Reality On So-Called 'Tax Cuts'
The Market Ticker - Commentary on The Capital Markets
2017-11-17 07:00 by Karl Denninger
in Federal Government , 380 references Ignore this thread
Reality On So-Called 'Tax Cuts'
[Comments enabled]  

Let's cut the crap, shall we?

Tax cuts have never resulted in any sort of material improvement in the living standard of the ordinary America -- which I define as everyone other than the top 1% of earners.

It has simply never happened.

The last time the tax code was "reorganized" you got more buy-backs and stock options issued to executives.

The same thing happened with all the other tax cut packages since.

Further, when we had the so-called "Reagan Tax Reform" Tipper (yes, that's intentional; I'm speaking of the former Speaker as you got way more than just the tip!) promised to cut spending in order to make them deficit neutral.  He did not do so; no reduction in spending was ever delivered and the deficit exploded.

This will be no different.  In fact, unlike the Reagan-era game nobody is even claiming to intend to reduce spending.

The chimera of "tax cuts" being "good for business" is nonsense as well.  Almost no corporation actually pays the tax rate claimed, especially large firms.  They all cheat -- Apple has been caught in the "Paradise Papers" and others have as well.  The claim of "repatriation" leading to some sort of boom in investment and wages is nonsense as well.

The answer to corporate tax cheating is quite-simple, yet will never be implemented.  It's simply this: You pay US taxes on all economic activity that is directed toward sales and services delivered in the US.  Period.

If you put a call center in the Philippines and it takes US calls the employees there are subject to US employment taxes and all of the economic activity generated aimed at US consumers is taxed as US income.  It matters not where the work is performed -- what matters is where it is directed.

If you cheat and get caught you not only pay the back taxes you pay them twice plus interest as a penalty, and those inside your firm (or otherwise, such as auditors) who expose it get 10% of whatever they cause to be recovered.  That'll make it plenty worth it for them to rat you out.

That's it.  No more "Isle of Man" garbage, no more fancy-pants intellectual property deals, no offshore call centers to eliminate employment taxes on the people answering the phones, etc.  Nope, nope and nope.

Then the small US company is on the same footing as the large multinational.  It's the only way to make it happen.

Further, there is utterly no reason to allow capital gains rates to be taken by money managers and hedge funds.  That one's simple too: You can only take a capital gains rate if your personal funds are at risk in earning the return.  Thus the Hedge Fund folks pay ordinary income rates on those earnings, because it's not their money at risk -- it's yours.

Like most things of this sort there are reasonably-simple and elegant fixes, but there are also an army of lobbyists employed in making damn sure none of their favorite folks get hammered by any of them.

The only thing I see that's good in the proposed changes are the doubling of the standard deduction which is a definite positive for everybody, especially those in the middle class -- most of whom do not itemize.  In fact virtually nobody does with under $100,000 of income because it makes no sense to do so.  In addition, where the individual mandate to get struck (which I rate as having about a 1 in 100 probability) that would be a great thing from a standpoint of freedom -- but it will certainly crash the rest of Obamacare should it occur.

We should also get rid of all interest deductions for both individuals and corporations.  Deducting interest is a scam in that it promotes excessive leverage and punishes thrift, whether the target is a person buying a house or a hedge fund levering up to buy businesses and dismantle them.

Are any of the good things going to happen?  No.

Do I thus find the theater worth following on a minute-by-minute basis?  No.

Do all these Congressfolk on both sides of the aisle and irrespective of House or Senate deserve to be hit by an asteroid this afternoon for the bullcrap they're running on you here, will run tomorrow and continue to when it comes to this issue?

Yes.

Go to responses (registration required to post)
 
Main Navigation
MUST-READ Selection:
Our Nation DESERVES To Fail

Full-Text Search & Archives
Archive Access
Legal Disclaimer

The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.

NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.

The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.

The Market Ticker content may be sent unmodified to lawmakers via print or electronic means or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media, to republish full articles, or for any commercial use (which includes any site where advertising is displayed.)

Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.

