Tax Bill Adds $1 Trillion to Deficit (Without Cutting Taxes for Most)

Mish

Nonpartisan analysis, from several places, shows the Senate tax bill will all $1 trillion to the deficit. What's next?

The stock market surged today on news that Senator John McCain would vote for the tax package. As it stands, however, the bill does not come close to passing budget rules.

Automatic tax hike triggers is one option if the bill does not bring in the anticipated revenue. And here's an advance hint: It won't. However, tax triggers may very well happen in the middle of the next economic downturn. And Republicans are loathe to pass tax hikes under any circumstances.

Deficit Fiasco

Please consider The Senate’s Official Scorekeeper Says The Republican Tax Plan Will Add $1 Trillion to the Deficit.

Senate Republicans’ $1.5 trillion tax cut would not “pay for itself” according to a report released on Thursday by the nonpartisan Joint Committee on Taxation. The report is a significant setback for Republicans, who have asserted that the tax cuts would grow the economy enough to cover the cost of the plan.

Plan Will Not Pay For Itself

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Other Models

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Senate Bill Estimates

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House Bill Estimates

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Tweet Deleted

It's truly a joke (and a bad one at that) for Republicans to announce the bill had passed when it hasn't.

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The Hill reports the Tweet was deleted.

GOP Scrambles for Deficit Offset

The New York Times reports G.O.P. Seeks More Offsets After Analysis Says Tax Bill Adds $1 Trillion to Deficit.

• Republican Senators are considering raising some taxes down the road to help offset the deficit cost of their tax bill after the Senate parliamentarian rejected the idea of a trigger that would have automatically increased taxes if revenues failed to cover the cost of the cuts.

• The Joint Committee on Taxation said that economic growth from the tax cut will only offset $407 billion of the $1.5 trillion cost over the next decade. The analysis complicates the Republican argument that the tax bill will essentially pay for itself.

• Senators debated whether to send the bill back to Senate Finance Committee over concerns about the deficit impact, a move that would have halted the bill and possibly killed it. Republican senators ultimately all voted to proceed, setting the stage for a full vote at some point.

• Though Republicans sound optimistic, party leaders still do not have firm commitments from enough senators to ensure the bill will pass.

Tax Reform?

This bill does not reflect tax reform. It does not even lower taxes for most people.

And to address the budget concerns, Republicans are actually debating reinstating the alternative minimum tax, or A.M.T., on C-corporations and some high net worth individuals.

Senator Sue Collins may be the deciding vote.

“I want to see what the trigger is looking like. It’s gone through several iterations and it’s still under negotiation,” said Collins.

One Problem

"The Senate parliamentarian said the so-called trigger mechanism is not allowed in the bill."

And why should it be? Proposals to do something later amount to nothing. Sequester history proves just that.

A Reminder

The New York Times offers this reminder: "If the Senate passes its tax bill, it will need to reconcile the differences with the House version before a final bill can be sent to Mr. Trump."

Required Growth Will Not Happen

Bear in mind, not even 4% sustained growth (a 0.5% likelihood in my estimation) will allow for the bill pay for itself.

McConnell says an extra 0.4% will allow the bill to "pay for itself".

Here is more believable analysis:

Kent Smetters, a former economic adviser in President George W. Bush’s administration, who is now the faculty director of the Penn Wharton Budget Model at the University of Pennsylvania, calculates that the actual growth needed to offset the cut would be 0.57 percent a year, or 5.7 percent over a decade, under a conventional method of scoring tax plans (the so-called current policy baseline).

He explained in an email: “The 0.4 percent value was calculated using the current tax system, which has a larger tax base than the new tax system after the cut. Instead, to figure out how much growth is needed for the tax cut to pay for itself, you need to start with the new tax base and ask how much must it grow to avoid any additional deficit.”

Tax Trigger

Not only is the tax trigger against Senate rules, Republicans are lining up against a trigger if it is included.

