Republican Tax Plan 2017

[Michael in ABQ]

With 5 kids I can make up to about $90k under the house plan and $105k under the senate plan and have zero income tax burden. Sounds like a pretty good deal for me. Of course under the current system the exemptions and child tax credits basically wipe out my income taxes anyways but I used to get some back from the refundable child tax credits when my income was lower

[DarkandStormy]

I wonder what the sentiment will be when most people find that their first paycheck in the new year is a little fatter.

The real question is if people will have long enough attention spans to recognize their taxes increasing on the back end of this deal and when their tax cuts expire but the corporations don't.

That's a rhetorical question right?

Yes.  Virtually everyone sees a slightly lower number for '17/'18 comparisons and thinks "YAY! What's wrong with this plan?"  Very few are talking about how bad this plan is over the next decade+ for almost all people except the top 0.1%.

[RangerOne]

If you are talking about the tax rates expiring this isn't a problem. The problem is the fiscal irresponsibility of an unfunded tax cut, and the eventual need to cut programs. The assumption that no sane Congress would allow middle class tax breaks to expire is sound at least historically.

[DarkandStormy]

If you are talking about the tax rates expiring this isn't a problem. The problem is the fiscal irresponsibility of an unfunded tax cut, and the eventual need to cut programs. The assumption that no sane Congress would allow middle class tax breaks to expire is sound at least historically.

The GOP sure had their panties in a bunch under Obama about deficits.  Now they're in charge and they're excited about adding $1.5 trillion to the debt.

But yes, it's all about paving the way of cutting programs like Medicare and Medicaid

Sherrod Brown was calling out the Senate on their BS and Orrin Hatch was feigning taking offense, saying no real proposals brought by Democrats, etc. etc.  So Brown says, "OK, let's start with CHIP."  And Hatch is like, "No, we're not starting with CHIP."  LOL wtf dude?

[Just Joe]

So what does the GOP expect America to look like when the poor have little or no safety nets?

[ixtap]

So what does the GOP expect America to look like when the poor have little or no safety nets?

All those poor people will suddenly have an incentive to be productive members of society. They will go out and get jobs with sustainable incomes.

Barring that, they will suffer the wrath that God rains down on the lazy.

Everyone knows that welfare is what traps people in poverty.

[sol]

So what does the GOP expect America to look like when the poor have little or no safety nets?

All those poor people will suddenly have an incentive to be productive members of society. They will go out and get jobs with sustainable incomes.

Barring that, they will suffer the wrath that God rains down on the lazy.

Everyone knows that welfare is what traps people in poverty.

Can't... tell... if sarcasm... or not.

[ixtap]

So what does the GOP expect America to look like when the poor have little or no safety nets?

All those poor people will suddenly have an incentive to be productive members of society. They will go out and get jobs with sustainable incomes.

Barring that, they will suffer the wrath that God rains down on the lazy.

Everyone knows that welfare is what traps people in poverty.

Can't... tell... if sarcasm... or not.

Pretty much word for word what I have been told. The satire writes itself.

[Glenstache]

So what does the GOP expect America to look like when the poor have little or no safety nets?

I think the short answer is that they simply don't care.

[ZiziPB]

One of the commentators I heard recently said something that I think is a very accurate description of the bill.  He said the only goal is to get the corporate rate down to 20%, the rest is just window dressing.  BTW, does anyone know if either of the bills closes even one corporate tax loophole??

[sol]

One of the commentators I heard recently said something that I think is a very accurate description of the bill.  He said the only goal is to get the corporate rate down to 20%, the rest is just window dressing.

Was that commentator me, in this very thread?  When I said...

That's really the primary motivation of the GOP tax platform.  It basically only does one thing: it permanently cuts the corporate tax rate from 35 to 20%, and it drives the country into debt to do it.  Everything else is a sideshow.  The individual bracket changes, the loopholes and deductions, the individual mandate repeal, they're basically all trivial details when compared to the multitrillion dollar impact of going into debt to pay for corporate tax cuts. 

Whether or not you or I pay a little more or a little less almost doesn't matter, in that context.  This bill isn't about US citizens, it's about US corporations and how much debt they can offload to US taxpayers in their pursuit of higher profits.

[ZiziPB]

One of the commentators I heard recently said something that I think is a very accurate description of the bill.  He said the only goal is to get the corporate rate down to 20%, the rest is just window dressing.

Was that commentator me, in this very thread?  When I said...

That's really the primary motivation of the GOP tax platform.  It basically only does one thing: it permanently cuts the corporate tax rate from 35 to 20%, and it drives the country into debt to do it.  Everything else is a sideshow.  The individual bracket changes, the loopholes and deductions, the individual mandate repeal, they're basically all trivial details when compared to the multitrillion dollar impact of going into debt to pay for corporate tax cuts. 

Whether or not you or I pay a little more or a little less almost doesn't matter, in that context.  This bill isn't about US citizens, it's about US corporations and how much debt they can offload to US taxpayers in their pursuit of higher profits.

Haha, it was someone else but stating your exact sentiment. 

So what about those corporate loopholes?  Have any been closed? 

[Acastus]

One of the commentators I heard recently said something that I think is a very accurate description of the bill.  He said the only goal is to get the corporate rate down to 20%, the rest is just window dressing.  BTW, does anyone know if either of the bills closes even one corporate tax loophole??

