Debt, Taxes, Growth And The GOP Con Job

During more than four decades in Washington and on Wall Street it is quite possible that we never picked up any useful skills. But along the way we did unavoidably acquire what amounts to a survival tool in those fair precincts—-namely, a nose for the con job.

And what a doozy we have going now as a desperate mob of Capitol Hill Republicans attempts to enact something—anything— that can be vaguely labeled tax reform/tax cut. And for a reason that lies only slightly below the surface.

In a word, they are scared to death that the political train wreck in the Oval Office will put them out of business for years to come. So they are attempting to erect a shield of legislative accomplishment that can be sold in 2018 as the work of the GOP Congress, not the unhinged tweet-storm in the White House.

To be sure, some element of political calculus always lies behind legislation. For instance, the Dems didn’t pass the Wagner Act in 1935, the Voting Rights Act of 1965 or the Affordable Care Act of 2010 as an exercise in pure civic virtue—-these measures targeted huge constituencies with tens of millions of votes at stake.

Still, threadbare theories and untoward effects are just that; they can’t be redeemed by the risible claim that this legislative Rube Goldberg Contraption is being jammed through sight unseen (in ACA redux fashion) for the benefit of the rank and file Republican voters—and most especially not for the dispossessed independents and Dems of Flyover America who voted for Trump out of protest against the failing status quo.

To the contrary. The GOP tax bill is of the lobbies, by the PACs and for the money. Period.

There is no higher purpose or even nugget of conservative economic principle to it. The battle cry of “pro-growth tax cuts” is just a warmed over 35 year-old mantra from the Reagan era that does not remotely reflect the actual content of the bill or disguise what it really is: Namely, a cowardly infliction of more than $2 trillion of debt on future American taxpayers in order to fund tax relief today for the GOP’s K-Street and Wall Street paymasters.

On a net basis, in fact, fully 97% of the $1.412 trillion revenue loss in the Senate Committee bill over the next decade is attributable to the $1.369 trillion cost of cutting the corporate rate from 35% to 20% (and repeal of the related AMT). All the rest of the massive bill is just a monumental zero-sum pot stirring operation.

For instance, the new $2000 child credit will cost $584 billion over the decade (nearly $700 billion with the Rubio amendment to give rebates to taxpayers who don’t owe anything!).

But that is offset by the $1.22 trillion gain from repealing the current $4,050 personal exemption; the $134 billion gain from short-sheeting the indexing mechanism that protects taxpayers from inflationary bracket creep; and the $978 billion gain from eliminating the SALT (state and local taxes) deduction along with some other minor loopholes such as interest on home equity lines, non-disaster casualty losses and tax preparation expenses.

Then again, going in the other direction the bill will cost $737 billion owing to doubling the standard deduction to $24,000 per household and will further deplete Uncle Sam’s revenue collections by $1.17 trillion via rejiggering the current seven rate brackets.

But when all the zigging and zagging is done on the personal income tax side, what you get over 2018-2027 is a $1.20 trillion net reduction in personal income taxes.

But $83 billion of that goes to the estates of 5,500 dead people per year owing to doubling the estate deduction to $20 million per couple; and another $769 billion goes to about 5 million wealthy taxpayers (3.5% of filers) who are assessed the Alternative Minimum Tax (AMT) .

The latter is designed to catch taxpayers with unusually heavy use of tax deductions, exemptions and deferrals such as depreciation on personal property and real estate.

In the one year for which the Donald’s tax returns that have been leaked, for example, he paid $38 million in Federal income tax. But $31 million of that was snagged by the AMT owing to his obvious heavy use of deductions for depreciation and local taxes on property and real estate income.

We happen to agree that the AMT is a tax code monstrosity that should be repealed forthwith—having been afflicted by it ourselves. But we are also quite certain that it has nothing to do with supply-side incentives and economic growth and jobs.

No one who pays the AMT is going to work any harder or invest any more capital on account of its long overdue repeal. In fact, they actually will hire fewer people and pay lower wages and salaries—-that is, AMT payers will fire the legions of tax attorneys, accountants and consultants they employ to cope with it.

So aside from dead people and rich people, what you have left is a tiny $352 billion tax cut for the balance of 145 million tax filers over the entire next decade.

That computes to just 1.7% of CBO’s baseline revenue estimate of $21.1 trillion for the individual income tax (excluding AMT) collections over 2018-2027; and even that is written in disappearing ink, as the entire individual income tax section of the bill sunsets after 2025—save for the $32 billion per year tax increase owing to short-sheeting the inflation index.