Tax Debate 2017 and Trickle Down

I recently got into a debate on Trickle Down Economics with a good friend - Again. Let's just call this person Goodfriend to make it easier to read the below.

The debate was precipitated by a Twitter post from

Alec MacGillisVerified account

@AlecMacGillis

Deep in the post was the primary article by WSJ writer Galston here

This was mostly a memorial to the Ford exec Arjay Miller that looks at his job in the long term.
The point I wished to pursue was that trickle down will not work and therefore any tax cuts will only go to the wealthy.

My detailed reply to Goodfriend


1-The premise of the article is that because the top 15 executives did this the policy failed. But what time period is he looking at? If it is the Reagan (bi partisan) tax cut, then that was a huge success.

2- Our current Corp. tax rate is uncompetitive. Highest in the word and we tax income internationally/worldwide so if Coke makes $ in China we tax them as if that coke was sold in the US. This creates a cash horde overseas. All other countries tax in the country. This is known as a territorial taxation system. For example Samsung does not get taxed on TVs sold in the US.

3- It might take a few years to see a benefit. CEOs should be free to invest in the US or not if that works for them.

4- Even if the overseas money goes to execs, shareholders and dividends a lot of that money will find its way into the economy and produce benefits. Better than it staying offshore and doing nothing for the country.

5- Trickle Down is the Dem epithet for the free market economy where benefits flow to all when there is economic freedom.

The reply from Goodfriend to this was as follows

There’s no proof that the money goes back into the economy, while there is proof the money gets stuck overseas or in their accounts or used to buy more shares of their corp

If there is proof I’d love to see it also, I'd be curious to hear how raising taxes on lower and middle income Americans to pay for corporate taxes cuts results in more money in the economy, because lower and middle income people are the ones that would immediately spend it and put it back in the economy, likely in their own communities rather than offshore accounts or traded to other already wealthy people.

My reply to Goodfriend

http://www.heritage.org/node/18247/print-display


Rather than a discussion of the above article I got another article to read

https://www.brookings.edu/wp-content/uploads/2016/06/09_Effects_Income_Tax_Changes_Economic_Growth_Gale_Samwick.pdf

This sort of sending articles back and forth doesn't give the time to actually debate one topic. I don't like it as it puts off the actual debate.
Rather than argue how to debate I am going to respond to the article by Brookings and then refer back to the proof I was requested to provide in the Heritage piece.
Here are the points raised and my responses.


1) this seems to be a better argued and researched paper on the topic

REPLY: In the abstract and saw this section.
" if the tax cuts are not financed by immediate spending cuts they will likely also result in an increased federal budget deficit"
This follows many of the left's criticisms. I find it a bit to strict because there is no allowance for increased economic growth due to lower taxes and less regulation.
The CBO does not, by mandate, speculate on growth as a result of policy. The CBO and many on the left treats tax cuts based on a fixed income assumptions.
There are so many caveats in this article it is hard to know where to begin. For example:
" A fair assessment would conclude that well designed tax policies have the potential to raise economic growth, but there are many stumbling blocks along the way and certainly no guarantee that all tax changes will improve economic performance."
Economics is almost impossible to test due to business cycles, wars, consumer mood you name it.

What I sent you was an abstract from a speech, not a policy paper. The economic growth in jobs, GDP and (ironically) government revenues is the proof you asked for. There were three distinct periods where tax cuts for the rich did help the poor and the overall economy. The all ships rise on a incoming tide arguement. In the 1920s, the tax cuts from 70% to 25%, Kennedy tax reduction from 90% down to 70% and Reagan tax cuts in in 1981 from 70% to 50% and again in 1986 to 28%.

2) I’m in favor of tax cuts but i think that it’s disingenuous to argue that corporate tax cuts will boost the economy if it is paired with tax increases to the lower and middle class, it may be good for the stock market but that’s not the same thing as being good for the economy. GDP can go up masking long term problems of income inequality. It seems to me like this tax plan is sure way to increase the already high wealth gap in our country

REPLY: Disingenuous is a synonym for dishonest. The honesty of the intentions should be assumed until proven otherwise.
I don't think that the pairing is necessarily the main point of this tax reform. The first thing to solve is our corporate tax rate. We have the world's highest corporate tax rate and it is riddled with special carve outs and exemptions that only some industries receive. The stock market is a barometer that tells what people think may happen. Growth in the economy (profits and jobs and personal income) follows the market by a year or two. If tax reform does not pass expect a big market decline. If it passes expect a large advance.