“I think the trigger idea is idiotic,” said Representative Trent Franks, Republican of Arizona.

Middle Class Tax Hike

By 2027, only those making more than $100,000 a year gain from reform.

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Hopefully this bill dies one way or another.

It may come down to Collins, Corker, or the Senate Parliamentarian to derail this mess.

As I said in Tax Reform or Tax Perversion? ....

By no perverted stretch of the imagination can one call this monstrosity "tax reform." I propose starting over.

Mike "Mish" Shedlock

Comments (23)
No. 1-23
lol
lol

1.5 trillion over 10 yesrs lol,DC burnin through cash at record settin pace,2 trillion in the red in in 2018,want to try for wait for it.......3T in 2019!Trump regime has brought a whole new meaning to deficit spending,this uncharted territory and not in a good way

2banana
2banana

We could always cut spending...however

17% of Federal spending is defense
70%+ of Federal spending is on entitlements
6%+ is on the deficit

When one party is the party of the free sh*t army and must have their votes for power. Deficits don't matter either.

2banana
2banana

"Trump regime has brought a whole new meaning to deficit spending,this uncharted territory and not in a good way"

Obama added $10T to the deficit in EIGHT YEARS. more than EVERY other administration in history COMBINED and accounting for inflation.

El_Tedo
El_Tedo

I’m shocked McCain is a yes on this mess. Corker & Collins aren’t enough to stop it, Pence would be the tie breaker. And, they’re in a big hurry in case Alabama goes blue on December 12.

CzarChasm-Reigns
CzarChasm-Reigns

"And you may ask yourself" (Talking Heads)..."cui bono?" (who benefits)...from this so-called "tax reform"........"Trump Says G.O.P. Tax Bill Won’t Benefit Him. That’s Not True" (Title)...and link: https://www.nytimes.com/2017/11/30/business/trump-benefit-tax-cuts.html

2banana
2banana

So your logic is that a billionaire who takes a massive pay cut to become president in order to one day get a tax cut package passed in order to save some taxes?

He should have just set up a "Foundation" and accepted billions in "donations" - much easier and quicker.

CzarChasm-Reigns
CzarChasm-Reigns

2banana, "you talking to me"? If so, I didn't say that. I'll just quote the end of the article referenced: "his personal interests align with one of the country’s most powerful lobbies."
“Real estate interests are very powerful when it comes to the tax laws,” Mr. Holtz-Eakin said. “They’ve got bipartisan support, and it’s been that way forever.”

Realist
Realist

As far as I can see: Democrats tax and spend, while Republicans borrow and spend.

CzarChasm-Reigns
CzarChasm-Reigns

The Realist "gets it". It should go without saying. But I wanted to be the first.

truthseeker
truthseeker

Off Topic: How long will it be till bitcoin speculators realize that long before Sunday evening Dec.10 when the CME begings trading bitcoin futures, liquidity for sellers will be gone with the wind!

Advancingtime
Advancingtime

We would be far better off if the term austerity was replaced or renamed sustainable spending. An article that was published several months ago on Project Syndicate by James McCormack titled, "The Quiet Demise of Austerity" states the merits of austerity seem to have been forgotten just when it is needed again.

The article below argues that at all times conduct business and run our government with responsible reigns on spending. If a government spends and runs its business in an austere way the issue of when to start cutting or tightening should never surface.

http://Austerity Should Be Renamed Sustainable Spending1.html

KidHorn
KidHorn

There will be no economic growth at all from the tax cuts. Savings businesses get will be used for share buybacks and/or dividends. Little of it will be reinvested back in the business. And the little that is reinvested will go towards automation or moving to cheaper locations. So the tax plan may actually case economic contraction. The current effective corporate tax rate is 18.6%, so there will be no savings at all for many businesses.

themonosynaptic
themonosynaptic

As far as I can figure out, you need to be earning at least $250K and have over $1M in investments to benefit from this tax bill. Also, there seems to be some tinkering with the CPI calculation to lower it by 0.3% to lower social security spending and tax bracket increases.

