Isn’t The President Supposed To Be Looking Out For The Interests Of Americans

Yesterday Breitbart posted an article about one of the unexpected side effects of the Trump tax plan recently passed by Congress and signed by the President today.

The article reports:

German economists are warning that the tax overhaul bill that now awaits the signature of President Donald Trump will mean that “significant amounts of new investment and jobs will shift from Europe to the United States,” according to the German business news publication Handelsblatt.

The United States has had a much higher tax rate for businesses than Germany and most of Europe. Under the tax reform bill, the corporate rate in the U.S. will fall to 21 percent, lower than the estimated 28.2 percent effective rate in Germany and close to the European average of 20.9 percent.

The obvious question is, “Why wasn’t the corporate tax cut a long time ago?”

The article further explains:

Gavin Ekins, a research economist at the Tax Foundation in Washington, argued that it is not only the tax rate that will make the US more attractive. He told Handelsblatt Global that in figuring out their “service cost,” a metric that measures the cost of capital, companies also have to consider local labor costs, regulatory burdens, and things like energy prices and the cost of land.The US has the advantage in almost every category, he noted, but until now firms were deterred by the high corporate tax.

“Now you get a windfall for having capital in the US, so that causes investors to invest,” Mr. Ekins says. The change in the capital investment rules gives US firms “a tremendous advantage,” he said. “It’s a pro-capital formation tax bill and this is why other countries are so wary about what the investment landscape will look like.”

Using direct investment figures from the period 2008-2012, the German specialists calculated that the value of German foreign direct investment in the US could rise by €39 billion with the tax reform. It said US direct investment in Germany would also rise, but by a much smaller amount: €6.3 billion.

The challenge to Congress will be to make sure that the extra money flowing into government coffers because of the changes in the tax law will be used to pay off the debt–not to increase spending.

Taxes Have Consequences

For some unknown reason, politicians love to spend other peoples’ money. And they love to raise taxes to get more of other peoples’ money to spend. However, raising taxes does not always work–sometimes it has unforeseen consequences. The Laffer Curve taught us that.

Last Friday, Investor’s Business Daily posted an article about the soda tax in Philadelphia. It just hasn’t gone as predicted.

The article reports:

That 1.5 cents per ounce doesn’t sound like a lot, but it is. The Tax Foundation notes that it’s “24 times the Pennsylvania excise tax rate on beer.”

“The high tax rate on nonalcoholic beverages makes them more expensive than beer in some cases,” the nonpartisan think tank wrote.

Some people, suddenly facing absurdly high costs for colas, root beers and other soft drink favorites, are turning to alcohol instead.

Probably not what was envisioned with the tax. And the tax has been put on diet drinks as well as sugared ones. So, if they had hoped to alter people’s consumption away from sugar-filled soda toward less-unhealthy, non-sugared alternatives, it was a failure.

Tax increases never sound like much–they are sold that way. Remember the luxury tax that went into effect in 1991 that nearly killed the boat industry. The tax was only supposed to impact the rich, but it caused a serious recession as the impact of the tax began to trickle down.

The article at Investor’s Business Daily further reports:

“Beverage tax collections were originally promoted as a vehicle to raise funds for prekindergarten education,” the Tax Foundation said, “but in practice Philadelphia awards just 49% of the soda tax revenues to local pre-K programs.” The majority of the money goes to government employees’ benefits and local schools that already have funding.

…the tax didn’t bring in the money the city thought it would. The city budgeted a “conservative” $46.2 million in revenues from the tax for fiscal 2017. At current projections, they’ll come up $6.7 million short. Many people are leaving Philly to do their shopping, while others have switched to other beverages, leaving a big unexpected hole in the tax revenue estimates.

“In July, city officials lowered beverage tax revenue by 14%, leaving the prekindergarten programs that the tax promised to fund in jeopardy,” the study said.

Meanwhile, local Coca-Cola and PepsiCo operations laid off nearly 150 workers and pulled some brands off Philly shelves. And angry local businesses are suing the city over the tax.

Raising taxes is never the answer. Cutting spending usually is.

The Laffer Curve Also Applies To Cigarette Taxes

Investor’s Business Daily posted an article today about the increased cigarette taxes in New York State.

The article reports:

The state of New York thought it would reap a bonanza after increasing taxes on cigarettes. But there was no bonanza. In fact, the tax take actually fell. New Yorkers, may we introduce Art Laffer?

Art Laffer is the creator of the Laffer Curve, seen below:

LafferCurveThe Laffer Curve illustrates the relationship between tax rates and revenue, showing that increasing tax rates will only increase revenue up to a point.

The article further reports:

The New York Post cites a National Academies of Sciences, Engineering and Medicine report that says the state’s losses are much bigger — some $1.3 billion in taxes aren’t collected each year, due to behavioral changes.

Of course, some of that loss might be considered favorable in that it represents people who simply quit rather than pay the higher levy. Indeed, estimates say that 19% of those who smoked have quit in the last decade.

Taxable sales, however, are down 54% in the same period. If the goal of the higher tax was just to get some smokers to quit, then mission accomplished. But if the goal was twofold — get smokers to quit and raise revenue — then it has failed.

