Saturday, November 4, 2017

Taxes, caviar, and peanuts

That’s my significant digit for today. It’s the ratio of the price of caviar to the price of salted peanuts. And the ratio can be much, much higher depending on where you get your caviar. That’s my way of thinking about what the Trump/Republican tax bill will do for the ultra-wealthy relative to the niggardly to negative effects on the rest of us. (For caviar I consulted the serious eats tasting notes. For the peanuts, I used the shelf price of Planters salted peanuts at Walmart.)

John Cassidy (New Yorker) explains why Donald Trump Stands to Gain Millions from the Republican Tax Bill. Despite its complexity, the basic thrust of the bill is straightforward: the Donald Trumps of the world get caviar; the ordinary person get peanuts; and future taxpayers get shafted.. Snippets follow.

Watching Paul Ryan and his Republican colleagues struggling to finish writing their long-awaited tax bill over the past few weeks brought to mind an adage attributed to Al Smith, the street-schooled New York politician who served four terms as governor, during the nineteen-twenties: someone is going to be cheated; the question is who. The Republicans—having committed to huge tax cuts for corporations, unincorporated businesses, and very large estates, while also pledging to help out middle-class households—were in a bind. According to some reports, they were trying to fit five trillion dollars’ worth of tax cuts into the $1.5 trillion allotment they had pencilled into their budget for 2018.

You don’t need to have gone beyond eighth grade, which is where Smith completed his formal education, to know that this was a tricky task. The size of the math problem helps explain why the bill unveiled on Friday morning by Ryan, the House Speaker, and Kevin Brady, the chairman of the House Ways and Means Committee, was so long (three hundred and thirty-six pages), complicated, and filled with the kind of accounting that would have fit in at Enron. But, despite its complexity, the basic thrust of the bill is straightforward: the Donald Trumps of the world get caviar; the ordinary person gets peanuts; and future taxpayers, who will bear the burden of all the new debt issuance necessary to finance the package, get shafted.

For example:

The treatment of state and local taxes, and the new limits the bill would place on mortgage-interest deductions, appear to be targeted at households in blue states, such as New York and California, which have high taxes and expensive real estate. No surprise there: it’s partisan politics. Other aspects of the bill would affect households everywhere. Unlike the tax cuts for corporations and other businesses, the tax cuts for families are temporary: after five years, they expire.

Cassidy says that the bill is a “big giveaway to the rich, particularly the very rich.” He explains.

How so? The measure shifts the burden of taxation in the U.S. from corporations, which are largely run and owned by rich people, to households. It cuts the top rate on “pass through” business income—the sort of money generated by sole proprietorships, investment partnerships, and S-corporations—from 39.6 per cent to twenty-five per cent. And it phases out the estate tax, which falls most heavily on the largest estates, starting in 2024. Indeed, according to an analysis by the Committee for a Responsible Federal Budget, fully three-quarters of the over-all tax cuts in the bill are directed at businesses and large estates.

But that’s not all. The bill also repeals the alternative minimum tax, which was designed to ensnare rich people with clever accountants and a lot of sheltered income. In doing so, the bill creates enormous incentives for engaging in tax-evasion schemes, particularly the conversion of highly paid employees into unincorporated businesses.

Among the other benefits of the GOP tax cut bill that accrue to Trump and his family, there is the reduction and eventual abolition of the estate tax.

… To be sure, Trump may have already taken precautions to avoid the estate tax, by, for example, setting up specialized family trusts. But if he lived another ten years and then left his heirs, say, two billion dollars of unsheltered assets, then, under the current system, they would face a federal tax bill of eight hundred million dollars. Under the Republican bill, that liability would disappear.

The tax affairs of very rich people are all differently arranged, of course. But in some ways Trump’s finances are fairly typical. He earns most of his income from businesses. He already exploits the tax system to the max. And he has benefitted enormously from the great asset-price boom of the past twenty years. On Thursday afternoon, he said the Republicans were giving the American people a “big, beautiful Christmas present.” For some reason, he didn’t explain that the biggest presents, by far, would be handed out to people like him.

AZBlueMeanie (Blog For Arizona) has broader coverage of the media treatment of the GOP tax cut bill in his Roundup of early analysis of GOP tax plan.

After months of negotiating amongst themselves in secret behind closed doors — no Democrats allowed! — with no committee hearings to hear from stakeholder groups and tax experts, and no plans to do so before mark up and proceeding to a rapid vote, the GOP finally released its long anticipated “tax reform” (sic) bill this week.

From Blue Meanie’s quotes from Paul Krugman:

Budget wonks are frantically going through the legislative language, trying to figure out what it means and what it would do — but they can take some comfort in the fact that the bill’s authors are almost equally in the dark.

O.K., some things are clear: The bill would give huge tax breaks to corporations and the wealthy, especially wealthy heirs, while opening vast new opportunities for tax avoidance. You won’t go far wrong if you think of the big tax cuts in the law as having been custom designed to benefit the Trump family.

The Blue Meanie recommends the analysis by Dylan Matthews at for its readability, cutting to the core of the 400+ page bill: The House Republican tax bill, explained. It radically cuts taxes on corporations and wealthy heirs.

If this bill passes in anything like its present form, Donald Trump will leave Washington much richer than he already is. So will his children. The rest of us will be poorer for his presidency and the Republican urination nicknamed “trickle down.”

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