Corporate tax cuts cost about 2 trillion over 10 years. The total tax cut is at 6 trillion for now. Not exactly a sideshow. The cuts to the 40% bracket and pass throughs for Donald'sh companies cost a lot, too.

How anyone can call raising taxes on 30% of the population a tax cut is the height of hubris.

[Glenstache]

One of the commentators I heard recently said something that I think is a very accurate description of the bill.  He said the only goal is to get the corporate rate down to 20%, the rest is just window dressing.  BTW, does anyone know if either of the bills closes even one corporate tax loophole??

Corporate tax cuts cost about 2 trillion over 10 years. The total tax cut is at 6 trillion for now. Not exactly a sideshow. The cuts to the 40% bracket and pass throughs for Donald'sh companies cost a lot, too.

How anyone can call raising taxes on 30% of the population a tax cut is the height of hubris.

Also known as "doublespeak"
https://en.wikipedia.org/wiki/Doublespeak

[DarkandStormy]

https://www.cnbc.com/2017/11/20/senate-gop-tax-plan-to-ultimately-raise-taxes-for-half-of-us-tax-policy-center.html

Trump spoke as the Tax Policy Center said that while all income groups would see tax reductions, on average, under the Senate bill in 2019, 9 percent of taxpayers would pay higher taxes that year than under current law. By 2027, that proportion would grow to 50 percent, largely because the legislation's personal tax cuts expire in 2026, which Republicans did to curb budget deficits the bill would create.

In 2019, those making less than $25,000 would get an average $50 tax reduction, or 0.3 percent of their after-tax income. Middle-income earners would get average cuts of $850, while people making at least $746,000 would get average cuts of $34,000, or 2.2 percent of income.

The center also said the Senate proposal would generate enough economic growth to produce additional revenue of $169 billion over a decade. That's far short of closing the near $1.5 trillion in red ink that Congress' nonpartisan Joint Committee on Taxation has estimated the bill would produce over that period.

So basically the plan does very little for economic growth while making sure corporations and the top 1% get a little more cash.  Idiotic.

[A Definite Beta Guy]

Giving corporations and the top 1% a tax cut makes more sense from a supply-side growth perspective than a tax cut for wage earners. The bottom do not drive growth.

[obstinate]

Giving corporations and the top 1% a tax cut makes more sense from a supply-side growth perspective than a tax cut for wage earners. The bottom do not drive growth.

Yeah, in that model, it's true. But the supply side model is not actually how reality works, so a tax policy being good in that model does it no credit in real life.

[ixtap]

Giving corporations and the top 1% a tax cut makes more sense from a supply-side growth perspective than a tax cut for wage earners. The bottom do not drive growth.

The economics class I took said that the demand side causes the supply to grow. So we will have a greater demand for luxury goods?

[partgypsy]

Giving corporations and the top 1% a tax cut makes more sense from a supply-side growth perspective than a tax cut for wage earners. The bottom do not drive growth.

yes, economic experts call supply-side economics "voodoo economics". It has been shown historically not to help to the degree proponents say it will, hence the ballooning of the deficits that happened during the Reagan years. People using the "supply-side" argument for these tax cuts are ignorant, deceptive or both. Other names for it is "trickle down" economics, and also
"horse and sparrow theory"
"—what an older and less elegant generation called the horse-and-sparrow theory: If you feed the horse enough oats, some will pass through to the road for the sparrows." — John Kenneth Galbraith

Demand does create supply. The opposite is not necessarily true.

[Dancin'Dog]

We elected Trump & he'll give us what we deserve for being so foolish. 

He said he would "drain the swamp", but he didn't tell us that he'd "drain our wallets" too. 

[RangerOne]

Giving corporations and the top 1% a tax cut makes more sense from a supply-side growth perspective than a tax cut for wage earners. The bottom do not drive growth.

That statement can't be universally true. If you give more money to consumers they can absolutely drive growth. Walmart could certainly gorw if everyone shopped more. But clearly not all companies would benefit.

Just the same boosting coorporate earnings gives you first short term artificial growth if we'll after tax earnings get a bump. It will also put more money in the pockets of growing companies to grow faster which means more jobs. I haven't studied this so I must assume there are some studies on the potential impact of expanding your middle income consuemr base.

But I assume some companies are happy with their growth rate and won't just hire more people. They can pocket the extra earnings or simply pump it right back into stocks and their share holders. The later is not really the growth we need though I believe this will be more common from the largest American companies.

I think the Republican balancing between breaks for mid and high are off balance. And their budgeting ability sucks as bad as the Dems the railed on for the past 8 years.

[A Definite Beta Guy]

Giving consumers more money works to boost demand, but you don't need more demand except in cases where the economy is in recession. It's more a special case than the general rule.

All economic growth in the long-run comes from innovation, resources, and capital deepening....IE, the supply side. Not all tax cuts are equal, and if you are going to go for a supply-side tax cut, you should target the people who actually are most likely to produce more with a tax reduction. To give a labor economics example, men are not as sensitive to the tax rate as women are. Men just work per their social-norm required hours. Women are more likely to have a decision between working part-time, full-time, or not at all, and are more likely to work when the tax rate is lower.
Either way, though, reducing tax cuts on the middle class would be considered less important than cutting taxes on innovators, savers, and investors.

