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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buzzsaw99's picture

it just doesn't matter.  i do have a question though.  if this tax plan has a snowball's chance in hell of passing then why is zh trying to scare us into selling our stocks?

LawsofPhysics's picture

yes, the song remains the same...

"Full Faith and Credit"

 

1 Alabama's picture

what the probate fraud and corruption song? Yeah that was cool tune, was.

Beowulf55's picture

WHAT'CHA GOIN TO DO ABUT IT?

SmackDaddy's picture

I want to hear the government spending reduction plan.

buzzsaw99's picture

that's the funniest thing i've read in days.

attila404's picture

I want to hear the government cut Welfare. All of it.

chestergimli's picture

It’s a good idea to cut welfare out but considering the amount of people who get EBT cards, they must get a lot else too. The consumption of goods and services including rents paid would put a big big dent in the economy. The US economy would TANK BIG TIME. So you see fellow citizens, we are between a rock and a hard place.

We all need to look at the forest instead of the individual trees if we are going to save ourselves. The tribe sure does. All citizens should work to get rid of any and all monetary systems. As the Bible says, the mountains shall be leveled and the valleys shall be raised. In other words, all people will be about the same. There was a, I believe, a Congressman-don’t remember his name who stated before the Congress, we will have world government whether or not you like it. I think he was wrong. I believe the eternal Father is saying, I will destroy your monetary systems whether or not you like it.

Bill of Rights's picture

Work less pay less spend less want less...Fuck the system.

attila404's picture

"Get Republicans and Democrats together to work something out"

HAHAHAHAHAHAHAHAHAHA. I stopped reading right there. You are so silly.

aloha_snakbar's picture

If you like your tax cut... you can keep your tax cut...

Harry Lightning's picture

You don't need a ten pager t understand the problems with this tax bill. I will make it short and sweet :

1) There is no need to give the largest companies in the country a huge tax cut when their profits and stock prices are at record highs. The argument about tax rates is nonsense because of all the deductions and write-offs these companies get. Instead, these companies should be made to pay the first six months of health care premiums for every person they lay off, so that there can be affordable health insurance in America.

2) If you want the trillions of corporate profits sitting offshore to repatriate, charge the companies that have the profits a higher tax rate on those profits than what they will pay to repatriate. That will get America the taxes it wants on those profits. 

3) Stop lying that companies wll leave America if the taxes are too high. The taxes in America after decuctions are in line with most other nations, and being an American company has huge advantages to market and to capital. They are not going to leave even if you increase their taxes.

4) Stop lying about the trickle down, the only jobs big companies make in America are the ones that no one else can do, and that will not change if the tax rates change because the labor rates still favor overseas labor.

5) There should be no estate tax. Period. That money already was taxed when it was earned.

6) The wealthiest Americans were able to take advantage of free money from the Fed for the last nine years, so the money they paid in their margin accounts was nothing compared to the gains they made in their stock market accounts. But hardly nothing was done for anyone else. The government should cut tax rates for middle class families without ending deductions. The dedction for all interest expenses should be re-instated if the government is not going to implement policies that would promote wage equality.

Most Americans cannot open a bank account with Goldman Sachs even though the company is a commercial bank. This tax bill benefits their clients, whch are not most people. The bill should be voted down, and a better bill that sends the tax savings to middle class consumers should be the one presented.

moorewasthebestbond's picture

Your tax dollars... hard at work bombing women and children around the globe.

 

Not mine.

the6thBook's picture

Stop reading after "estate tax"...  The government should NOT get to rob you just because you are dead.

44magnum's picture

WHY? They get to rob you while your alive. Your labor is their income something seriously wrong with that.

Redneck Makin-tosh's picture

If Gates + Bezos + Buffet + 1/2 US population = 7.5 Saudi princes,

how many americans need rounding up to reduce taxes to middle eastern levels?

Umh's picture

The point of statistics is to provide clarity, but it only does so for those people that understand statistics.

AurorusBorealus's picture

Yes but right wingnuts in the U.S. have been programmed by the elites to scream hell if the government meddles with the earnings of the wealthy: "redistribution," they cry, "socialism," "get the gubmint out of my life."  Well... the truth is that the Republicans are very happy to put the government very much in YOUR life, ala spying, police confiscations, and so forth.  The Republicans, however, are very much opposed to bothering the elites with government at all.  In fact, they ensure that the government bails out Wall Street every time the elites get in trouble.  The Republican party has been and always will be the party of the very rich, and billionaire Donald Trump is not going to change that.  He is not a populist.

The Trump cabinet is run by war-mongering generals and Goldman Sachs con-men.  There is no MAGA.  You have been conned, and the obsession of Ann Coulter and others with "the wall" is playing right into the hands of the elites.  A wall changes nothing... nothing at all.  The Mexicans are not your enemy... Wall Street is.  When will the American people wake up?  The answer is... never.

