The GOP House
missed the target date for public release of their tax ‘reform’ plan yesterday, but claim that the plan will see the light of day on Thursday.
Reportedly, the reason behind the re-scheduling, which may well see further delays, is that there is disagreement within the ranks about who wins and who loses and to what extent. They may not frame it in those terms, but there is one other certainty besides death and taxes and that is that all tax plans, by nature and intention, designate winners and losers. It shouldn’t come as any surprise that the losers are those who do not have a politician on their private payroll.
The total pot of tax cuts that is said to be the number House Republicans have to work with, is $1.5 Trillion. It should be noted parenthetically what that number means.
It essentially is the amount of revenue the federal government is not going to be getting without spending cuts to balance them – so, $1.5 Trillion will be added to our already staggering national debt. But that is an abstract number with no real context to other contingencies that could change the equation. One estimate – from the Tax Policy Center, of the likely revenue drop from the tax cut plan estimates a loss of $2.4 Trillion.
During the Obama administration, the GOP made political hay out of the debt accumulated over his two terms in office and warned of dire consequences of increasing deficits. Now, with both houses of Congress in Republican control, plus a president who likely will sign anything in order to crow about “winning” – there is no discussion of cutting spending.
Deficit Funded Tax Cuts
Tax plans that balance cuts in taxes with cuts in spending, are known as “revenue neutral” plans. What has been brought forth here instead, is a deficit funded plan. The GOP faces a dilemma with such an arrangement and the dilemma is this. There is a provision in existing Senate rules that, at least the language of which, on the face of it, does not permit spending plans to result in deficits.
Tax plans that reduce revenue are still classified as spending plans. The rule is the ‘PAYGO’ rule from the Budget Enforcement Act of 1990. The Center on Budget and Policy Priorities (CBPP) defines PAYGO as:
The pay-as-you-go rule, also known as PAYGO, is designed to encourage Congress to offset the cost of any legislation that increases spending on entitlement programs or reduces revenues so it doesn’t expand the deficit. Under PAYGO, Congress must pay for such legislation by reducing other entitlement spending or increasing other revenues.
Why is this an obstacle to Republicans in passing a deficit funded tax plan? First, the plan the GOP is negotiating among themselves, a negation of those requirements. Secondly, in this case and in the case of previous bills that defied PAYGO – the housing and financial rescue legislation of 2008, the Recovery Act of 2009, and the permanent extension of most but not all of the Bush tax cuts at the end of 2012; the Senate had to meet a 60 vote threshold – not a simple 51 vote majority. That means that all Republican members of the Senate must be on board and 9 additional Democrats and Independents must vote affirmatively as well. The indications of that are widely regarded as unlikely at best.
Whenever Congress cooks up a new legislative initiative that has the tag “reform”, you should be immediately suspicious. Reform has become a code word for a ‘Satan sandwich’ and this tax reform plan is no exception.
Tax Cuts or the markets go by by.
The premise behind this initiative is tax restructuring as economic boon. And according to its proponents – the wealthier the recipient of the tax cuts, the more benefit to the broad economy results. And admitting as much, Treasury Secretary Steve Mnuchin said, “So when you’re cutting taxes across the board, it’s very hard not to give tax cuts to the wealthy with tax cuts to the middle class. The math, given how much you are collecting, is just hard to do.”
And with acknowledgment of the dilemma we outlined above, comes a warning – some might call it extortion. Mnuchin goes on to say:
“There is no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done. To the extent we get the tax deal done, the stock market will go up higher. But there’s no question in my mind that if we don’t get it done you’re going to see a reversal of a significant amount of these gains.”
In other words, tax cuts for the 1% or the markets tank.
The One Percent paying it forward for tax discounts
What is the real driving force behind this hell bent for leather determination to hand the economic elites a massive tax discount? It turns out, for example that the Koch brothers recently held a donor’s summit at the St. Regis Hotel in Manhattan, where they announced their plans to raise $400 million dollars to purchase advertising and a lobbying effort to ramrod the GOP tax plan (their tax plan essentially) through Congress.
The beneficiaries of the tax plan are already enjoying massive tax avoidance. Consider the ‘Walton Grat’ mechanism – popular with real estate billionaire Sheldon Adelson, illustrated below as merely one of many such examples:
Those who have seen the mechanics of the framework in raw outline, have pointed out that 80 percent of the tax reductions go to the top 1 percent.
In the case of the Kochs’, whose wealth is estimated at $90 Billion, the deficit funded tax plan is a windfall.
For the Walton family, the benefits could total as much as $52 billion over time.
Even Donald Trump could see reductions in his taxes of up to $1 billion – that is if the net worth he claims is nothing more than smoke and mirrors. We still haven’t seen Trump’s tax returns.
The estate tax changes in the plan benefits no one but the top 2/10ths of the 1 percenters. An analysis of House Speaker Paul Ryan’s tax proposal, by the Center on Budget and Policy Priorities, finds the plan giving workers who make $30,000 per year about $246 per year in tax cuts, while awarding those making more than $1 million per year, a $265,011 per year dividend.
But it’s “reform”, you see. If all of this is reform, why such extravagant sums of money to bribe Congress to enact reform? Asking for a friend.
The Middle and Working Class take the hit
Some discussion of offsets to fund the tax giveaway to corporations and the investment class have been floated.
A few of these offsets involve pulling the rug out from underneath the existing federal deduction for state and local taxes (“SALT” deductions), eliminating the property tax deduction, the mortgage interest deduction and disincentives to working and middle class retirement plans via limiting the amount of pretax dollars of 401Ks.
So much for the middle class tax benefits you hear them constantly carping about to set you up for yet another con job.
The silver lining in this whole gross economic power grab – (only the latest in a long series), GOP lawmakers and media surrogates claim, is a strong resurgence of the economy in which new fiscal growth will negate the effects of burgeoning debt and the shifting of the tax load from the top to the bottom. It’s the fabled “Trickle Down Tax” narrative.
In our follow up report, we’ll examine trickle down and see if there is any reality attached to it – or if instead, it is just a gold plated fallacy intended to make “tax reform” appear to be beneficial to everyone, not merely the politically well connected.