The 4 Rs of the GOP Part 3

Regressive Taxation

Well, the new tax bill was just passed. Sp before getting too much into term paper mode (for which I apologize in advance), let’s just say:

Winners: Corporate shareholders, Pass-through corporations

Losers: er, everyone else?

Ironically, many fairly wealthy folks will get reamed, especially in those bad, bad (i.e. blue, blue) states like California and New York, which are losing a chunk (although not all, as previously considered) of their real-estate and property tax deductions.

The super-rich will do fine as we know – the shareholder class is the one that profits most directly from lower corporate taxes.

And don’t forget, the looming deficits will naturally revisit Paul Ryan’s favorite topic: Entitlement Reform! This is better referred to as increasingly the disparity between rich and poor in the USA, already the most acute of any industrialized country.*

It should be noted that this is a very complex topic. As is my wont, I will (over?) simplify it to make a simple point, and, you know, get on with things.

The period of time I am most concerned with begins with the Reagan era. Reaganism ushered in financial policies notoriously labeled ‘Voodoo Economics’ by candidate George H.W. Bush, in response to Reagan’s espousal of what would variously be referred to as Supply Side, Trickle Down, Laffer Curve, etc.

Here’s the gist of it: if you lower taxes, government revenues will rise. And lowering them for the top tax brackets will create the greatest economic windfalls, as lowering tax rates would lead to greater investment. A critical component of this policy is not just income tax, but capital gains taxes, which have always been taxed at lower rates than ordinary income.

Here is a brief overview of the capital gains argument: http://www.taxpolicycenter.org/briefing-book/what-effect-lower-tax-rate-capital-gains

It should be noted that the arguments for lowering taxes on higher incomes are roughly equivalent although not identical.

The right wing of the GOP (i.e. The Old Guard) has generally opposed most (i.e. federal) taxes, whether on income or property. In many respects this thinking (stemming from classic liberalism) is a forerunner of today’s GOP libertarian threads, although conspicuous exceptions are now made for categories such as defense spending, and police activities in general.

There is no real evidence that lower tax rates for the wealthy generate greater economic gains in general or, or, laughably, increase government revenues.** The question is, do the advocates of this policy really believe in it or is it a cynical ploy to simply reward the Republican donor class?

The answer is yes.

The current tax reform bill conforms to the supply side model, but focuses much more heavily on reducing the corporate tax rate. This is not particularly radical, as the difference between the effective and statutory rates in the US is quite broad, and simplifying the rate structure is a laudable goal***

Although it is generally conceded that reductions in effective corporate tax rates generally benefit shareholders (i.e. stock prices), the magic bullet in the tax plan is ‘pass-through’ taxes. These are scheduled to be reduced drastically, and it is widely expected that as a result many corporate entities will be converted to pass-throughs. ‘Surprisingly’, many of Trump’s businesses are set up as pass-through. An added surprise is that this is expected to disproportionately benefit the very top strata (by both wealth and income) of American individuals.

For more analysis of the pass-through and general tax plan ramifications there are many august analysts that will do better than this journal. Or you can read the thing yourself …

I am mostly trying to pivot to the fourth R of the modern GOP: Reaganism. Coming soon!

* Naturally Ryan does not see it this way – to most in the GOP, government dependence on government handouts is a self-sustaining cycle that need s to be broken forcefully and immediately. That the main champion of this viewpoint is a man who has only worked for his well-to-do family business and, yes, the federal business in his entire adult life can be viewed as somewhat ironic.

**This has never happened. Basically, lower taxes = higher deficits.

***Statutory means the rate based on gross the gross, or published, rate and effective refers to the net rate after deductions, expenditures, etc. The corporate tax rates in the US have gradually gone down since the mid-1960s, and corporate tax as a percentage of GDP stands at around 2^ today compared to 7%in the mid-1940’s. See https://www.npr.org/2017/08/07/541797699/fact-check-does-the-u-s-have-the-highest-corporate-tax-rate-in-the-world

Leave a Reply

Your email address will not be published. Required fields are marked *