Colonel's picture

"The Republican party has been and always will be the party of the very rich, and billionaire..."

Wait, how did you forget to include the democraps too?

TheLastTrump's picture

It must have been a fucking oversight.

red1chief's picture

Those who disagree with pumping more wealth to the top are "Libtards" and "RINOS". Their paid trolls repeat it often, but it's having less effect as this latest plan doesn't even give the sheep more than crumbs in exchange for massively expanding the national debt.

Pickleton's picture

OF course, you're the imebciles screeching like little retards about the rich getting to keep more of THEIR money.

Grimaldus's picture

Progressives have been in control since before 1900.

There are absolutely zero true American founding father type constitutional conservatives around anymore, 'cept maybe Ron Paul.

 

You can see the un-American progressive boot of tyranny increase it's pressure on the necks of American citizens since then, painfully clear and obvious.

 

 

 

 

 

Grimaldus

 

Colonel's picture

What does "HR1" stand for in the CNBC federal debt chart? Hopefully not for Hillzabub!

Sliced into ribbons's picture

House of Representatives bill #1.

ClickNLook's picture

Who are they representing - that's the question.

bullybear's picture

Why is there a flat tax for corporations but a progressive tax for individuals? Wait... I think I just figured it out.

Umh's picture

Why do you think we have a progressive tax on individuals? Some call it social engineering. I think the whole aggregation of taxes is mostly to confuse people.

GotAFriendInBen's picture

 

How dare they accuse Citrus Jesus of trying to pull a fast one

Remove this blasphemy at once!!

TabakLover's picture

Big Corporation and Wall Street are crooks.  Always have been, always will be.  If you think anythng else, you have your head up your ass.

csmith's picture

Please tell me how "trickle up" economics works? When you have homeless people running their own businesses and hiring people, let me know.

Deep Snorkeler's picture

Our woefully uneducated populace

is easily bought and taken by misdirection

and trinkets.  Americans, as consumers,

voters and taxpayers, are obese prey.

rejected's picture

For once I have to agree with you.

I almost vomit walking around them in Wally World.

Completely ignorant,

mc888's picture

The "2 big lies"?

1) negotiating tax cuts without decreased spending

2) discussion of "encouraging savers" without ending ZIRP and the Fed

GRDguy's picture

And the lyin' and stealin' simply continues. 

Gobble D. Goop's picture

Hegelian Dialectic at its finest.  Control both side of the argument, and they win.

The real argument not allowed in this dialectic is that taxes on wages and salary is ILLEGAL.  UNCONSTITUTIONAL.  

Income by definition is profit as a result of doing business, stated in the tax code.  My salary doesn't fit in that definition.  

Remove the individual tax completely so the citizenry can afford to by the products the corporations produce.  Then tax the corporations profits.

Tariffs IS constitutional. Personal "income" tax is not.  

Take the arguments back from the PTB folks.  Just like calling my republic a democracy.  Stupid, stupid, stupid to let them control the argument AND the definitions.

That's my two cents.  (if the gubermint don't take that too)

TheLastTrump's picture

THAT was a good post, thanks.

Grimaldus's picture

^^^THIS^^^ +1000

 

 

 

 

 

 

Grimaldus

 

Ignorance is bliss's picture

The income tax is an abomination to the American worker. Abe Lincoln may have wanted to free the blackman but ended up enslaving us all.

n 1862, America was in the midst of a civil war. Abe Lincoln thought that this would be a quick and painless war, but it turned out to be long and bloody. President Lincoln had left the gold standard and started printing money (greenbacks) out of thin air to finance northern government. This caused inflation in the dollar supply. So on July 1st 1862, they passed the Internal Revenue Act of 1862 (which was a revision of an earlier flat rate income tax passed in 1861) to combat inflation and finance the war.

rejected's picture

Abe Lincoln may have wanted to free the blackman but ended up enslaving us all.

LOL....Everybody buys into today's governmenr school propaganda.

Abe didn't give a hoot about the slaves.... said so himself.

Colonel's picture

Abe had to create slavery to free slaves. Hat tip: Dubya

wisehiney's picture

The plan.

Feed the rich.

Feed the illegals and hoodrats.

Kill the honky in the middle.

PodissNM's picture

"Wealth inequality is real"

Yes, Equality is false.

rejected's picture

The tax cut scam,,,, No kidding?  All taxes are a scam.

TheLastTrump's picture

I just walked on sidewalks & roads that taxes paid for...felt pretty fucking solid & non scammy to me!

 

I like my nice clean well run American small town. I bet Mexicans don't pay very much in taxes, but then again, Mexico is a fucking shit hole.

Colonel's picture

"I bet Mexicans don't pay very much in taxes, but then again, Mexico is a fucking shit hole."

Still!? What happened to all those billions that are Western Unioned back there?