Most conservative economists will point out that the phase-outs of government spending create marginal tax rates close to or over 100% for lower-income families, but that's not the middle class either.

I hope you're just saying that since it's the basis of supply-side economics and not something you actually believe. In the economic literature, supply-side economics is given about as much credibility as homeopathy is by Western medicine.

Not really. This is just a Democratic political attack. There's no one that believes in the extreme claims that tax cuts pay for themselves, but that's totally different from everyone assuming tax cuts are a bad idea and tax hikes pose no problem at all.

[ZiziPB]

An interesting article regarding existing and new tax loopholes in the House bill:

https://www.bloomberg.com/news/articles/2017-11-21/tax-loopholes-for-wall-street-s-wealthiest-loom-in-house-bill

[Scortius]

Giving consumers more money works to boost demand, but you don't need more demand except in cases where the economy is in recession. It's more a special case than the general rule.

All economic growth in the long-run comes from innovation, resources, and capital deepening....IE, the supply side. Not all tax cuts are equal, and if you are going to go for a supply-side tax cut, you should target the people who actually are most likely to produce more with a tax reduction. To give a labor economics example, men are not as sensitive to the tax rate as women are. Men just work per their social-norm required hours. Women are more likely to have a decision between working part-time, full-time, or not at all, and are more likely to work when the tax rate is lower.
Either way, though, reducing tax cuts on the middle class would be considered less important than cutting taxes on innovators, savers, and investors.

Most conservative economists will point out that the phase-outs of government spending create marginal tax rates close to or over 100% for lower-income families, but that's not the middle class either.

I hope you're just saying that since it's the basis of supply-side economics and not something you actually believe. In the economic literature, supply-side economics is given about as much credibility as homeopathy is by Western medicine.

Not really. This is just a Democratic political attack. There's no one that believes in the extreme claims that tax cuts pay for themselves, but that's totally different from everyone assuming tax cuts are a bad idea and tax hikes pose no problem at all.

You're right, we don't need more demand right now, and with corporations sitting on record levels of cash reserves, we certainly don't need to give them more tax breaks to help them stimulate the current record bull market. So, why the hell are we cutting taxes right now at all? Indeed, we want to stimulate the growth of our economy by reducing the burden on innovators, so let's leverage a tax on tuition credits that will all but destroy America's amazing system of higher eduction, the source of which has brought most of the expansion of our modern information-age economy. For all of the things you name as important, this tax bill addresses none of those issues and actively penalizes others. But at least it will add 2 trillion to the debt once the temporary tax cuts are made permanent. All for what?

[J Boogie]

I think it's important to differentiate between the idea that domestic trickle-down economics is effective and the idea that lowering the corporate tax rate to a more globally competitive number is needed to stop businesses from moving their HQs.

It makes sense to lower our corp tax rate to 20%.  The avg corp tax rate in the EU is 22.5%.

Maybe we're not big fans of globalization, but as one country we can't enact effective legislation to stop businesses from relocating. I think our best option is to be competitive so we recapture some of these trillions of dollars that corporations hold in tax havens.

[Glenstache]

Giving consumers more money works to boost demand, but you don't need more demand except in cases where the economy is in recession. It's more a special case than the general rule.

All economic growth in the long-run comes from innovation, resources, and capital deepening....IE, the supply side. Not all tax cuts are equal, and if you are going to go for a supply-side tax cut, you should target the people who actually are most likely to produce more with a tax reduction. To give a labor economics example, men are not as sensitive to the tax rate as women are. Men just work per their social-norm required hours. Women are more likely to have a decision between working part-time, full-time, or not at all, and are more likely to work when the tax rate is lower.
Either way, though, reducing tax cuts on the middle class would be considered less important than cutting taxes on innovators, savers, and investors.

Most conservative economists will point out that the phase-outs of government spending create marginal tax rates close to or over 100% for lower-income families, but that's not the middle class either.

It is worth pointing out that the currently proposed tax bill will strongly discourage people from going to graduate school because they will be taxed on the value of tuition waivers received for doing work for the university (teaching , etc). This is a directly disincentive to innovation, etc. This is in addition to changes in deductions for student loan interest. This will have a long-term negative impact on our country's standing in STEM and innovation. 

[Scortius]

I think it's important to differentiate between the idea that domestic trickle-down economics is effective and the idea that lowering the corporate tax rate to a more globally competitive number is needed to stop businesses from moving their HQs.

It makes sense to lower our corp tax rate to 20%.  The avg corp tax rate in the EU is 22.5%.

Maybe we're not big fans of globalization, but as one country we can't enact effective legislation to stop businesses from relocating. I think our best option is to be competitive so we recapture some of these trillions of dollars that corporations hold in tax havens.

I keep hearing this argument as well, but I think it's important to question the premise that we want to be involved in a race to the bottom. On the surface it makes intuitive sense that we want to have a lower tax rate than our 'competitors', but I think that overlooks and undervalues exactly what we have here in the US. Right now we have far and away the best higher education and academic research system in the world.  The smartest and best students from every country in the world come to the US to study. That benefits the US economy immensely. So many of the modern start-up 'unicorns' have been built by first, second, or third generation immigrants of families that came to the US to study advanced technology. We have the best collection of engineering and mathematic talent in the world by far. Foreign talent fights to obtain visas to come work in the US.

