The Republican Tax Plan Is Very Swampy

Authored by Mike Krieger via Liberty Blitzkrieg blog,

Unsurprisingly, the Republican tax plan moving forward in the U.S. Congress and championed by Donald “Drain the Swamp” Trump, is very swampy.

Today’s post will highlight a few examples.

First, let’s hear some of what billionaire fund manager Jeffrey Gundlach had to say. Via Bloomberg:

Jeffrey Gundlach, chief investment officer of DoubleLine Capital, said the congressional tax plan would expand the federal deficit and help a small fraction of the U.S. population, including hedge fund managers.


“I’m very disappointed incidentally about the shape of this tax cut that is being proposed,” Gundlach told a gathering of industry participants at the Drake Hotel in Chicago on Wednesday. “I am just appalled that we are going to continue to have a carried-interest scheme for hedge funds.”


The House bill set to be voted on Thursday keeps the carried-interest tax treatment that benefits private-equity managers, venture capitalists, hedge-fund managers and certain real estate investors. During last year’s campaign, President Donald Trump had vowed to get rid of the loophole. White House top economic adviser Gary Cohn has said Trump is committed to ending the tax break.


“After I saw that tax bill, I lost hope with the drain the swamp concept,” Gundlach said. “The swamp keeps getting bigger.”


Carried interest is the portion of a fund’s profit — usually a 20 percent share — that’s paid to managers. Currently, tax authorities treat that income as capital gains, making it eligible for a rate as low as 20 percent. The top tax rate for ordinary income is 39.6 percent.


He called the tax plan “a cosmetic tax decrease for the middle class that will go away over time.”

Of course, none of this is really surprising. Donald Trump’s been a Wall Street bootlicker ever since he came into office, just like Barack Obama before him.

But there’s much more swampiness to be had. For example, there’s the fact that the corporate tax rate cut is permanent, while the individual cut is temporary. From the Los Angeles Times:

A gambit by Senate Republicans to make a large corporate tax cut permanent by having benefits for individuals expire at the end of 2025 created new problems for the legislation Wednesday as lawmakers were still grappling with the controversial decision to add the repeal of a key Obamacare provision.


The decision by Republican leaders to double down on risky maneuvers to overcome budgetary hurdles with their tax overhaul threatened to put the entire effort in jeopardy.


Sen. Ron Johnson (R-Wis.) declared he would not support the bill because it treats large corporations differently than many small businesses, which pay taxes through the individual code.


“If they can pass it without me, let them,” Johnson told the Wall Street Journal. “I’m not going to vote for this tax package.”


He later said he hoped “to address the disparity so I can support the final version.”

Here’s some more on what Ron Johnson’s complaining about, via CNBC:

Johnson said he’s been working for months behind the scenes to make changes, but he added that he’s not going to let his “version of perfect” sink tax reform. “I want to get this thing fixed, and vote for pro-growth tax reform that makes all American businesses competitive globally,” he said. “I care deeply about this country, I care deeply about this deficit.”


As a former small business owner, Johnson said he’s particularly concerned about the so-called pass-through rate, in which the profits and losses of sole proprietorships, partnerships, and S-corporations “pass through” to their owners who are then taxed at individual income-tax rates, currently as high as 39.6 percent.


“We can’t leave anybody behind, which is why they came up with the 25 rate for pass throughs,” he said. “The problem is, neither the House or the Senate version really honored that commitment to pass-through businesses, which I argue are a huge engine of economic growth.”


“I don’t have the information on how much it would cost, how many pass-through businesses are being left behind that do compete globally. I can’t get the information. I’ve been asking. They don’t give it to me,” said Johnson, chairman of the Senate Homeland Security Committee.

Moving on, if you’re still in denial that this “tax reform” was written for oligarchs and mega corps, take a look at the reaction of former Goldman Sachs executive and Trump’s White House Economic Council director, Gary Cohn, when his audience of corporate executives were asked a simple question.

As Zerohedge perfectly summarized:

The eagerness to shift incentives away from buybacks to capex is also the basis for much of Trump’s economic policy as designed over the past year by his top economic advisor, former Goldman COO Gary Cohn who is the White House Economic Council director. In fact, the motive behind the administration’s entire push for tax reform (cutting corporate tax rates) and offshore cash repatriation, is to the funds domestically, though not on buybacks and M&A (which also leads to “synergies” and other headcount reductions), but on reinvesting the funds in growing one’s business and hiring.


