid the Pubs think we are???
“…. A new tax cut is emerging to rival those of the Bush years, and the deficit hawks have hardly peeped LOL what a surprise
“It’s a great talking point when you have an administration that’s Democrat-led,” said Representative Mark Walker, Republican of North Carolina and the chairman of the Republican Study Committee, a group of about 150 conservative House members. “It’s a little different now that Republicans have both houses and the administration.” a little different 2x LOL
For years, Republican lawmakers lamented the soaring national debt, pressing for spending cuts and clinging to the mantle of fiscal responsibility. But last week, Senate Republicans hammered out a deal to allow for as much as $1.5 trillion in tax cuts, betting that supercharged growth will make up for lost revenue, a potentially dubious prospect. The tax plan outlined Wednesday by the White House and Republican leaders in the House and Senate could cost more than $2 trillion over the next decade, according to a preliminary estimate by the Committee for a Responsible Federal Budget…”
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Mish, regarding the income tax reform, I would like to see the mortgage interest deduction be either eliminated or modified to the amount of the purchaser’s down payment. Why should I subsidize people who are going into hock to buy a home. I own my home outright as I did my last home. Why should people be rewarded for borrowing money.
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I would eliminate it entirely.
You offer an interesting concept that could be more politically viable
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Why not a 20% Value Added Tax (half to the state) 20% corporate, 20% personal no interest deductions or other deductions only medical & charitable over 3% of taxable income
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I am not in favor of a VAT
I am in favor of a consumption Tax
I would exempt food, medicine, and clothing items below a certain price.
I wish I put that in. I will add an addendum or do a second post.
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Part of THIS IS Stipidity and BULLSHIT !!
When the hare-brains reduce the top from 39.6 to 35% it gives the Democrats and the Mass Media tons of examples to show how MOST OF THE MONEY ( $$ amounts) will go to the top 1%… WGAS aabout percentages? Dollar numbers are what count…..
WTF are the Repubs thinking? LEAVE THE TOP TIER ALONE! With this list, the middle class may get a few hundred – and the top 1% will end up with many (tens or hundreds) of thousands. IDIOCY !!
Dropping the top tier anything at all just feeds ammunition to Schumer and Pelosi and CNN, etc.
DON’T F’UKKING DO IT !!
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