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Tax reform


zork

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This topic is concerning the tax reform that was passed and signed in Dec '17.  At the time the CBO was referencing some statistics then.  Here is a revised estimate with stronger growth perhaps?  What say you?  Will the Fed allow the growth necessary to make this a net positive for the economy assuming a recession doesn't blow it all up?

https://www.cnbc.com/video/2018/04/11/tax-cuts-are-beginning-to-pay-for-themselves-says-researcher.html

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  On 4/12/2018 at 12:51 AM, zork said:

So 3% growth was inevitable this late in the, even tepid, well extended, growth cycle?  

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Well, the tax cuts have only been in effect a few months so I'm not sure how much impact they had on growth.  Most wage earners got very little money so there won't be much consumer spending to show for it.

The real risk is inflation.  The tax cuts by themselves will only drive a small part of it but in the context of current labor constraints, raw material pricing, tariffs, and capacity constraints in trucking and shipping, we're about to see serious inflation.  The tax cuts were just throwing gas on the fire.  So, that $10/month the average tax payer got will be a fraction of what they'll pay for consumer goods.

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The question is not whether stimulus stimulates. The question is only whether the stimulus pays for itself. If it doesn't, it's ultimately a net drag on growth. These cuts, like the 2001 and 2003 cuts* will  structurally expand the deficit and the national debt. The corporate rate cuts were too large and the individual changes are just ridiculous. and while it will provide some modest level of stimulus, the Fed will effectively dampen it by raising the cost of money to contain inflation. 

 

 

 

* I predicted that, accurately, at the time back on Hornfans. @TahoeHorn, I seem to recall that you argued with me about that and suggested that we wait and see. Do you still think they were smart?

Edited by Bozo_Casanova
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  On 4/12/2018 at 1:05 AM, Bozo_Casanova said:

The question is not whether stimulus stimulates. The question is only whether the stimulus pays for itself. If it doesn't, it's ultimately a net drag on growth. These cuts, like the 2001 and 2003 cuts* will  structurally expand the deficit and the national debt. The corporate rate cuts were too large and the individual changes are just ridiculous. and while it will provide some modest level of stimulus, the Fed will effectively dampen it by raising the cost of money to contain inflation. 

 

 

 

* I predicted that, accurately, at the time back on Hornfans. @TahoeHorn, I seem to recall that you argued with me about that and suggested that we wait and see. Do you still think they were smart?

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I also argued against the continued expanding spending levels proposed and agreed upon in W's years.  I argued that across the board cuts were needed, even if they were gradual, so that individual emotional arguments against cutting, anywhere, could be more easily defended against.

We don't cut anymore.(since I don't know when)  And that is not even arguing that we don't cut spending in actual dollars(not inflation adjusted dollars where a 'cut' in DC terms actually increases the dollar outlays for XYZ programs due to the inflation adjusted dollar component).

Trump said his tax cuts would stimulate growth and that would give a way forward since the economy would grow our way out of the deficit.  Clearly the Fed doesn't want to risk inflation although the tax cuts with reduced regulation might countermand even the Fed if this report mentioned continues.  Doubtful I know. 

The Debt growth from Clinton, to W, to Obama has been nearly perfectly logarithmic.  Unless that was to change by growth or some other factor, the logarithmic debt growth is on track under Trump and it will get really ugly perhaps unless the magical ignoring of it continues by the public/press at large.  It is a real problem.  You have mentioned that it is virtually unfix-able.  My not too probable hope was that maybe some growth, even with some more inflation(and perhaps devaluation with it) might generate some push back to get us off the logarithmic debt growth at minimum.(given the lack of spending cuts that would be needed)

Edited by zork
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US Dollars are fucked from fractional reserve lending. It's an instrument to be toyed with indefinitely because low interest rates have caused it to become completly unreliable. Inflation has been accelerating for a while now, at least I get more money on my check as to help since the pay will be slower to correct for higher prices.

 

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  On 4/12/2018 at 1:37 AM, Aqua Buddha said:

Conservatives seem to think government spending is guaranteed to cause inflation but tax cuts have no impact on it at all.

