Tuesday, March 28, 2017

Brooks's 1.6 cents on tax policy

In 2005 dollars.

A 2% raise for you and me, a 13% raise for the Emperor and his pals, and under Senate rules they must find either someplace to steal the money from or some Democrats' votes. Via Center for Tax Policy.

Shorter former New York Times columnist David Brooks, "Can Elephants Learn from Failure?" March 28 2017:
One of the reasons that the Republican proposals to repeal and replace the Affordable Care Act failed was the problem that it was a terrible bill that nobody liked, taking benefits from tens of millions of vulnerable people and giving tax breaks to the wealthy few. If Republicans are able to learn from their mistakes, they will not do this again with the upcoming tax bill, but instead take money from tens of millions of financially strapped people in the form of a consumption tax and give tax breaks to the corporations that provide the income of the wealthy few, which will totally increase economic dynamism and growth, according to research by economists that has apparently been published, though I don't have time to tell you where.
He doesn't get around to the point about how all the voters are going to love this one, either.

According to Dean Baker of the Center for Economic and Policy Research, who finds something from the left to praise in the Republican plan, number one is that it won't do those things: the money collected by the feds in the corporate income tax is only about 1.6% of GDP anyway, the equivalent of a not-so-significant swing in the value of the dollar (personal income tax, in contrast, represented 8.8% of GDP in 2016), and the new consumption tax couldn't be any more than that. Compared to upwards of 10%, even 20% in the Value Added Taxes of most European countries.

And in any case to economists, I guess, it's the same money, which ends up being reflected in the price of goods and services no matter where they decide to collect it. I never quite get this part of the argument, because I can't see how the consumption tax doesn't make a more regressive system, transferring obligations from the wealthy who save more of their income to the poor who spend more, no matter what. Neither can Brooks, who's asking for the new consumption tax to be higher and more magically progressive at the same time:
There are at least three main problems. The consumption tax rates are too low to raise enough revenue, the whole thing is much more regressive than it needs to be, and the current political climate is probably going to make the bill much, much worse, not much, much better.
But to Baker what counts is that the way the government collects that money now, in the form of corporate income tax, is so full of loopholes as to have spawned an entire wasteful industry of tax avoidance consultation, so that just doing away with it in favor of some VAT-like alternative would enhance revenue without punishing anybody except the lawyers who specialize in ripping our republic off.

That said, nothing like that plan will or can happen after last week's debacle, as I was explaining yesterday, and as The Times has confirmed—neither much, much better nor much, much worse—because it depended on the gigantic tax cut in the "health care" bill:

Not only has Mr. Trump’s aura of political invincibility been shattered, but without killing the Affordable Care Act, Republicans will be unable to rewrite the tax code in the sweeping fashion that the president has called for.
The grand plans of lower rates, fewer loopholes and a tax on imports may have to be scaled back to a big corporate tax cut and possibly an individual tax cut.
And the market's decided even that's not going to happen. Brooks is writing from the Fantasyland of last January, where his source is apparently from, when old Trump was going to be doing that pivot any day and Paul Ryan was the dazzling genius whose wonky expertise was exceeded only by his political skill. The past is another country, and their tax situation is pretty different.

Update: So there seems to be a new strategy in the White House, which is that they will combine the tax plan with a mighty infrastructure bill—the latter will attract votes from Democrats in House and Senate alike, because we Democrats will in no way see the plan as
a tax-cut plan for utility-industry and construction-sector investors, and a massive corporate welfare plan for contractors. The Trump plan doesn’t directly fund new roads, bridges, water systems or airports, as did Hillary Clinton’s 2016 infrastructure proposal. Instead, Trump’s plan provides tax breaks to private-sector investors who back profitable construction projects. These projects (such as electrical grid modernization or energy pipeline expansion) might already be planned or even underway. There’s no requirement that the tax breaks be used for incremental or otherwise expanded construction efforts; they could all go just to fatten the pockets of investors in previously planned projects. [Ron Klain, via No More Mister Nice Blog, which has much more.]
But a tax cut for investors and corporate welfare plan for contractors is just what it is, and I think we'll be able to say no, thanks. And according to BooMan it's getting clear that there won't be a wall either (he also offers some arcane detail on how another reconciliation bill is considerably more impossible than I realized). For the first time in his life, Ryan was right about something: without that health care bill, the whole administration is doomed to the abject failure of no program at all.

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