Skimming, the Gift to the Little People

Overheard: “You all just got a lot richer.”  

Donald Trump to his Mar-a-Lago friends during his Christmas break.

It is going to take some time before the clearly negative elements of the tax reform act kick in. Some things are going happen faster, like rising healthcare costs now that the funding source of government subsidies for those who cannot afford coverage – the individual mandates – has vaporized. Some will not be able to afford healthcare coverage at all, more than a few insurance companies will leave the marketplace (particularly in lower income states), and insurance rates for everyone will rise as well.

Others more slowly. Like the rather dramatic failure to create the promised new solid-paying jobs, and, later, after corporate America implements the massive numbers of mergers/acquisitions/stock buy-backs – with all the required negotiating, government approvals and the physical consolidation, which generally takes 6 months to a year or more to effect – to absorb the hordes of Americans who will be laid off… the “efficiencies” that always accompany such corporate activities.

There are zero requirements that the corporate beneficiaries of these tax cuts (the corporate rate drops from 35% to 21%) use a single dollar to hire more people, give raises to ordinary workers or invest in true economic growth. What’s worse, every indication from most interviews of the relevant CEOs confirms that the vast majority of American companies have no intention to do so.

After so many failed attempts to create jobs by cutting taxes for the rich (the Laffer Curve and “trickle-down” or “supply-side” or “incentivize the job-creators” theories) – from the Reagan era layoffs-after-corporate-tax-cuts to the recent almost-complete-fiscal collapse of Kansas after a massive cut to the highest brackets (for people and corporations) – there are virtually no remaining empirically-driven economists who think that this tax plan has even a remote shot at delivering what the GOP-only tax law promises to deliver. That rising tide will only float the yachts.

The GOP is betting that these approaching horribles will not surface by the 2018 mid-terms and that they will continue to maintain control of both houses of Congress. But even if the GOP loses control of Congress, they know that as long as they have at least 41% of the Senate (the number that allows them to stop bill from reaching a vote) or the presidency (with veto power), there is nothing the Democrats can do to reverse this corporate give-away. Zip! Nada! Insert: evil cackling sounds. I am picturing GOP House Speaker Paul Ryan and his spin of how good this tax act is for the middle class shortly after the bill cleared the House. He lied convincingly with a straight face… the new and clearly successful Trump “Art of the Deal” use of “hyperbole” (e.g., lying) to get what you want.

There’s a little cheese in the tax reform package – a little skim, a bribe – for some of the middle class… unless you live in a high tax blue state, being punished by the GOP for not voting for them, and cannot fully deduct those taxes from your federal return as you were able to do before. A minuscule temporary tax cut (the cut in the corporate rate is permanent), resulting from slightly reduced federal tax rates and increased standard deductions. Neither of those two “gives” benefit lower income earners at all, and the threat that “now that we have a deficit, it’s time to cut social programs to balance that budget” mumbling we are hearing among conservatives, will impale too many at the bottom of our economic ladder.

It seems the good House Speaker has a plan: “Mr. Ryan has bigger ambitions of taking on some of the government’s biggest programs; Republicans have singled out food stamps, welfare and Medicaid.” New York Times, December 24^th. That might go over well with conservatives, but not too many others. With a slim Senate margin, that goal may just be out of reach for the GOP. Yet Republicans are hoping that the inevitable horribles that tax act will almost certainly cause won’t rear their ugly heads before the mid-terms, a distinct probability.

With 83% of the net economic gains that will be generated by this tax law going to the one-percenters (literally) and most of the rest to the top 5%, it might be necessary to explain exactly how this tax reform is really structured. With that little “skim” to the middle class (the small and temporary tax cut), the middle class taxpayers are borrowing a lot of money (that massive trillion dollar plus increase to the deficit) to give most of the proceeds of that loan to the richest people in America. In other words, virtually the entire principal of that loan – plus lots of interest – which gets to be repaid mostly by that same middle class is actually going to the rich who don’t need it and will not spend it to create jobs.

So as those (“ignorant” hopes the GOP) taxpayers revel in their little skim, thinking they just got free money, corporate America is cheering because they are the ones who really got free money. Read Trump’s quote at the top of this blog if you think otherwise. Some economic experts, who do not know whether or not Trump’s tax return has any net loss carryovers (he still will not share that filing), believe Trump’s companies (and hence The Donald) will save at least $11 million under the new tax law.

This tax reform act is a devastating reality that hurts the entirety of the United States of America. After all, exactly how are even those corporate powers going to make money to keep going with they have seriously reduced the money that most of America would otherwise have used to buy their products and services? 70% of the U.S. economy is driven at the consumer level. Hey, corporate America, enjoy that soaring stock market and incredible corporate values, but call me after the recession that all this financial manipulation will cause. Let’s look at your stock value then!

I’m Peter Dekom, and I wonder how people would feel if they really understood that they were borrowing a lot of money, which they will have to pay back, simply to give that money to the richest segment of the American economy with absolutely no strings attached.