If you wanted to start a modern day tech company, the type that would operate on a global scale, where would you do it? Well, the answer is easy, you do it in Silicon Valley. That's not hyperbole, it's the verifiable truth. Why would you do it in the country with the higher tax rate, in the state with the higher tax rate, in the city with the insane cost of living? Why wouldn't you start your tech company in Austria or Italy, China or India? Because you go to where the talent is and you are more than willing to pay that premium.

Makers of superior luxury goods don't compete in price wars with companies that offer cheaper generic comparable goods. Similarly, the US should have no need to engage in a corporate tax war with a country like India. We are the country that produces the superior brand in terms of an educated workforce, modern infrastructure, stable and uncorrupt government.  All that talk about how VTSAX is a 'global' index because all the companies operate globally. There's a reason all of those companies originated and are based in the US, and it sure as hell isn't because our corporate tax rate is lower. If anything, we should be doing whatever we can to make sure we stay the global leader in higher education and research as the US has benefited incredibly from it's ability to draw in the top talent from across the world to work and innovate (and pay taxes) here in the US. Thus, why this idea of partially paying for corporate tax cuts by cutting tuition credits is the most asinine idea I've ever heard of.

[DarkandStormy]

It makes sense to lower our corp tax rate to 20%.  The avg corp tax rate in the EU is 22.5%.

The average effective corporate tax rate in the U.S. is 19%.

[J Boogie]

I agree the US is great. But we're not great because of our 35% corp tax rate, and adjusting it to match our peers doesn't constitute a race to the bottom - maybe if we aimed to beat Singapore or Ireland, I'd see it that way.

If we kill loopholes and lower to 20%, I think it's possible our revenue might increase, not decrease.

Yeah, silicon valley is special. Our universities are special. And it's good to focus on making those core competencies of ours better, not worse. However there's very little our 35% corp tax rate contributes to making silicon valley special. It'd be just as or more special if we lower it to 20%. Our schools are funded by state governments, not federal. I don't think there's a very strong positive relationship between our 35% rate and the success of our universities.

I'd be interested in your argument that our 35% corp tax rate directly benefits silicon valley and our universities.

As far as luxury brands go, we overestimate our superiority at our own peril. Peter Thiel himself sees Silicon Valley's dominance diminishing over the next ten years, to no region in particular - though he mentions China as a country where there has been immense innovation recently.

Spotify, Skype, Tencent (Chinese version of FB with a higher valuation than FB), Waze, Shazam, etc all started outside silicon valley and outside the US for that matter.

Another reason it would make us more competitive - combined with killing loopholes, it would shift focus away from creative tax strategy, which creates zero value - to allow focus something that does create value.

[J Boogie]

It makes sense to lower our corp tax rate to 20%.  The avg corp tax rate in the EU is 22.5%.

The average effective corporate tax rate in the U.S. is 19%.

Plus all of the work needed to get that rate keeps of financial professionals employed. ;)

Exactly my point - as low as 12% by some estimates. That's why I think a 20% tax rate would actually result in increased revenue, as companies would be disincentived to pursue loopholes as the financial benefit would greatly diminish. They couldn't justify hiring the best of the best tax lawyers to get them 1/4 of the tax break they've historically been able to achieve - and this is factoring no efforts to close loopholes.

Even Obama wanted to lower the corp tax rate - granted, not to 20, but 28, but still - he recognized 35% is problematic.

[sokoloff]

If you wanted to start a modern day tech company, the type that would operate on a global scale, where would you do it? Well, the answer is easy, you do it in Silicon Valley. That's not hyperbole, it's the verifiable truth. Why would you do it in the country with the higher tax rate, in the state with the higher tax rate, in the city with the insane cost of living? Why wouldn't you start your tech company in Austria or Italy, China or India? Because you go to where the talent is and you are more than willing to pay that premium.

I would start as a Delaware company and hire employees in Silicon Valley, but if I were targeting a global company, I'd be sure to have a plan for how to make the company not a US company in the end, or at least not exclusively a US company. That's pretty much the standard playbook for VC-funded tech startups. I can think of far more Delaware startups than California startups, even those who are very heavy employers in California.

[Peter Parker]

I agree the US is great. But we're not great because of our 35% corp tax rate, and adjusting it to match our peers doesn't constitute a race to the bottom - maybe if we aimed to beat Singapore or Ireland, I'd see it that way.

If we kill loopholes and lower to 20%, I think it's possible our revenue might increase, not decrease.

Yeah, silicon valley is special. Our universities are special. And it's good to focus on making those core competencies of ours better, not worse. However there's very little our 35% corp tax rate contributes to making silicon valley special. It'd be just as or more special if we lower it to 20%. Our schools are funded by state governments, not federal. I don't think there's a very strong positive relationship between our 35% rate and the success of our universities.

I'd be interested in your argument that our 35% corp tax rate directly benefits silicon valley and our universities.

As far as luxury brands go, we overestimate our superiority at our own peril. Peter Thiel himself sees Silicon Valley's dominance diminishing over the next ten years, to no region in particular - though he mentions China as a country where there has been immense innovation recently.

Spotify, Skype, Tencent (Chinese version of FB with a higher valuation than FB), Waze, Shazam, etc all started outside silicon valley and outside the US for that matter.

