Saturday, May 13, 2017

Trump's Tax Plan

Rational analysis says Obama did a pretty good job. He took an economy from the brink of disaster and brought it back to pretty decent health yet the Right Wing decries the "anemic growth rate" of "only" 1%-2%.

Which is a whole lot better than shrinking which is what we had at the end of the Bush years. Obama took a low risk approach and got modest results.

Trump and the supply side Republicans are going to take a high risk with massive tax cuts. Of course most of those tax cuts will be going to the very wealthy and to corporations rather than to where it should be going.

If you want to grow the economy you need to do it from the bottom up. Put more money into the hand of low and middle income who have a high mean propensity to consume. In other words, they're going to spend the money.

Supply follows demand. Without new demand there is no particular reason for companies to expand. If the corporate tax rate is low, there is no particular reason for companies to re-invest. It's more attractive to take the profits.

There is a theory that corporate tax cuts give a short lived boost to the economy but ultimately lead to an economic crash for that very reason. Companies tend to take profits rather than reinvest.

Trump and the Republicans keep pointing to Ronald Reagan as an example of the success of tax cuts.

There are three fundamental problems with this analogy.

(1) Reagan had a very different economy. Inflation was at 11% and unemployment rate was 9%. The current economy has an inflation rate around 2% and the unemployment rate is at 4.4%.

(2) Another ignored tidbit is that while there were two tax adjustments during the Reagan years there was also a major increase in payroll taxes, the closing of a large number of tax loopholes and a $400 billion increase in spending from $745 billion to $1.14 trillion. Reagan didn't just slash taxes like Trump seems to want to do.

(3) Reagan had first Donald Regan and then James Baker as secretaries of the treasury AND they worked closely with congress in particular senators Jack Kemp (R) from New York and Bill Bradley (D) from New Jersey.

In other words Reagan had very good advisers and people working on the tax changes.

Steve Mnuchin is either a clown who honestly believes that manufacturing plants aren't going to be highly automated (read that run by robots) or he's a crook who's bullshitting everyone and is waiting to grab his bag of cash and bolt.

Needless to say I'm concerned about what this tax plan is going to look like. I'm betting the rich get a lot richer and the rest of us get squat. I could be wrong but I doubt it.

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