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Tuesday, March 28, 2017


Trump misunderestimated

by Tom Sullivan

Donald Trump promised that repealing Obamacare was the first on his agenda as president (turns out it was banning Muslims). Team Trump expected to use the "savings" from the repeal to justify a tax cut as big, fat, and juicy as Trump doesn't like his steaks. Stocks have taken a tumble as investors realized they might get their tax cuts cooked to perfection either.

Jim Newell at Slate explains how this was supposed to go:

The AHCA was supposed to lower the budget baseline to give leaders about $1 trillion to work with in the tax reform package. This would have gone a long way toward making tax reform revenue-neutral—i.e., not a long-run deficit increaser—which would be a requirement in order to pass the bill with a 51-vote majority under reconciliation if the changes are to be permanent. If the tax reform package isn’t revenue-neutral, its cuts will expire after 10 years like the Bush tax cuts did. Balancing rate cuts with a simplification of the code is what would define it as “reform, and not just an enormous temporary tax cut.
That $1 trillion evaporated when the AHCA went down in flames on Friday. Now what? Freedom Caucus chair Rep. Mark Meadows (R-N.C.) spoke to that on Sunday. From The Hill (emphasis mine):
"Does it have to be what they would say revenue-neutral, or do you have to have an offset, like with the border-adjustment tax — I think those are going to be the two questions," Meadows said during an interview on ABC's "This Week."

"I think there's been a lot of flexibility in terms of some of my contacts and conservatives in terms of not making it totally offset."


"When we start to grow the economy at 4, 4.1 percent, it actually not only increases wages but it puts more money in Americans pockets each and every day," he said.

"And so tax reform and lowering taxes will create and generate more income, and so we're looking at those, where the fine balance is. But does it have to be fully offset? My personal response is no."
You saw it coming, didn't you? I haven't yet heard a Republican in Congress utter the phrase "tax cuts pay for themselves," but that's just a matter of time. The National Review is already there. There will be "dynamic scoring" and other sleight-of-hand deployed to sell as sound economics tax cuts that are actually conservative dogma.

FiveThirtyEight addressed the question last fall:
The root of the problem is that in order to understand how taxes will affect the economy, we have to understand how the economy itself works. In a number of important ways, we don’t. Paul Romer, the incoming chief economist of the World Bank, made waves last week (at least on Twitter) with a new paper arguing that the field of macroeconomics has suffered through “more than three decades of intellectual regress.” At the Tax Policy Center event on Friday, former Fed economist Louise Sheiner ticked off a list of big questions that economists can’t answer: “We don’t understand why productivity has slowed so much. We don’t understand why labor force participation has fallen by so much. We don’t understand why companies aren’t investing now with such low interest rates.” With so many unanswered questions, Sheiner said, there is no way we can accurately estimate the impact of specific tax policies.
What the Trump administration underestimates, as it did with tackling health care, are the number of obstacles to getting through a tax package. Newell again:
When Republicans talk about simplifying the corporate tax code, they talk about weeding out corporate “loopholes” while lowering marginal rates. The effective tax rate that corporations pay is far lower than the top statutory rate that Republicans so often complain is too high. But if you weed out “loopholes” in any way that would result in a large corporation ending up having to pay more in taxes, they will lobby against that with every fiber of their being until the bill is dead, forever.

As Mark Mazur, director of the Tax Policy Center, told me cheekily, what the public may see as a corporate loophole is what each relevant corporation sees as a “well-deserved tax incentive.” If a corporation is paying an effective tax rate of 10 percent now, they’re going to lobby hard against any bill “that makes it 11.”
Entitlements. In the Republican universe, they only benefit poor people, low caste Irresponsibles. The president could find himself up against opponents with much more fight in them in the next round. He will need more golf to get through the tax fight.