Trump: Titan of Corporate Tax Cuts

Trump's corporate tax cut is a gift to himself like his corporate jet.

Trump’s corporate tax cut is supply-side stimulus I could agree with if done right, even though it primarily helps the rich. Trump wants to cut the top corporate tax rate from its current 35% to 15% (which is currently the bottom bracket in US corporate income tax structure). That makes the Trump corporate tax cut the largest of its kind in the history the United States.

That could provide significant economic stimulus on the supply side but only if we learn from past mistakes. Unfortunately, I see no evidence in the Trump plan that we’ve learned anything from our supply-side mistakes; and I wish I could because I want to see Trump prove to be a strong anti-establishment candidate as much as I know readers on my blog do.

As I’ve said in recent articles, I don’t have to like the arrogant man to hope that his arrogance will, at least, give him the courage to stand against the tide; but I’m afraid that kind of courage doesn’t have any endurance and ultimately tends to go with the flow.

I do myself no good at all by writing against a candidate in whom I am sure a majority of my readers are investing their hope solely because they need something to hope for, and that hope certainly isn’t going to be found in Hillary. (I spend less time writing about her only because everyone knows she is totally sold out to the wealthy establishment. Trump is more of a mystery rich man that appears to be for the common man.) My blog is a strongly anti-establishment when it comes to economics, so I’m fairly sure my readers lean heavily toward the only anti-establishment candidate left in the race.

I wrote in my previous article that Trump’s income-tax and capital-gains-tax strategies are the biggest gift ever offered to the one-percenters in the US economy. I don’t like having to say that, but it is sadly the truth. With these corporate tax cuts, Trump hits the ball out of the park for the third time on behalf of the Wall Street team. The trio of tax cuts plus his massive estate-tax cut adds up to a grand slam for the one percenters.

 

Does any court even care that we ignore the constitution?

 

Part of my agreement with Trump’s plan for corporate taxes comes on a constitutional basis. I don’t see how courts have avoided calling the taxation of corporate profits unconstitutional. The US government taxes corporate profits when the company makes them, then taxes those same company profits again when the same company distributes them via dividends to its individual owners. How is that not the kind of double taxation that the US constitution forbids?

Apparently, the courts have rationalized the language to take a position they want. However, if I were a sole proprietor and the government taxed my business profit then taxed me personally for making the profit, that would clearly be double taxation. How is corporate tax any different just because there are many owners that divide the profit?

By relying on the legal construct that a corporation is a separate entity in its own right, so that taxing the corporation is different from taxing the owners of the corporation, the courts ignore the fact that the money being taxed when it goes out as dividends is the same money held in the same bank account that was just taxed as corporate profit. It’s an infuriating way to play with words.

Philosophically, I think corporate profits should only be taxed at the point where the money goes to profit the individual owners. (Of course, philosophically, I don’t think there should be any income tax at all. It should be replaced with a consumption tax, which would take us back to the historic norm.)

Economically, money kept in the corporate coffers is fuel for our economic engines. Why would we want to drain our many engines directly of their fuel? Why would we want to make it so much less appealing to form businesses in the US (with the world’s highest corporate tax) than anywhere else in the world. If the company’s owners deem it best to keep the money in the business and use it to expand business, why would we want to strip them of that potential for economic development? Money kept in the corporate coffers is (or, at least, could be set up to be) an investment in the nation’s economy.

 

Learning from the past

 

For Trump’s corporate tax cut to become entirely fuel for economic growth, we have to learn something from the past that the establishment doesn’t want us to learn. We have been living through a period that has no equal in terms of corporations using company profits (and loans) to buyback their own shares. Therefore, we know from experience that money retained in a corporation due to the elimination (or reduction) of corporate income tax will likely just go into more rounds of stock buybacks or into buying up other businesses. Buybacks mostly just make the rich richer by creating phony demand for their shares while reducing the supply of shares available on the market. They add nothing to the national economy, and do little for the common person as most people do not own a lot of stocks.

Likewise, one company using its profits to buy another company sometimes doesn’t even add more efficiency to either company. The real goal is often empire, which ust creates bigger behemoths that are rank with inefficiency. To the extent that acquisitions do create any efficiency, it is usually through the reduction of jobs. They also reduce competition, which certainly doesn’t do the common man any good. They tend to create oligopolies — near monopolies — where just a handful of oligarchs rule an industry.

