Wednesday, April 26, 2017

The Problem with Trump's Tax Cut Plan

George Callas, who is Paul Ryan's senior tax counsel, had this to say about Trump's plan to cut corporate taxes without any equivalent increases in other taxes:
It’s a very, very important point here. A plan of business tax cuts that has no offsets, to use some very esoteric language, is not a thing. It’s not a real thing. And people can come up with whatever plans they want. Not only can that not pass Congress, it cannot even begin to move through Congress day one. And there are political reasons for that. Number one, members wouldn’t vote for it. But there are also procedural, statutory procedural, legal reasons why that can’t happen. Doug and Mark were both talking about reconciliation. I want to pick up on that and flesh that out a little bit because it’s very, very important.

There is, I call it a magic unicorn running around, and I think one of the biggest threats to the timeline on tax reform is the continued survival of magic unicorns. People saying “Well why don’t we do this instead?” when this is actually something that cannot be done. As long as that exists , it’s hard to move forward by getting people to go through with what the Speaker refers to as the stages of grief of tax reform where you have to come to the realization that there are tough choices that have to be made and you cannot escape those tough choices.

What the reconciliation rules say—they don’t say that tax cuts have to sunset in ten years. They say that you cannot have a deficit increase beyond the 10-year window. . . . If you have legislation that has no offsets, no base broadening, so it’s just tax cuts, you either have to get Democrats to support it, which they will not, or you have to do it through reconciliation so that you can do it on a partisan basis with only Republican votes. Again, reconciliation says you cannot increase the deficit after 10 years. Here is a data point for folks. A corporate rate cut that is sunset after three years will increase the deficit in the second decade. We know this. Not 10 years. Three years. You could not do a straight up, unoffset, three-year corporate rate cut in reconciliation. The rules prohibit it. You might be able to do two years. A two year corporate rate cut—I’ll defer to the economists on the panel—would have virtually no economic effect. It would not alter business decisions. It would not cause anyone to build a factory. It would not stop any inversions or acquisitions of U.S. companies by foreign companies. It would not cause anyone to restructure their supply chain. It would just be dropping cash out of helicopters onto corporate headquarters.
Pretty strong language for a Congressional staffer to use about a plan put out by a president of his own party. And incidentally the rules he is talking about are not Senate rules that could be easily be overturned but have been written into Federal law.


G. Verloren said...

Since when does Trump care about federal law, or his goals being attainable? He'll try to do it anyway, and then whine and blame others when the effort goes nowhere and achieves nothing.


Shadow said...

I may as well come right out and say it: I have no idea what's he's talking about. I mean I get the thrust of his argument but the particulars are so much oatmeal.

And so it goes.

I just listened to Trump's Treasury secretary and head of his economic council tell us what (some) of the major changes are, and then I listened to a discussion about the major changes on one of the business channels. And so what. Saying tax rates will be lower means nothing until you understand what tax bracket all the changes together will put you in. So I am left doing what I always do in the end. I know who's running the administration, and I know who's running congress, so I figure I will somehow pay more taxes while the government will collect less.

There you go: Shadow's analysis.

G. Verloren said...

@Shadow Flutter

You missed the small part where the obscenely ultra-rich are the ones who end up profiting from it all.

The top 1% pay less in taxes, the bottom 50% - 75% pay more, and the total revenue collected is a net reduction, meaning the government can't provide as many services to the poor, so they lose out doubly. And for their cooperation, the politicians who helped make it all possible get quiet little private kickbacks and "charitably donated" funds for their reelection campaigns.

But of course, that scheme only works when the proposed changes are actually legal to push through...

Shadow said...

Ah, but G, that's implied in my own analysis at the end.