The Tax Cut Scam

Tyler Durden's picture

Authored by Sven Henrich via NorthmanTrader.com,

I can’t help shake this sinking feeling: This tax cut package that is being peddled by the current administration is a scam. Why? Because the entire narrative is dishonest and predicated on false, make belief premises.

Look, I don’t like paying more taxes than I have to. Nobody does and I’m not opposed to tax cuts if they actually do something positive for society and the economy. Get Republicans and Democrats together to work something out that helps address our structural issues. I’m all for it.

But my take is that this game that is being played here is a snow job and an obvious one at that and I’ll tell you why.

Let’s start with the obvious: The very people that are pushing for it have an inherent conflict of interest. Everyone of these people stands to gain personally from the very tax cuts they are pushing:

The main narrative: It’ll stimulate economic growth. Let me simply state the obvious here: These 3 folks having larger cash positions and getting enormous refunds will not add to economic growth, it will just add wealth to them.

And it’ll add wealth to their children & families:

That’s after all what the estate tax repeal is all about. Don’t kid yourself.

Gary Cohn struggled to justify all this today in his interview on CNBC. In fact he didn’t justify anything, but rather admitted the larger point: It’s a tax cut for the top 1%.

“we see the whole trickle-down through the economy, and that’s good for the economy”

Why would it trickle down if it’s not a tax cut for the top 1%?

Well because that’s what it is:

“$1 trillion in net cuts for business, $200 billion through the estate tax, and $300 billion for individuals. So, four times as much in business tax cuts and estate tax as for individuals.”

And right here the narrative and premise dies.

First off, corporations are doing great and have more cash than ever. What do they do with most of their cash? It goes to dividends (10% of people own 90% of stocks, 50% of people don’t own any stocks) and of course buybacks. Goldman itself had already done a projection on this late last year:

“We expect tax reform legislation under the Trump administration will encourage firms to repatriate $200 billion of overseas cash next year,” David Kostin, chief U.S. equity strategist, said in a Friday note, referring to companies in the S&P 500. “A significant portion of returning funds will be directed to buybacks based on the pattern of the tax holiday in 2004.”

None of that adds to economic growth for the bottom 90% it adds to the wealth of the top 1%.

And it’s not even honest to call it the top 1%. It’s really the top 3 if you will.

Wake up to reality:

The three richest people in the US – Bill Gates, Jeff Bezos and Warren Buffett – own as much wealth as the bottom half of the US population, or 160 million people.

 

Analysis of the wealth of America’s richest people found that Gates, Bezos and Buffett were sitting on a combined $248.5bn (£190bn) fortune. The Institute for Policy Studies said the growing gap between rich and poor had created a “moral crisis”.

 

In a report, Billionaire Bonanza, the thinktank said Donald Trump’s tax change proposals would “exacerbate existing wealth disparities” as 80% of tax benefits would end up going to the wealthiest 1% of households.

 

“Wealth inequality is on the rise,” said Chuck Collins, an economist and co-author of the report. “Now is the time for actions that reduce inequality, not tax cuts for the very wealthy.”

 

The study found that the billionaires included in Forbes magazine’s list of the 400 richest people in the US were worth a combined $2.68tn – more than the gross domestic product (GDP) of the UK.

 

“Our wealthiest 400 now have more wealth combined than the bottom 64% of the US population, an estimated 80m households or 204 million people,” the report says. “That’s more people than the population of Canada and Mexico combined.”

 

The report says the “billionaire class” continues to “pull apart from the rest of us” at the fastest rate ever recorded. “We have not witnessed such extreme levels of concentrated wealth and power since the first gilded age a century ago.”

Wealth inequality is real and this tax cut will exacerbate it further.

But the package will create economic growth? That’s the line used to justify the package without any explanation or response to the structural challenges ahead. Remember the baby boomers are retiring and social security is a key driver in upcoming budget strains:

Cohn didn’t even bother to answer the question:

Harwood: Another thing Larry Summers told me: ‘The country wants to spend more on defense. We’ve got a whole lot of baby boomers retiring. We are going to need more money for government and not less.’ The Penn-Wharton model — run by a former Bush administration economist, not a Democrat — says that this plan by 2040 will lose $4 trillion. During that time, the number of people on Social Security is going to go from 45 million to 72 million. How in the world does that make sense?

 

Cohn: We firmly believe that we are creating a model that creates economic growth in this country.

That’s his answer.

