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November 28, 2017 | Tax Reform or Tax Perversion?

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
The Senate Republican tax bill is now so bastardized one cannot properly call it “reform.” I propose starting all over.

Moments ago, the Senate Finance Committee Voted 11-10 to Approve Senate Tax Plan.

Senator Ron Johnson of Wisconsin and Bob Corker of Tennessee resolved their differences.

The positions of Johnson and Bob Corker were at odds. Johnson wants to lower pass-through taxes for small businesses, which will add to the deficit.

“My primary issue is pass-throughs,” Mr. Johnson said. “The good news is everybody agrees it’s a problem, it has to be fixed. I just keep getting assurances it’s going to be fixed, I just want to see how.”

Johnson has assurances the problem will be fixed. How? Not even he knows.

Mr. Corker, a deficit hawk, wants some kind of mechanism to be added to the legislation that would kick in if projected economic growth from the tax rewrite does not end up materializing.

“I think we’ve come to a pretty acceptable place, from my standpoint,” said Corker.

Corker has assurances his problem will be fixed. How? By a mechanism that will never see the light of day.

Senate Hurdle

The next hurdle comes in the full Senate.

Senators Lisa Murkowski (Alaska) , Susan Collins (Maine), John McCain (Arizona), and Jeff Flake (Arizona) all have reservations.

Collins opposes Two Tax Cuts for the Wealthy. Collins will also get the state income tax deductions she wants, and that will add to the deficit.

“Unless it reduces deficits — let me say that one more time — unless it reduces deficits and does not add to deficits with reasonable and responsible growth models, and unless we can make it permanent, I don’t have any interest in it,” said Corker.

McCain wants more military spending. That’s at odds with Corker. It won’t matter. McCain will get more military spending to buy his vote.

Apparently, Corker will be happy with a mechanism that won’t do a damn thing.

Seven Senators Express Reservations

With a 52-48 senate lead, Republicans can afford to lose at most two votes.

Johnson and Corker are now happy, at least enough for the bill to pass the finance committee.

Republican senator, Lisa Murkowski of Alaska also has reservations. She was bought out with legislation that would open the Arctic National Wildlife Refuge in Alaska to oil and gas drilling.

Bill Will Add to the Deficit

Without a doubt, the bill will add to the deficit, and likely substantially after McCain gets his defense spending buy-in.

Tax cuts? Where? When?

The bill is supposed to be a middle-class tax cut. Where? Let’s consider what the non-partisan Joint Committee on Taxation says.

2019 Tax Impact

Hooray! Everyone wins.

2021 Tax Impact

If you make between 10,000 and 30,000, your taxes go up. Everyone else wins.

2023 Impact

If you make $40,000 or more you win. If not you lose.

2027 Impact

By 2027, only those making more than $100,000 a year gain from reform.

Reform or Perversion?

The Washington Post summarized things similarly.

The tax bill does not simplify things, it does not cut taxes for a huge swath of the middle class, and by 2027 it raises taxes on the poor while increasing the deficit.

By no perverted stretch of the imagination can one call this monstrosity “tax reform.”

I propose starting over.

Mike “Mish” Shedlock

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November 28th, 2017

Posted In: Mish Talk

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