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 Edit:  adding Bozo's post:
Conservatives don’t think that, that’s just Republicans.

Sent from my iPhone using Tapatalk

--------------------------

I'm quasi conservative now compared to back in the '90's having graduated from UT economics with the basic understanding of autarky comparitive economics and free trade discussion. 

Now seeing how China and the rest of the world have used protection tactics to influence trade I have come off the basics(when they don't fairly exist) and decided that there is a need to protect your side of the trade equation if the other side is going to start their negotiations with a 25% tariff vs 2.5% tariff is free trade.  That is BS.  It is the reality though that few, I believe, understand to be the actual case now.(wrt existing China vs US auto tariffs for instance)

The case of expanding inflation in the US has been manipulated with great effect by the Fed and the US treasury in concert with the other G8 economies in the world more than is likely quantifiable by any but the most advanced trading floors in the few places in the world that would even try.  

Paying back 21 Trillion in debt(growing at a near logarithmic rate), not to mention all of the unfunded, etc, debts off the books, will be difficult without some inflation.  China was able to grow, even if you discount their official growth rates for local fraud, with inflation rates well above 2%.  It seems allowing the US to grow at 3 or even 4% could be managed given the current pickle the debt situation is growing into and becoming.  

But I never anticipated QE, to infinity(or however you describe it), and the other magical tools that have been used in the last decade since the time of Lehman's failure in 2008.

Inflation is bad if you let it get out of control.  Restrained economic growth to 2% doesn't seem to give you a way to get out of 21 trillion and growing debt.  What do you do if stimulus is not allowed to grow your way to a more controlled situation?(given spending won't be curtailed)

Edited by zork
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  On 4/12/2018 at 1:45 AM, Bozo_Casanova said:


Conservatives don’t think that, that’s just Republicans.


Sent from my iPhone using Tapatalk

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Correct.

Government spending typically leads to waste as they will figure a way to squander that money without providing the services to the public as expected. Tax cuts are good for the consumer economy as everyday people have of their labor turned into currency to spend. 

Neither cause inflation. Over expansion of the money supply causes inflation. The money isn't produced by the FED and passed through business to workers for their labor, the money is created from an ever expanding debt bubble. This is to the point where the debt bubble is so big it costs a lot because servicing that debt requires more debt.

In short, switching to some type of limited supply currency like bitcoin or gold backed currency would solve the inflation issue. This could keep the value of the currency rising instead of falling. But then, interest rates would be forced to return to normal high amounts and less people would extend themselves into a huge amount of debt - this is what a large part of the economy is based on now so it would be chaos.

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  On 4/12/2018 at 1:58 AM, zork said:

 

 ....

Inflation is bad if you let it get out of control.  Restrained economic growth to 2% doesn't seem to give you a way to get out of 21 trillion and growing debt.  What do you do if stimulus is not allowed to grow your way to a more controlled situation?(given spending won't be curtailed)

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If it is a given that spending won't be curtailed (probably a realistic assumption) and you don't want rampant inflation, then the only other way to significantly reduce the debt is to raise taxes. Gotta be one or the other, inflation or taxes; take your pick.

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Hold up - inflation isn't "bad", provided that it's controlled* and slower than the rate of economic growth.  My point wasn't that the cuts were bad because they were inflationary, my point was that because they are, the Fed will have to contain inflation by raising rates (which was the plan all along), which will in turn dampen the stimulus effect of the cuts.

 

 

 

* That's what Central banks do. 

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As we hit the top of the economic cycle, every other rich country is using this time to pay down debt. Only the U.S. is rapidly increasing its debt over the next 5 years. It is a bold strategy, we'll see what happens.

 

eng-april-12-fmch1-1.jpg

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  On 4/18/2018 at 7:45 PM, FWD said:

As we hit the top of the economic cycle, every other rich country is using this time to pay down debt. Only the U.S. is rapidly increasing its debt over the next 5 years. It is a bold strategy, we'll see what happens.

