I can’t help shake this sinking feeling: This tax cut package that is being peddled by the current administration is a scam. Why? Because the entire narrative is dishonest and predicated on false, make belief premises.
Rich guys giving themselves tax cuts telling you it'll trickle down & economic growth will be nothing but milk and honey & it will all pay for itself
Surely people are not falling for this?
— Sven Henrich (@NorthmanTrader) November 9, 2017
Look, I don’t like paying more taxes than I have to. Nobody does and I’m not opposed to tax cuts if they actually do something positive for society and the economy. Get Republicans and Democrats together to work something out that helps address our structural issues. I’m all for it.
But my take is that this game that is being played here is a snow job and an obvious one at that and I’ll tell you why.
Let’s start with the obvious: The very people that are pushing for it have an inherent conflict of interest. Everyone of these people stands to gain personally from the very tax cuts they are pushing:
The main narrative: It’ll stimulate economic growth. Let me simply state the obvious here: These 3 folks having larger cash positions and getting enormous refunds will not add to economic growth, it will just add wealth to them.
And it’ll add wealth to their children & families:
That’s after all what the estate tax repeal is all about. Don’t kid yourself.
Gary Cohn struggled to justify all this today in his interview on CNBC. In fact he didn’t justify anything, but rather admitted the larger point: It’s a tax cut for the top 1%.
“we see the whole trickle-down through the economy, and that’s good for the economy”
Why would it trickle down if it’s not a tax cut for the top 1%?
Well because that’s what it is:
“$1 trillion in net cuts for business, $200 billion through the estate tax, and $300 billion for individuals. So, four times as much in business tax cuts and estate tax as for individuals.”
And right here the narrative and premise dies.
First off, corporations are doing great and have more cash than ever. What do they do with most of their cash? It goes to dividends (10% of people own 90% of stocks, 50% of people don’t own any stocks) and of course buybacks. Goldman itself had already done a projection on this late last year:
“We expect tax reform legislation under the Trump administration will encourage firms to repatriate $200 billion of overseas cash next year,” David Kostin, chief U.S. equity strategist, said in a Friday note, referring to companies in the S&P 500. “A significant portion of returning funds will be directed to buybacks based on the pattern of the tax holiday in 2004.”
None of that adds to economic growth for the bottom 90% it adds to the wealth of the top 1%.
And it’s not even honest to call it the top 1%. It’s really the top 3 if you will.
Wake up to reality:
“The three richest people in the US – Bill Gates, Jeff Bezos and Warren Buffett – own as much wealth as the bottom half of the US population, or 160 million people.
Analysis of the wealth of America’s richest people found that Gates, Bezos and Buffett were sitting on a combined $248.5bn (£190bn) fortune. The Institute for Policy Studies said the growing gap between rich and poor had created a “moral crisis”.
In a report, Billionaire Bonanza, the thinktank said Donald Trump’s tax change proposals would “exacerbate existing wealth disparities” as 80% of tax benefits would end up going to the wealthiest 1% of households.
“Wealth inequality is on the rise,” said Chuck Collins, an economist and co-author of the report. “Now is the time for actions that reduce inequality, not tax cuts for the very wealthy.”
The study found that the billionaires included in Forbes magazine’s list of the 400 richest people in the US were worth a combined $2.68tn – more than the gross domestic product (GDP) of the UK.
“Our wealthiest 400 now have more wealth combined than the bottom 64% of the US population, an estimated 80m households or 204 million people,” the report says. “That’s more people than the population of Canada and Mexico combined.”
The report says the “billionaire class” continues to “pull apart from the rest of us” at the fastest rate ever recorded. “We have not witnessed such extreme levels of concentrated wealth and power since the first gilded age a century ago.”
Wealth inequality is real and this tax cut will exacerbate it further.