 
Comments.......
User: Not logged on
Login Register Top Blog Top Blog Topics FAQ
Showing Page 1 of 2  First12Last
User Info Reality On So-Called 'Tax Cuts' in forum [Market-Ticker]
Quik49
Posts: 4217
Incept: 2007-12-11

Report This As A Bad Post Add To Your Ignored User List
Yup.... All a bunch of hot air.
I liken it to the local school districts and municipalities that push bonds saying no increase in current taxes.... heaven forbid the past bond is retired and we get a real reduction.

----------
Long Vaseline....

Thorvold
Posts: 203
Incept: 2013-09-12

NY
Report This As A Bad Post Add To Your Ignored User List
There is no discussion of spending reductions by the government just as there is no discussion of reducing the price of healthcare. It's all about contriving different ways to have us pay for all of this and making it seem like they actually care.
Quik49
Posts: 4217
Incept: 2007-12-11

Report This As A Bad Post Add To Your Ignored User List
I was listening to Laura Ingrahms show on the way in....there was a senator from SC on there saying that they needed to now look at spending cuts....wtf...that should have been part of this imo...and then he went on that they were going to attack welfare reform after Tday...yeah right...

----------
Long Vaseline....

Idahofarmer
Posts: 2
Incept: 2017-04-17

Report This As A Bad Post Add To Your Ignored User List
The play by play is definitely not worth following. Just know it will not be a good result at the end. Focus on what you can control like manipulating your income so that you get $18,340 in tax credits for free healthcare coverage as well as an earned income tax credit every year. Make your tax footprint and your overall exposure to anything the government does as small as possible. We fed the pig for far too many years. Now we have no remorse in doing our best to legally starve the pig until it keels over.
Themortgagedude
Posts: 10409
Incept: 2007-12-17

saint louis
Report This As A Bad Post Add To Your Ignored User List
I'll add something. I'm in favor of removing all income taxes on those that earn $500,000 or less. Replace it with a sales tax. Tax earnings above $500,000 at 25% and call it a day.

----------
I think its time we ask ourselves if we still know the freedoms that our founding fathers intended for us. Ronald Reagan 1964
Wa9jml
Posts: 53
Incept: 2017-04-29

DeKalb, Illinois
Report This As A Bad Post Add To Your Ignored User List
Just wait until the demise of Full Faith & Credit hits the local governments. Actually, it will probably start there, and then head up the food chain to the feds. When you realize just how many people have no savings, are heavily in debt, and have no disposable income, there is no way that much more revenue can be extracted from them. I saw this most clearly when I worked in small rust belt municipalities in Illinois. Quite a few residents did not have bank accounts, and paid their water and sewer bills in cash. I saw livable houses go at auction for $12,000, and one of my council members who was an electrician told me that there were still a lot of houses in that town with 30 amp electrical services. Not all that much "affluence" remaining to be tapped.
Aquapura
Posts: 676
Incept: 2012-04-19

South of Canada
Report This As A Bad Post Add To Your Ignored User List
Quote:
When you realize just how many people have no savings, are heavily in debt, and have no disposable income, there is no way that much more revenue can be extracted from them.


I just got my 2018 estimated property taxes. Up 12% or roughly $600. That's no "improvements" just adjustments due to market comps. I don't live in an extravagant home or high class zip code. This is a very middle income neighborhood where an extra $50/mo is going to hurt.

My suspicion is that the fed's proposal to axe the state and local tax deduction is playing into this spike. Get it now while they can. Property taxes are high where I'm at but reality is if you're household income is under $100k you can get deductions and refunds to greatly reduce that. Now if the fed's pull that deduction my neighbors get screwed as state credits come after you file federal tax. They should be bitching to the state and local asshats that imposed the property tax but I'm sure the spin will blame the feds for their tax bill.


Wtf_247
Posts: 171
Incept: 2011-11-01

Report This As A Bad Post Add To Your Ignored User List
The only advantage I can see is the cost savings and time savings of many Americans not having to pay H&R Block, Jackson Hewitt or another accountant to prepare basic taxes.

To do real tax reform where the average American could just fill out a single piece of paper with basically decimate all of the national tax preparation firms and all of the smaller mom-and-pop tax preparers that earn a living each year.

