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Lunatic Larry Promises Trump Candyland for Election Year

Larry Kudlow by Gage Skidmore [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

National Economic Council Director Larry Kudlow, a top economic adviser to President Donald Trump, said Wednesday that the White House plans to unveil a plan for additional tax cuts later in 2020. “I am still running a process of Tax Cuts 2.0. We’re many months away – it’ll come out sometime later during the campaign,” Kudlow told CNBC. “Tax Cuts 2.0 to help middle-class economic growth: That’s still our goal…. We will unveil this perhaps sometimes later in the summer.”

CNBC

There is nothing like a tax cut to buy votes

It is important for Trump to announce middle-class tax cuts just before the election because everyone in the middle class now knows (or should) that the massive Trump Tax Cuts that were first on his agenda went to the rich. Even major pro-capitalist, Republican-leaning, Republican-owned magazines like Forbes acknowledge this:

For the first time in American history, the 400 wealthiest people paid a lower tax rate than any other group…. It’s never been more clear that our country’s tax code is built to serve only those who have the most money. While hedge fund managers, private equity executives and venture capitalists benefit from the carried interest tax loophole, everyday Americans barely get a deduction for their student loan interest payments…. Income inequality is widening to record levels and there’s no reason to believe the trend will slow down…. The Tax Cuts and Jobs Act of 2017 was the largest tax overhaul in over three decades. It was rushed through congress and it’s working exactly as it was intended to do so: to line the pockets of the wealthy at the expense of the working class. Optically, it was championed as a way to boost the economy, but the fact is that unemployment was already low and the cuts came amidst a long bull market…. The tax cuts are deficit-financed which … means that “resources will be taken away from future generations as well as today’s working class.”

Forbes

The fact that the Trump Tax Cuts inured almost entirely to the rich is a fact Trump now has to massage in this election year. As an earlier Forbes article stated,

Whether the Tax Cuts and Jobs Act (TCJA) disproportionately helped the rich may be 2020’s biggest political issue…. The richest 1 percent received 9.3 percent of the total tax cuts, the top 5 percent got 26.5 percent, the top quintile received 52.2 percent and the bottom quintile got 3.3 percent.

Forbes

The article argues that these numbers are actually progressive on the basis that the top quintile pays eighty percent of the taxes so 52% was less than they should have received. However, the article (as all Republican articles of this kind do) fails to mention that the top 10% also have 80% of the nation’s wealth — a portion so obscenely sickeningly and unmerited that it never occurs to anyone that the rich should be paying 80% of the taxes just to pay an equal percentage of what they have to what others are paying.

You can be sure Krazy Kudlow’s promise will be rolled out in the summer just as he has said because that will time out perfectly for countering the outcries against Trump as we transition from intra-party primary debates into inter-party main-election debates. Trump will be able to say when challenged as the protector of the establishment, “I’ve got this covered. I’m working on it. Elect me along with a Republican congress, and I’ll give you the best middle-class tax cuts ever!”

Are the Trump Tax Cuts and spending increases MAGA?

The problem with Trump promising a new round of tax cuts — this time for all the rest of us — is we’re not paying for the tax cuts Trump already gave. The Trump administration (with the blessing of the majority of voters) chose to save the rich by tapping the economic strength of future generations in order to pull money forward for our benefit now.

The 2020 deficit is projected to come in somewhere between a trillion and 1.2 trillion dollars. And future deficits are projected to grow parabolically like this:

That steep deficit growth is without Kooky Kudlow’s newly promised additional tax cuts that also will not pay for themselves because they never do! Of course Kudlow & Co. will promise, as they did last time, that the tax cuts will pay for themselves. Fool me once, shame on you. Fool me twice, shame on me. (However, US voters have already been fooled three times by promises that “supply-side” tax cuts (or “trickle-down” tax cuts) will pay for themselves. so triple shame on them! The Kudlow Kraze will be the fourth time if the nation falls for it, and people most likely will fall for it because people want to fall for it because people want to believe we can have the strong military we have, fight innumerable endless wars in countries around the world, and have all the welfare we want and still pay less in taxes. People routinely deny reality in order to have all they want, and politicians certainly know how to squeeze votes out of that. We’re being juiced.