Income inequality cannot be solved easily nor should government take radical steps to do so as unintended consequences will surely flow. The Obama administration from 2010 to 20018 sought to reduce income inequality and instead it increased greatly while giving around zero wage growth to the middle and lower income classes. The main points of the paper I provided show that government revenue actually grows with lower tax rates and also that the share paid by the wealthy increases relative to the burden on the middle class. Counter intuitive but that's what happened in each of these periods.
More recently Clinton cut the capital gains rate and, guess what, government revenue climbed. I watched an ABC debate (Hillary versus Obama) where Charlie Gibson asked the candidate if he would raise the capital gains tax on the wealthy, even if this policy resulted in lower revenue for the government. Obama answered: “I would look at raising the capital gains tax for purposes of fairness.” It was that point that I knew he was an idiot and could not be trusted. Up to that point I had been a admirer. I loved his keynote speech at the Dem convention when he made his debut; "there's not a liberal America and a conservative America - there's the United States of America". That turned out to be truly Disingenuous.

I recommend this WAPO opinion piece for background on fairness and Obamas 2008 debate position on tax fairness regardless of the cost.

Final point - I just saw a interview with Steve Mnuchin (Fox New Sunday). He spoke on corporate tax rates being lowered as well as changing the US Corporate tax system from an International basis to a territorial basis. He said these HAVE to be permanent otherwise they will have no effect on corporate behavior. Because of the Byrd rule in the senate and the politics of reconciliation (where only 51 votes are required) the personal rates have to last only until 2025 when hopefully, if the economy grows, they can become permanent which takes 60 votes. A quick search on this VERY IMPORTANT FACT does not show it at all or if it does it shows it in an exclusively negative light. After all it is the Dems lock step refusal to participate in the process that makes this a problem. More people know about his wife than about the facts surrounding tax reform. Thanks Google Search for showing what is really important.

This July Brookings article is instructive.
https://www.brookings.edu/opinions/can-republicans-thread-the-needle-on-tax-policy/

It shows how difficult this will be to do, especially with not all 52 Republicans actually Republicans. Imagine the party of lower taxes voting to NOT lower taxes.

Best of the Web - Schumer’s ‘Compromise’: No Tax Cuts

Schumer’s ‘Compromise’: No Tax Cuts 

Senate Democrats save negotiating time by ruling out everything not on their agenda.

Captaion: Senate Minority Leader Democrat Chuck Schumer holding a copy of a letter he sent to Republican leaders on Tuesday.

By James Freeman Aug. 1, 2017 4:53 p.m. ET


“After Health Care Victory, Senate Democrats Seek Compromise on Tax Plan,” announces a New York Times headline today. Doesn’t that sound refreshing? Especially after the unanimous refusal of Democrats to support any of the three Senate bills considered last week to address the failure of ObamaCare, it would certainly be a welcome change to see a bipartisan approach to boosting economic growth. But the Times allows in paragraph six that “bipartisanship will not come easy,” which turns out to be more accurate than the headline.

To their credit, Senate Democrats have generously decided to save everyone’s time by ruling out anything that deviates from their agenda of raising more government revenue and maintaining high marginal tax rates. In a six-paragraph note on “tax reform” signed by 45 of the Senate’s 48 Democrats, the pols don’t propose any particular measures to simplify or cut anyone’s taxes. But the signers, who include Minority Leader Chuck Schumer and Finance Committee Ranking Member Ron Wyden, make clear who should definitely not get a tax cut. The Democrats endorse an ill-advised comment by Treasury Secretary Steven Mnuchin —which he later walked back—that there would be ”no absolute tax cut for the upper class.”

