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.