So, let me point out that didn’t come in quite as great as promised under the latest round of sugary tax cuts:

DonkeyHotey [CC BY 2.0 (https://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

The nonpartisan Congressional Budget Office projected that fiscal 2019 revenues, without the tax cuts, would be $3.69 trillion. Instead, revenues with the tax cuts were only $3.46 trillion…. Treasury Secretary Steven Mnuchin said during the push for the tax cuts and as recently as last month that they would pay for themselves by generating economic growth. Payroll taxes are higher than projected, as are tariffs, but corporate and individual income taxes are lower.

Washington Examiner

Revenue in the first year of the tax cuts dropped by a minor 0.4%. Since population keeps growing, it’s rare for government revenue to drop unless the nation is going into a recession, which was not the case in 2018. Moreover, revenue needed to rise by about 2% just to keep up with inflation in 2018. On the other hand, as you can see in the image below, government revenue did nudge up slightly in 2019:

This uptick in revenue, however, is not adjusted for inflation. Corporate taxes, which were cut the most, are far from paying for themselves, and individual tax revenues have remained about the same, but should have grown due to population growth, while revenues from payroll taxes, which were not cut, have increased because of population and job growth. The losses from corporate tax cuts have been covered by the record-breaking Trump Tariffs (mostly paid for by American companies and handed down to consumers). If those eventually go away, there will be a larger revenue shortfall. Even the Trump administration’s Phase One China charade may reduce tariffs enough to leave the nation with less revenue than it had in prior years.

More significantly, tax revenues benefited hugely in 2018 and 2019 from foreign profit repatriation (yet corporate tax revenue still declined) because that was front loaded into the tax cuts. Money that had been kept outside of the country suddenly came in as profits, benefiting the government with taxes that likely would not have been collected at all if not for the repatriation program. Repatriation of past profits, however, was a one-time opportunity that is now fading away because most corporations have likely brought back home about as much of those past profits as they intend to.

Given this ugly picture, it is no surprise, then, that Republicans are now bending over backward to find excuses for the poor performance of their tax cuts:

Rep. Kevin Brady (R-Tex.), a lead architect of the GOP tax bill, suggested Tuesday the tax cuts may not fully pay for themselves, contradicting a promise Republicans made repeatedly while pushing the law in late 2017.


Pressed about what portion of the tax cuts were fully paid for, Brady said it was “hard to know.”


“We will know in year 8, 9 or 10 what revenues it brought in to the government over time. So it’s way too early to tell,” said Brady at the Peterson Foundation’s annual Fiscal Summit in Washington D.C.

The Washington Post

The problem with begging for a lot more time for the tax cuts to prove themselves is that nothing was said about the need for eight to ten years to lapse before the cuts started paying for themselves back when Republicans like Brady were pitching the plan to the public. In fact, back then, we were all promised they would pay for themselves with GDP growth in the very first year. Remember all those big promises about how much GDP in 2018 would rise to 3% or 4% or 5%, depending on what snake-oil salesman was talking?

Moreover, the tax cuts were front loaded with the greatest stimulus effects in the first year. Because repatriation is fading away after being almost entirely spent on stock buybacks and shareholder dividends, we have created very few business improvements to propel future economic growth. That makes it hard to see how future years are going to bring more growth and more tax revenues so the cuts will finally start to pay for themselves. It’s an even more ridiculous argument when you consider that economic growth in the second year of the tax cuts was slower than growth in the first year! It hardly appears to be gaining momentum.

Spending stimulus is spent

The failure of taxes to pay for themselves might not be so bad if we didn’t also accompany it with spending increases (just as much under Republicans now as in the past under Democrats, proving neither group is more fiscally responsible). Here is what has happened with spending (not deficits, just spending) in the Trump years compared to those years that came before:

As you can see, the rise is steeper now than in almost anytime past with the exception of the large emergency leap at the start of the Great Recession, which then actually got reversed for awhile. Yet, government spending in the past two years has even exceeded those years during the Great Recession when the US government leaped into overdrive, trying desperately to save a dying economy while supporting millions of people who lost their jobs. We’ve now moved to setting new records in spending, which doesn’t even include the acceleration in spending that is now building for 2020 … even if we don’t have a war with Iran.

The Trump administration promised everyone that spending increases would also pay for themselves by stimulating the economy through infrastructure construction. So, we need to look at how much economic benefit all of this attempted tax-cut/spending-increase stimulus has bought us.