But for many others who still smoke, the behavioral changes haven’t been as favorable. Some just pay up. But others simply buy black-market cigarettes, supplied mostly by organized crime. The Tax Foundation estimates that 58% of cigarettes in New York come from out of state. So roughly 6 in 10 cigarettes now are not taxed by New York.

The article also points out that the year after the tax increase imposed, a household earning less than $30,000 a year spent 23.6% on cigarettes, as opposed to 11.6% in 2004. A family earning over $60,000 a year, spent 2.2% on cigarettes. Seems a little uneven to me.

The article concludes:

So is it any surprise that the tax take is shrinking? No. This was in fact entirely foreseeable. But, of course, foreseeing it would have required New York voters and the politicians they put into office to actually learn something about economics.

Agreed.

A Compromise Is Not Always A Compromise

This story is based on two articles–one posted in Investor’s Business Daily yesterday and one posted in the Wall Street Journal today. Both articles deal with President Obama’s proposed “grand bargain” on tax reform.

Yesterday in Chattanooga, Tennessee, President Obama offered to cut taxes for corporations in return for increasing government spending. (I believe he calls it “investment.”)

The Wall Street Journal reports:

Mr. Obama will agree to reform the corporate tax code—a GOP priority and one even the President claims to support—but only if the reform raises more revenue and only if he is allowed to spend that windfall on his priorities.

A White House press release clarified that the President would also like to raise taxes on individuals, not just businesses, while allowing federal spending to rise still higher. But showing they retain a sense of humor in the West Wing, the press release suggests that the President is willing to forgo this tax increase for now because he wants to “work with Republicans.”

Investor’s Business Daily reports:

Since Obama’s “stimulus” took effect, job growth has been subpar, GDP gains are at record lows, median incomes have shrunk and the number of Americans on welfare has surged.

So we know that won’t work. But what about corporate tax cuts?

The nonpartisan Tax Foundation reckons a simple cut in the corporate tax rate to 25% would boost GDP more than 2% and wages by nearly as much. And capital investment would jump more than 6%.

Moreover, a corporate cut would increase federal revenues and help lower our deficits — assuming, that is, Obama doesn’t spend the new money.

Unfortunately, part of Obama’s “bargain” is to increase taxes on U.S. companies that operate abroad and to reduce business writeoffs for investments — the seed corn of future economic growth.

Even at 28%, Obama’s new tax rate would be higher than the 25% average paid by our main competitors.

So with one hand the president giveth, and with the other he taketh away. Worse, he seems intent on rewarding big companies with tax cuts while punishing small companies that account for 85% of all new jobs.

So what is going on here? The President wants to continue the tax and spend policies the Democrat party is known for while claiming to support tax reform and lower tax rates for corporations. Those tax and spend policies are what is causing the slow growth of the economy and also what got us into the fiscal mess we find ourselves in. However, depending on how the mainstream media reports this, the low-information voters may wonder why the Republicans won’t compromise. There is no compromise being offered here, but the media will probably neglect to mention that fact.

This proposal will kill any economic growth we may have in the near future. Hopefully the Republicans will not be drawn into the trap.

Enhanced by Zemanta

Redefining The Concept Of Fairness

This is a chart from an Investors.com article posted Friday:

The chart shows the percentage of Americans who pay NO federal income tax. That number has nearly doubled in the past ten years.

The article points out:

As CNBC reporter Robert Frank put it, the top 1% that Obama complains about “paid an average effective tax rate of 28.9% on their income — far more than any other group, and more than twice the average effective rate of the middle class, who paid 11% on average.”

Beyond that, however, is the fact that more Americans who are nowhere near to being rich are paying no taxes at all on the money they take in — which means they have no interest in getting our ever-expanding government leviathan under control.

Obviously, people who pay no taxes have no interest in shrinking government or decreasing the tax burden on those of us who do pay taxes. Unfortunately, many of our Congressmen on both sides of the aisle realize that shrinking government will shrink their power, and thus have no interest in decreasing the tax burden or shrinking the size of government. That fact is the reason the Tea Party exists. You may not agree with what the Tea Party stands for (government in line with the principles of the US Constitution, smaller government, lower taxes, etc.), but Tea Party Congressmen have not supported the status quo of big government that both political parties seem to espouse. It is obvious that most Democrats are in opposition to Tea Party principles, but it is less apparent that many Republicans are also working against the Tea Party. I believe that if the Republican party does not begin to support Tea Party principles, it will mean the end of the Republican Party–not the end of the Tea Party.

The article at Investors.com points out who is not paying taxes:

A new study from the Tax Foundation found the number of those filing tax returns who pay no income taxes now numbers over 58 million, amounting to a staggering 41% of all tax returns. Compare that with 1990, when only about 21% of tax returns were found to have no tax liability.

What’s more, the median income of these nonpayers has increased by 40% in just nine years. “The threshold at which a typical married couple with two children will likely be a nonpayer is now $47,000,” the Tax Foundation found.

This is fairness??!!