He promised ‘We the People’ tax reform during the campaign and as president Donald Trump delivered when on Friday December 22, 2017 he signed the ‘Tax Cuts and Jobs Act’ into law. A true Christmas president to the American people…a Christmas present promised by others but never delivered.
And as expected the act was voted along party lines…51 to 48 in the Senate and 224 to 201 in the House but with 12 Republicans congressmen from the high-tax states of California, New York and New Jersey joining all the Democrats in both houses voting no. Claiming that taxpayers who itemize will be hurt by the legislation’s cuts to the state and local tax deduction, what the naysayers failed to see is the overall positives of this new law…positives as in a much needed simplification of our tax system; the fact that billions of dollars of working capital and corporate profits now in accounts outside the U.S. coupled with jobs will be returning to our country; and the U.S. dollar will be greatly strengthened.
But none of those positives matter to the Democrats… Democrats led by the likes of Nancy Pelosi and Chuck Schummer…as tax cuts for ‘We the People’ means less monies they will have to buy, barter, or make promises to illegals in exchange for the votes.
Now let’s touch upon but four key grievances relating to the ‘Tax Cuts and Jobs Act’ that Democrats are up in arms about. And know these four are but many as Democrats will always whine, stamp their feet, and never vote for anything the Republicans propose no matter how much it benefits ‘We the People.’
First out of the Democrats bag of tricks comes their usual never ending rhetoric about how the Republican tax cuts will raise both the national debt (also known as the public debt) and the federal deficit. Claiming that the ‘Tax Cuts and Jobs Act’ will raise the federal deficit by hundreds of billions of dollars over the next decade, what they and so many others forget is that the deficit itself allows for a shifting of numbers on paper. How so…because with the deficit being just the difference between what the federal government spends (outlays) and what it takes in (revenues) the deficit becomes simply I.O.Us. of sorts and also but a small portion of the annual federal revenues. And with the corresponding national debt being the direct result of the federal government borrowing money to cover the many years of budget deficits…especially the deficits created by eight long years of Obama’s totally out of control spending…it still is relatively easy to shift monies back and forth between departments to skew the numbers with none the wiser.
A vicious cycle for sure but not insurmountable for with the federal government having a central bank of which to manipulate…if you will…the economy, the currency, and interest rates, we still have more than enough tangible “treasure” to allow, if not outright encourage, a shifting of those numbers…basically being financial flexibility to deal with these I.O.U.s. However, what ‘We the People’ are not privy to is the logistics of exactly how that numbers shifting is done, especially since the feds have the right to actually issue new debt and refinance old bonds at better terms and rates when the economy is slowing and interest rates are falling. Amazing isn’t it.
In other words, while a booming economy is a good thing it’s only a good thing as long as it’s kept somewhat in check by not allowing said debt to exceed the ‘debt to GDP ratio’ (the total value of goods and services our economy produces). In fact, in fiscal year 2016 with the GDP being $18.6 trillion and with the interest we paid on said debt being $233 billion, which translated into just 6.1% of the national budget, and with the federal revenue being $6.13 trillion (as in the sum of individual income taxes, business income taxes, and other tax revenues the feds collect over a given year), the debt number was not just sustainable but even manageable as we were not then nor are not now in the throes of a financial crisis no matter what the Democrats or even some Republicans say.
Remember, total revenue grows as the GDP grows while in an economic downturn revenues logically decrease becoming of key importance only when total revenues are compared to government spending. For example, if government spending increases at about the same rate as economic growth and if the ‘total revenue to GDP ratio’ remains on an even level especially if the overall size of the government stays about the same in proportion to its economic activity, then all basically remains status quo.
However, if spending growth outpaces increases in total revenues, the government will eventually be forced to borrow more money, raise taxes or…heaven forbid…cut their spending. But Trump’s new tax law will help increase revenues by bringing large corporations back to America which in turn will put more people back to work and also afford folks to ability to keep more of their income…income they will put back into purchases which in turn directly feeds economic growth.
And so as long as the national debt does not exceed the aforementioned ‘debt to GDP ratio,’ the debt in and of itself…no matter it now being at an all time high of $20+ trillion…while not a desirable thing is not a terrible thing either for there are some very important things most… especially the Democrats…forget. Things like the fact that our country has been in debt for over 200 years; that our currency system is a fiat system (as in a currency without intrinsic value yet established as money by government regulation); that the feds and the Treasury Department can actually just “create”…as in print…more money to pay off our creditors if need be; and that rising public deficits (the national debt) actually leads to growing private-sector surpluses.
“During the Clinton years we had a budget surplus with correspondingly ballooning private debt. That didn’t work out so well,” so said financial advisor and author William Bernstein adding that the budget surplus played a big role in not just one financial bubble but two… the stock market and real estate crashes that led to the financial crisis of the George W. Bush and Obama years.
Simply put, no matter words to the contrary debt is not always a bad thing in regards to the private sector. In fact, debt within the 3% to 4% range can actually be a sign of a healthy economy because it means both employment and wages are increasing and that the markets are stable. And while the Fed can lower interest rates to make all-around investing easier, no on can create economic activity out of a stagnant or sluggish economy. But with the economy now truly growing and thriving under President Trump’s leadership and with the ‘Tax Cuts and Jobs Act’ now signed into law, U.S. economic growth will only continue to increase what with consumer confidence at a high unseen in years and with the jobs market flourishing in spite of both a budget deficit and more debt…and that is a very good thing.
