Thursday, August 31, 2017

"Tax Reform" is a giant loser for Trump and the GOP

Trump is talking tax reform.  Good news for Democrats, at long last.   Tax reform is a giant loser for the GOP.


The 1% are the ones that would benefit.   Democrats will point that out.


There is one bright spot for Trump in "tax reform."  Republicans and Democrats alike agree that it would be great if corporations like Apple and Pfizer repatriated the money they are holding offshore, paid some taxes on it, and had it to reinvest or distribute here.  A revenue boost, money brought home.

Trump will call it a huge victory, free money, terrific.   He will take credit, he will say it was bi-partisan because in fact Democrats will approve of it.  Democrats can plan now to attempt a counter-narrative but it will be a difficult sales job for them.  Plan on this being Trump-the-Winner-Dealmaker.  It will strengthen his brand.  But after that it will be a disaster for him.

There will be no tax reform tax cuts.   It will fail because it would be massively unpopular.  
PA:  99% make less than $360,000

MI:  99% make less than $306,000
My long career as a financial advisor put me in touch with a number of prosperous business and professional people--folks who earned between $500,000 and a $1,000,000 a year, sometimes more.  These are professional people with lucrative, busy medical, dental, legal practices, or successful businesses. They are in the top 1% of income-earners, but they mostly do not consider themselves "rich" in part because they are working hard to earn the money and they are far from rich in leisure.  The top one percent of taxpayers start at incomes of under $400,000 in the swing states that put Trump over the top.

When state taxes are added, they are in the 50% tax bracket.

These are prominent people in every state and congressional district.  They talk to their Congressmen and Senators.  They consider themselves overtaxed.  Republican officeholders agree.  They also want to cut the tax rates on the "job creators" who make more than a $1,000,000 a year.  They say that tax is unfair per se, plus it stifles growth.

My own field data on this is spotty and anecdotal but my observation is that people making less than $100,000 or $150,000 a year--the vast majority of people in communities like southern Oregon--have little sympathy for those much richer taxpayers.  They consider them fortunate, not beleaguered.  

And 99% is a pretty good political base from which to argue.

It is a miserable political situation for Republican lawmakers hoping to do tax reform.  People like the general idea of "tax cuts", but the primary tax savings will be for people making vastly more money than nearly all the voters.  

Moreover, Congressional Republicans have a record.  The vast majority of them spoke harshly about Democratic deficits.  They voted against infrastructure improvements under Obama because of budget concerns.  A great many Republicans genuinely care about deficits, and, worse, they tied their hands with rules regarding debt ceilings and budget busting.  Plus there is videotape.  They sold the idea that deficits are bad.

They have no choice but to spend.  They need to funnel some $100 billion dollars to Texas, they want to increase the size of the navy, they want more military spending generally, there is Afghanistan and North Korea, they have an opioid crisis in their districts, they have veterans and police to support, they have constituents who get Medicaid and like having health care.  Yet they are clearly on record hating budget deficits.  
CNBC Report: 3/4 of benefit to top 1%

The only route that is politically acceptable to GOP constituencies is political magic and slight of hand. Cut taxes on everyone emphasizing the cuts on the middle class to distract voters from the fact that most of the tax cuts are going to the people who actually pay the taxes, the wealthy, and simultaneously dramatically raise the deficit, while selling the idea that the deficit really isn't a deficit because there will be economic growth meaning that less revenue is actually more revenue.  Don't watch the magician.

In an ideal political world, the magician's distractions would work: tax cuts for those professionals would be accepted as "middle class tax cuts" and deficits would be ignored, but the Congressional Budget Office (CBO) and Democrats will confound the magician by pointing to the slight of hand.  It cannot really be hidden.  Republicans will be adding to the deficit to give the top 1% tax cuts.  It is what must happen if tax reform happens, because it is the wealthiest Americans who pay the taxes.  

At long last, Democrats will have a single popular story to tell that unifies their party.  Democrats will call tax reform a betrayal of the middle class.  Trump and Republicans are vulnerable to the suggestion that they are really working to serve the rich, not the poor, and this will feed and document that story.  This is a good issue for Democrats.  It is factually true and the message rings true if they sell it.

Trump will learn.  Trickle down is unpopular
After the frustrations of the Hillary Clinton campaign Democrats will have the unifying policy and political narrative of opposition to trickle down. They can charge that Republicans want to feed the swamp, not drain it,  betraying the average hard working American.  

Democrats know tax reform a political loser. Republicans know it, too. That is why Republicans will struggle to pass something but will then back away from consummating the political suicide.  

Nothing much will happen on tax reform, for a very good reason.   The 1% pay the lion's share of the federal taxes, and the 99% are just fine with that.

1 comment:

  1. 138 million taxpayers...to be precise 2.7% are in the 1% of incomes and these nearly 4 million account for almost half (47%) of the amount collected from individuals, but this amount is less than half of all revenue. Corporations and payroll taxes are the rest. What does this mean? For me, it suggests that corporations are not taxed enough to cover a continuing government shortfall, with most experts placing the EFFECTIVE corporate rate at 18%.

    This is an expensive country to run. If there is an advantage for a company to be in the U.S., then they should pay for it. Individuals purchasing power, even the wealthy, is constrained by a government that depends on their income taxes. When people talk about the role of government they sniff at wealth redistribution, but it's a necessary function to keep the economy healthy.

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