Wednesday, April 26, 2017

The Trump administration tax plan

The Trump administration released a brief overview of its tax plan today as prematurely promised.  Any comment on this would be premature as well, but better to write something as a quick reaction before the media has turned all comment into a hash that get mashed into mush by Spicer's responses.

---A 15% corporate tax rate is too low.  20% might be a reasonable compromise if there is a housecleaning of  existing exemptions, exclusions, and other tax breaks.  A rate of 15%, down from an average corporate rate of 27%(nominal top rate is 35%) would be too much for corporations to digest efficiently so much of it would just go to stock buybacks, dividend increases, and higher compensation for upper management.  Less than 20% of Americans have any substantial exposure to the stock market, so equity market gains as a result of these actions would not benefit most consumers or the middle class.

---This could lead to an effort to push as much personal income into business income to get the lower rate, especially at 15%.  This would be a variation on the completely abused "carried interest" tax break that hedge fund owners still benefit from in a huge way.

---A lower tax window for repatriation of overseas assets could be an obvious way to deal with a need for capital investment and infrastructure investment, both public and private.  Dealing with this issue in a constructive way is long overdue.  In some cases those overseas profits have been fairly taxed already in their overseas jurisdictions and in other cases they have not been.  There is no way to do this in a way that will please everyone, but biting the bullet and getting this issue at least partially behind us means taking action.  It should be noted that a meaningful amount of these overseas balance sheet assets will stay there regardless of incentive, as they are there to reinvest in manufacturing, servicing, and research for the regions that they are in.

---Fortunately, the  twit Paul Ryan pushed "border adjustment tax", aka a tariff, has fallen out of favor at the White House.  Maybe Trump discussed it with his friend Xi.

---On the individual front, elimination of the Alternative Minimum Tax is long overdue.  It is outdated and has never been adjusted for inflation, so it is essentially an upper middle class tax burden that never touches the wealthy.  When Bill Clinton had a budget windfall due to the tech boom, the AMT was already lame, but he refused to touch it in his last year in office in order to burnish his reputation for sound fiscal management by making sure that he had a budget surplus. That was typical Bill Clinton.

---Eliminating the 3.8% additional capital gains tax that is supposed to partially fund the Affordable Health Care Act could be considered positively as a reaction to one-offs that are just more taxes, all really just put into the same bucket. Negatively it can be seen as simply part of the overall attack on Obamacare.  Specific reasons for additional taxes can lead to abuse by the politicians, just as overuse of executive orders can lead to an exaggerated pattern for others to follow.  Who would want an immigration enforcement  surcharge?  On the other hand, causing millions of Americans to lose their health insurance could be called cruel.  Two sides to this seen here.

---There is no explanation yet of the three tax brackets proposed, but simplification of the tax code could be positive.  The gap between the first level of 10% and the second level of 25% is huge.  It will be interesting to see those brackets, and it is impossible to comment on without that information.

---Complete elimination of the estate tax is so transparently driven by Trump's personal agenda that it should be laughable.  Now we are forced to take proposals like this seriously.  The estate tax as currently written is far from perfect but to grant complete license to Trump, Schwartzman, the Koch's, and other billionaires to exploit the U.S. economy with abandon and without acknowledgement of their benefit from this country is not right, as well as not being sound tax policy.

---Raising current estate tax minimum levels would be a good thing for small business owners and would be a positive change.  For a family to build a business that they have constantly reinvested in and then for  their heirs to need to sell it to pay tax is a result of an overly assertive government that is behind the times on valuations of firms and their real estate.

---Increasing the standard deductions for individuals could be a positive for the middle class and lower middle class that would not seriously impact the budget.  Details are needed to say anything more.


That's it for a quick comment that could be outdated in a day or two.  This will require legislation and that needs to be seen.  Can the Trump administration put it together and can Congress pass anything that is not filled with even more complexity than already exists?  Good question on the first and unprecedented on the second.


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