I’m not saying they should be prevented, but why would we want to create tax breaks that hugely encourage them? Is there any reader of this blog who feels that conglomeration generally makes their world better? I wouldn’t give incentive toward greater empire building by giving tax-exempt status to corporate profits used for such purposes or by offering corporations a lower tax rate, as Trump does. If we’re going to make a change this massive, let’s make sure it helps all of society, not just the empire builders.

Likewise, corporate profits should be tax-exempt (or tax-reduced) only if the companies engage in no share buybacks. We need to re-gear our economy to move away from buybacks and conglomeration, which give most of their benefit to real estate moguls and the barons of industry and particularly to banksters, which is where we have seen conglomeration result in insanely dangerous institutions that nearly everyone (even the banksters) admit are “too big to fail.” (Though some of us say, “Let them fail anyway.”)

Unfortunately, Trump’s corporate tax cut is dangerous because his plan presents no curbs against rampant empire-building, colossal conglomeration. I don’t see anything in Trump’s plan that assures me his corporate tax reductions will go into developing markets, developing new products, improving plants and building new plants and not directly into the pockets of overstuffed CEOs and shareholders.

Therefore, I fully expect we’ll see the same excess we saw from capital-gains tax cuts under Reagan and Bush that simply resulted in the rich bidding up the price of ball teams while making average citizens pay for the stadiums they play in. Without restrictions to guide the liquidity that will stream through these corporate channels, the common person will be swept away by even larger corporations.

Since corporations are an artificial entity that gets created in the first place only because society drafts laws that allow them to exist, we need to make certain they serve the broadest public interest. If you’re tired of seeing all the benefits float to the top again and again, you need to do something about it by speaking up against this plan and holding Trump accountable to his pledge to serve the common person because he clearly is not doing so with his Kudlow tax giveaway to the extremely rich.

Without placing any conditions on his corporate tax cut, Trump is, as far as I’m concerned the Rump (the ass) of Wall Street. This entire plan is a monumental gift to all of Trump’s rich buddies, and I’m fairly sure now that I’ve looked at the Rump’s tax plan that this is exactly what the Rump and his Wall-Street cohorts intended all along. Keep silent about all details of what you will do until you have the grassroots support fully beneath you, then giving all benefits to the wealthy.

Trump needs to face an enormous backlash right away before he gets away with the biggest sell-out in history. He needs to hear resoundingly that his supporters HATE this plan. How you get that message to a candidate, I’m not sure. It’s not easy to gain the ear of the presidential candidate, especially if he always thought he could pull over a plan that entirely serves his own interests. If he’s going to be the anti-establishment candidate, this plan certainly isn’t going to get him there, and if you want an anti-establishment candidate, you’re going to have to work him over hard because, once he gains office, you’ve just given the one percenters the biggest handout they’ve ever received. Trump’s plan makes Reagan and Bush combined look like pikers.

 

Trump even hedges on his hedge-fund promise

 

Trump, in order to tap into the growing ire of the masses, said many times he’s going to go after the hedge-fund slackers whom he described as if they were parasites. In reality Trump’s massive corporate tax cut assures that hedge-fund managers will benefit from the same low tax rate that Trump’s capital-gains cuts offers. Like a slight-of-hand artist, he takes with an attention-grabbing left hand while giving with a subtle right hand.

On the one hand, Trump is going to eliminate the current loophole that allows hedge fund operators to classify their profits as “carried interest,” and existing provision that allows hedge-fund profits to be taxed as capital gains. That paints a picture on the face of things that Trump is following through with his campaign promise to go after lazy hedge-fund managers.

On the other hand, hedge funds exist under a corporate structure; therefore, they will get the 15% tax rate that the capital-gains people get anyway since Trump’s cutting corporate taxes down to that same rate. That makes Trump’s promise to go after “lazy hedge-fund managers” shamefully toothless.

So, as I look Trump’s tax plan over from top to bottom, I have to wonder is Trump the ultimate snake oil salesman in the Wall Street carnival, or is he just as dumb as a Bush and doesn’t realize how he’s already being played by the establishment because, while he wants to do the right thing, he hasn’t got the brains to come up with his own ideas. Instead, he turns to advisors as he has done in all business development, and naturally turns to the wealthy one-percenters with whom he has surrounded himself his entire business life, who naturally turn to serving themselves as they have done their entire lives. Are they craftily remaking him now that he is their only choice on the Republican’s ticket, in case a Republican wins, or has Trump always intended to feint to the poor but swing to the rich because he’s just that sly?