But the package will create economic growth? That’s the line used to justify the package without any explanation or response to the structural challenges ahead. Remember the baby boomers are retiring and social security is a key driver in upcoming budget strains:
Cohn didn’t even bother to answer the question:
Harwood: Another thing Larry Summers told me: ‘The country wants to spend more on defense. We’ve got a whole lot of baby boomers retiring. We are going to need more money for government and not less.’ The Penn-Wharton model — run by a former Bush administration economist, not a Democrat — says that this plan by 2040 will lose $4 trillion. During that time, the number of people on Social Security is going to go from 45 million to 72 million. How in the world does that make sense?
Cohn: We firmly believe that we are creating a model that creates economic growth in this country.
That’s his answer.
Instead of answering the question he hides behind the talking point without offering evidence. That’s called playing tennis without the net. And worse: It shows he doesn’t want to or can’t answer the hard questions. Because he doesn’t know or care. It’s called can kicking. Just get the tax cut through and count your winnings.
And then the first of 2 key lies:
Harwood: But you know no tax cut’s ever paid for itself.
Cohn: The years that we increased deficit are years when our economy is slowing down.
Here’s a fact: There is no evidence that tax cuts have produced long term sustainable economic growth, but rather larger deficits are in the immediate future as tax revenues start falling short.
Here’s the history folks, a wonderful bi-partisan track record of deficit spending.:
Note the immediate deficit growth following the Bush tax cuts in 2001. What did they do? Spent trillions on wars. What are they doing now? Increasing military spending.
Remember fiscal conservatives? Me neither. It’s a slogan. They don’t exist. On either side of the isle.
But here’s the 2nd big lie, and perhaps the worst in the entire charade:
Not a single scenario that I have seen, budget or tax plan or otherwise assumes any growth downside. Ever. It’s all milk, honey and rose pebbles everywhere hence the consequences are not accounted for and the sheep are led to the cliff thinking there is no risk anymore:
This is insane.
And so I ask:
Why does an economy, after 8 years of central bank stimulus, require fiscal stimulus?
— Sven Henrich (@NorthmanTrader) November 9, 2017
The answer is it doesn’t. There is no strategic rationale behind the tax cuts other than to personally benefit the very people that are pushing for them. It’s a marketing ploy that will eventually end up in trillion dollar deficits again and benefit cuts. The corporate sector is not hurting. It’s sitting on record cash. No sign of stress, but that’s where the tax cut focus is.
Look, THIS is the forecast of the debt consequences WITHOUT any slowdown or recession in the plan:
“The GOP’s tax bill would add $1.7 trillion to the national debt over the course of a decade, and increase the country’s debt-to-GDP ratio by 5.9 percentage points, according to the Congressional Budget Office.”
And what do these projections look like with a slowdown or recession coming and tax revenue missing? Nobody knows, because nobody has run the numbers and apparently nobody is demanding answers to such a question.
Why not? Because economic growth will just magically happen.
The economy and markets are already awash with 8 years of artificial liquidity and the loosest financial conditions in decades:
We may see a temporary bump in growth from people spending the tax cut crumbs thrown their way and adding to their credit card balances already back to 2007 levels:
But be very clear that if any of these rosy growth projections don’t pan out know who pays for it all. You, the tax payer. Cause they’ll come for your social security money to pay for it all:
"Nobody seems to notice, nobody seems to care".
George Carlin was a prophet. He called it all years ago.
2 minutes of pure truth. pic.twitter.com/GFATItnZ6i
— Sven Henrich (@NorthmanTrader) April 28, 2017
Remember the guys driving all this are former Goldman Sachs bankers. Nothing has changed:
SPOTTED: An Irishman tells it like it is..
-A classic, but nothing's changed. pic.twitter.com/R6zI8t9COB
— Sven Henrich (@NorthmanTrader) May 1, 2017
The joke may be on all of us when the next slowdown hits. And the bankers? They will have moved on and will have taken their newly found cash with them.
Don’t fall for it. This tax cut is a scam that will expand wealth inequality to even more absurd levels.
Categories: NT Blog