 

eng-april-12-fmch1-1.jpg

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I have a hard time Germany's debt:GDP ratio will be declining with the 1+mm 'immigrants' that have inhabited their nation in the last 20 months.  

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  On 4/18/2018 at 7:45 PM, FWD said:

As we hit the top of the economic cycle, every other rich country is using this time to pay down debt. Only the U.S. is rapidly increasing its debt over the next 5 years. It is a bold strategy, we'll see what happens.

 

eng-april-12-fmch1-1.jpg

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Our stupidity is a real stand-out here.  Like, jaw-droppingly so.  We are so hellbent on doing things the wrong fucking way, it boggles the mind.

  On 4/18/2018 at 7:58 PM, Trey3216 said:

I have a hard time Germany's debt:GDP ratio will be declining with the 1+mm 'immigrants' that have inhabited their nation in the last 20 months.  

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Economic indicators don't give a shit whether you believe in them or not.  Interestingly enough, this week's Economist has a great extended piece on Germany, including its economic performance.  Summary: they're doing quite well.  The refugee/immigrant situation has had pluses and minuses in that respect, but in the final analysis, the German economy is pretty solid.  Don't believe the hysteria you read on Breitbart - review the actual economic performance data.

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  On 4/18/2018 at 8:05 PM, Brisketexan said:

Our stupidity is a real stand-out here.  Like, jaw-droppingly so.  We are so hellbent on doing things the wrong fucking way, it boggles the mind.

Economic indicators don't give a shit whether you believe in them or not.  Interestingly enough, this week's Economist has a great extended piece on Germany, including its economic performance.  Summary: they're doing quite well.  The refugee/immigrant situation has had pluses and minuses in that respect, but in the final analysis, the German economy is pretty solid.  Don't believe the hysteria you read on Breitbart - review the actual economic performance data.

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People who read Breitbart (for more than shits and giggles) lack the capacity to comprehend data of any kind.

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  On 4/18/2018 at 8:05 PM, Brisketexan said:

Our stupidity is a real stand-out here.  Like, jaw-droppingly so.  We are so hellbent on doing things the wrong fucking way, it boggles the mind.

Economic indicators don't give a shit whether you believe in them or not.  Interestingly enough, this week's Economist has a great extended piece on Germany, including its economic performance.  Summary: they're doing quite well.  The refugee/immigrant situation has had pluses and minuses in that respect, but in the final analysis, the German economy is pretty solid.  Don't believe the hysteria you read on Breitbart - review the actual economic performance data.

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I don't read Breitbart, or watch Fox.  Yes, their economy is doing well.  Ours is doing pretty solid as well.  I don't like the increasing debt situation we're in, but until people start saving and reinvesting rather than spending every dime then we're going to be in a vicious spend cycle.  I just don't see the math working out as well as that article in The Economist would like to portray given the increased, almost entirely government subsidized population influx they are going through.  

 

It would be the equivalent of adding 6mm people in 1 year inside the US and 90% of those people completely on the govt take.  

Edited by Trey3216
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  On 4/18/2018 at 8:24 PM, Trey3216 said:

I don't read Breitbart, or watch Fox.  Yes, their economy is doing well.  Ours is doing pretty solid as well.  I don't like the increasing debt situation we're in, but until people start saving and reinvesting rather than spending every dime then we're going to be in a vicious spend cycle.  I just don't see the math working out as well as that article in The Economist would like to portray given the increased, almost entirely government subsidized population influx they are going through.  

 

It would be the equivalent of adding 6mm people in 1 year inside the US and 90% of those people completely on the govt take.  

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I haven't done the math, but I suspect that'd be cheaper than our airstrike on Syria last Friday was.

As for the rest of your post, I don't know why you seem to connect our national debt to personal saving.

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  On 4/18/2018 at 8:24 PM, Trey3216 said:

I don't read Breitbart, or watch Fox.  Yes, their economy is doing well.  Ours is doing pretty solid as well.  I don't like the increasing debt situation we're in, but until people start saving and reinvesting rather than spending every dime then we're going to be in a vicious spend cycle.  I just don't see the math working out as well as that article in The Economist would like to portray given the increased, almost entirely government subsidized population influx they are going through.  