 

How do we pay for Trump’s corporate tax cut?

 

Whether the US followed my idea of eliminating corporate taxes altogether (with conditions) or Trump’s idea of greatly reducing them (without conditions), we have to make up the loss. I’m a realist guy. No wishful thinking allowed in the planning of national budgets. All tax cuts require spending cuts or tax increases in other areas; and we already have to make massive spending cuts just to get the budget back on track without any tax breaks. So, the next question I have to ask is what has Trump done to make up for the biggest corporate tax cut in US history?

Larry Kudlow, Trump’s establishment advisor who helped concoct Trump’s tax scheme, promises,

 

Abundant research has shown that the best way to raise wages and create jobs is to slash business taxes. Within five years a business tax cut will pay for itself, and then some.

 

OH, MY GOSH! It’s the same lie we were told under Reaganomics and under King George II. Are we going to believe it if its told again? This time around it’s tied to corporate tax cuts. As I just stated above, I’m sure corporate tax cuts will stimulate the economy (if done with the right conditions) and, therefore raise revenue; but we have never seen tax cuts pay for themselves. As I pointed out in my last article, even David Stockman, Reagan’s chief budget advisor, has admitted that tax cuts do not pay for themselves!

I, for one, do not believe promises that are made again and again that prove false every time. Foo me once, shame on you; fool me twice, shame on me. I’m not buying it! I don’t base my own planning of my own finances on “rosy scenarios. and Stockman’s team originally called their notion that tax cuts would pay for themselves by stimulating the economy the “rosy scenario.” Rosy scenarios are not the way to plan a personal budget, much less the budget of an entire nation!

If you’re a die-hard Republican loyalist, you can blame a Democratic congress for the huge deficit expansion that happened under both Reagan and GBII; but face it: neither Reagan nor Bush ever proposed a budget themselves that didn’t include massive deficits. So, neither of them can legitimately cop that defense.

Regardless, reality is that you always have to play ball with the other team. The fact is, neocon Republicans never saw a warfare deficit they wouldn’t approve any more than Democrats ever saw a welfare deficit they wouldn’t approve. Trump, just like Reagan, is even promising to greatly increase military spending; so, here we go again. If you REALLY want to live in a nation that is broke, this is the way to accelerate into that curve.

Do we ever learn anything? Let’s stop living in a world of wishful thinking and start planning an economy based on what we can really afford and based on real-world experience that we now have and not on dreams. That starts with letting the Rump know that’s what he’s going to do, or we’re going to kick his shiny golden ass now!

It is a fact (if we are capable of learning anything from thirty-five years of experience with supply-side economics) that Trump’s corporate tax cut will not raise wages much or create jobs unless stops are built in place to prevent the money from simply inflating stock values. The rich would far rather make their money the easy way with stock manipulation than the hard way by building things and selling them. We’ve seen it again and again, and the time to rebel against these guys who keep steering everything in the nation to their own benefit is now.

If you sit down and take it because, once again, they are letting you have a crumb of a tax break while the gorge themselves, then just expect that to be all you ever get. If, however, tax breaks go to the demand side (the average consumer) then the only way the rich can get their greedy hands on all the money is by building things to fill your demand, and that means they have to hire more people and pay higher wages in order to attract workers in a tighter labor market. Gee, they will actually have to work and produce something to earn their money! Wouldn’t that be novel in today’s world?

Reality is that we are buying our military strength or our welfare generosity with other people’s money — our grandchildren’s money. It’s nice to think we’re so strong or we’re so generous — Republicans and Democrats patting themselves on the back in turn — but how strong or generous is it when other people are carrying 100% 0f the load while we derive 100% of the benefits?

So, it is way past time to live within our means and stop handing the bill forward and stop dreaming that tax cuts automatically make up for themselves. Tax cuts create deficits unless spending cuts match, and the cuts needed even without the tax cuts are so huge that it means everyone has to lose something they want. It doesn’t matter if you or I don’t like that reality. It’s just math; so, it’s time to suck it up and pay the piper for years of excess.

Under Republican budgets, we stand strong on our children’s shoulders. Under Democrat budgets, we are generous with our children’s money. Let’s knock off the pretense that it is anything other than that. We don’t get the credit for either when we’re not the one footing the bill. It’s time to man up and woman up and stand on our own two feet and not trample all over our children’s future.