Another reason it would make us more competitive - combined with killing loopholes, it would shift focus away from creative tax strategy, which creates zero value - to allow focus something that does create value.

One thing that is rarely mentioned when it comes to US corporations is that we also have the greatest military in the world that protects their interests around the globe (think oil in the middle east).  This costs life and treasure....

I see taxes like insurance--when you have more to lose your premium should be higher.

[sokoloff]

I see taxes like insurance--when you have more to lose your premium should be higher.

I don't think there's all that much debate on that point. The question is not whether they should be higher in absolute numbers, but whether they should be progressively higher as a percentage of <whatever>.

IOW, should they be twice as much when you have twice as much to lose, or more than twice as much?

[DarkandStormy]

It makes sense to lower our corp tax rate to 20%.  The avg corp tax rate in the EU is 22.5%.

The average effective corporate tax rate in the U.S. is 19%.

Plus all of the work needed to get that rate keeps of financial professionals employed. ;)

Exactly my point - as low as 12% by some estimates. That's why I think a 20% tax rate would actually result in increased revenue, as companies would be disincentived to pursue loopholes as the financial benefit would greatly diminish. They couldn't justify hiring the best of the best tax lawyers to get them 1/4 of the tax break they've historically been able to achieve - and this is factoring no efforts to close loopholes.

Even Obama wanted to lower the corp tax rate - granted, not to 20, but 28, but still - he recognized 35% is problematic.

You want 20% but keep the deductions/credits?

If you don't think companies will still pay to pay as close to $0 in tax as possible, you don't understand corporations.  It's all about squeezing as many dollars as they can.

Plus, most companies are probably sitting on NOLs and Cap Losses to carry forward anyway.  It would be a mess.

[J Boogie]

It makes sense to lower our corp tax rate to 20%.  The avg corp tax rate in the EU is 22.5%.

The average effective corporate tax rate in the U.S. is 19%.

Plus all of the work needed to get that rate keeps of financial professionals employed. ;)

Exactly my point - as low as 12% by some estimates. That's why I think a 20% tax rate would actually result in increased revenue, as companies would be disincentived to pursue loopholes as the financial benefit would greatly diminish. They couldn't justify hiring the best of the best tax lawyers to get them 1/4 of the tax break they've historically been able to achieve - and this is factoring no efforts to close loopholes.

Even Obama wanted to lower the corp tax rate - granted, not to 20, but 28, but still - he recognized 35% is problematic.

You want 20% but keep the deductions/credits?

If you don't think companies will still pay to pay as close to $0 in tax as possible, you don't understand corporations.  It's all about squeezing as many dollars as they can.

Plus, most companies are probably sitting on NOLs and Cap Losses to carry forward anyway.  It would be a mess.

No, I want to close loopholes as well. My point is that when there isn't that much left to save, the juice isn't worth the squeeze. Of course corporations want to minimize their tax burdens as much as possible. But their efforts will be much different when there's far less to save. This effect will be compounded by the closing of loopholes.

[J Boogie]

I agree the US is great. But we're not great because of our 35% corp tax rate, and adjusting it to match our peers doesn't constitute a race to the bottom - maybe if we aimed to beat Singapore or Ireland, I'd see it that way.

If we kill loopholes and lower to 20%, I think it's possible our revenue might increase, not decrease.

Yeah, silicon valley is special. Our universities are special. And it's good to focus on making those core competencies of ours better, not worse. However there's very little our 35% corp tax rate contributes to making silicon valley special. It'd be just as or more special if we lower it to 20%. Our schools are funded by state governments, not federal. I don't think there's a very strong positive relationship between our 35% rate and the success of our universities.

I'd be interested in your argument that our 35% corp tax rate directly benefits silicon valley and our universities.

As far as luxury brands go, we overestimate our superiority at our own peril. Peter Thiel himself sees Silicon Valley's dominance diminishing over the next ten years, to no region in particular - though he mentions China as a country where there has been immense innovation recently.

Spotify, Skype, Tencent (Chinese version of FB with a higher valuation than FB), Waze, Shazam, etc all started outside silicon valley and outside the US for that matter.

Another reason it would make us more competitive - combined with killing loopholes, it would shift focus away from creative tax strategy, which creates zero value - to allow focus something that does create value.

One thing that is rarely mentioned when it comes to US corporations is that we also have the greatest military in the world that protects their interests around the globe (think oil in the middle east).  This costs life and treasure....

I see taxes like insurance--when you have more to lose your premium should be higher.

Yeah, our military spending crossed my mind in regards to why we would need to charge more.

However, as has been mentioned, the avg corp tax rate is pretty low as tons of sheltering and tax law gymnastics is going on, so it seems we're not actually getting more revenue from our corps than other countries without massive militaries.

[DarkandStormy]

No, I want to close loopholes as well. My point is that when there isn't that much left to save, the juice isn't worth the squeeze. Of course corporations want to minimize their tax burdens as much as possible. But their efforts will be much different when there's far less to save. This effect will be compounded by the closing of loopholes.

I could get behind a 20% corporate rate with no deductions or credits.  But it'll never pass - they'll throw a fit and lobby the **** out of Congress.  Not to mention all the tax prep work that goes on.

[Peter Parker]

I agree the US is great. But we're not great because of our 35% corp tax rate, and adjusting it to match our peers doesn't constitute a race to the bottom - maybe if we aimed to beat Singapore or Ireland, I'd see it that way.

