The inherent problem with this piece as a whole is that it assumes the tenants of Debt/Deficit Hawkdom which have been demonstrably proven to be false even if you don’t buy the whole nine yards of Modern Monetary Theory.
“It’s a Ponzi Scheme”: Wall Street Fears Trump’s Deranged Tax Plan Could Kick Off Economic Euthanasia
by William D. Cohan, Vanity Fair
November 17, 2017
It’s a Ponzi scheme,” a Wall Street executive told me, dismissing the idea that a multi-trillion dollar tax cut for multinational corporations would trickle down throughout the economy and also pay for itself. It’s a view that’s widely shared among the bankers, hedge-fund managers, traders, and quants whose job it is to determine, with Vulcan accuracy, how the Republican tax bill that passed the House yesterday will actually affect the markets. It’s also more than a little ironic, given that the plan was spearheaded by two former senior partners of Goldman Sachs turned Trump shills—Gary Cohn and Steve Mnuchin—a pedigree that has done little to reassure Wall Street veterans who worry that the White House may accidentally nuke the economy in the name of “tax reform.” “Will this be the first tax cut in American history that actually results in a recession?” the executive asked.
It’s a great question. And the House plan provides plenty to be worried about in that regard. Take, for instance, the proposed elimination of the deductibility of state and local taxes. That is obviously a cynical, politically motivated ploy on Donald Trump’s part to penalize voters who didn’t vote for him (for good reason) in high-tax blue states, such as New York and California, and to give a benefit to the red-state voters who did vote for him. (I get it, elections have consequences.) Eliminating the deductibility of state and local taxes is an incredibly divisive plan. “It’s a transfer to red-state wealthy guys,” said the executive, who lives in a blue state.
Worse, he says, it could lead to another housing crisis, just as the last one is (or should be) still fresh in our collective memories. Here’s his thinking (which is hard to refute): Since, generally speaking, one of the largest state taxes is on property—your home—eliminating the federal tax deduction for state property taxes will inevitably cause the cost of homeownership in states with high property taxes to go up. It follows, logically, that if the annual cost of home ownership goes up, then the value of the home—which is for most people their single most-valuable asset—must go down. The National Association of Realtors commissioned a recent study that predicted that the elimination of the deduction for state and local taxes could result in a decrease in home valuations of between 10 percent and 17 percent.
That would wipe out a huge amount of homeowner equity, with the usual expected consequences: the sick feeling that comes from knowing that suddenly you are poorer, which can then lead to lower consumer spending, kicking off a recession. Furthermore, if the value of homes goes down, then whatever equity has been built up in those homes will also go down, and the ability to unlock that equity—through home-equity loans or reverse mortgages—will also decrease. Lower home values could also lead to problems—again—for the government-sponsored entities Fannie Mae and Freddie Mac that have guaranteed some home mortgages, which are secured by homes worth materially less. New problems for the G.S.E.s will make it harder for people to get mortgages, leading to a lower level of home ownership than already exists.
In the next little bit Cohan insists that increases in the National Debt/Deficit have already led to increases in interest rates and inflation when inflation has only hit luxury goods and the increases in interest rates are entirely due to Federal Reserve policy decisions. The rest of the World is ready to buy Treasury Notes at negative interest rates, the Fed insists we pay them for the privilege so that they have room to lower rates in accordance with now discredited Chicago School monetary theories. Inflation is for things like fake da Vincis and yachts.
On the plus side he goes on to perform a beat down of Tickle Down Supply Side Voodoo Economics.
What will happen, they (Republicans) say, is that the tax cuts will unleash our collective animal spirits and put G.D.P. growth on a much-higher trajectory, generating an additional $1 trillion in tax receipts over 10 years to partially offset the cost of the tax cuts. Federal tax receipts in 2016 were $3.27 trillion, or 17.5 percent of 2016 G.D.P. of $18.6 trillion. In order for tax receipts to generate another $1 trillion over 10 years, G.D.P. would have to grow on the order of another 2.5 percent per year, compounded for 10 years. In other words, the United States economy would have to grow at around 5 percent annually for the next 10 years, in line with emerging economic powerhouses China and India. Guess what sports fans? That’s not happening, especially in an economy that has already supposedly been benefiting from absurdly low interest rates for close to a decade, and that is already at or near structural full employment.
Sure, there are some goodies in it for Wall Street’s clients, which might end up being good for them, too. Cutting the corporate tax rate to 20 percent from 35 percent should generate higher corporate profits— not that generating corporate profits has been much of a problem lately— that should translate into even higher stock prices, which would benefit shareholders (including Wall Street bankers and traders) and that might result in more investment banking business, which tends to be correlated with growing C.E.O. confidence. Talk about trickle down! The reality is that few corporations have been paying taxes at a 35 percent rate, so lowering them to 20 percent may not change their bottom lines much. Furthermore, the expected corporate tax cut has already likely been baked into the stock market, which is trading at or near all-time highs. In fact, as details of the tax plan have come out in recent days, the stock market has pulled back a bit. My guess is that it has found its highs for the time being.
