Corporate Taxes

Here’s a letter in the NY Times from a small business owner about the Republican corporate tax break. He doesn’t need it. He challenges the Republican mantra that reducing corporate taxes will encourage new growth. “That’s simply not the case.” He makes the point that no one starts a business because tax rates are low or hesitates because tax rates are too high. Lots of reasons to start or expand a business, but taxes are not on the list.
Yes, lowering the corporate tax rate would bring more income to businesses. However, most businesses (particularly large ones) are already sitting on piles of cash. If they had a reason to build a factory or hire more workers, they would already have done so. What’s needed is more money circulating. More money to people who will spend it. Corporte tax money will go as dividends to stockholders (generaly wealthy) or mutual funds who will not apend it. Money to companies will be used to buy back shares, making existing shares more valuable, a benefit to existing shareholders. None of this goes to workers, old or new. What’s needed is large government spending, like WWII or the Interstate highway system. Such projects would pass money to workers who would spend it.

Recession Revisited

In the 2 Nov W. Post,Matt O’Brien reviews an article by Lawrence Summers and Olivier Blanchard comparing the recessions of 1930 with 2008. One point is that the recovery has been slower this time. Recovery in 1930 was prompted by two factors:
1. We retreated from the gold standard. The dollar was allowed to float, and inflation increased. People who had money spent it quickly before it lost value. Others paid off debt with cheaper dollars. A little inflation can be a good thing, but 2% is too little.
2. The federal government began spending huge amounts of money in the buildup to WWII. This increased the debt (remember war bonds?) but stimulated the economy.
Today, the federal reserve has worked hard to contain inflation below 2%. That may not be a good thing. Also, Republicans are working hard to decrease government spending. Also not a good thing. We certainly have things that need money! Infrastructure, healthcare, energy, and research come to mind, but there are other prorities. How about restoring the budget for the National Park Service.
True, we had some stimulus funding after 2009, but not nearly enough.

Tax Bill, revised

Income tax cuts for anyone earning more that about $400K a year. Increased taxes for everyone else.
Probably eliminate the deduction for state income tax, and perhaps the mortgae deduction. Maybe just limit the mortgage deduction to $500,000 loans.
They have abandoned plans to decrease the amount you can contribute to your 401k plan–down to $2,400 from $18,000 a year.

The estate tax will be eliminated. That will benefit only the very small number of very rich (presumabley Republican) individuals who may have to pay it. Although not many individuals pay the estate tax, the loss of revenue is estimated at 172 billion. That loss will be made up by the rest of us and by our grandchildren, because another effect of tax cuts is to increase the deficit.

Gone also is the ability to deduct medical expenses that amount to more than 10% of your income. People with large medical expenses are typically over 50 and earn less than $75,000 a year. In other words, this tax cut will affect the poor and middle class in order to provide benefits to the very rich. Among those currently using thisdeduction are families paying for long term care. Remember, Medciare doesn’t pay for long term care. At one time, a lot of companies jumped into the long term care insurance business. Most of them have gone bankrupt or given up for other reasons. People receiving long term care just don’t die. Medicaid pays for some long term care, but patients must be devoid of assets to qualifyThis issue is a huge problem for the US that goes beyond this tax bill. Anyone wanting more info should start with the movie, “Still Alice.” Taking away the ability to deduct large medical expenses will make this problem worse for people who can’t afford it.

And by the way, deductions for student loans will also disappear.

CNBC has listed winners and losers under the Republican tax plan. there are lots of details, but the big picture is that those earning above $400,000 will benefit. Others will see their taxes go up. In addition, the deficit will go up. A lot. That means more money spent on paying interest on the debt. If interest rates generally go up, that will have a multiplier effect on the cost of raising the debt.

The ability to dedcut state taxes from your income before calculating the federal tax will also go. That means those living in blue (Democratic) states will lose a bigger deduction because of higher local taxes.

Almost everything about the bill is bad for ordinary folks and good for the super-rich.