Instead of answering the question he hides behind the talking point without offering evidence. That’s called playing tennis without the net. And worse: It shows he doesn’t want to or can’t answer the hard questions. Because he doesn’t know or care. It’s called can kicking. Just get the tax cut through and count your winnings.

And then the first of 2 key lies:

Harwood: But you know no tax cut’s ever paid for itself.

 

Cohn: The years that we increased deficit are years when our economy is slowing down.

Here’s a fact: There is no evidence that tax cuts have produced long term sustainable economic growth, but rather larger deficits are in the immediate future as tax revenues start falling short.

Here’s the history folks, a wonderful bi-partisan track record of deficit spending.:

Note the immediate deficit growth following the Bush tax cuts in 2001. What did they do? Spent trillions on wars. What are they doing now? Increasing military spending.

Remember fiscal conservatives? Me neither. It’s a slogan. They don’t exist. On either side of the isle.

But here’s the 2nd big lie, and perhaps the worst in the entire charade:

Not a single scenario that I have seen, budget or tax plan or otherwise assumes any growth downside. Ever. It’s all milk, honey and rose pebbles everywhere hence the consequences are not accounted for and the sheep are led to the cliff thinking there is no risk anymore:

This is insane.

And so I ask:

The answer is it doesn’t. There is no strategic rationale behind the tax cuts other than to personally benefit the very people that are pushing for them. It’s a marketing ploy that will eventually end up in trillion dollar deficits again and benefit cuts. The corporate sector is not hurting. It’s sitting on record cash. No sign of stress, but that’s where the tax cut focus is.

Look, THIS is the forecast of the debt consequences WITHOUT any slowdown or recession in the plan:

“The GOP’s tax bill would add $1.7 trillion to the national debt over the course of a decade, and increase the country’s debt-to-GDP ratio by 5.9 percentage points, according to the Congressional Budget Office.”

And what do these projections look like with a slowdown or recession coming and tax revenue missing? Nobody knows, because nobody has run the numbers and apparently nobody is demanding answers to such a question.

Why not? Because economic growth will just magically happen.

Please.

The economy and markets are already awash with 8 years of artificial liquidity and the loosest financial conditions in decades:

We may see a temporary bump in growth from people spending the tax cut crumbs thrown their way and adding to their credit card balances already back to 2007 levels:

But be very clear that if any of these rosy growth projections don’t pan out know who pays for it all. You, the tax payer. Cause they’ll come for your social security money to pay for it all:

Remember the guys driving all this are former Goldman Sachs bankers. Nothing has changed:

The joke may be on all of us when the next slowdown hits. And the bankers? They will have moved on and will have taken their newly found cash with them.

 

Don’t fall for it. This tax cut is a scam that will expand wealth inequality to even more absurd levels.

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Rick Cerone's picture

Stimulate the economy by not deducting anything from paychecks for 6 months.

BennyBoy's picture

 

To stimulate the economy increase the deficit bigly.

Why?

Because debt is the ONLY way money is created in our nosensical, exponential debt based money system.

tmosley's picture

>I’m not opposed to tax cuts if they actually do something positive for society and the economy.

That's what ALL tax cuts do though.

BaBaBouy's picture

"This tax cut package that is being peddled by the current administration is a scam."

E.F. Mutton's picture

"..the entire narrative is dishonest and predicated on false, make belief premises..."

They should add that line to "The Star Spangled Banner"

BaBaBouy's picture

"This tax cut package that is being peddled by the current administration is a scam."

Of Course ~ Meet the new Boss, Same As The OLD Boss ... Swump

Bulgars's picture

It is a scam indeed, but the white country side trash is going to buy anything their orange profit tells them.

Richard Chesler's picture

We have to pass it to see what's in it.
bwahahahaa..
assclowns.

HockeyFool's picture

No kidding, the Soros paid assclowns are up early today.

rcintc's picture

I have a novel idea....how about we cut spending in addition to the tax cuts?

Just a thought....

Giant Meteor's picture

" Because the entire narrative is dishonest and predicated on false, make belief premises."

This is a feature, not a bug .. a feature that encompasses the entirety of the money changin, magical bean, mark to fantasy, unicorn, usury debt system of bribery and failed socio economic / political "system" , top to bottom ..  A through Z

Other than that, disabusing of the notion that it is related only to tax cut schemes, the statement is correct ..

Cannot build a strong house on a flawed foundation. The only thing that can be built upon lies, is more and bigger lies ..