Depending on how one defines “upper class,” this could rule out relief for Americans paying nearly all of the country’s federal individual income taxes. In February the Tax Foundation highlighted IRS data showing that the top one percent of income earners pay more than 39% of income taxes, and the top 5% pay nearly 60%. The government has become so efficient at soaking the one percent—even as Democrats have become expert in stoking hatred against this hard-working group—that even a die-hard Sandernista would have to be impressed. The Tax Foundation explains:

In 2014, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined. The top 1 percent of taxpayers paid $543 billion, or 39.48 percent of all income taxes, while the bottom 90 percent paid $400 billion, or 29.12 percent of all income taxes.

You’d never know it from the standard harangues from Democrats about the rich paying their fair share, but the top quarter of income earners, which is perhaps a reasonable definition of the “upper class,” pay nearly 87% of federal income taxes. If the party’s most hysterical class warriors want to rule out relief for the top half of U.S. income earners, then they’re talking about the group paying more than 97% of income taxes. The bottom half of income earners are of course paying much less, but would surely welcome tax cuts just like people in higher brackets. They’re getting no assurances from Democrats. Today’s letter does vaguely call for “real relief for working families,” but elsewhere in the letter the Democrats signal that the status quo is acceptable when they write, “we believe that tax reform should not increase the tax burden on the middle class.”

Just in case Republicans hadn’t gotten the point that the signatories had no interest in tax relief, the Democratic lawmakers rejected any “deficit-financed tax cut,” suggested no willingness to accept spending cuts to offset such a cut and added that “tax reform should be focused on providing a revenue base.”

 With the legislative calendar slipping away, Republicans should appreciate the favor they’ve just been done. As they draft a plan to boost economic growth and provide taxpayer relief, GOP lawmakers now know that the three Democrats who didn’t sign today’s letter—coincidentally all up for re-election in states Donald Trump won in 2016—are the only ones interested in negotiating. From the Wall Street Journal

Peggy Noonan: House Republicans Repeat an Obama Error - with links to important articles

Don't miss the links to the Caldwell and Eberstadt important articles

By

Peggy Noonan

March 9, 2017 6:01 p.m. ET

761 COMMENTS

Washington
It is challenging for important Republicans on Capitol Hill now. They are leading their party at a time when it is changing and the country has changed. There are fissures in terms of what they believe and what they want. There is no shared, overarching sense of the meaning and purpose of the Republican Party, no agreed-upon blueprint from which to operate.

Most of them know that something substantial happened in 2016, when half, and then considerably more than half, of the Republican base followed Donald Trump, along with a great many Democrats. But they are still uncertain of the meaning of the event. I suggested to a Capitol Hill figure last week that it was a populist wave and the future of the Republican Party is moderate populism. He answered that in fact the president, in his famous rallies, was often simply road-testing ideas and applause lines, adopting what got cheers and dropping what didn’t. He’d personally seen this. I thought: I’m sure you saw what you saw, but what you are noting is Mr. Trump’s cynicism when what matters is what the crowds agreed with—what they applauded. When he would say, seemingly in passing, that he won’t touch Medicare or Social Security, people are in enough trouble and a deal’s a deal, everyone—Republicans, Democrats—cheered. Because they are in financial trouble. And because they don’t trust Washington to be fair or wise in cutting or rejiggering essential programs.

But the Hill figure did not believe that 2016 marked a change in political direction, and I suppose that’s lucky for him, because if he followed the prompting of a Trumpian base, his donors would not like it.

Surely it is reasonable to conclude a big, burgeoning hunk of voters came forward in 2016 with a new definition of what popular, centrist GOP policies would look like—more economically nationalist and more socially and economically populist.

The GOP’s first big legislative endeavor, the repeal of ObamaCare, has been understood as a classic fight between party leadership and the more conservative and libertarian wings, and there’s truth in that. I wonder if it will not also become a struggle between the leadership and the Trumpian core.
The new bill lacks an air of appropriate crisis, a sense that it is responsive to this moment. I criticize it not from the right but I suppose the left: Eight years ago, I argued ObamaCare would be an unmitigated mess: “The system will be overwhelmed, the government won’t be able to execute, the costs will be huge.” I urged Mr. Obama to focus instead on Medicare; attack waste, fraud and abuse; come up with far-sighted cost saving measures—and, once this was accomplished with bipartisan support, make one little change: open the program to the uninsured under 65. Expensive? Yes. But simpler, cleaner, and better than destroying the health insurance system. The 2008 crash had occurred less than a year before. That was the moment American insecurity began to surge and reasonable pessimism take hold.