Making Sense of it all

The rhetoric has reached a point now where we’re beginning to see articles that attempt to summarize or outline the key issues.  In today’s Washington post, Alec Macgillis provides a  cheat sheet which presents, in the first paragraph, the two key issues:  Coverage for the uninsured.  Still quoting the old 47 million figure, tho with unemployment, the current number is certainly higher.  How do we provide healthcare for these people?  And, most important, how do we pay for it. Cost.  Macgillis lists cost control as a way of paying for the uninsured, but there are other issues: “Medicare and Medicaid are badly straining the national budget.”  I think Peter Orzag would use stronger terms and would argue that cost control (“bending the curve”) transcends healthcare reform.  Our total healthcare spending represents 20% of our GDP, more than any other country.  Medicare alone is predicted to crowd out other discretionary spending in the federal budget.
In the same  Washington Post, Fred Hiatt writes about “Three Camps” that really please no one: Cover Everyone, a.k.a. universal access.   Bend the Curve. a.k.a. control costs via demand.  Consumerism.   The idea is that if patients could see how much individual healthcare services cost (and had some skin in the game), they would  make wiser and less expensive choices.
The volume of rhetoric breeds confusion, and that is indeed what some factions want.  Others endorse covering the uninsured but don’t want the cost controls that would be necessary to pay for it.  Look at the last slide in the Washington Post Interactive and ask which of these players/interest groups would benefit from 47 million new paying customers in the healthcare system.   (Answer:  all of them.)
So what’s a poor consumer to do?  Where do you get reliable information to even think about healthcare reform?  The Post provides an index to their coverage, and reading the writing of reporters and pundits can help.  Always ask, tho, what benefit would accrue to this writer or his employer or his interest group by passing the reforms he advocates.  It’s not that advocacy groups are inherently evil, but they do have an agenda, and you need to interpret what they write in view of that agenda.
What about “experts,” the gurus, the oracles?  Surely, if we asked a very wise person, they would know everything and tell us what to do.  But there is a chink in the armor of academia:  smart people don’t always agree.  Yep.  It’s true.  All Supreme Court opinions are not unanimous.  And smart people sometimes make bad decisions.  Still, it’s worth listening to what they have to say.  As a friend of mine once said, “It is a fact that you have an opinion.  That doesn’t mean your opinion is a fact.” Reminds me of some lines from Phyllis McGinley:

“When blithe to argument I come, Though armed with facts, and merry, May Providence protect me from The fool as adversary, Whose mind to him a kingdom is Where reason lacks dominion, Who calls conviction prejudice And prejudice opinion.”

Below, there’s a link to experts, at least to a list of people the Washington Post thinks are experts.  Their list includes–are you ready for this–Newt Gingrich.  Now Newt is a very smart guy, and he has thought a lot about healthcare, so I’m willing to listen to what he says.  But he, like some others in the list, talks in generalities that are so vague that it could be said he supports everything, or nothing.  The entries are short, and all are worth reading.  Nuggets here and there but no magic bullets.  And guess what?  They don’t all agree.  Imagine that.
Want agreement?  Here’s an Op Ed piece in the New York Times by a group from academia who all agree with each other.  That, of course, doesn’t make their opinion a fact.  Their opinion is, however, well developed, well written, and worth reading.
The Dartmouth approach advocates looking at low cost regions of the country where there is good quality healthcare but lower per capita expenditures.  One fallacy of this approach is that their definitions of “quality” have little to do with healthcare.  This is a trap shared by many who cite the high cost of U.S. healthcare but the limited quality of outcomes.  Life expectancy, for example, has almost nothing to do with healthcare and more to do with genes and the environment.
As you read and listen, keep you eye on the prize:  How can we reduce the cost of the healthcare services we provide?
Some links cited above” Fred Hiatt:  Three camps, but few happy campers. 16 Aug09 Macgillis Your Handy Health Care cheat sheet. of “experts” Health-Care Reform 2009.  Index to articles. & Graphs.  Recording.