It has bought us precisely nothing. While Trump’s treasury projected the tax cuts and spending increases would create 2.9% GDP growth, and Krackhead Kudlow and Trump promised even more than that, we actually averaged about 2.6% during all of Trump’s presidency. Worse still, the numbers are getting consistently worse, not better. The average GDP growth rate last year through the third quarter is a fraction lower than Obama’s average, and it appears the fourth quarter will bring that down even more. That is a poor return for all the debt being piled on.

GDP growth dropped to 2.1 over the second and third quarters of last year while the fourth quarter is projected to come in below 2%. The Atlanta Fed’s GDP Now forecast for the fourth quarter of 2019 has just fallen off a ledge (and tends to become more accurate as we get closer to the first release date of GDP information):

Before the deregulation of the financial industry under President Reagan, which led to an explosion in consumer credit issuance, it required just $1.00 of total system-wide debt to create $1.00 of economic growth. Today, it requires $3.97 to create the same $1 of economic growth. This shouldn’t be surprising, given that “debt” detracts from economic growth as the “debt service” diverts income from productive investments and leads to a “diminishing rate of return” for each new dollar of debt. The irony is that while it appears the economy is growing, akin to the analogy of “boiling a frog,” we accept 2% economic growth as “strong,” whereas such growth rates were previously considered near recessionary.

Real Investment Advice

Average economic growth over the course of all of Obama’s eight years was a “near recessionary” 2.0%. Bear in mind, however, Obama’s term began during years when the nation was still crashing into its worst recession in most people’s lifetimes, a deplorable situation Obama inherited from the Bush Tax Cuts, which took us from a surplus budget to a deep deficit budget and into the worst recession in nearly a century. (Just the facts: that’s where we ended up after the Bush Tax Cuts that promised us accelerated economic growth!) Obama had some quarters after the Great Recession where GDP growth hit over 5%. Trump has never come close to that. (It’s just math, Folks, not arguable as an opinion, and out would be truly deplorable to make excuses for it.)

Economic growth, measured as the change in real GDP (inflation-adjusted), averaged 2.0% from Q2 2009 to Q4 2016. This was slower than the 2.6% average [under Bush] from Q1 1989 to Q4 2008. Real GDP grew nearly 3% during President Bush’s first term but only 0.5% during his second. During the Clinton administration, the GDP growth was close to 4%, slightly faster than the Reagan administration.

Wikipedia

Real GDP per capita rose an average of 2.5% a year under Obama. (That is adjusted for inflation.) Real GDP per capita after the Trump Tax cuts grew 2.9 percent in 2018. However, 2019 isn’t in yet, and it now appears all but certain it will be lower than 2.9%. In short, there is nothing worth seeing here, Folks. No matter what you may want to believe, the hard, cold truth is that the economy is slowly ebbing away under Trump.

No jazz for jobs

Job growth is as important as GDP growth, but that has also dropped to a slower rate of growth than under Obama. In fairness, that is inevitable as a nation moves to full employment. (The term “full employment,” however is deceitful since a larger percentage of people after the Great Recession are part-timers who have replaced one job with two jobs at lower pay and lower benefits — true under both Obama and Trump. These part-timers are counted as two employed people because the nation refuses to use full-time equivalence as the basis for measuring job growth, which it would do if it wanted honest measures.)

All the same is true for the nation’s unemployment rate because people are no longer considered unemployed if they get a part-time job or if they just fall off the unemployment rolls because their benefits run out. You can see the glide path down was starting to flatten out even during Obama’s final year and has become completely flat now:

It’s only natural that the unemployment rate would flatten out at this point, since this is as low as it ever has been, but clearly Trump has nothing to brag about on jobs or unemployment over Obama either. (Just keep in mind that the actual unemployment rate during Obama’s years and Trump’s would be far worse if unemployment were measured honestly or even just measured as it was back in the seventies and eighties. See Shadowstats.)

Next in importance for assessing economic improvements would be wage growth because that is where the rubber meets the road for the average employed person. For about a year, wages grew more quickly under the Trump Tax Cuts and spending increases than under Obama, but that growth rate is now slowing back down. Even in the Obama years everyone anticipated wages would only start to grow as we got nearer to “full employment,” so it’s a little disappointing that wage growth is slowing down almost as soon as we got to where it was picking up. Let’s hope it, at least, maintains a flat line at the current levels is only one percentage point higher than the Obama years rose to.