If we kill loopholes and lower to 20%, I think it's possible our revenue might increase, not decrease.

Yeah, silicon valley is special. Our universities are special. And it's good to focus on making those core competencies of ours better, not worse. However there's very little our 35% corp tax rate contributes to making silicon valley special. It'd be just as or more special if we lower it to 20%. Our schools are funded by state governments, not federal. I don't think there's a very strong positive relationship between our 35% rate and the success of our universities.

I'd be interested in your argument that our 35% corp tax rate directly benefits silicon valley and our universities.

As far as luxury brands go, we overestimate our superiority at our own peril. Peter Thiel himself sees Silicon Valley's dominance diminishing over the next ten years, to no region in particular - though he mentions China as a country where there has been immense innovation recently.

Spotify, Skype, Tencent (Chinese version of FB with a higher valuation than FB), Waze, Shazam, etc all started outside silicon valley and outside the US for that matter.

Another reason it would make us more competitive - combined with killing loopholes, it would shift focus away from creative tax strategy, which creates zero value - to allow focus something that does create value.

One thing that is rarely mentioned when it comes to US corporations is that we also have the greatest military in the world that protects their interests around the globe (think oil in the middle east).  This costs life and treasure....

I see taxes like insurance--when you have more to lose your premium should be higher.

Yeah, our military spending crossed my mind in regards to why we would need to charge more.

However, as has been mentioned, the avg corp tax rate is pretty low as tons of sheltering and tax law gymnastics is going on, so it seems we're not actually getting more revenue from our corps than other countries without massive militaries.

Which is my point--Why provide Corporations with a tax cut when we provide them with:

1.  The highest educated workforce in the world
2.  The highest investment in research and development
3.  The protections of  our laws (patents etc)
4.  And the might and protection of our military around the world

Maybe they should pay more for all of this rather than the 19% effective rate that they are paying now.  Maybe we should tax products made by US corporations that produce products oversees (so they don't have to pay american wages) at a higher rate....when we are the ones that are shouldering the costs for their protection.

[DumpTruck]

Yeah, but why would the corporations, which control the government, offer to tax themselves more? That doesn't make sense does it?

[J Boogie]

Yeah, but why would the corporations, which control the government, offer to tax themselves more? That doesn't make sense does it?

Corporations are happy to take advantage of the various loopholes they can find at any given time, naturally. They'll lobby and study to have as much tax avoidance as possible.

However, all the moving parts that contribute to this strategy make it more difficult for corporations to forecast how risky their new investments will be. There's a lot of value in having a stable and predictable tax rate when it comes to making long term financial decisions.

I disagree with your statement that corporations control the govt. It lacks nuance and totally lets us off the hook. Corporations didn't vote trump in, we did. Corporations didn't elect the congress and the senate, we did. Sure they lobby and litigate. It's concerning no doubt, but their influence does not equal control. Corruption is much lower in the US than in the developing world and we're not much more corrupt than other developed nations.

[A Definite Beta Guy]

Giving consumers more money works to boost demand, but you don't need more demand except in cases where the economy is in recession. It's more a special case than the general rule.

All economic growth in the long-run comes from innovation, resources, and capital deepening....IE, the supply side. Not all tax cuts are equal, and if you are going to go for a supply-side tax cut, you should target the people who actually are most likely to produce more with a tax reduction. To give a labor economics example, men are not as sensitive to the tax rate as women are. Men just work per their social-norm required hours. Women are more likely to have a decision between working part-time, full-time, or not at all, and are more likely to work when the tax rate is lower.
Either way, though, reducing tax cuts on the middle class would be considered less important than cutting taxes on innovators, savers, and investors.

Most conservative economists will point out that the phase-outs of government spending create marginal tax rates close to or over 100% for lower-income families, but that's not the middle class either.

I hope you're just saying that since it's the basis of supply-side economics and not something you actually believe. In the economic literature, supply-side economics is given about as much credibility as homeopathy is by Western medicine.

Not really. This is just a Democratic political attack. There's no one that believes in the extreme claims that tax cuts pay for themselves, but that's totally different from everyone assuming tax cuts are a bad idea and tax hikes pose no problem at all.

You're right, we don't need more demand right now, and with corporations sitting on record levels of cash reserves, we certainly don't need to give them more tax breaks to help them stimulate the current record bull market. So, why the hell are we cutting taxes right now at all? Indeed, we want to stimulate the growth of our economy by reducing the burden on innovators, so let's leverage a tax on tuition credits that will all but destroy America's amazing system of higher eduction, the source of which has brought most of the expansion of our modern information-age economy. For all of the things you name as important, this tax bill addresses none of those issues and actively penalizes others. But at least it will add 2 trillion to the debt once the temporary tax cuts are made permanent. All for what?

So you support sending more people to graduate education to expand the economy? And you think raising taxes on graduate students will reduce the number of graduate students and therefore reduce economic growth. Because that's really only one step away from supply-side economics, and because graduate students are wealthier than the average American, it is also trickle-down economics.

Anyways, the idea behind the tax isn't necessarily to pump more money into the economy to make the economy grow faster. It's to make investment and innovation more attractive. If you have a hypothetical investment that yields $1,000,000 over the next 10 years, you make $5.8 million at a tax rate of 35%, and $7.2 million at a tax rate of 20%. All investments that cost between $5.8 million and $7.2 million suddenly become viable investment projects. The government is also basically subsidizing any project that were going to be pursued anyways, but there are some projects that become better.