I have very little hope that they could ever actually accomplish that, lobbying is very powerful and those Congress people want the money and want to be reelected.
Wtf_247
Posts: 171
Incept: 2011-11-01

Report This As A Bad Post Add To Your Ignored User List
Oops, my former comment I meant 500 million per year spent, not 500 billion lol.
Barley
Posts: 7
Incept: 2015-12-09

Report This As A Bad Post Add To Your Ignored User List
I guess I am "virtually nobody". I earn less than $100,000 and itemizing is a much better deal for me.
Radiosity
Posts: 108
Incept: 2009-03-05

Sunny UK
Report This As A Bad Post Add To Your Ignored User List
"Not all that much "affluence" remaining to be tapped."

Plenty of effluence, though.
Tickerguy
Posts: 150674
Incept: 2007-06-26
A True American Patriot!
Report This As A Bad Post Add To Your Ignored User List
@Barley I'll bet that with a doubled standard deduction it won't be. Which is the entire point; all those "screaming" about losing deductions and who also are not in the six-figure and beyond earning category are almost to an individual full of **** since you can't take ANY of them if you use the standard deduction.

With that doubled the math simply doesn't work for almost everyone in the under 100K income category. It's simply math.

----------
Winding it down.
Barley
Posts: 7
Incept: 2015-12-09

Report This As A Bad Post Add To Your Ignored User List
@Tickerguy It's very possible I will come out ahead. We'll just have to see what the final version of the law is (if it's passed). One question, I was under the impression that the net effect of the doubling of the standard deduction was much less than double because of the elimination of the personal exemption. Thoughts?
Tickerguy
Posts: 150674
Incept: 2007-06-26
A True American Patriot!
Report This As A Bad Post Add To Your Ignored User List
Not really.

Remember that you also get the bracket reduction from the standard deduction as well (brackets are on AGI, not gross), so you have to take that into account as well.

I've run these numbers and if you're getting a better deal itemizing under the proposal then (1) you are RIDICULOUSLY overlevered in property tax and mortgage for a $100k or less wage-earner and the rest of the nation should NOT be subsidizing your IDIOCY or (2) you have utterly ridiculous expenses in deductible places in the code that will disappear which shouldn't have been there in the first place and fueled massive fraud (e.g. sky-high medical expenses that have you with one foot in the gutter.)

----------
Winding it down.
Quik49
Posts: 4217
Incept: 2007-12-11

Report This As A Bad Post Add To Your Ignored User List
HA KD...your #1 above was what I was thinking....joe blow who goes out and gets leveraged to his nuts on a mcmansion and gets a **** ton of interest deduction....for being an idiot

----------
Long Vaseline....

Barley
Posts: 7
Incept: 2015-12-09

Report This As A Bad Post Add To Your Ignored User List
All true but you failed to mention the charitable contribution deduction which imo is not related to idiocy, fraud or bad health.
Tickerguy
Posts: 150674
Incept: 2007-06-26
A True American Patriot!
Report This As A Bad Post Add To Your Ignored User List
Both the House and Senate bills leave the charitable deduction in the code.

I'm sure you have an idea what happens to people who run horse**** around here, since you registered your account in 2015.

----------
Winding it down.
Nevertoolate
Posts: 1392
Incept: 2007-08-26
A True American Patriot!
San Antonio de Bexar de runover with illegals, Texas
Report This As A Bad Post Add To Your Ignored User List
IMHO EVERY deduction in the tax code is there because of lobbying and/or political contributions (which the SCOTUS decision to allow corporate donations only made the matters worse).

Congress shall not have any tax benefits which are not the same as any other filer of US Form 1040 or any other federal government employee. I'll take that for starters.

Welfare as we know it today started with LBJ's "Great Society". After 50 years there should be no doubt in anyone's mind that it doesn't/hasn't worked. In fact, it has made it much worse. Limit it over one's lifetime. 60 months max. If you don't ever touch it, you can get whatever social security you are do the remaining number of months early.

All laws have to be equally enforced among everyone in the United States. Failure to do so makes the person responsible for said failure equally liable for same fines and or prison terms as those excused.

