Tag Archives: political economy

Tax Reform and SALT

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There are, unfortunately, some Republican Congressmen who don’t get it.  One such is Congresswoman Claudia Tenney (R, NY).

I worry about the way this bill erodes the deduction for state and local taxes, which has been in place since 1913.  …  This would compound the already excruciating financial burden that my state’s lawmakers have placed on New Yorkers.

How long the deduction has been in place is only an indication of the age of the error, nothing else.

More importantly, the decision of New York’s politicians to have such a usurious State tax code in no way obligates the rest of us to support the foolishness of SALT. If New York politicians—including Tenney—and those of other high-tax States truly are worried about the fiscal welfare of their citizens, they’d work to reform their State’s tax code and reduce their State’s tax rates and thereby allow their State’s citizens to keep more of their money.

At the Federal level, politicians like Tenney would work to reduce—even eliminate—Federal transfers of the hard-earned funds of one State’s citizens to another State absent a regional or national emergency. New York, for instance, sends more of its citizens’ money to other States than it receives from other States’ citizens; such a reform would seem highly attractive to the State’s politicians.

Federal Tax Reform and SALT

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Included in the Federal tax reform plan now on offer is the elimination of the deduction for State And Local Taxes (primarily income and sales taxes; property taxes would remain deductible up to a cap).  Republican Congressmen from high-SALT States object to that elimination, and they base their objection on the premise that these high-tax States actually send more of their States’ citizens’ money to DC than they get back from DC in other funds.

That seems a fair beef to the extent that it’s accurate, which raises a question in my pea brain.

What are these Congressmen proposing in the way of tax reform and spending reform to reduce the amount of their constituents’ money—and the money of all States’ citizens—that gets sent to DC?  Surely, they can think of ways to reduce such regional redistributions (they are Republicans, after all), or even eliminate them absent a national or regional emergency.

These Congressmen’s silence on that bit strongly suggests that their objections are not principled, but simply personal power and ego stroking.

Tax Cuts and Business Planning

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Some large businesses are claiming that, rather than being good for job growth, the tax reform plan currently on offer in outline form would be good for investors.

As if these are mutually exclusive outcomes.

The chief executive of Honeywell International, Darius Adamczyk, said tax reform will “offer greater flexibility for Honeywell,” adding that the industrial conglomerate would invest more cash in the United States to pay for dividends, mergers and acquisitions, share buybacks and paying down debt.

Amgen CEO Robert Bradway said on Wednesday any tax reform would be incorporated into its capital allocation plans, noting the drugmaker expects to continue to raise its dividend and buy back shares.

However (there’s almost always a however).

Greater flexibility is always a good thing for business, especially in contrast to government fetters telling a business (or pressuring one through, say, a tax code) what its investments ought to be, what its products ought to do, how it ought to produce its goods and services.

Investing more cash in dividends is good for the stereotypical widows and orphans—folks who live on fixed income sources and who have been hammered by the last eight or more years of government-suppressed interest rates.  Dividends also are a way of attracting investors—which is cash for the business.

M&A are a way (not the only way) businesses can grow, increase efficiency, achieve greater economy through greater scale.  Which adds up to lower prices for consumers and greater demand for the product.  Achieving functional monopoly (or oligopoly—monopoly by a few) power and abusing it?  There’s a law for that.

Share buybacks?  Those are a wash, with no economic effect good or bad—for the company or anyone else.

Paying down debt?  That’s always good.  It gets a monkey of too much debt off the business’ back, reducing its cost of money when it needs to borrow again.  Or pay existing dividends.  Or otherwise increase the business’ flexibility.

All of which is good for job growth, even in if it might not increase hiring on the instant of, say, a significant corporate tax reduction.  Good for investors means good for businesses.  Increased flexibility means good for business.  Increased efficiency, lowered price to consumers, increased consumer demand means good for business.  And that means the business grows and hires.

And, yes, there will be relatively prompt increases in hiring, also.  That’s more of that flexibility: businesses won’t put all of their eggs in one basket, if they’re (allowed by government to be) flexible.  They won’t be any more likely to put all of their tax cut into dividends or share buybacks than they would be to use it all for hiring.  And I haven’t even mentioned committing some of that tax cut to increased R&D, which produces more and better products, which increases demand for output, which facilitates growth—which leads to increased hiring.

But, but….

The situation could be a replay of the massive 2004 repatriation “holiday” under President George W Bush, in which 843 US-based multinationals brought back $362 billion in overseas profits at a deeply slashed tax rate of 5.25%.

