Monday, November 6, 2017

The mistake in the tax bill

It probably isn't a mistake. More likely it's a con job from the rightwing. But for the purpose of elucidation, it doesn't matter, so let's be generous and assume that the Republicans pushing the tax changes are stupid.

Hey, it could happen!

The details in the bill don't matter, only the claim that reducing taxes -- in this case mostly for corporations -- will goose economic growth.

There were many periods in American economic history when that would probably have been true, to some extent. Rightwingers used to fret endlessly about shortage of capital. In the Reagan years, you could not open the Wall Street Journal editorial pages without seeing a piece about how higher government obligations (read, checks to welfare queens) were going to crowd out private investment, since -- unstated assumption alert -- there is only a finite amount of capital in the world

You don't hear rightwingers worrying about shortage of capital any more, at least not in Reaganite terms. And you sure don't hear professional mega-investors worrying about it.

Here, for example, is a sentence from the annual report of BlackRock Advisors LLC:
"However, the capacity for rapid growth is restrained by structural factors, including an aging population in developed countries, low productivity, and excess savings."
(I choose this example merely because my wife invested in a BlackRock bond fund, so we get the annual review; but the same sentiment can be found all over.)

The key words are excess savings. That means that BlackRock Advisors cannot find anythng to do with its money, That's not to say that society couldn't. There are plenty of thngs that could usefully use more capital, but they do not return direct profit, only (with good planning) indirect.

For the first time in history, there is excess capital. I cannot say when this began -- more or less when the dollar valuations of petroleum and gold were was raised off their artificially low levels in the '70s, although these big shakeups may not be explanations.

Over the past 35-40 years, in America (and in the world generally), there has been an enormous accumulation of capital. You didn't get any of it. Them that had, got.

But just because you didn't get it doesn't mean it isn't there.


I have not written much about this. I should have.

A number of conclusions follow from this change in circustances.

One (that I have written about) is that there is no longer any justification for taxing capital gains at lower rates than ordinary income. It probably makes sense now (if you care about reducing government debt) to tax capital gains at higher rates than ordinary income.

Another is that a big injection of capital into the active sectors of the economy will not result in faster growth. The most likely result would be to destabilize markets.

Republican policies are, historically, very good at that.  

                                                                                   

13 comments:

  1. The details in the bill don't matter, only the claim that reducing taxes -- in this case mostly for corporations ...

    Who pays corporate taxes?

    (pro-tip: if you think it is corporations, then you are too ignorant to comment on economic matters.)

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  2. Harry,

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    It probably makes sense now (if you care about reducing government debt) to tax capital gains at higher rates than ordinary income.
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    Given the multitude of offshore fiscal paradises out there, I guess you would only make more of the money to go out.

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  3. There are ways to make fiscal paradises reconsider

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  4. Are there? I don't think the ruling elites of much of the world would support tighter restrictions to their paradises.

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  5. Clovis, don't cloud the issue with facts.

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  6. That's why we have voting. That was Bret's argument: we're helpless. I don't think we are.

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  7. You say that after they elected Trump?

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  8. People vote against their own interests sometimes. If the results are bad enough, they swing way over and we end up with real changes for the batter. Consider 1932.

    I think a 90% death duty would be a good policy, there are voices calling for it now. It will depend upon leadership (lacking so far) and bad optics on the part of the plutocrats.


    The plutocrats are doing their part by being greedy, heartless jerks

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  9. Harry,

    A good part of those fiscal paradises is used exactly to bypass taxes over inheritance. A 90% death duty in the US will be everything the fiscal paradises could ask for.

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  10. I think a 90% death duty would be a good policy, there are voices calling for it now.

    Any who aren't economic illiterates?

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  11. Clovis, the US has long ignored these pipsqueak countries with their corrupt ship registrations, money laundering and tax cheating.

    It eventually got fed up with the money laundering. No reason it couldn't do the same with other irritants.

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  12. Harry,

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    It eventually got fed up with the money laundering.
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    I am not sure I know what you are talking about. AFAIK, money laundering keeps going on aplenty.

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  13. It does. It isn't easy to interdict, but such actions as a huge fine against PNB Paribas indicates that it isn't risk-free the way it used to be

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