Which is why we were amused to observe the following brief interchange yesterday between Gary Cohn and an audience made up of executives, where in the span of a few seconds Gary Cohn realized that his entire economic policy had been a disaster.


During an event for the Wall Street Journal’s CEO Council, an editor at The Wall Street Journal asked the room: “If the tax reform bill goes through, do you plan to increase investment — your company’s investment, capital investment?” He asked for a show of hands.


Alas, as the camera revealed, virtually nobody raised their hand.


Responding to this “unexpected” lack of enthusiasm to invest in growth, Cohn had one question: “Why aren’t the other hands up?"



Ironically, Cohn’s epiphany took place just as tax reform is approaching the final stretch in Congress and it increasingly appears that at least some form of corporate tax cut will be enacted. We say ironically, because the only thing Trump’s reform will achieve is to dramatically accelerate recently slowing buybacks, which in turn will push stocks to new all time highs as price-indescriminate CFOs and Tresurers tells their favorite VWAP trading desk to just “wave it in.” Which means that the White House paper suggesting corporate tax cuts will boost household income is correct… if it focuses only on the incomes of the richest 1% of households.

Don’t despair, I promise there’s something in there for the average joe. For instance, after years of repression, owners of private jets will finally get that tax break they desperately need.

The Hill reports:

The latest version of the Senate Republican tax reform bill includes a break for companies that manage private jets.


A measure in the Tax Cuts and Jobs Act would lower taxes on some of the payments made by owners of private aircraft to management companies that help maintain, store and staff those planes for owners.


The language would exempt owners or leasers of private aircraft from paying taxes on certain costs related to the upkeep and maintenance of the jets, according to a description from the Joint Committee on Taxation.

I know, Congress sells out to special interests pretty cheaply. Fortunately, Rep. Joe Barton of Texas is looking out for the plebs.

Meanwhile, a recent Quinnipiac showed that this oligarch giveaway isn’t particularly popular. How surprising.

The WSJ reported:

In a new Quinnipiac poll, 25% of American voters approve of the Republican tax plan, compared with 52% who disapprove.


Among Republicans, support was 60%.


President Donald Trump has cast the tax plan as a boon to middle-class households. Nearly 60% of American voters in the Quinnipiac poll believe the Republican plan favors the rich at the expense of the middle class.


About 24% of American voters say the middle class will mainly benefit from the tax plan, while 61% say the wealthy would be the primary beneficiaries.


About 36% of voters believe the tax plan will propel economic growth, while 52% don’t believe it will.

But here’s the best part. Former Goldman Sachs partner, Steven “Let them Eat Cake” Mnuchin, doesn’t want to hear it.

Asked whether Senate Republicans have 51 votes to pass the bill as it stands, Mr. Mnuchin said, “I am confident we are going to get this passed in the Senate.”


Mr. Mnuchin brushed aside suggestions that the bill is unpopular, refusing to comment on a Quinnipiac poll showing 16% of voters believe the bill will reduce taxes.


He also said “virtually everybody in the middle class will get a tax cut,” and that only “people who are making more than $1 million in high-tax states who will be making more.” Even people in high-tax states would reap the benefits of a lower corporate tax rate and other changes meant to help businesses that will boost economic activity, he said.

Guess he missed the recent video of his buddy Gary Cohn.

The more people learn about this monstrosity, the less they like it. Unfortunately, by that point it’ll be too late.

You lose again America. Make Wall Street Great Again.

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Caloot XqWretch Fri, 11/17/2017 - 17:59 Permalink

This tax plan fking sucks for middle class and small business owners.  Do most middle class businesses owners own stawks?   Fk no.   They own a house.   It's their biggest investment, and being able to exclude capital gains on two year ownership allows them to interact with the housing bubble, and keep afloat in the markets they can't afford to participate in, and profit with the only investment they can afford.  Pushing that to 5 years fking sucks.  By the time they clear the five years they could see all profits vanish in a pop. And do they end 1031, of course not. That would pop a housing bubble on upper class speculators.  So fk the little guy with no problem for the speculator.   And double the standard deduction to 25k or whatever it is?. What a fking joke.  Anyone where 12k addition to the standard deduction actually matters, gets a fking refund and doesn't pay a dime anyway. Own a business and that doesn't come close to itemized deductions, but then remove huge deductions that we use?   So really my taxes go fking up.   What a joke piece of shit garbage bucket.