All deficit spending does is pull future economic strength into the present for our benefit while crippling those who must pay for it down the road. Then, because they cannot pay for it, they keep rolling it forward to until the whole thing crashes catastrophically. We’re already at that crash point, which is why I’ve called this election year the year of the epocalypse; but Trump’s plan basically tries to throw enough accelerant into the fuel tank to propel the one percent for one final burst of the rockets. It is an all-stops-out plan to give to the rich and pay for nothing as we go. It’s fantasy.

We’re so addicted to debt spending, I doubt we have the courage to quit that drug in our lifetimes. If we do, it will be calamitous because deficit spending is the only thing keeping the dinosaur debt-based economy alive. So, the day we knock it off is the day we start paying the piper for all the economic sins created up to that day. Nevertheless, the sooner it begins, the sooner it is over.

Every year, we prove we don’t have the courage to face that reality. Are we going to prove it again by voting for the biggest trickle-down give-away in the history of mankind?

 

How can anyone say that Trump’s corporate tax cut is not the ultimate handout to corporate interests?

 

Who wins the biggest tax break in US history? Major corporations and the wealthiest of stock owners … again … of course! (Small corporations already have lower marginal rates.) Trump’s plan, thanks to Larry Kudlow (and, I suppose, thanks to Trump) is a love-fest for Wall Street:

 

The two-party dominance of presidential elections has been a major contributor to the creation of a stultified democracy, one in which the institutional interests and the influence of the wealthy and corporations on each party has stifled robust debate and change. What we get are presidential campaigns that reflect the institutional interests of the two parties — and don’t for a moment think that billionaire Donald Trump does not embody both the pro-wealth and, in general, the social policies of the GOP. Every four years, the media treats candidates as if they can just change costumes (“move to the center,” “reset,” etc.) and become more electable. Of course, a tacit corporate media assessment of being “on message” involves candidates of either major party adopting economic positions that benefit corporations, since the mass media consists of large corporate ownership, in general.

This year’s presidential election will again come down to one of two elite candidates. Both of them have high negative ratings. Both of them have scary foreign policy positions, though in different ways. Both of them believe in “American exceptionalism….” Yes, the two candidates differ on social policies, but you can barely hear these differences register above the din of news coverage of polls, gaffes, shocking statements, alleged scandals and the personalities of the candidates.

Whatever the 2016 race is, it’s as representative of democracy as Monsanto GMO seeds are of organic agriculture. It’s a facade. (Buzzflash)

 

The two-party system is really a two-part system, like an epoxy that makes sure you’re stuck with that which benefits the rich, no matter which way you choose. It’s Frick and Frack. Under either party, big corporations, which include establishment media corporations owned by the mega-rich (whether Fox or MSNBC), are always the winners. Under Trump, they stand to win more than they’ve ever won before.

The two parties exist to serve major corporate interests at all costs in order to stay in power. They present two flavors of the same thing to the general public as an illusion of choice. The flavors are social because the major owners and players in big corporations really couldn’t care less about what you choose socially so long as you keep making choices that benefit them economically. This crony capitalist system has made the US the debt-enslaved domain of the one percenters that it is today.

Nothing in Trump’s plan will change that. Wall Street may feign that it hates Trump’s plan, and he may feign that he hates Wall Street. However, Wall Street knows that it is resoundingly hated by the multitude, so making Trump appear to be anti-Wall-Street is the surest path to serving their own corporate interests by giving the groundswell that is rising against them something to hit on that works in their favor.

Likewise, Trump knows that you resoundingly hate Wall Street, so appearing to stand against it is the surest path to the presidency. I’m sure the Trump Corporation will love the enormous corporate tax cut that the Rump hopes to deliver without conditions. That’s unconditional love in corporate America, and they’ll feast on it.

So, if you’re going to get angry and your anger is going to make any difference, you better do it now before this plan becomes another done deal. Trump won’t be your hero unless the public outrage he has tapped into forces him to be. You are going to have to hold his feet to the fire now because this plan is a long way from being anything you’ve been looking for if you want to end the one-percent/ninty-nine percent divide that has developed over the past thirty-plus years in this great nation. You want America to be great again, you need to make the middle class great again, and clearly Trump is not going there without a kick in the rump.

One place you can start is by making sure this corporate tax break is entirely redrafted with provision that make certain the wealthy business owners and CEOS have to serve the middle class in order to derive the break for their business and that none of the taxes saved can benefit them directly. Force them to derive the benefit by growing the business, not by giving bigger bonuses to CEOs, stock buybacks and acquisitions of other businesses that expand their empire. Constrain Trump’s corporate tax cut so that it serves you. Unless you do, it won’t.