So there goes the Democrats argument against the ‘Tax Cuts and Jobs Act’ based upon the national debt’s argument.
Second, as for the naysayers argument that this new law will see the highest income earners benefiting the most while the lowest income earners and the middle class may actually have to pay more in taxes once most of the individual tax provisions expire after 2025…very simply… this is not true. And why…because the only ones possibly seeing an eventual tax increase in 2025…and a small one at that and only if the Republicans and Congress are unsuccessful in making all tax cuts permanent by then…will be those in the $100 to $250 thousand dollar per year tax range not…I repeat not…those Americans in the middle class range. And said range is in no way the highest income earners. those in the $100 to $250 thousand dollar per year tax range not…I repeat not…those Americans in the middle class range. And said range is in no way the highest income earners.
And what is middle class in today’s America…it’s a range that encompasses 41.5% of all Americans…and gauged by Pew Research as being households earning between 67% to 200% of an individual state’s median income. And neither will those in the lower middle class range…being those whose annual personal income ranges from about $32,500 to $60,000…see a tax increase under the ‘Tax Cuts and Jobs Act.’ That is just a fact.
As for the lowest wage earners…those earning no more than 199% of the poverty level…as in those individuals earning between a minimum of $11,490 and a maximum of $22,865 dollars…they too will see no tax increase. And a couple will not pay any income taxes at all up to $24,000 a year.
So there goes the Democrats argument that the middle class does not see any tax relief for the fact is they will see tax relief to the tune of about $1,610 per year which translates into a “bump” of about 2.2% in their average household’s income. And high income earners…those in the range of $400+ thousand per year…will rightfully receive tax cuts too, but know that those income earners make up but 10% or less of the American population. And those who earn $1 to $6 million make up only 1% of the population with the highest wage earners making above $6 million are but 0.1% of our population. And dare some forget that it’s these collective high income earners who both invest in and create the very businesses that in turn create jobs and fuel economic growth.
Now as far as what is deemed middle class in high-tax states like California, New York, and New Jersey…it’s not the federal taxes that are hurting these folks but it’s their overburdening state and local taxes that are. Let those states “fix” their own house before pointing fingers at others for their residents woes.
Third, and while it’s true that corporations will see their corporate tax rate drop from 35% to 21% that is a win-win for both the corporation itself and for America herself as American companies overseas will start to return to the states thus fueling competition and corporate expansion which will lead to jobs being created that will be filled by American workers. And for major companies already based in these United States, they too will expand with jobs being created thanks to this new competition. And with corporate profits as a result rising, much of those monies will be funneled back into our economy via corporate investments as well as seeing dividends going into the hands of corporate shareholders…shareholders including the average American who is saving for the future or who will now have additional monies to make purchases they could not do before.
Sad that the Democrats don’t understand the basic principal that helping those who create jobs helps our economy in return as well.
Fourth and lastly, the Democrats refuse to accept as fact the ‘Tax Cuts and Jobs Act’ will indeed strengthen the U.S. dollar. How so…with the corporate tax rate dropping from 35% to 21% and with a reduction in tax on dividends will see the U.S. overseas exchange rates becoming even more attractive to investors and that in turn helps to strengthen the dollar as investments are made. And simple logic dictates that in turn the stock market will also benefit from higher after-tax profits and strengthening economic activity which again helps to strengthen the dollar. And not too be forgotten is the fact that when economic growth increases also increased is the possibility of sustained long-term growth. Also remember, any short-term stimulus to the economy automatically boosts the dollars worth.
And when there is more money in both corporate and consumer pockets an as expected boost in spending occurs which in turn stimulates the economy thus automatically increasing the purchasing power of the dollar. And such economic growth would again attract foreign investment with the dollar gaining strength as foreigners who had previously bought “greenbacks” to purchase American assets would now do so.
But the bottom line is that the ‘Tax Cuts and Jobs Act’ is now the law of the land and it is the first significant tax reform since Ronald Reagan was president. And while it is yet another of Trump’s campaign promises kept, it must be remembered that the implementation of said law is equally as important for two reasons. First, good tax reform should both simplify the current complex and micromanaged economy and make it more efficient in its running while at the same time assuring long-term economic growth, which this tax law does while at the same time making it easier for Americans to file their taxes. And second, good tax reform should also lower marginal tax rates and the cost of capital, which according to the Tax Foundation’s Taxes and Growth Model the ‘Tax Cuts and Jobs Act’ does as well.
In fact, according this same model, this act will see a 1.7% increase in the all-important GDP over the long term; will also see a 1.5% increase in wages, and will add an additional 339,000 full-time jobs to the work force. And wasn’t that the goal of tax reform all along…to help put Americans back to work and more money in their pockets…and that money will start to be seen in less than a month’s time. So to President Trump I say kudos for tax reform well done.
Copyright @ 2018 Diane Sori / The Patriot Factor / All Rights Reserved.
Today, Friday, January 5th from 7 to 9pm EST on American Political Radio, RIGHT SIDE PATRIOTS Craig Andresen and Diane Sori discuss the truth about Trump’s tax cuts from both a tangible and a snarky point of view; and important news of the day.
Hope you can tune in at: http://listen.samcloud.com/w/73891/American-Political-Radio#history