Donald Trump has promised massive tax cuts for US corporations from a federal rate of 35% to 15%.
He is simultaneously saying he will offer a one off repatriation right for US corporations wanting to bring their profits back into the USA at a low tax rate of 10%.
There is a problem for this and much else that Donald Trump proposes. This is that in 2010, when such things came into vogue not just in the US but also in the UK, the Pay-As-You Go (PAYGO) Act was passed which said that any legislative changes to taxes or mandatory spending that increase multi-year deficits must be “offset” or paid for by other changes to taxes or mandatory spending that reduce deficits by an equivalent amount. Violation of PAYGO triggers across-the-board cuts (“sequestration”) in selected mandatory programs to restore the balance between budget costs and savings.
So, Trump wants to half the corporation tax rate in the US. Quite a number of US corporations, from Google, Apple and Microsoft onwards, do pay US corporation taxes, and in significant amounts. It's their overseas taxes that they avoid, in the main. I accept that there are companies in the US who pay no federal income taxes because of 'pork-belly' deals, but that is not the universal case. Halving the corporation tax rate is, then going to have a substantial cost and in that case problems arise for Trump. He has to show how he makes this money up.
Some will come from 10% tax on maybe $2 trillion offshore - but it may not all come back unless this is a time limited opportunity. And that is in any case a maximum of $200 billion. But the cost of more than halving the domestic corporate tax rate just so happens to be $200 billion annually based on US government data and assuming no behavioural change.
So, after year one there has to be a behavioural change worth almost ¢200 bn of extra revenue a year. Surely Trump is not going to be able to persuade the Congress that halving tax rates doubles revenues? That would be a wild interpretation of the Laffer curve if he tried. If not, he's not going to get this cut through without 60 Senate votes for it, and they're not likely to be available.
So, is it Laffer or bust for Trump on this one, with my money on bust?
It will be interesting to see.
NB And, yes I am aware of the Budget reconciliation process, but how often might he use that?
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Seems like a win-win for DT. If he succeeds, he gets what he wants, enhanced inequality. If he fails, he can blame it all on the swamp, stir up a populist demand to drain said swamp and transition away from the checks and balances of a representative democracy to something more despotic. The guy’s not stupid; evil but not stupid. No wonder he’s a big fan of Putin.
His fraud trial starts 28/11/2016 so his inauguration might be done on day release.
Is that still happening?
Malcolm Gladwell recons he will be in jail within a year http://www.hollywoodreporter.com/news/trump-will-be-jail-a-year-says-author-malcolm-gladwell-944949
Then we get Pence, and he is worse
Presidents enjoy immunity from lawsuits arising from their official duties, the U.S. Supreme Court has held that this shield does not extend to acts alleged to have taken place prior to taking office.
I think it must be a given that DT will turn to a variation of Reaganomics as the basis for his economic policy. Has he ever indicated that he has any grasp of how a sovereign state’s monetary system functions? He’s an entrepreneur with a mental blue-print of commercial balance sheets. And it looks like he’s surrounding himself with extreme neo-cons. Not looking good 🙁
For those who are not already familiar with his entertaining & informative monthly reports here’s the link to Richard Wolff’s November talk recorded yesterday, in which he addresses Trump’s victory and its economic implications: https://www.youtube.com/watch?v=Y0IwIOUg_Cs. Not looking good 🙁
PS: surely nobody still believes in the myth of the Laffer Curve? “Even the Reagan government’s own Treasury Department denied the existence of the Laffer Curve. They estimated that only 10% of the tax cuts would be replaced by increased revenue. That was the best case scenario. The worst case was that the tax cuts would decrease long run economic growth. The Laffer Curve is not economic theory, but rather wishful thinking on behalf of conservatives who want an excuse to cut taxes for the rich. Cutting taxes leads to less not more revenue. This piece of common sense is acknowledged by economists but still clung to by delusional politicians.” (Robert Nielsen – https://whistlinginthewind.org/2012/09/07/the-mythical-laffer-curve).
He is also promising a massive infrastructure spend. That is the massive public spending programme that is intended to stimulate the US economy. It might work , it might not. But surely you can welcome that initiative if not Trump himself. In any event , as always in these things , it won’t be as bad as we imagine. He built us a very nice golf course in Balmedie. Can’t stand the game myself but some do.
Read what I have written this morning and broaden your horizons
From another perspective corporation tax is a problem in itself:-
it gets passed on
the big boys ability to avoid/evade severely disadvantages smaller businesses and creates entry barriers
it is a big part of lobbying and corruption
it is the underpinning for offshore activities
as long as it exists there will be corruption and rigging
If you removed it and placed the tax burden on the individual you’d do more to help smaller businesses, startups and to fight corruption than any legislation currently envisaged. Immediately there is no valid reason for offshoring and any individual indulging in this should be investigated. As for behaviours currently encouraged via tax breaks the same can be achieved via grants.
I know this is your area Richard and I recognise that PAYGO complicates things. But tax battles against corporate interests and their vast arrays of legal experts and lobbyists is never going to be a winner.
All your arguments are misplaced
We must have a strong corporation tax. Read this:
http://www.taxresearch.org.uk/Blog/2015/11/04/the-case-for-corporation-tax-yesterdays-debate-in-montreal/
Richard, I don’t disagree with you on a technical level and I’d give you the role of Global Tax Tsar in an instant. But detailed, informed and correct as your linked piece may be, I just don’t believe the legislation, or enforcement, will ever be in place to make such a vision a reality.
I also have issues with the personification of the corporate and the resulting absolution that the individual components seem to enjoy as a result. I strongly believe in bringing everything back to the person and removing the ‘human’ rights that have been gained by business. No I’m not a Libertarian but, as with any of the ideologies, there are good bits that can be borrowed.
At some point money will be entirely electronic and then any and all transactions can have an appropriate tax levied automatically. I would suggest 100% for any attempts to move offshore!!!
I admit you would be disappointed by my global tax tsardom. I am not as absolute as you wish
If that is the method, then once again we can see how this supposedly ‘new’ type of politics might work.
The rhetoric before the election was that Trump was going to make US companies repatriate jobs through the sheer force of his Presidential will.
Now basically it is emerging that he is bribing them to come back by helping them to pay less tax which when one considers the political attitudes to the current US ‘deficit’ is going to be very interesting . Paying less tax is a very Republican thing to do.
Let’s see what he does with regard to his promises on investing in the country. But with less taxes say to redistribute into such policy, he will have to be less Republican on the expenditure that is needed to make this actually happen which will only increase Government expenditure and bring him to contact with those Republicans who think that household debt and national debt are the same thing.
“Laffer curve” – surely “the laughter curve”? given the non-sensical assumptions which underpin it?
Mike
Which nonsensical assumptions are those?
All Laffer said was that there was an optimum rate of tax and that above and below that rate you bring in less tax.
He never said what that rate was nor did he ever say that reducing tax would automatically increase the tax take. If you are below the optimum rate, Laffer would say reducing it further would reduce the tax take.
That optimum rate might be 20%. It might be 80%. He never said.
I’ve yet to find anyone who can refute Laffer other than by misrepresenting what he said.
I do wish people would take the effort to actually understand matters before commenting on them.
I can refute Laffer
It is obvious some people work without reward so 100% tax would nit have zero yield
Not that I am in any way proposing it