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Taxing Times

If you believe that tax cuts create jobs and growth, you’re not alone. Almost, but not quite. Even those who would benefit the most from the proposed tax bill aren’t willing to go that far.

This puts the Republicans in the Senate in a terrible bind. They can pass the tax bill which came over from the House, potentially angering their constituents, or they can stop it, angering their donors. They also have the choice between raising the deficit or having a record of getting just about nothing accomplished.

How bad is it for Republicans, already worried about 2018? It’s so bad it’s worse than the Tax Bill itself.

What everyone wants – until the tax bill comes.

The bill is being promoted as “Reform” along with a way of creating jobs. Cut taxes on corporations, the theory goes, and they have more money to re-invest in their companies.

The problem with this theory is not so much that it doesn’t work. This time around, no one actually believes it.

When a group of corporate execs were asked by a White House rep to raise their hands if they’ll create jobs with their tax cuts, few did. This mirrors the results of a survey taken by the Atlanta Federal Reserve, which found that only 8% of businesses are waiting on this tax bill for a hiring binge.

That only makes sense, given that what employers are facing today is a definite skills gap for many jobs. Hiring has proven difficult, limited by the available people and not by money. It’s just not 1980 anymore.

Perfect balance – perfect tax bill (zip).

More to the point, voters aren’t buying it. In a Quinnipiac Poll released on November 15th, voters disprove of the plan 52-25. It’s unusually unpopular for a tax plan, in fact, which people rarely have a strong opinion about one way or the other.

The problem remains that Republicans need to pass something. They promised that they would, and their donors are going to hold them to it. If they don’t, the cash for 2018 is not likely to be forthcoming. That’ s more than an idle threat given how bad it might be, if 2017 is any indication.

Where does that leave tax reform? Notice that it’s entirely possible to write a column on tax reform without mentioning anything but electoral politics and the perceptions which drive it. The details of such a bill are relatively unimportant in this environment – and that is the real problem.

Getting anything done? Anything?

Corporate taxes themselves are far from onerous in the US by any measure. Yes, the top rate of 38% is high but generous ways of hiding money, redefining “profit”, and generally dodging the bill are far common. Some kind of harmonization with the rest of the world is necessary. On top of that, it’s estimated that a relatively small 5% Value Added Tax (VAT) would raise about as much money as the current corporate system, again putting us more in line with the rest of the world with a kind of corporate tax which is absolutely impossible to dodge.

Combining that not-so-progressive approach with, say, a stock transaction tax and a general overhaul of individual taxes and we could easily find the money to do amazing things. But, alas, the debate has never been about actually designing a tax plan rooted in this century and never will be.

So all we have left are the slogans and perceptions of electoral politics. It’s either cram through an unpopular plan or look even more inept and have the big donors walk away for ever. Not exactly a good situation.

No one votes this way anymore, but we like the image of doing so.

The biggest problem, however, is that voters are onto it. There is no way this can possibly end well even without a viable Democratic alternative.

What’s the likely end result? Expect the Senate to reject this by a very narrow vote, especially if it is held off until after the results of the Alabama special election. If that flips the seat for Democrat Doug Jones it’s going to be one vote harder to get anything done, and the firestorm over Roy Moore should engulf the Senate and make it unlikely they’ll do anything unpopular.

In other words, things will just go from bad to worse for the Republicans. It’s hardly a time to cram through something which they, and everyone else, knows is not going to work as promised. And that’s only the start of when things get interesting.

6 thoughts on “Taxing Times

    • And it is likely to happen at some point here, if it hasn’t already. I can’t see the Democrats raising much without any kind of plan, and the Republicans are unlikely to produce anything. So gridlock may actually be good for something?

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