And one would think that just about EVERYBODY at this point in history would have at least caught on to the scam  ..

 

chestergimli's picture

DO NOT CHANGE THE TAX SYSTEM. Everytime (((they))) change it, it only seems to benefit (((them))). It seems like every time they make a change, it is after us goys have made the adjustment, are maybe figuring out how to make it work for us. Then they make a change that disrupts us and makes us poorer.

skbull44's picture

Governments never lie, except when they're communicating something.

https://olduvai.ca

chubbar's picture

Everyone is stepping around the elephant in the room. We currently deficit spend a trillion more than the gov't takes in with taxes and all that extra spending only gets us the anemic economy we are currently witnessing. We have a 20 trillion dollar deficit and have 200 Trillion in outyear obligations, think Social Security, Gov't & military pensions, medicaid, etc.

Does anyone have a fucking clue what happens to the purchasing power of the dollar when they print to meet these obligations? How many here really think that they will cut any of those programs instead of printing the money? Not one politician would survive the backlash of cutting those programs.

This whole concept of tax cuts is a joke, we are on the cusp of something that makes this whole debate mute. The gov't will print, the dollar will crash and the US will become a third world shithole which matches the quality of people the democrats have been inviting to sneak into this country for the past few decades.

TheReplacement's picture

That's all true and stuff but bitcoin is a scam.....

ElTerco's picture

Yes, this "tax reform" is equivalent to a $150 billion to $230 billion spending increase each year. This is 2x to 3x larger than the already enormous $80B/year military spending increase.

Jack McGriff's picture

Once again, an article from a poor wage earning debt slave who is peddling more class envy about matters he doesn't understand , to wit: the Death Tax.  Do the rich REALLY pay 40% taxes on estates worth more than $5.4 milion?  Of course not!  Would you?  There are various ways of getting around the Death Tax, and this author must think rich people are stupid enough to give all their wealth to the government!  The easiest way around the Death Tax is to jointly title assets in family members' names, then by operation of law title will vest in the survivor on the event of death and no probate or tax is required.  Dumping assets in an irrevocable trust is another mechanism since administration of trusts do not go through probate, but probably the most popular mechanism of avoiding the death tax is via the unlimited charitable contributions allowed if in fact an estate has a will to probate.  A will is usually the default means of inheritance used by poor and stupid people, but when rich people have a will, then ALL of their estate is donated to charity, most likely a charity they created int the first place and that their family controls.  You think the Jews are giving their wealth to the government?  Please, nigger!  

To think the "tax reform" is about helping the rich is foolish, even in the unlikely event it actually passes which is remote at best, the fools in congress being completely impotent.  No, it is about throwing a meager bone to the wage slaves so they won't organize and overthrow the oligarchy.   Class envy is a powerfully blinding force when manipulating the masses.  

naps8906's picture

best comment ever on here... racist? yes.  but true? yes.  US need fuckthejoos tax, where any joo making > $1M pays 99% tax.

naps8906's picture

best comment ever on here... racist? yes.  but true? yes.  US need fuckthejoos tax, where any joo making > $1M pays 99% tax.

ElTerco's picture

The "little people" have to give up all their tax breaks, deductions, exemptions.

Funny that the golf course tax break did not get touched:

https://www.bloomberg.com/news/articles/2017-11-09/one-tax-loophole-unto...

The Orange Jesus people are falling on their swords for this loser.

HillaryOdor's picture

Nice propaganda piece.  There is nothing better you can do than deny more money to the government.  Yes some people will get off better than others.  That's the nature of government power and political influence, which is why it must be destroyed.  Keep supporting taxes and coercion and you deserve what you get.  I'll never have any sympathy for you.

secretargentman's picture

The premise of this article is bad. The point we need to start from is that whenever government takes someone's money it's called theft. (obviously unless the money is gotten through fraud, etc, and the govt is actually doing it's job). Thieving LESS is never a bad thing, even if the victims of the theft are rich. 

TeddyBear's picture

I like that you made me laugh this morning swump

Swump

Swump

SWUMP

Forget all this crap give us a tax break don't worry about the flyover states we sold a lot of Bitcoin this year..

 

Antifaschistische's picture

Sven, Sven, Sven....what were you smoking?   ALL "tax cuts" have ALWAYS been a sales job.  

They're like the credit card company that offers you a lower monthly "payment" even though your balance is going up and up.

nothing really matters.