If the tax cut actually "stimulated" a full-employment economy, the Fed would have to raise interest rates to offset the stimulus.


Panda,
"Innovation" is hard to measure, but no one denies that it exists. You can look into Krugman's "The Myth of the Asian Miracle" for a discussion on this from a liberal economist, where he argues that Asian economies have accomplished all their economic growth by input gains, rather than actual productivity improvements. The slowdown in both the Korean and Japanese economies bolsters that point, IMO.

Your assertion that NO ONE takes supply-side economics just isn't true. Here's Gregory Mankiw in the NY Times, who gives an off-hand comment to how he thinks the world works:
https://www.nytimes.com/2017/06/02/upshot/a-tax-cut-might-be-nice-but-remember-the-deficit.html

A key question is how revenue neutrality is to be judged. Traditional analyses of the effects of tax proposals rely on what is known as static scoring, a method based on the simple but dubious assumption that changes in the tax code do not alter the path of national income. An alternative approach, called dynamic scoring, accounts for the possibility that lower tax rates will promote growth.

Dynamic scoring is potentially more accurate, but it is also more easily abused by those who want to promote their policies with an unhealthy dose of wishful thinking. Tax cuts rarely pay for themselves. My reading of the academic literature leads me to believe that about one-third of the cost of a typical tax cut is recouped with faster economic growth.

He's on the record as saying a tax cut will recover up to 1/3 of the revenue lost through increased economic growth.

[maizefolk]

It makes sense to lower our corp tax rate to 20%.  The avg corp tax rate in the EU is 22.5%.

The average effective corporate tax rate in the U.S. is 19%.

A high statutory tax rate, with a low average effective tax rate because of lots of special interest deductions and credits and loopholes is a terrible system that is going to great all sorts of unintended economic distortions and perverse incentives.

If the approach to tax cuts was to eliminate deductions/credits/loopholes, and use the increase in revenue to reduce statutory tax rates in a revenue neutral fashion (so that the average effective corporate tax rate would stay the same), I think this part of the bill would get a lot more support. I'd support it anyway.

But that's not what this tax bill does.

[A Definite Beta Guy]

Even accounting for the loopholes, which most nations have, the US still has among the highest corporate tax rates.
https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/52419-internationaltaxratecomp.pdf

I don't think you can eliminate the loopholes. Here's a breakdown of the tax loopholes companies use to not pay tax:
https://taxfoundation.org/corporate-and-individual-tax-expenditures/
1. Deferral of Income from Controlled Foreign Corporations ($65 billion) - The US does not tax income that is earned in a foreign nation and remains in a foreign nation. This is by far the largest "corporate tax loophole." But virtually every nation has the same system. It's why the UK is leading the charge against Ireland and Switzerland as tax havens. You can't realistically stop this, and attempting to do so would turn the US into a pariah worse than Trump.

2. Deduction for US production activities. - Good luck convincing Congress to close this one.

3. Exclusion of income earned on muni bonds - Utterly standard, applies to everyone. The same logic applies to giving it to both GE and myself.

4. Accelerated Depreciation - This basically is just a tax deduction to encourage investment. It means instead of straight-line depreciating a 5 year asset by 20% each year, you can depreciate  20% in Year 1, 60% in Year 2, 10% in Year 3, 5% Year 4, 5% Year 5. It affects government finances in a present value of money sense, but the government is just deferring income in a non-preferential manner. It's not really foregoing income.


There's other ones, and they aren't trivial in total, but the big deductions aren't really closeable. Obama's tax reform was to charge a minimum tax on foreign earnings (which will piss off practically everyone), and selectively targeting oil and gas companies to eliminate certain deductions. The last easy loopholes to close were in 1986, and the hit to real estate in the 1986 tax reform probably made sure multi-family real estate investment didn't recover for decades:
https://fred.stlouisfed.org/series/C292RC1Q027SBEA

[maizefolk]

So you support sending more people to graduate education to expand the economy? And you think raising taxes on graduate students will reduce the number of graduate students and therefore reduce economic growth. Because that's really only one step away from supply-side economics, and because graduate students are wealthier than the average American, it is also trickle-down economics.

I want to see your source for graduate students being wealthier than the average American. Perhaps you meant that graduate degree holders are wealthier than the average American?

This is one of those issues where both sides get to feel like they're right.

On the one hand, grad students are demonstrably quite poor. Many are supporting two person households on $18,000-$24,000/year. On top of this they are often expected to absorb the cost of things like traveling to meetings (registration, hotel, and airfare can run $1,000-$2,000) for several months before getting reimbursed by the university.

On the other hand, domestic grad students are much more likely to come from affluent family backgrounds, in part because people who come from poorer backgrounds tend to feel a lot more family pressure to go out and start earning significant amounts of money right away once they complete their undergrad degree. If you look at physical, life, and social scientists today, their parents were in about the 70th percentile of household incomes when they were children, and, on average, they tend to end up back around the 70th percentile of household incomes themselves after they go out into the world and find real jobs.