In reply to by XqWretch

buyingsterling dasein211 Fri, 11/17/2017 - 20:02 Permalink

Sorry, folks, but the bulk of the population isn't weeping because people can only write off the first half million of their mortgage interest. As for SALT, remember the unshakeable economic principle of taxation: you get less of whatever you tax more. In time, the socialist states will have to adjust their immigration and welfare policies and institute more competition in health care, or they will fail (faster).Best of all, this benefits the red states and not the blue states, overall. That reverses a long trend.

In reply to by dasein211

MK13 The Jaguar Fri, 11/17/2017 - 20:02 Permalink

It's a freaking tax cut for 80% of people, 90% of people in blue states. Yes, people paying more benefit more.

Ultimately it's about cutting corporate tax rate, especially small business. That's economic growth engine of the country. It's a groin kick to socialist EU because its corporate taxes are generally much higher.

In reply to by The Jaguar

NoVa XqWretch Fri, 11/17/2017 - 17:27 Permalink

I'm a 6 digit W2 only, Trump supporter  in Blue VA. I'm getting SCREWED. Congress needs to cut Federal spending and convert our tax formula into a Greater Of  the new higher deduction for fly over states or deductible income prop taxes for minions like me. NoVa  

In reply to by XqWretch

greenskeeper carl NoVa Fri, 11/17/2017 - 18:19 Permalink

These fuckers are so dishonest, on both sides. The right gets itself elected promising to lower spending, and does fuck-all about it once in office. I want EVERYONE to pass less in taxes, accompanied by big spending cuts. One place the alt-right, libertarians, and the left can agree on - stop the overseas military nonsense. We waste so much money trying to control every trashcanistan over there that COULD fund tax cuts for every single person with a job. Same with that shit in Africa. Trying to unfuck that place is the definition of a fools errand. Not worth the lives or money, not our problem. The idea that we can't keep AMERICA safe spending, lets say, what Bush II spent his first year in office (about 300b, or half what we spend now) is absurd. If the people in charge say it can't be done, fire them and find someone who can. That 300 billion by cutting the bloated military budget in half would easily fund a real tax cut for everyone.

In reply to by NoVa

chestergimli MK13 Sat, 11/18/2017 - 10:03 Permalink

I might say that I would rather pay say an extra 150.00 in taxes every month for universal heath care than I would be paying say 3000.00 in insurance charges for Obama care. Instead of hordes of little individual insurance premiums for many different insurance companies, it would all be taken care of at one central location. What’s that saying in nature-there’s safety in numbers. It would also take care of some of these money gouging doctors and hospitals. I’ve seen and heard of some of these bills-OUTRAGEOUS.

In reply to by MK13

44magnum Fri, 11/17/2017 - 17:14 Permalink

Man doesn't matter how much of a kosher douche you are if you have fed notes you get prime grade A females. Look at that putz then look at her.WTF

Tugg McFancy 44magnum Fri, 11/17/2017 - 17:45 Permalink

I was about to agree with you and say "she's pretty hot for an old broad" assuming she was about 46.Then I went and took a look, she's fucking 36!Typical botox face. Either way, she's just for public show. You know guys like Mnuchin are visitors to private islands. You look at his involvement with Relativity Media and it's a who's who of perverts, creeps and scam artists who are currently or about to be exposed. 

In reply to by 44magnum

pound the vix Fri, 11/17/2017 - 17:14 Permalink

Do these jackasses not know that corporate earnings are taxed at 20% under the proposed bill and then taxed again at 23% at the individual level when the dividend is issued??? As an individual small business the earnings would be taxed once at between 10% to a max 38.5% depending on income level So 43% vs max 38.5% Are you lying or just dumb

Endgame Napoleon pound the vix Fri, 11/17/2017 - 17:37 Permalink

It said that partnerships and sole proprietorships “passed through,” getting taxed just at the individual income level. I did not see that before.

That will help small businesses, but the fact remains that most small businesses and 1099 contractors suffer more from the 15% SS taxation rate than the income tax rate since net income is often modest.

Okay, so, the reason why the show of hands was small from the corporate guys is clearer from your comment.

In reply to by pound the vix