Quantcast
Connect with us

How Trump’s radical Republican tax cut broke the economy

Published

on

- Commentary
David Cay Johnston
David Cay Johnston

Donald Trump’s tax cut for the rich and the corporations they control is turning out to be a bust for the American economy.

It will burden taxpayers with at least $1.5 trillion more federal debt because, instead of boosting tax revenues through increased economic activity as promised; it has caused a sharp drop in revenue.

In addition, millions of residents of blue states are about to get hit with big federal income tax increases while many American expatriates who own businesses overseas are also facing unexpected new tax bills, especially if they prudently saved for old age under the systems of the countries where they now reside.

A host of economic indicators shows the 2017 Tax Cuts and Jobs Act failed to achieve its key promise, a major increase in investments by business that would create more jobs. This is exactly the result that many, including those of us at DCReport, predicted.

The economy is slowing down despite the promise that the Trump-Radical Republican tax cut would spur massive new investment.

ADVERTISEMENT

We call the 2017 tax law the Trump-Radical Republican tax law because not one Democrat voted for the bill in the House or Senate. It was also passed without a single public hearing. It is a terrible law that benefits the richest among us at the expense of the many—and it needs to be fixed.

The Trump-Radical Republican tax law not only cut the corporate tax rate from 35% of profits to 21%. It also allowed corporations to immediately deduct 100% of capital expenditures instead of writing them off on their tax returns over periods from three years to decades.

This kind of corporate tax timing trick has been employed several times since the John F. Kennedy administration in 1962. The effect each time was to create a brief surge in corporate investment, called capital expenditures, followed by a slump.

ADVERTISEMENT

Looked at over a period of several years, total capital investment was unchanged.

The evidence today shows the economy is slowing down after expanding since early in former President Barack Obama’s first term despite the promise that the Trump-Radical Republican tax cut would spur massive new investment.

The National Association for Business Economics found this month that the Trump-Radical Republican tax law has failed to increase business investment and activity.

ADVERTISEMENT

NABE president, Kevin Swift, who is chief economist for then American Chemistry Council, said that 84% of business economists it surveyed agreed that “one year after its passage the 2017 Tax Cuts and Jobs Act has not caused their firms to change hiring or investment plans.”

There’s no reason to expect an increase going forward. Rather, economic growth appears to be slowing.

The association said that a majority of those it surveyed in January don’t expect a recession this year. However, fewer members expect robust economic growth in 2019.

ADVERTISEMENT

It also noted a slowdown in the growth of profit margins as well as rising costs for materials, both signs of an economic expansion that is running out of fuel to keep going.

Manufacturing activity has grown for 116 consecutive months, the last 23 of them under Trump, the Institute for Supply Management’s latest report showed.

But institute reports also showed a sharp slowdown as 2018 ended despite the Trump-Radical Republican tax cut favors for business. In December, the institute’s Purchasing Managers Index (PMI) stood at 54.1, down sharply from 59.3 in November.

ADVERTISEMENT

Much more worrisome was an 11-point decline in the index for future orders, which fell in December from 62.1 to 51.1. That suggests economic growth will slow, perhaps even stall, later this year.

Expect some contraction in consumer spending in the first half of this year as many prosperous Americans get hit with much bigger than expected income tax bills.

Thanks to the Trump-Radical Republican tax cut, millions of families in California, Connecticut, Maryland, Massachusetts, New Jersey, New York, Virginia and other high-tax states will owe thousands to tens of thousands of dollars more in federal income tax for 2018 even if their income was unchanged from 2017.

ADVERTISEMENT

That is because individuals can deduct no more than $10,000 in state and local taxes, known as SALT, on the tax returns due this spring, and most homeowners will no longer be able to deduct mortgage interest.

The number of taxpayers who will be eligible to itemize deductions is expected to fall from about one in three to just one in 20.

The taxpayers most affected live in Democratic-leaning blue states, which also happen to be those with better paying jobs. Had the Trump-Radical Republican tax cut bill been examined in public hearings, the public would have known about its partisan provisions, something the framers of our Constitution warned against and which they tried to prevent with the uniformity clause in Article I, Section 8, Clause 1 of our Constitution, which says taxes should be uniform across the country.

ADVERTISEMENT

In addition, many American expatriates are being hit hard by Trump and Congress because their tax-deferred retirement savings plans in some countries are now treated as immediately taxable by the United States. That’s because the law did not distinguish between profits siphoned out of the United States by companies like Apple and the normal course of business for many expatriates complying with the laws where they now live.

Congress taxes Americans and American-based corporations on their worldwide income. Other major countries tax people only on income earned within their boundaries.

Similarly, the equity built up in enterprises such as medical practices is treated as immediately taxable under the Trump-Radical Republican tax law. These consequences illustrate a key reason that tax law should not be drafted in secret and voted on without public hearings.

ADVERTISEMENT

Had Congress held public hearings the tax problems created for American expatriate professionals and business owner differences in the tax rules of other countries could have been spotted and then prevented or minimized.

Now that the Democrats control the House, which our Constitution requires be the origination point for all tax laws, hearings could be held to ameliorate or even eliminate these problems.


Report typos and corrections to: [email protected]. Send news tips to: [email protected].
READ COMMENTS - JOIN THE DISCUSSION
Continue Reading

Breaking Banner

Gun ownership increases homicides — but only a very specific kind of them: study

Published

on

Does the frequency of gun ownership impact the homicide rate? In the broad sense, many studies have shown it does. But how does it do so exactly?

A new study, conducted at the University of Indianapolis and published in the American Journal of Preventative Medicine, offers a profound hint. The study, which examined homicide rates by state from 1990 to 2016, suggests that most forms of homicide — those committed against friends, acquaintances, and strangers — are negligibly affected by firearm ownership rates. But one particular category of homicide is sharply correlated with the presence of guns: domestic violence.

Continue Reading

Breaking Banner

Conservatives are furious over Trump’s budget deal with Democrats — president brags about ‘real compromise’

Published

on

Nancy Pelosi clap

House conservatives are livid after President Donald Trump struck a budget deal with Democrats.

"You should veto this bill because it is fiscally irresponsible," the lawmakers wrote in a letter to Trump. "It blows well beyond what was intended with the 2011 [Budget Control Act] caps. Furthermore, it continues spending hundreds of billions more than what we take in a year and does not put our nation on a path towards a balanced budget."

The effort is being driven by first-term Rep. Chip Roy (R-TX).

"As the greatest nation in the history of the world, the least we can do is cut a deal that does not sabotage the fiscal future of our nation while endangering millions of American and migrants because of our porous border," the lawmakers wrote. "We can do better."

Continue Reading
 

Breaking Banner

Male Fox News personality rewarded by the network after being caught sending lewd texts to female colleague

Published

on

Less than, two weeks after the Huffington Post published shocking text messages a Fox News contributor reportedly sent to his female Fox Nation co-host, the network rewarded the male employee.

“Tyrus, a Fox News contributor and a host on the network’s digital channel, Fox Nation, sent lewd and inappropriate text messages to his now-former Fox Nation co-host, Britt McHenry, according to four sources familiar with the texts’ contents,” the Huffington Post reported.

Continue Reading
 
 
 

Copyright © 2019 Raw Story Media, Inc. PO Box 21050, Washington, D.C. 20009 | Masthead | Privacy Policy | For corrections or concerns, please email [email protected]

Join Me. Try Raw Story Investigates for $1. Invest in Journalism. Escape Ads.
close-image