Last time, I wrote about the absurdity of ideas like tax cuts and trickle-down economics, ideas that had been disparaged by econimists and disproven by trials. The state of Kansas is the poster child example. Six years of tax cuts by Republicans there led to bankruptcy until taxes were restored. Kevin Hassett, the White House economist, supported the Republican budget, with included tax cuts for the wealthy and corporations. However, Lawrence Summers, past president of Harvard and former Secretary of Treasury, referred to the tax cut proposal as “some combination of dishonest, incompetent, and absurd.” In her column of 29 Oct, Ruth Marcus refers to tax cuts as “worse than unwarranted. They are dangerous.” The Congressional Budget Office (CBO) declared last week that the deficiy has grown sharply during this Republican administration and would constitute the largest deficit since 2013. The basic reason cited for this increase in the deficit is that the federal government has been collecting less in taxes. And Republicans want to cut taxes more. This makes no sense at all, except that it does, sort of. Cutting taxes will bring a large windfall to the wealthiest Americans. They, in turn, will be so grateful to Republicans that they will donate to Republican causes. You have to make over $300K a year to expect any benefits from the proposed tax cuts, and the more you make, the larger the benefit. The rest of us pay for it.

So, if tax cuts don’t help the economy, why do Republicans focus on a failed strategy? Partly, I think, it comes from ignorance. They just never bothered to study the subject. Partly, it may come from the “facts don’t matter” approach of current Republicans. Mostly, however, the fault lies with voters who fail to read or listen to what candidates are saying before pulling the levers on election day.

Even at an individual family level, if you have a big expense (deficit), that’s not the time to quit your job and reduce your income. For the economy as a whole, a true stimulus would come from an infusion of cash, primarily to the lower income segment, because they will spend it. The stuff they buy will increase business for factories, who will hire more workers, who will buy more stuff. Injecting too much cash into the economy will bring inflation, so you need to balance that with higher taxes for the wealthy.

Corporations, for their part, don’t currently need a tax cut. They are sitting on loads of cash. More money for corporations would just go into the bank or into the CEO’s pocket. In a recent letter from a small company CEO, he said that he would hire more workers or start a new factory when people started buying more of his product. Reducing the corporate tax rate would not be a factor in that decision. He added that no one builds a factory because taxes are low.

What we need in this country is not lower taxes but leaders with common sense. Voters must elect them..



Six years ago, KS voters elected a Republican governor and a Republican legislature on a platform of austerity and tax cuts. Republican state senator Dinah Sykes outlines what hapened in the 20 October Washington Post. As promised, they eliminated 3,000 state employee positions, froze salaries, delayed payments to the state employee retirement system, used up savings accounts, canceled road projects, and issued $2 Billion in new bonds to pay for obligatory expenses that taxes would have paid for. Here’s what happened: education was neglected, road maintenance and repair didn’t happen, the state’s credit rating fell–making borrowing more expensive, and the local economy tanked. Analysis of the current Republican proposal for tax cuts concluded that “effects appear to be limited in size and possibly negtive.” That’s what KS found. State GDP growth fell behind US GDP growth. Employment grew 5.0 % as opposed to the US rate of 9.1 %. Most of the economic benefits went to the most wealthy residents. Eventually, state legislators recognized their mistake and raised taxes (over the governor’s veto). Most of the politicians who voted for the tax cuts are now doing something else for a living. Still, Republicans tout tax cuts and trickle down economics. And still, voters continue to elect them. Don’t confuse me with facts.

Still a BAD idea

The current Republican effort (Graham-Cassidy bill) to repeal the ACA is not really different from previous efforts. The New Yorker says Republicans are “Looking to ram through the Graham-Cassidy bill before the American pubic realizes how awful it is.” Time for a whistle-blower. What will this bill do? First, it will roll back the expansion of Medicaid, thus depriving about 14 million Americans of their access to healthcare. Then it would also cut the existing expansion of Medicaid and convert it to a grant program, but with much less money. This will target the lower levels of society, including children in the CHIP program.
The proposed legislation would also:
1. Eliminate the subsidies for purchasing health insurance,
2. Abolish employer and individual mandates (actuarial suicide),
3. Allow insurers to charge more for those with pre-existiing conditions.

The proposed block grants are not nearly enough to balance the lost revenue for states. Cassidy’s own state of LA stands to lose $3.2 billion if the bill passes. For this reason, Governors generally hate it.
The public hates it, because many of them will lose their health insurance.
The AMA an AARP have also come out against it.

Makes you wonder why Republicans still want to do this. The supposed reason is to siphon off money to give as tax breaks to the wealthy.