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.

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.



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..



John McCain returned to the Senate yesterday to cast the tie-breaking vote for a bill that would deprive millions of their health insurance. McCain’s recent healthcare was paid for by taxpayer-supported insurance which may soon be denied to others.
Many have called him a hero, citing his courage in captivity during the war. However, others have derided him for projecting an image as a “maverick” while still voting with other Republicans on various social issues. For example, he previously voted to repeal the ACA without a replacement proposal. Even after voting in favor of the current bill, he gave a speech against it. This is a pattern he has exhibited on several occasions–trying to create an image on one side of an issue but voting with Republicans on the other side.

Urban Legends

William Falk, Editor of The Week┬ámagazine, wrote the following in his letter for the 21 July edition: “The US spends 50 to 100 percent more of its GDP than other advanced nations…(on) a system that still leaves millions uncovered and ranks at the bottom of every independent assement of quality. …study systems in …Singapore, Switzerland, and France, (which) mix government-mandated universal coverage with consumer choice. No one is left out but free-market competition drives costs down and improves care.”

Some of this is true, but some is urban myth. As a package, it paints an unfair picture of US healthcare. Everyone would agree that we have the capability to provide the best care in the world. One problem is consistency. We do it well on Monday but not on Tuesday. Do it well in one place but not everyplace. We’re getting better with that but disparities persist with respect to income and socioeconomic status. Overall, the quality of care in the US is arguably better than anywhere. The US State Department brings all pregnant employees to the US for delivery.

Our other problem is coverage. All other industrialized nations have government sponsored healthcare, so everyone is covered. Some countries also allow private providers (hospitals and physicians). It’s complicated, but the private system exists for the wealthy and does not affect price.

The primary goal of the ACA was to reduce or eliminate the coverage gap. It did that. Not perfectly, but pretty well. No proposed replacement has come close. The “Medicare for all” banner is waved to correct that problem, but it brings another set of problems.

Yes, we spend a lot on healthcare, but other countries are catching up. All developed countries are wringing their hands over escalating costs for healthcare.
Why does it cost so much here? Technology and physician salaries. We pay our doctors more than any other country. Substantially more. Technology brings sophistication and higher costs for more expensive procedures. Take, for example, mammograms. The new thing is 3-D mammograms. Better? Yes, in some cases but debatable as a strategy. What if Medicare said, “Hey, this is what we pay for mammography. If you want a gee-whiz procedure, find someone who will do it for the same price.” They would come. Or, another common procedure, repair of an inguinal hernia. This can be done under local anesthesia. Dr. Earle Shouldice made his name doing this at a clinic in Canada. (One of seven private hospitals allowed under Canadas healthcare system.) the high tech alternative is laparoscopic repair, which requires general anesthesia, expensive equipment, and additional assistants. Results of the two approaches are not different. The laparoscopic approach is more expensive, and complications, when they occur, can be life threatening.

Some frequently cited outcomes, like longevity, have little to do with healthcare, per se. It has been said that discovering a cure for cancer would not create a blip on the longevity curve. Longevity has more to do with genes, clean air, clean water, and economics. (Rich people live longer than poor.)

We have an excellent healthcare system. The envy of the world in many respects. Coverage isn’t perfect, but expansion of Medicaid everywhere would largely fix that. There are ways to address cost. My favorite is price competition, but Congress has been unwilling to address this problem.