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Your last paragraph is still all about your beliefs, not data.

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  On 4/18/2018 at 8:46 PM, wildcat09 said:

I haven't done the math, but I suspect that'd be cheaper than our airstrike on Syria last Friday was.

As for the rest of your post, I don't know why you seem to connect our national debt to personal saving.

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It's more of a general topic.  Spending less, both on the micro and macro level, and investing/saving more, tends to lower debt levels relative to production.  On the macro level, investing in things such as infrastructure (while it is spending) is an investment in future productivity growth.  Investing in your people leads to higher productivity on all levels (Germany is highly successful in this endeavor as well).  It was a relative remark.  

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  Quote
Treasury's Mnuchin: We front-loaded economic growth in tax plan

'Strong economic growth'

On a separate issue, Mnuchin said rising economic growth will help pay for a temporary shortfall in tax receipts.

"We're now at a point where we're comfortably within our 3 percent or higher sustained economic growth," he said. "The difference between 2.2 and 3 percent will pay for the tax cuts."

Congress passed a White House-backed bill in December 2017 that slashed the corporate rate from 35 percent to 21 percent and rolled back rates for millions of Americans.

Critics say it will blow a hole in the federal budget, and the Congressional Budget Office last week said the deficit will reach $1 trillion by 2020.

However, Mnuchin and other administration officials maintain that while tax receipts may be slow at first, the accelerated pace of growth will more than make up for the difference.

"We're seeing very strong economic growth," he said. "We literally have met with hundreds of executives, small companies, big companies, and thousands of workers. We're beginning to see the impact of the tax cuts, specifically people investing large amounts of money back into the United States."

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https://www.cnbc.com/2018/04/17/treasury-secretary-mnuchin-our-long-term-3-percent-growth-outlook-will-pay-for-the-tax-cuts.html

This was from an interview reported yesterday.  That is interesting that the former Yale graduate, former Goldman Sachs man, and current Treasury Secretary would go that far out on a limb.  

 

Here is more from Steve from a recent interview when he visited UCLA back in February:

DSC_0219.JPG?itok=UDLyAVoC

 

Interview Q/A text in the spoiler:

  Reveal hidden contents
Edited by zork
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  On 4/18/2018 at 8:24 PM, Trey3216 said:

I don't read Breitbart, or watch Fox.  Yes, their economy is doing well.  Ours is doing pretty solid as well.  I don't like the increasing debt situation we're in, but until people start saving and reinvesting rather than spending every dime then we're going to be in a vicious spend cycle.  I just don't see the math working out as well as that article in The Economist would like to portray given the increased, almost entirely government subsidized population influx they are going through.  

 

It would be the equivalent of adding 6mm people in 1 year inside the US and 90% of those people completely on the govt take.  

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Germany has run a budget surplus for the past 4 years. Last year it was the highest ever, at 1.1% of GDP.

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  On 4/18/2018 at 10:32 PM, FWD said:

Germany has run a budget surplus for the past 4 years. Last year it was the highest ever, at 1.1% of GDP.

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For context, the U.S. budget deficit has gone from 2.5% of GDP in 2016 to 4% of GDP this year, and is forecast to worsen rapidly in the next few years, even under rosy assumptions about economic growth.

Edited by FWD
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  On 4/18/2018 at 9:52 PM, zork said:

That is interesting that the former Yale graduate, former Goldman Sachs man, and current Treasury Secretary would go that far out on a limb.  

 

  Reveal hidden contents
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No, it's not in the least interesting that anyone in this administration would say something so idiotic.

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  On 4/18/2018 at 9:52 PM, zork said:

https://www.cnbc.com/2018/04/17/treasury-secretary-mnuchin-our-long-term-3-percent-growth-outlook-will-pay-for-the-tax-cuts.html

This was from an interview reported yesterday.  That is interesting that the former Yale graduate, former Goldman Sachs man, and current Treasury Secretary would go that far out on a limb.  