Look at the whirlpool in the swamp!


----------

Democracy is a conversation between 2 wolves & a sheep discussing what's for dinner. A Constitutional Republic is found when the sheep pulls out a gun & makes clear that his 2nd Amendment Right will be exercised should the wolves attempt to hold such a "vote."-KD 9-29-15
Dji
Posts: 1300
Incept: 2009-04-21

Ponzi world 3rd rock from the sun
Report This As A Bad Post Add To Your Ignored User List
Doubling of the standard deduction looks to save me 3 GRAND!

That's 3 grand not going to the DC crooks.
Might cover a new heat pump for the house, not that I need one but I got 22 years on mine now so I know that bill is coming.

----------
Don't be a bag holder-Me

What goes up Must come Down- Alan Parsons Project
Supernumb
Posts: 2
Incept: 2017-10-30

Report This As A Bad Post Add To Your Ignored User List
Since we now simply, regularly, and continuously run annual deficits at the Federal level...the question is begged...what exactly ARE we paying taxes "for"? The relationship between annual collection and spending is broken.

So while the argument can be made that by being taxed the taxpayer is more 'invested' in his Federal government and it's policies and actions, otherwise aren't we as a country just (Federally) printing to pay? (And so far...the bluff not being called.) If that's the case, the way folks other than me see it too...then isn't the tax code really an economic exercise in social engineering? Let's maybe just be honest about that and then decide as a country if we want a small cadre of lobbyists and politicians engineering our society via a ridiculously complex system of carrot and stick "incentives"?
Analog
Posts: 1494
Incept: 2010-12-29

arkansas ozarks
Report This As A Bad Post Add To Your Ignored User List
Quote:
Might cover a new heat pump for the house, not that I need one but I got 22 years on mine now so I know that bill is coming.

If it's been running that long it means the Freon system is tight. I'd say replace the run capacitors for compressor and fan, clean the coils, oil the fan motors inside and out, sweep some dust back in and call it overhauled. Even hiring that done should run less than $250, $35 if you DIY..

New ones have exotic Freons and run at higher pressures. Yours is probably R22. I'd say keep it going as long as it will.
My R22 system just turned 40 .

a.

----------
Never trust a computer with anything important.
Little_eddie
Posts: 1097
Incept: 2009-04-30

Delaware
Report This As A Bad Post Add To Your Ignored User List
I don't understand why anyone with a non-business tax return would want to NOT take the standard deduction.

First off, I don't want to spend any money on anything that's on the Schedule A list, it's
Taxes
Interest you paid
Gifts to Charity
Losses & Investment expenses.

Next it's not a one for one benefit, in that you only save about 30% of each dollar spend on any of the above. If, last year, you filed single and made $50,000 the standard deduction is $6,300. Lowering your taxes from $8,278 to $6,703.

So to do the same with Sch A you have to spend $6,300 to save yourself $1,575, not a good idea in my mind.

WHY would I want to give a bank $6,300 to save myself $1,575, but see below



----------
Think of how stupid the average person is, and realize half of them are stupider than that. - George Carlin

Reason: Removed unneeded item
Analog
Posts: 1494
Incept: 2010-12-29

arkansas ozarks
Report This As A Bad Post Add To Your Ignored User List
Quote:
WHY would I want to give a bank $6,300 to save myself $1,575, but see below


"see below' didn't show up for me,

but along that line

indeed. Chuck that $6300 into your IRA instead, pocket the $1575 now and recoup the $6300 later with interest.

Is that still an option under new plan ?

a.

----------
Never trust a computer with anything important.
Tickerguy
Posts: 150674
Incept: 2007-06-26
A True American Patriot!
Report This As A Bad Post Add To Your Ignored User List
Yes, but I will note that while the Roth sounds rather good RIGHT NOW there is NOTHING preventing them from taxing it later (just their "promise" not to, and we know how much that's worth.)

I'll take the risk of being taxed at higher rates later in exchange for not paying them now, since that still only gives them one bite at the apple.

----------
Winding it down.
Login Register Top Blog Top Blog Topics FAQ
Showing Page 1 of 2  First12Last