Wednesday, April 26, 2017

Trump's tax plan is disastrous

Trump seeks to reduce corporate tax rates to 15%. I haven't seen the details but on the surface this only going to increase national debt.

Simplistic GOPers are likely to try to offset a reduction in tax revenues with decreased spending which creates a swirly down the drain.

Deficit spending is actually highly stimulative. When the government spends money it provides revenues to contractors who pay more money to more employees who patronize businesses which also pay employees and so on. Turn off the tap at the source and you can appreciate the problem.

If, on the other hand, we don't reduce spending then there will be less demand for Treasuries which will raise interest rates and diminish the value of the dollar which will be inflationary which benefits people who owe a lot of money. Who could that possibly be? We will have the privilege of paying more for just about everything; fuel for starters as in gas prices and home heating oil. This creates a spiral.

In other words, either way we are screwed. Of course we do not know how Trump personally benefits from this to the ultimate dismay of us ordinary citizens because he hasn't released his goddamned tax returns and the goddamned people put this goddamned creep in office.

By the way, we enjoyed enormous prosperity with 50% tax rates, a top personal rate of about 80% and when capital gains meant, well … capital gains. The theory is that business will have more money to spend which will be stimulative. That seems unlikely because we are not sufficiently taxing obscene compensation plans which are going to get more obscene. Therefore the effect might be disproportionate with the average consumer getting hosed.

Just look at the history going back to 1981 with the Economic Recovery Tax Act. In the year after enactment of ERTA, the deficit ballooned, which in turn, drove interest rates from around 12% to over 20%, which, in turn, drove the economy into severe recession. The Dow Jones average lost more than 30% of its value. Much of the 1981 ERTA was canceled out in September 1982 by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), the largest tax increase since 1945. The “Reagan recovery” was the result of tax increases.

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