Both the above paragraphs are true. So it boils down to whether we're judging people based on the economic circumstances of their parents or based on their own economic circumstances. (With the caveat that if we decide grad students have rich parents and can afford to pay more taxes, it'll also mean even fewer people without rich parents end up going to grad school).

[Peter Parker]

Back to reality--This is going to be a cluster F*ck.  Murkowski seems to have given in.  I've called/written the other reps that are on the fence--hoping this doesn't go through.  What a royal screw job.

https://www.accountingtoday.com/articles/tax-reform-bill-odds-improve-as-key-senator-lisa-murkowski-backs-health-mandate-repeal

[A Definite Beta Guy]

So you support sending more people to graduate education to expand the economy? And you think raising taxes on graduate students will reduce the number of graduate students and therefore reduce economic growth. Because that's really only one step away from supply-side economics, and because graduate students are wealthier than the average American, it is also trickle-down economics.

I want to see your source for graduate students being wealthier than the average American. Perhaps you meant that graduate degree holders are wealthier than the average American?

Anyways, the idea behind the tax isn't necessarily to pump more money into the economy to make the economy grow faster. It's to make investment and innovation more attractive. If you have a hypothetical investment that yields $1,000,000 over the next 10 years, you make $5.8 million at a tax rate of 35%, and $7.2 million at a tax rate of 20%. All investments that cost between $5.8 million and $7.2 million suddenly become viable investment projects. The government is also basically subsidizing any project that were going to be pursued anyways, but there are some projects that become better.

The problem is that for that claim to be true you are also arguing that companies are refraining from investing because the current yields aren't high enough. However, CEO's recently said they aren't really planning on increasing investments if the tax rates go down. Turns out that you really need to have something to invest in.

Your assertion that NO ONE takes supply-side economics just isn't true. Here's Gregory Mankiw in the NY Times, who gives an off-hand comment to how he thinks the world works:
https://www.nytimes.com/2017/06/02/upshot/a-tax-cut-might-be-nice-but-remember-the-deficit.html

A key question is how revenue neutrality is to be judged. Traditional analyses of the effects of tax proposals rely on what is known as static scoring, a method based on the simple but dubious assumption that changes in the tax code do not alter the path of national income. An alternative approach, called dynamic scoring, accounts for the possibility that lower tax rates will promote growth.

Dynamic scoring is potentially more accurate, but it is also more easily abused by those who want to promote their policies with an unhealthy dose of wishful thinking. Tax cuts rarely pay for themselves. My reading of the academic literature leads me to believe that about one-third of the cost of a typical tax cut is recouped with faster economic growth.

He's on the record as saying a tax cut will recover up to 1/3 of the revenue lost through increased economic growth.

I didn't say that no one takes it, I said that,

In the economic literature, supply-side economics is given about as much credibility as homeopathy is by Western medicine.

Sorry, I meant that graduate degree holders are wealthier than the average American. However, the average graduate student makes $30,000 per year per Glassdoor, so a household of two average graduate students also exceeds the median household income in the US. Whether you want to compare average to median is up to you....

Education spending tends to favor well-off Americans. This is why Obama tried (unsuccessfully) to eliminate the tax loophole that allows wealthy families to save for their children's college education. It's just trickle-down economics, with a group that happens to be more liked than Paris Hilton.

I disagree with your statement about supply-side economics. N Gregory Mankiw is not a random guy. He is one of the most respected economists on the planet, and probably is among the top 100 respected economists in history. The only go with more name recognition is probably Paul Krugman. I think he works mostly with stabilization policies, but he has papers on tax policies as well, and supports no capital income tax, a possibly LOWER tax for the richest Americans, and wants a consumption tax.  That's not exactly unusual for a right-leaning economist. I am sure Eugene Fama, John Taylor, Gary Becker, etc. all hold/held similar views (though none address tax and growth specifically in their work, afaik).

[simonsez]

However, the average graduate student makes $30,000 per year per Glassdoor, so a household of two average graduate students also exceeds the median household income in the US. Whether you want to compare average to median is up to you....

I think that figure is PhD only.  PhD students are much more likely than Master's to have a stipend these days.  And yes, median is a lot better than average.  For instance, if you have 9 full-time PhD students while getting a stipend of 20k per year while there is a part-time student working making 110k with a stipend of 10k (still a 30k average), it can skew things.

FWIW, I'm not 100% opposed to the idea of taxing these benefits to grad students in a vacuum, I just don't like them being siphoned off to make up the partial difference on estate taxes and corporate rates.  Grad students provide cheap labor for a lot of research and innovative work all the while getting experience themselves (which they can take with them to corporations).  I'm not sure we want to punish or dis-incentivize this arrangement too much.

[frugalecon]

Back to reality--This is going to be a cluster F*ck.  Murkowski seems to have given in.  I've called/written the other reps that are on the fence--hoping this doesn't go through.  What a royal screw job.

https://www.accountingtoday.com/articles/tax-reform-bill-odds-improve-as-key-senator-lisa-murkowski-backs-health-mandate-repeal

My spidey sense is tingling also.

[wenchsenior]

Oh yeah, I think the odds are they definitely pass SOMETHING.  They have to or they will have literally nothing to show for a year of complete GOP control. Doesn't matter at this point how shitty the bill actually is, as long as it cuts corporate taxes.

[PathtoFIRE]

Oh they got something done, something their base will continue to reward them for for a while.