 

Here is more from Steve from a recent interview when he visited UCLA back in February:

DSC_0219.JPG?itok=UDLyAVoC

 

Interview Q/A text in the spoiler:

  Reveal hidden contents
Expand  

Simple politics.  Repeat something enough times, people start to believe it.   And if facts ultimately get in your way, blame another policy or the inevitable economic cycle for it.

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  • 2 months later...

MAGA!!!!!!!

https://www.politico.com/story/2018/06/26/republican-tax-law-churches-employees-670362

  Quote

Republicans have quietly imposed a new tax on churches, synagogues and other nonprofits, a little-noticed and surprising change that could cost some groups tens of thousands of dollars.

Their recent tax-code rewrite requires churches, hospitals, colleges, orchestras and other historically tax-exempt organizations to begin paying a 21 percent tax on some types of fringe benefits they provide their employees. 

That could force thousands of groups that have long had little contact with the IRS to suddenly begin filing returns and paying taxes for the first time.

Many organizations are stunned to learn of the tax — part of a broader Republican effort to strip the code of tax breaks for employee benefits like parking and meals— and say it will be a significant financial and administrative burden.

It also means political peril for lawmakers, many of whom were surely unaware of the provision when they approved the tax plan. Churches’ tax-exempt status, in particular, has long been considered sacrosanct and Republicans are relying on the faithful to back them in the November elections.

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  On 6/26/2018 at 11:12 AM, Francisco 2.0 said:
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It also means political peril for lawmakers, many of whom were surely unaware of the provision when they approved the tax plan. Churches’ tax-exempt status, in particular, has long been considered sacrosanct and Republicans are relying on the faithful to back them in the November elections.

This is hilarious to me.

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That is awesome.   And hilarious.   And good, churches should pay taxes.  And good, Republicans should get flack for the mistakes they made in a law that was rammed through without the normal process by which errors are discovered and provisions debated. 

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The article is poorly written and makes some pretty out there representations on the effects. The tax law made 3 fringe benefits nondeductible to for profit entities which are qualified transportation benefits, qualified parking facilities, and on premise athletic facilities. Then it went further and said that nonprofits should be treated equally on those fringe benefits and pay UBIT on them. It is definitely an issue though, especially on the parking side in cities where private parking lots are the primary parking available and a fringe benefit is provided.

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  • 2 weeks later...

Corporate America threw Wall Street a record-shattering party last quarter.

Flooded with cash from the Republican tax cut, US public companies announced a whopping $436.6 billion worth of stock buybacks, according to research firm TrimTabs.

Not only is that most ever, it nearly doubles the previous record of $242.1 billion, which was set during the first three months of the year.

https://money.cnn.com/2018/07/10/investing/stock-buybacks-record-tax-cuts/index.html

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Silly to think that most companies will give wages or bonuses because they are more profitable due to tax changes.  It doesn't mean that it's 0 but wages and bonus increases would mainly be due to performance and market forces not because Uncle Sam gave them a break. 

The only exception that I can see is if a company needed to increase wages or bonuses but couldn't do so because of lack of funds, and the tax break gave them the funds.  You could argue the tax break helped this 1 specific scenario.

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  On 7/11/2018 at 5:04 PM, Nice Guy Eddie said:

Silly to think that most companies will give wages or bonuses because they are more profitable due to tax changes.  It doesn't mean that it's 0 but wages and bonus increases would mainly be due to performance and market forces not because Uncle Sam gave them a break. 

The only exception that I can see is if a company needed to increase wages or bonuses but couldn't do so because of lack of funds, and the tax break gave them the funds.  You could argue the tax break helped this 1 specific scenario.

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Not many large corporations were in that scenario, though.  Most of them were sitting on a mountain of cash before the tax cut.

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  On 7/11/2018 at 5:21 PM, Aqua Buddha said:

Not many large corporations were in that scenario, though.  Most of them were sitting on a mountain of cash before the tax cut.

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For any large company, the hierarchy of who is gonna get theirs is:

shareholders > corporate officers > customers > employees.

First two can be flipped depending on the company.

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