Is it so different now?

The two great sociocultural documents of this moment are by the political economist Nicholas Eberstadt and the journalist Christopher Caldwell .
Mr. Eberstadt, in a Commentary piece titled “Our Miserable 21st Century,” writes that the year 2000 marked a grim milestone: “The Great American Escalator, which had lifted successive generations of Americans to ever higher standards of living and levels of social well-being, broke down around then—and broke down very badly.” He traces the economic factors, including dismal labor-force trends: “The plain fact is that 21st-century America has witnessed a dreadful collapse of work.” The top is doing fine but not the bottom: “21st-century America has somehow managed to produce markedly more wealth for its wealth-holders even as it provided markedly less work for its workers.”
Physical health has deteriorated for a significant swath of white America, “thanks in large part to drug and alcohol abuse. All this sounds a little too close for comfort to the story of modern Russia, with its devastating vodka- and drug-binging health setbacks. Yes: It can happen here, and it has. Welcome to our new America.”

He quotes a 2016 study reporting that nearly half of all prime-working-age male labor-force dropouts—some seven million men—take pain medication daily. That “adds a poignant and immensely sad detail to this portrait of daily life in 21st-century America: In our mind’s eye we can now picture many millions of un-working men in the prime of life, out of work and not looking for jobs, sitting in front of screens—stoned.”

Mr. Caldwell, in First Things, focuses on the narcotics epidemic: “The scale of the present wave of heroin and opioid abuse is unprecedented. Fifty-two thousand Americans died of overdoses in 2015—about four times as many as died from gun homicides and half again as many as died in car accidents.” Salisbury, Mass., population 8,000, lost one resident in the Vietnam War. “It has lost fifteen to heroin in the last two years.” In four hours last summer 28 people in Huntington, W.Va., population 49,000, overdosed.

The death toll “far eclipses” that of every previous drug crisis. Mr. Trump’s willingness at least to speak of the crisis surely helped him win, Mr. Caldwell observes: “In his inaugural address, President Trump referred to the drug epidemic (among other problems) as ‘carnage.’ Those who call the word an irresponsible exaggeration are wrong.”

These two great pieces in great magazines deserve the deep, focused and alarmed attention of policy makers. We are in the midst of the kind of crises that can do nations in. It is pleasant to chirp, as Speaker Paul Ryan does, of “choice” and “competition” and an end to “paternalistic” thinking on health care. Is it responsive to the moment? Or does it sound like old lyrics from an old hymnal?
I close with Tucker Carlson’s Wednesday night Fox News interview with Mr. Ryan. It cut to the political heart of the matter.

Mr. Carlson questioned the new bill’s elimination of a tax on wealthy investors. “Looking at the last election, was the message of that election really, ‘We need to help investors?’ I mean, the Dow is over 20,000. Are they really the group that needs the help?”
Mr. Ryan answered that the tax had been imposed by ObamaCare. “The trillion-dollar tax cut that this bill represents—that is part of the trillion-dollar tax increase that was in ObamaCare to finance ObamaCare.” It deserves repeal: “It’s bad for economic growth.”

Mr. Carlson: “But the overview here is that all the wealth, basically, in the last 10 years, has stuck to the top end. That’s one of the reasons we’ve had all the political turmoil, as you know. And so, kind of a hard sell to say ‘Yeah, we’re gonna repeal ObamaCare, but we’re gonna send more money to the people who’ve already gotten the richest over the last 10 years.’ I mean, that’s what this does, no? I’m not a leftist, it’s just—that’s true.”

“I’m not that concerned about it,” Mr. Ryan replied. Republicans promised to repeal ObamaCare, and they are.

Maybe he should be concerned.

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