 

Final article of the series: “Trump’s Mirage of Spending Cuts Will Make America’s Collapse Great

 

[amazon_image id=”1621291847″ link=”true” target=”_blank” size=”medium” ]Trumped! A Nation on the Brink of Ruin… And How to Bring It Back[/amazon_image][amazon_image id=”1610392779″ link=”true” target=”_blank” size=”medium” ]The Triumph of Politics: Why the Reagan Revolution Failed[/amazon_image][amazon_image id=”1586489127″ link=”true” target=”_blank” size=”medium” ]The Great Deformation: The Corruption of Capitalism in America[/amazon_image][amazon_image id=”0525480102″ link=”true” target=”_blank” size=”medium” ]The Education of David Stockman[/amazon_image]

7 Comments

  1. Ping from Donald Sergent:

    an oldie, cynical,but true:

    “The state — or, to make matters more concrete, the government — consists of a gang of men exactly like you and me. They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office. Their principal device to that end is to search out groups who pant and pine for something they can’t get, and to promise to give it to them. Nine times out of ten that promise is worth nothing. The tenth time it is made good by looting ‘A’ to satisfy ‘B’. In other words, government is a broker in pillage, and every election is a sort of advance auction on stolen goods.”
    ― H.L. Mencken

  2. Ping from Donald Sergent:

    could we not remove the stock based compensation loophole to remove insider incentives for buybacks. ie: the best way to rob a corporation is to own one.(apologies to Bill Black)

    • Ping from Knave_Dave:

      Indeed. There are a number of things like that that need to be done in order to turn Wall St. into less of a casino and more of a true market for gaining and selling ownership. UNTIL we remove the baloney I am not at all in favor of giving corporations any tax break. But, if they’re turned back into genuine economic engines, instead of just cards the rich play with, then sure. Why would we want to deprive our engines of fuel if they’re doing a good job for us?

      • Ping from Donald Sergent:

        one of the issues/responses that was bruited about in the immediate aftermath of the credit unwind in ’08/09 was a return to(or lamenting the loss of) the general partnership model of investment banking, where the partners and Managing Directors held joint and several liability for the firm and the risk profiles and maturity mismatches the firm entered into. “Heads I win and Tails I lose” A novel concept in place of I.B.G.Y.B.G.
        Provisions for clawback of misrepresented/gamed short term gains would be a nice addition as well. Don’t think John Stumpf would care for it much, but that’s the point.

  3. Ping from box4blox:

    If the government wants to create jobs and grow exports, surely it makes sense that companies that are employing people and exporting products get taxed at a much more attractive tax rate than a company that is importing products from Asian sweat shops and employing minimal staff locally.

    How difficult would it be to engineer a company tax rate, whereby if a company employs a full time staff member for every $100,000 of gross profit, the company gets taxed at a more attractive rate.

    For example, if a company employ 10 staff and makes $1,000,000 gross profit p.a., with a $300,000 net profit before tax, they pay 15% tax ($45,000 p.a). If they make the same profit with only 5 staff, they pay 15% tax on half their net profit and 35% on the other half ($74,500 p.a.).

    If this same company also exports product, which equates to 50% of their company revenue, then the tax payable after the calculation above is then multiplied by 50% of that figure.

    Simple, clean and fair system aimed at small to medium business, the very sector that provides biggest opportunity for employment growth and economic growth.

    • Ping from Knave_Dave:

      Welcome to the blog, Box.

      We could certainly do that or other things similar to it. I’d probably go further than that, but something of that kind a move in the right direction. However we do it, we need to make sure that corporations earn the tax break and not just give it to them, thus rewarding their current horrid behavior. I’m in favor of eliminating the tax entirely, but only AFTER we set in place regulations that return corporations to a mandate of serving the public good (as described historically in the article Don posted).

      Let’s not just give away this massive tax break and THEN see if we can wrangle corporations back to better behavior. Work out clearly what the better behavior is going to be for every corporation and build that into the tax break. Keep it clean and simple with hard-and-fast rules — no loopholes.

      Until we can agree that the financial regulations establish an even playing field that takes the worst casino aspects out of corporate behavior and that removes banks and governments from corporate ownership, there is not a reason in the world to give these giants breaks that we KNOW FROM EXPERIENCE, they will only spend on casino behavior and bigger bonuses.

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