Most of that money went to stock buybacks and dividend increases.

This is a non sequitur.  The tax reform on offer isn’t a holiday, a one-time event.  What’s on offer is permanent, so actual long-term planning will be able to be done, and the funds more efficiently allocated for the long game.

The Reuters piece at the link didn’t discuss the other major aspect of the proposed tax reform, the tax rate cuts and general reform from the individual taxpayer perspective.  Those rate cuts and reforms represent more money in the hands of taxpayers.  That means more stuff getting bought and more money being saved and more money being invested by those individual taxpayers (often referred to as retail investors, because the vast majority of us are not institutional or professional investors).

Greater demand by individuals means more production by business.  More money being saved means more money in the banks’ hands to lend to businesses and individuals—which means business expansion, more houses being bought, and on and on.  More investment by us retail investors means more money in business hands to fuel R&D, production, expansion.

And all of that means a growing economy and increased jobs.

“Good for investors” and job growth, far from being mutually exclusive, are mutually supportive.

Tax Deductions

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Republicans disagree among each other about the deductibility on Federal personal tax returns of property and sales taxes levied by States, with most of the objections coming from Republicans whose constituents are in high-tax States (which is to say, primarily Progressive-Democrat-led States like New York and California).  I’ve written elsewhere about the nature of that beef.

In my infinite wisdom, I offer a couple of alternatives for compromise.

One is to allow Federal income taxpayers to deduct either their State’s property tax or its sales tax, but not both.  Another is to allow the deductibility of both, but only part of the taxes—say 50%—not all of them.

In either case, after a year or two for transition/adjustment by both the taxpayer and the State of which he’s a citizen, eliminate altogether the deductibility of State taxes on individual Federal income tax returns.

The NLMSM touts the deductibility as Federal government redistributions, but the plain fact is those redistributions are of the monies paid by citizens of other States laundered through the Federal government.

I repeat my chorus: there’s no reason the citizens of Texas or Illinois should pay for the spending decisions of New York or California.  It’s true enough that all the States are in the Union together, and we’re all bound to help each other.  But that’s a two-way street: no State should be creating itself a burden on the other 49 by being irresponsible in its spending and taxing and then demanding those others make it whole from its foolishness.

Obamacare Subsidies

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Recall that under Obamacare, health coverage plan providers are required to subsidize low-income Americans (who, under Obamacare, are required to buy the plans regardless of need for the plans on offer or ability to pay the vig for them) for their costs in buying those health coverage plans.  Recall further that the Obama administration paid those plan providers monies to reimburse them for those government-mandated subsidy payouts.  Recall also that Congress never appropriated any funds for the purpose of making those payments to the plan providers.  Finally, recall that a DC District court ruled those payments to the health plan providers illegal—because Congress had not appropriated any funds for the purpose.  Then the Trump administration ceased those payments to the health plan providers.

Oh, the hoo-rah from the Left.  Eighteen Progressive-Democrat-led States sued in Federal court (in San Francisco, California, after judge-shopping to find a suitably malleable court), centering their beef on how stopping the payments would set the Obamacare markets a-roil.  Never mind, now, how cynically irrelevant that plaint is to the actual case before the courts, which is whether the payments are legal, not whether they’re convenient.

Federal judge Vince Chhabria, of the Northern District of California, headquarted in San Fran, wound up ruling against the 18 States.  He also wrote,

And although you wouldn’t know it from reading the states’ papers in this lawsuit, the truth is that most state regulators have devised responses that give millions of lower-income people better health coverage options than they would otherwise have had

And he

cited an October press release by California’s health care marketplace, which said the premiums of nearly four of five consumers will stay the same or decrease after surcharges tied to the lost subsidies are factored in. The judge said dozens of other states also have accounted for the end of the subsidies.

And

One last point on the issue of confusion.  If the states are so concerned that people will be scared away from the exchanges by the thought of higher premiums, perhaps they should stop yelling about higher premiums. With open enrollment just days away, perhaps the states should focus instead on communicating the message that they have devised a response to the CSR payment termination that will prevent harm to the large majority of people while in fact allowing millions of lower-income people to get a better deal on health insurance in 2018.

Oops.  Just another bit of disingenuousity on the part of Progressive-Democrats as they try to keep honest Americans trapped in the Progressive-Democrat welfare cage.

Judge Chhabria’s ruling can be read here.