Just $1 Out Of Every $5 Goes To People
The House “Tax Cut and Jobs Act” is a sure winner for corporations, and a crap shoot for everybody else. Don’t say we didn’t warn you…
Here’s what Congress has done so far: it gave itself permission to balloon the federal deficit over the next 10-years by $1.5-trillion dollars in order to make room for tax cuts without having to pay for them. (That’s about $12,000 per household, BTW). Then it sat down, started negotiating, and lo-and-behold, came up with $4-billion in cuts! So it then started the hard work of figuring out how to pay for $2.5-billion of those cuts to get it down to the $1.5-billion that it told itself was OK.
So who’s paying that tab? Corporations? C’mon, if you’ve been reading The Chaos Report, you know better than that! It’s people.
The chart below from the bipartisan Committee for a Responsible Federal Budget is based on official projections from Congress for the next 10 years, and it explains a lot. (If it’s too small to read on your phone, just click on it and it’ll take you to a larger version.)
It still requires a little extra math, which we’ll do for you right now:
• Tax cuts for individuals total $3.3-trillion. Tax hikes for individuals (through eliminating deductions and closing loopholes) total $3.0-trillion. So total benefit for individuals (assuming Congress’ projections end up being exactly right) is $300-billion.
• Now let’s do the same for corporations. Tax cuts: $2.2-trillion. Tax hikes: $1.2-trillion. So total benefit for businesses is $1-trillion.
• “Final” score (although the bill is far from final, but at least as of today): People $300-billion, Corporations $1-trillion.
• Remember, (as we mentioned above) Congress gave itself permission to run a $1.5-trillion unfunded deficit, so the $1-trillion total for businesses adds up to 2/3rds of the entire tax cut plan.
All the data we’ve quoted and shown above is culled from a much more detailed spreadsheet provided by the U.S. Congress Joint Committee on Taxation, and if you’re feeling super-wonky, it’s interesting to compare the two as an example of how different ways of crunching the same numbers can make your outcomes appear vastly different, and make whatever argument you want to make appear stronger. Congress’ presentation of the data works really hard to make tax cuts for individuals appear as big as possible. For instance, it includes a reduction of the pass-through rate for certain types of businesses as individual tax cuts. The non-governmental CRFB, does the opposite: it pulls the “estate tax repeal” out of the “individual” section, presumably because that one item makes individual tax cuts overall look much bigger than they realistically are. Then again, the estate tax repeal is an individual cut, just one that applies to few individuals. So the lesson here is there are legit arguments for skewing the numbers all kinds of ways, just depends where you’re coming from…
For Most U.S. Citizens, The Plan Involves Moving Your Money Around And Telling You It’s Good For You
The near-doubling of the standard deduction to $12,000 sounds pretty great, right? That’s why it’s the most widely touted element of the entire bill. But it’s pretty much a straight-up con job. Why? Because along with the current $6,350 standard deduction, people can now take a personal exemption of $4,050, already adding up to $10,400. Hardly “double”. That $4,050 exemption can be taken for each individual in your household. But that disappears in Congress’ plan. So even with the combined benefit of higher standard deduction and lower tax bracket, if you’re middle class and have 3 or more kids, your taxes are probably going up.
Some Provisions Rip At The Fabric Of America
While the plan did not end up impacting donations to 401(k) retirement plans as some had feared, it’s the first time in modern U.S. history that the government is officially adopting a position that discourages home ownership. This has been a cornerstone of public policy across parties and multiple administrations, and until now, a goal the government has vigorously promoted since at least as far back as President Eisenhower.
The plan would cut the mortgage tax deduction in half, so only up to $500,000 worth of loans would be covered. Deductions for property taxes paid locally would be capped at $10,000.
We never thought we’d agree with the National Association of Home Builders, but we do today. Their CEO saying “This now is a direct assault on the American dream of homeownership.”
Now, something interesting could happen here: in that rare place where far-right and far-left sometimes intersect. The new rules could have a cooling effect on overheated housing markets in cities like San Francisco.
Super Rich Get To Keep Their “Special” Deductions, And Get More, And We’re Supposed To Be Satisfied Government Isn’t Reducing Highest Income Tax Bracket
Yes, people making over $500,000 a year will still be paying a top rate of 39.6%. (Trump oddly credits that to a conversation he had with New England Patriot’s owner Bob Kraft).
But they will get to kill the far more valuable estate tax. This is a particular bugbear of ours: because as we’ve said before, the estate tax is the only effective way right now of clawing back some of the excessive salaries being paid to CEOs, hedge fund managers, real estate developers…
The numbers here are huge: The estate tax repeal alone will cost the government $200-billion. To put that into perspective the entire value of the tax cut being given to all other people is $300-billion. And the estate tax only applies to individuals with personal wealth over $5.5-million, or couples over $11-million, or 2 out of every 1,000 Americans who die.
Will The Public Fight At All? Or Are We Fatigued And/Or Don’t Care?
Trump says the people love his tax cuts. “They want it, they need it”. But he says people love everything. We think there’s a good, though not assured chance people will speak out against this bill. And Republicans may be underestimating this just as they did with Obamacare Repeal. We have talked before about how the public has gotten much smarter about tax cuts not paying for themselves after they’ve been told so many times they would, and never have.
Will Congress Try To Sneak Obamacare Repeal In?
That’s what Trump wants. And although Chief negotiator Kevin Brady resisted it, who knows what’ll happen when the bill gets to the Senate. It’s a really attractive way to cut costs.
5 Non-Tax Items, Briefly
• It’s wheels up for Trump today, as he heads to Asia for a couple of weeks. The President’s been criticized before for not sufficiently “selling” his agenda, although this time it’s not his fault: the trip’s been long planned and centers around a meeting of Asia-Pacific leaders in Vietnam.
• As predicted, Trump named Jay Powell the next Federal Reserve chief. The Washington Post has a really interesting piece about his calming influence during financial crises in the past.
• Steve Bannon’s moneyman, billionaire hedge fund manager Robert Mercer made some unusual moves, that probably won’t change anything politically. He stepped down as CEO of the hedge fund he runs, disavowed racist nationalism, and handed over his stake in Breitbart to his daughters. He also refuted a recent report that he’s easily manipulated by Bannon.
• A Republican member of Congress both confirmed and brushed off sworn testimony from a former Trump advisor, Carter Page. Page says he told Attorney General Jeff Sessions he was going to Russia in July 2016. Meaning Sessions may have a little lying problem going on… However, Texas Representative Mike Conaway told CNN, “If I were Sessions, I wouldn’t have recalled it either. It was just in passing.”
• And former Trump campaign co-Chair Sam Clovis is emerging as an odd, but potentially pivotal figure in the Mueller investigation. Earlier this week he admitted he encouraged a young Trump campaign staffer to try to set up a meeting with Russians. Clovis now says he’ll no longer pursue a top science spot at the USDA, which is good, because he’s not a scientist. Clovis said he would’ve been qualified anyway, simply because he’s from Iowa.