...ps, and allowing people to deduct "INTEREST" (i.e. Wall Street Scalping) has ALWAYS been a win for WALLSTREET only.  It's NEVER been a win for main street because housing prices immediately bounced upward to compensate for the deduction.

HillaryOdor's picture

All predicated on the false notion that taxes (on the rich of course, always the rich) are somehow a win for main street or anyone else.  They are not.  Taxes are theft and once you legitimize theft all bets are off.  Anything is possible because you have no principles.  So don't complain if you end up in a society like Nazi Germany.  You wanted this, a capricious democracy where anyone can get anything they want, no matter how unethical because there are no rules.  You just have to convince enough people and that's it.  That's how we're still stuck with the war on drugs 40+ years later.  Enough people want it, no matter how bad it is.

Rich people are not my enemy.  Rich people have no power over me.  Government is my enemy.  Government has power over me.

ElTerco's picture

"Rich people are not my enemy. Rich people have no power over me. Government is my enemy. Government has power over me."

This is a meme put in your head by the rich. What better way to take the heat away from their pillage and misdirect it elsewhere?

"All predicated on the false notion that taxes are somehow a win for main street or anyone else."

The chart from Lance Roberts here on ZeroHedge a few days ago showed a clear correlation between economic growth and higher taxes on the rich:

http://realinvestmentadvice.com/wp-content/uploads/2017/10/Tax-Rates-GDP...

HillaryOdor's picture

No it's a fact put into my head by logic.  No rich person can force me to do anything.  They cannot get away with inflicting violence if people refuse their demands.  Only government can do that.  And if they can then they just become the definition of government and I'll fight against that too.

Your chart is a joke, and that correlation is garbage and is not even over a very long time.  I could easily find a chart showing the opposite.  It is also affected by the fact that government has such inordinate influence over the economy, something which should not be the case.  Plus the whole thing is based on government statistics.  Give me a fucking break.   Plus the top rate is not even very well correlated with the actual amount of taxes collected.  There used to be a lot more tax loopholes.  That was the whole point of some of Reagan's tax bills, to simplify the tax code while being revenue neutral.

You can draw all kinds of false correlations from all kinds of things.  It is very easy to do.  I guarantee you I understand statistics far better than you ever will.  What you think you know is what is called confrmation bias because it conforms to what want to be true.  Why people like you want it to be true I will never fully understand.  I guess you think your saviour (the state) is out there for you just waiting until the rest of us to just submit to ever more government.  That is not reality though.  The state is not your friend and it will not help you.  It is a parasite that you are just too stupid to see.

ElTerco's picture

Who do you think owns the government now? Follow the money, and it's not coming from the voters, except indirectly through the wealthy.

And please, find a chart showing the opposite, because there isn't one. I admit, I only have a minor in statistics, but that is sufficient.

Finally, the government is a minor parasite on my wages vs the employer. Look at the amount of wages an employee receives in comparison to how much revenue that employee brings into the company. You will be shocked if you dig in to find those figures. It ranges between a multiple of two to ten times, and typical is over three to one.

Government only takes an effective 20% or so of most people's wages. The employer takes multiples of the fruits of your labor from you in comparison to the government's fraction.

govtsucks's picture

Tax cuts ARE great, but where are the spending cuts? How about the zillion military bases in a zillion countries? How about the corporate welfare? How about Obummercare? How about disability benefits? How about the alphabet soup of regulatory agencies? Govt spending is so out of control that 10% could be cut across the board without anyone even noticing (except for the deadbeat paper shufflers who would have to find real jobs).

factorypreset's picture

As you like to say: please provide evidence.  

gmrpeabody's picture

Who the hell pays estate taxes these days? Those with any kind of estate have lawyers off-shore the money.., annndd it's gone. If you don't know how, just ask a Kennedy, or a Clinton, or a Bush.

AGuy's picture

"Who the hell pays estate taxes these days? Those with any kind of estate have lawyers off-shore the money.., annndd it's gone."

Nope. They put all the assets in either a trust (Use a business and make add your family members as company officers). Use a self-funded life-insurance policy: You put your cash into a life-insurance policy since there is no taxes due on life insurance policies. There is also the IDGT (Intensional defunct Grant Trust) that uses a loophole to avoid the Death Tax. No need to offshore capital when you can use better options. This is especially true for assets that can't be off-shored (real estate, family businesses, expensive items (exotic cars, art work, etc).

The Wizard's picture

Until they restructure the financial system away from Keynesian BS, the system, in and of itself, is a scam.