Then there is the tax holiday that corporations will get if they choose to repatriate some or all of the $2 trillion or so held overseas. Having drunk the Trump Kool-Aid by now, Cohn tried out some of the Trump mind games on a group of C.E.O.s at a Wall Street Journal conference the other day. They didn’t fall for it. He asked them for a show of hands as to whether the tax plan would lead to higher corporate investment. A few hands went up but fewer than Cohn had expected. “Why aren’t the other hands up?” he asked. They’re not up, Gary, because it’s obvious to them, and many of the rest of us, that trickle-down economics is a myth.
If Cohn were being more honest, he’d admit what most chief executives are saying privately, and some publicly. “The Trump team is arguing that massively cutting taxes for corporations will somehow translate into significant wage increases for working people,” David Mendels, the former C.E.O. of publicly traded software company Brightcove wrote last week. “This argument fundamentally disregards everything we know about how companies actually decide to hire and how much to pay their employees. As a C.E.O. (and in previous roles) I was involved in hiring and determining salaries for thousands of people over 25 years. From real-world experience I can tell you that tax rates literally never came up in any discussion about hiring or pay levels.” Occam’s razor, he added, is the best rubric to predict what will happen when you give investors more money in the absence of increased demand: they’ll keep it.
Howard Schultz, the billionaire executive chairman of Starbucks, was more blunt: “This is not tax reform,” he said at the DealBook conference in New York last week. “This is a tax cut. It’s fool’s gold that he wants to take the corporate tax rate from 35 percent to 20 percent. For what purpose? Is that profit going to go back to the people who need it the most? Is that going to help half the country that doesn’t have $400 in their bank account for a crisis? No.”
Executives know there’s no mechanism in the G.O.P. tax plan to reward them for passing those savings along to their employees, who Paul Ryan has estimated would get an average $4,000 raise (over a decade) as a result of corporate largesse. The labor market has tightened considerably—the unemployment rate is at a 15-year low—and the stock market is starting to level off. The word on the street, though, isn’t that higher corporate profits will lead to higher wages; rather, it’s all about buybacks: Goldman says stock buybacks will hit $590 billion in 2018, while Merrill Lynch predicts half of all repatriated cash would go to buybacks or acquisitions. It’s a sugar high that might extend the market rally temporarily, but will deepen the rot in our economic cavity.
There is one bright spot in the Trump tax plan for Wall Streeters: the proposed elimination of the estate tax. While the estate tax snags only around 5,000 estates per year—which applies to estates with a fair market value greater than $11 million, for married couples—eliminating the estate tax completely will be of some benefit to bankers, traders, and executives, many of whom do have a net worth in excess of $11 million. “That’s great,” my Wall Street friend said, “but I’ll be dead by then.”
Sooner than you think maybe, the piece in BoingBoing I got the link from puts it in starker terms (check the url)-
Candid Wall Street barons worry that GOP tax plan will lead to literal euthanasia of the rentier
by Cory Doctorow, BoingBoing
Sat Nov 18, 2017
In 1936, John Maynard Keynes suggested that a fair economic system would lead to “the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital” — implying that we have a choice between fairness and extreme wealth, and that the two couldn’t peacefully co-exist.
Lurking in the back of the minds of the super-rich, and in the share-price of surveillance/control businesses like Palantir and G4S is the fear that one day, the world will come to realized that Peter Thiel was right when he declared that the “freedom” to be a ruthless exploiter plutocrat was not “compatible” with democracy, and decide to opt for the latter (Thiel, meanwhile, seems to plump for the former).
Now, the Republican Party is pushing for a tax-plan that rewards literal idle wealth, windfalls to fund share buybacks and other nonproductive financial engineering, millions for the children of the richest 0.2% of Americans, while making it impossible for all but the wealthiest to go to grad school, cutting funds for rural people suffering from opiod addiction, cutting health-care for 9,000,000 poor American children; raising tax on the dwindling middle class, raising tax on home-ownership, cuts funding for health care for the poorest Americans across the board, cuts benefits for veterans, adds 1.5 trillion to the debt.
Candid Republican lawmakers have admitted that they feel they must transfer trillions to the richest Americans or face the end of their political careers as their campaign contributions dry up.
But as wave after wave of revelations come about the impunity with which the super-rich dodge taxes and cram the American worker, the euthanasia of the rentier is gaining traction.
Now me, I’m anti death penalty, even for aristocrats. Better they should rot in Spandau for the rest of their long and thoroughly miserable lives and lose all their money, but here’s what Robspierre had to say-
La terreur n’est autre chose que la justice prompte, sévère, inflexible; elle est donc une émanation de la vertu ; elle est moins un principe particulier, qu’une conséquence du principe général de la démocratie, appliqué aux plus pressants besoins de la patrie.