Draw a line to show the trend through the middle of Obama’s last two years, and you’ll see it ends right where we are now. (Aside from using this number to show whether there is any improvement over the past administration, note that REAL wage growth is still almost zero because the past year of inflation at CPI 2.3% ate almost all of it.)

Apparently, Trump’s projections for the tax cuts and spending stimulus were all based on best-case scenarios, and that is aways a poor way to create a budget or a funding plan for anything.

All Trumped up and nowhere to go

Regardless, here in Candyland, Trump knows voters love their tax candy. So, he’ll be throwing out promises of handfuls of candy to the children as soon as the Dems choose their anointed one for Trump to campaign against. He knows also that arguing against middle-class tax cuts during an election year is likely a losing proposition for Democrats. So, it’s all politics intended to woo the nation’s middle class where the voting majority resides, but at the cost of driving the nation deeper into the hole at a steeper rate of decline every year.

Of course, if Trump really wanted to help the nation and not just get himself re-elected by throwing out fist-fulls of candy, he’d eliminated the special capital-gains tax rate that goes almost entirely to the rich and effectively puts them in a lower tax bracket than much of the middle class and that only gets recycled into endless asset purchases (an argument I’ve detailed many times in the past).

He’d set up tax structures that force the rich to earn their money the old-fashioned rich way by building factories that hire people and produce useful things and that pay people good wages and good benefits so they can buy those useful things, instead of giving the rich a tax break when all they do with it is take profits from asset sales and then recycle the savings into more stocks, more bonds, more real estate, more collector items and pricier football teams that play in stadiums the middle class people pay for!

Unless the middle-class finally gets its brains back and stands up and fights this, the same rinse-and-repeat national national debt cycle that subsidizes the rich is going to keep on happening. So, if you want a middle-class tax cut, make sure it gets paid for by the rich who have long been effectively in a lower tax bracket than the middle class, even more so under Trump who has served his Mar-a-Lago buddies well!

Just like capital-gains tax cuts, corporate tax cuts also have not gone into building new factories or into entrepreneurial new service businesses but — as I argued here before they even became law — have gone almost entirely into stock buybacks and dividends that just help the rich get richer without helping anyone else. Sure, they may finally help the middle class in their retirement years because 401Ks are about the one place where the middle class have enough money to buy stocks, but that is only IF those retirement funds don’t get crushed again as they did in the dot-com bust and in the Great Recession. That money all exists only on paper until the days in which you actually get to spend it. It doesn’t help the middle class any now; but the rich are helped fabulously right now. Fabulously! Better times than they’ve ever know!

Replacing those help-the-rich tax plans with ones that help the rest will never happen. The saddest apparent truth is that middle-class voters won’t even vote to make it happen. They’ll vote for more of the same shiny, cellophane-wrapped, candied, trickle-down promises, happy for any sweet morsel thrown their way and willing to get it by letting someone in the future pay for it. They’ll continue to rally to the argument that helping the rich is the only way to help the rest. That’s what the last thirty years of history shows us.

That’s because they’d rather be right (in their own heads) about the beliefs they’ve been suckered into all those year than be wealthier. No one wants to admit they’ve been suckered. So, they’ll stay with their party-line votes and stand by their man and argue that the good times have never been better even though the only thing greater about America right now is its growing debt.

They will continue to syphon all economic power away from their grandkids to help themselves have all they want to have right now by leaving their children and grandchildren with the forever unplayable bill — a bill where the interest alone will cost every penny in taxes they can possibly scrape together. They’ll do that on the false premise that it will make the nation stronger for the future, as if a nation far deeper in debt can ever be considered stronger, especially when we are seeing no lasting benefits in improved infrastructure and a more vibrant economy. Mark my word. That’s what they will do!

That is, for a fact, what the nation is doing — pulling all economic power into the present just to keep the economic engines barely running by making future generations fuel all of it. In decades past, parents did all they could to make sure their children had a future that was brighter than their own times had been. We’re doing everything conceivable to undermine that environmentally and economically just to keep things on a more gradual downward glide path for now.

But we do have more rich people. That’s for sure.

And more poor.

And fewer middle class.

We have, indeed, trickled down.

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