Trump has delivered his tax plan. The Guardian has done a good summary of its superficial impact. And it is true that for most Americans this will offer a tax cut, even if for many that will be because of the considerable and economically unjustified increase in the standard deductions available to offset income, which amounts in UK terms to a massive hike in the personal allowance.
That said, it is apparent that large corporate and wealthy America will be celebrating most. That is inevitable. They pay more tax than small corporate entities and middle income people in the US. And the cuts were always intended to be heavily biased their way.
Will this stop US company offshore tax abuse? It is hard to say: I am not pretending I know the detail as yet. I suspect not though.
Will it stimulate growth? On that we can be clearer. The answer is not a lot. Corporate and wealthy USA does not spend enough to make a difference. They hoard. Their wealth piles will grow. That of most in the USA will not. And an increase in stacked wealth is not the same as an increase in real disposable income.
Perhaps more importantly, if the USA is a meaningful concept (and under Trump you wonder) there is another issue to consider, and that is the impact on the finances of the US government.
I am well aware that I argue that tax is not required to fund government spending. I also argue that it is not necessary for a government to balance its books. And it is factually true that a government that issues its debt in its own currency can never go bust because it can always print the money required to make any settlement. But these three facts co-exist with an obligation on a government to offer a credible fiscal policy, most especially when the impact of monetary policy is uncertain (as I would argue it still is in the US) and when there is no other means to control inflation.
What inflation is at risk? It won't be US wage inflation. Of that you can be sure.
Nor, because this money will not trickle down, is overall price inflation in the US much at risk.
But asset prices are. US stocks are already at record high levels. This will get worse. Three consequences follow.
First, this is a price paid by those forced to save for their retirement. They will be overpaying for the assets that they acquire for this purpose and the consequence will, inevitably, be that their actual eventual pension will be reduced as a result, because these assets will not realise the sum paid for them because they will currently be overinflated in price. That means the cost of retirement just grew.
Second, if this asset price inflation spills over into commodity prices, and I think it will, then the US will be exporting this inflation to the rest of the world, with consequences for us all.
Third, let's talk National Security, as Trump has been. The US dollar is the reserve currency of the world, but that could be in jeopardy if Trump shows himself to be completely indifferent to the quantity of dollars that he injects into the worldwide economy, which underpin world trade. He has to accept that in doing so he may put China at a competitive advantage. And that too has massive consequences for stability and inflation as the world adjusts.
The Democrats were right to call this tax cut reckless. It is. It is plutocracy at work. It should (but probably won't) alienate Trump's support. And it will cause economic harm within and beyond the USA. All that is obvious and predictable. Which makes it even more worrying.
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Your question:
Will this stop US company offshore tax abuse?
My Question:
Have the much lower corporate tax rates in Europe encouraged the multi nationals to pay their fair share of taxes?
I think your suspicion that they will not is correct.
‘those forced to save for their retirement.’
About a third of Americans aren’t saving for retirement.
In the UK about 42% have no private pension.
Saving for retirement is gradually disappearing.
But the government is enforcing it in the UK via auto-enrolment
While the regressive economic impact of the new law is in itself of huge concern – primarily for US citizens but also, as you state, for the global economy – it’s your headline that is even more troubling. As another year bites the dust, it would seem that the plutoctrats are winning the battle to shore up their power & wealth against any perceived threats from progressive politics, pretty much everywhere in the west and possibly further afield.
Trump’s one policy major ‘success’ will resonate well beyond the USA, giving heart to neo-liberals everywhere. This segues into your previous blog ‘The fight for democratic capitalism …’ which I see as the biggest single challenge facing us all.
Last year John Harris asked the question ‘Does the left have a future?’ (https://www.theguardian.com/politics/2016/sep/06/does-the-left-have-a-future). I fear there’s scant evidence that any sustainable progress has been made since then.
I haven’t checked but I’d guess there are many published papers researching this bewildering shift to the right, especially after the monumental failure of Capitalism that cumulated in the GFC. Maybe increasing complexity and uncertainty feeds the right-wing rhetoric of ‘law & order’. Fear is the progenitor of fascism.
Sorry to be down-beat at this festive time of the year, but the short-term future simply isn’t looking good for social justice and global peace. Scary times. It seems more people will have to experience hardship in order to trigger the policy changes that will actually improve the quality of their lives. How long that will be?
Oops – plutocrats not plutoctrats (spell-checker not functioning).
The American voter is going to have to learn the hard way – I suppose.
‘Sleep now in the fire’ dudes.
The tragedy is that for Trump (and Brexit) a demographic was identified that do have valid issues. Unfortunately the solution chosen had no relationship with those issues and in fact will make addressing them far harder.
There is an article in the Guardian describing the extreme poverty in America https://www.theguardian.com/society/2017/dec/15/america-extreme-poverty-un-special-rapporteur
You really wouldn’t think that the richest country in the world would have a significant number of people living without basic sanitation. In the face of this Trump is cutting taxes and government programs further!
It ought to worry disadvantaged people that support Brexit that some of the most fervent promoters of it either laud Trump (Farage) or are in love with the US economic model (Fox et al).
Just came across this.
https://theintercept.com/2017/12/19/tax-bill-corporate-cut-stock-buyback-republican/
Corporations Say Publicly They’ll Pocket the Tax Cut, But Republicans Aren’t Listening
“Corporations Say Publicly They’ll Pocket the Tax Cut, But Republicans Aren’t Listening”
Belief in ‘Trickle down’ is not going away.
Corporations will almost certainly see these tax reforms as ‘business as usual’ as the article implies. It’s more free money for the wealthy and the process of buy backs and cranking up of board room returns will just carry on with no discernible justification in terms of productive economic activity.
This has been the process since 2008 and this is more of the same with a little extra stimulus.
House republicans on the whole will be beneficiaries. Why should THEY be concerned?
It’s not pretty.
What inflation is at risk? It won’t be US wage inflation. Of that you can be sure.
Oops, seems like you can’t be sure given the number of large corporations lining up to announce wages increases and bonuses….
Nic says:
December 21 2017 at 7:44 am
“What inflation is at risk? It won’t be US wage inflation. Of that you can be sure.
It’s asset inflation that will continue. Board level remuneration doesn’t appear as wages.
Asset inflation is what Central bankers have been studiously ignoring for the past decade, whilst they’ve been assiduously watching your supermarket provisions bill.