DBG8489
DBG8489

At some point, the rubber of reality will meet the road of fantasy and everyone will finally realize that they've been sold several super-tankers loaded with snake oil.

There is no such thing as "free" money. You can't just "print" it - even if by "printing" you mean creating money on a digital balance sheet that is backed by future debt payments.

Yes, it will work for a while - perhaps a very long time. However, the problem with many things like this is that it works so long that those who designed and engineered it are no longer around. And the documentation was sketchy because let's face it - the builders weren't going to just tell everyone that their little system was limited - at least not on paper. On paper, everything was designed to work forever. Any information to the contrary would be passed on as an oral history.

DBG8489
DBG8489

So after a decade or two, the designers are no longer around and a new crop of engineers - who don't know the oral history - see the design on paper and believe it - because that's what they were taught in school and they don't know any better. So they begin to create other programs - social programs, pension plans, government-backed mortgages, loans to foreign countries with stipulations that they spend most of it on US goods...stuff like that. All of this is based on the theory that as long as they keep creating debt that pays back what they're creating - it's all good. And in a system like that - if it really worked - government deficits wouldn't matter. Money is essentially free.

It isn't. It's not different this time. It isn't a new paradigm. Anything that can't go on forever will not. Eventually there will be no growth. It will happen "Gradually, and then suddenly." - Just as Hemingway wrote in the sun also rises. We will wake up one day and find that the engine of our world has seized beyond repair.

WhirledPeas
WhirledPeas

"Deficit spending is plain and simply confiscation of wealth." Allen Greenspan, 1966.

RonJ
RonJ

"Required Growth Will Not Happen" Especially considering we are closing in on the next recession.

FrankBrady
FrankBrady

All of the Sturm und Drang about the Tax Bill is Kabuki theater, designed to draw attention away from the fact that neither the Republican or Democrat branch of the Washington Party have any intention, now or ever, to reduce Federal Spending to the levels required to support its constitutionally mandated functions and eliminate spending for those functions that are constitutionally forbidden. Anyone who pays the slightest attention to this farce is contributing to its survival. The entire bunch of political prostitutes should be removed from office. We need a reset.

Maximus_Minimus
Maximus_Minimus

Deficits don't matter, but you will have to resurrect Reagan to ask him, what he meant.

Moriarty
Moriarty

Who cares? Cheney was 100% correct: deficits don't matter. Not when you have the reserve currency, the largest military and nuclear arsenal in the history of the world to back it up, and colluding central banks putting the interests of the system over the interests of their respective people. The Dow will be 40,000 within 1-2 years. Just hold your nose and buy every single dip.

Stuki
Stuki

Looks like “Automatic Triggers” is the latest scam promoted to get the indoctrinati to pump their fists with excitement: The GOP gives McCain a trillion-dollar toy army without a way to pay for it, except for “triggers” that supposedly raise taxes if the Dems win. Conversely the Dems and their next war on some make believe bogeyman, as well as sanity itself. Of course, the then reigning congress can cancel the whole trigger mess, because it’s, like, uh, mommy! I don’t want toooo!!! And my ventriloquist that has a credential says stimulate!!

Maximus_Minimus
Maximus_Minimus

What margin calls? The stock market and bitcoin chase each other which will reach 30,000 first.

truthseeker
truthseeker

Off Topic:Next week could b very volatile for bitcoin since at the end of next week Sunday night Dec. 10 the futures market for bitcoin structured like the crude oil market, will begin trading on the CME which at some point add liquidity to the market. In anticipation of this event , there will be dramatic moves in both directions. At first I expected those with very deep pockets will move together to program their machines to hammer bitcoin down as much as 50%, but that’s what everybody thinks. So they may shove it way up to bring in new buying before the hammer takes it down a lot!


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