RafterManFMJ's picture

Look at a chart of public debt, credit card debt in 2008; consumer credit card debt started to crater AND THIS is why .gov debt EXPLODED.

Without new debt, this fucker goes down, and goes down at exponential speeds. It is known.

Hal n back's picture

Dammit-more of this deficit bs as being real-in late 90's every year added debt-where did the money go.

its called balance sheet accounting and auditing.!!!!!

Screw them all including  the guy that wrote this because he does not understand cash flow accounting-the deficit is the debt increase-

 

curbjob's picture

Yup and for six months C suites wil take advantage of that loophole andl pay themselves billions in salary  tax free, while the national debt explodes ...

 

... offset by money printing so you'll end up spending your tax cut on $13 loaves of bread . 

Donald J. Trump's picture

The tax cuts are the main reason Trump ran for Pres.  Considering both sides of the aisle are in on the scam, it will probably be the one major piece of legislation that gets passed.  They need to watch out because like everything else the pendulum swings both ways and this will come back biting them in the ass way harder than they think.

ArkansasAngie's picture

All you gotta do is tax all forms of income the same.

The Wizard's picture

What is your definition of the term "income". Have you ever researched the statutes and regs to understand what is meant by "income".

Tom Cryer has left this earth plane for a better place. Read the last 20 pages of his memorandum at law.

https://www.truth-attack.com/jml/index.php

Anonymous_Beneficiary's picture

Bless Tommy's soul...

Someone who is still alive and shuts down IRS matters on a daily basis by challenging the very basis of the entire system...does the constitution apply to me or you because we are physically located in the US? If yes, please provide factual evidence to support this claim...

The only jurisdiction these criminals have is that which you hand them on a silver platter.

 

http://marcstevens.net/

ThirteenthFloor's picture

JFK introduces his 1962 tax cut bill. A tax cut that will reduce deficits. This produced the economic growth the US saw through the sixties, until Johnson’s guns and butter blew out govt debt.

https://m.youtube.com/watch?v=aEdXrfIMdiU

AGuy's picture

"A tax cut that will reduce deficits. This produced the economic growth the US saw through the sixties, until Johnson’s guns and butter blew out govt debt."

A tax cut would help, but it would not have the big impact as it did in the 1960's. Back than the tax rates were much higher and the debt was much much lower. 50% of the US labor force already pay no income taxes, but most are buried in debt and live paycheck to paycheck. Good paying low-skill jobs are vanishing (replaced by automation & outsourcing). Even some higher skill jobs are getting outsourced or automated.

A tax cut would help a bit, but its not going to fix the systemic problems (debt, job losses, & demographics cliff).

To be economically OK you need to either be:

1. Already Wealthly, using the prior decades to save capital and build up revenue generating assets (ie own a family business)
2. Develop a new product or service that is will be in demand (riding the Tech Wave)
3. Have a critical skill set for jobs that can't be automated or outsourced and that aren't subject to regulations that will handicap your business model.

FWIW: I saw the writing on the wall about two decades ago and I focused on my career and wealth before we entered this economic mess. I took full advantage of the Bush tax cuts to save a lot of money. I am going Galt. Currently my effective tax rate is about 60%. What's the point in working hard if the majority of my effort is going to be taken away? I am switching my effort from making money to making a decent homestead.

Buck Johnson's picture

I totally agree with this article.

 

Rubicon727's picture

Better idea: Tax the HELL out'a the rich like FDR did during The Great Depression. What was it? He taxed them at an 80%-90%. That would literally FIX the economy.

The bastards!

ClickNLook's picture

Who would implement this idea?

The rich own the Congress, the president and JD.

all-priced-in's picture

So no FICA taxes? No income tax withholding?

 

So do you also stop sending out SS, disability checks and kill all Medicare payments?

 

You would have to change the tax law - just stopping income tax withholding doesn't cange what people will owe -

 

Imagine the total cluster fuck come April 15, 2018 when almost everyone in the country has several thousand dollars of unpaid taxes that are due instead of a few hundred dollar refund.

 

I like it.

 

 

 

 

GlassHouse101's picture

There's just one problem, these Republicans WANT BIGGER GOVERNMENT, AS WELL.

Grimaldus's picture

That makes them progressives.

And:

To have a crime, you must first have progressives.

 

True founding father consitutional conservatives were all about limited government and limited taxation.

There is nothing even remotely American about the current FEDGOV. Nothing.

 

 

 

 

 

 

 

 

 

 

 

 

 

Grimaldus