There was always something absurd about the idea that a billionaire real estate developer with a penchant for constructing golden monuments to his own ego suddenly decided to become the people’s champion (as it were) in 2015.
You don’t have to be a Trump detractor to admit he’s a notorious narcissist and the fact that he cares enough about his wealth to adopt an alter-ego in the course of lying about the size of his fortune speaks volumes about the extent to which he equates self worth with net worth.
Given Trump’s history of posing with actual money and otherwise flaunting his wealth, and given how suspicious working class Americans are ostensibly inclined to be when they hear the words “Republicans”, “tax” and “cuts” used together in the same sentence, it’s a small miracle that the administration was able to push the tax bill through at all, let alone get it passed by the end of last year.
But maybe that speaks more to the gullibility of Trump’s base than it does to expert salesmanship on the part of the GOP. After all, the verdict was already in on who would benefit from the tax plan before it was crammed down everyone’s throat in December.
The numbers, as they say, do not (and did not) lie. The benefits of the tax cuts (both by percentages and total dollars) accrue disproportionately to the wealthy. Period.
(Tax Policy Center, NPR)
That’s the distribution in 2018, and it gets worse over time. By 2027, households bringing in more than $1 million (the top 0.6% of filers) will be getting 81.8% of the benefits from the GOP tax bill.
By some accounts, Trump and his family will benefit from the tax plan to the tune of more than $1 billion – that’s “billion” with a “b”.
The fact that Trump’s base bought into the idea that this was a “middle class miracle” (as it was variously pitched late last year) speaks to a lot of things, none of which reflect well on the willingness of the electorate to think critically or even to spend an hour looking at the actual numbers on a plan that, by some accounts, will actually entail everyday Americans paying for tax cuts for the wealthy within 10 years.
(Joint Committee on Taxation, The New York Times)
Of course to truly appreciate the potential for this plan to increase inequality, you have to step back and think about what it means for corporate buybacks and what those buybacks entail for stock prices. I’d quote a bunch of Wall Street research here, but in this case, it’s more amusing to simply cite CNN Money because the fact that they’ve picked up the story underscores the extent to which the mainstream media is determined to let American workers know that trickle down economics is yet again failing to trickle down. To wit, from an article published earlier this month:
Corporate America threw Wall Street a record-shattering party last quarter. Flooded with cash from the Republican tax cut, US public companies announced a whopping $436.6 billion worth of stock buybacks, according to research firm TrimTabs.
Not only is that most ever, it nearly doubles the previous record of $242.1 billion, which was set during the first three months of the year.
Of course, anything that helps the stock market can help the many American households that own shares directly or indirectly through retirement plans.
However, critics of buybacks argue they disproportionately benefit the rich. That’s because the top 10% of households owned 84% of all stocks in 2016, according to research from NYU professor Edward Wolff.
By some accounts, those buybacks were in large part responsible for ensuring that U.S. stocks didn’t suffer the same fate as some other global benchmarks in the second quarter of this year when the trade tensions catalyzed a plunge in, for instance, Chinese equities.
Because financial assets (like stocks) are disproportionately concentrated in the hands of the wealthy, the benefits from rising stock prices do not accrue in a linear fashion. Rather, they accrue exponentially. And when it comes to the concentration of these assets, the juxtaposition is incredibly stark:
See how this works? Tax cuts beget stock buybacks, stock buybacks beget higher stock prices and because the top 1% of households own the stocks, what you end up with is a multiplier effect.
The only thing missing in this equation was a way for wealthy individuals and families to avoid paying a bunch of capital gains taxes. Until now – it was missing until now.
According to The New York Times, this administration is actually considering using executive authority to deliver what amounts to an across-the-board tax cut for the wealthy. To wit, from an article out Monday evening:
The Trump administration is considering bypassing Congress to grant a $100 billion tax cut mainly to the wealthy, a legally tenuous maneuver that would cut capital gains taxation and fulfill a long-held ambition of many investors and conservatives.
The Treasury Department could change the definition of “cost” for calculating capital gains, allowing taxpayers to adjust the initial value of an asset, such as a home or a share of stock, for inflation when it sells.
Currently, capital gains taxes are determined by subtracting the original price of an asset from the price at which it was sold and taxing the difference, usually at 20 percent. If a high earner spent $100,000 on stock in 1980, then sold it for $1 million today, she would owe taxes on $900,000. But if her original purchase price was adjusted for inflation, it would be about $300,000, reducing her taxable “gain” to $700,000. That would save the investor $40,000.
Not to put too fine a point on it, but this a flagrant slap in the face (although I guess that characterization assumes “slaps in the face” can be something other than “flagrant”, but you get the idea) to the very same everyday Americans Trump claims to represent and who came out to vote for his populist agenda in droves in 2016.
Do let this sink in. This is Steve Mnuchin, actively pondering a move to allow the wealthy to account for inflation when it comes to paying taxes on financial asset gains, at a time when real (i.e., inflation adjusted) earnings growth for America’s working class is zero.
Additionally, this would reduce tax revenue at a time when the deficit is exploding thanks to Trump’s tax cuts, effectively increasing the burden on future generations further in order to allow the wealthy to pay less in taxes on financial assets that are being inflated by buybacks inspired by the first tax cuts.
Here’s Trump’s alma mater (Wharton) breaking this down:
We estimate that such a policy would reduce individual tax revenues by $102 billion during the next decade, from 2018 – 2027. This estimate is likely a lower-bound cost estimate since we use conservative assumptions when imputing asset basis year.
Because income from capital gains is concentrated among high-income households, the benefits of this change would accrue primarily to the upper end of the income distribution. Table 1 shows that the top one percent of tax units would receive more than 86 percent of the tax cut, and that after tax-incomes would increase most for the top 0.1 percent. Overall, the policy, however, would not meaningfully change the distribution of tax burden.
|AGI percentile||Share of tax cut received||Percent change in after tax income||Share of federal tax burden|
|Current law||Tax cut|
In the simplest possible terms, this is a perpetual motion machine for increasing inequality.
The Times also notes that George Bush considered using executive authority to do something similar, but ultimately scrapped the idea in 1992. And not only did the Bush administration scrap it, they decided it was outright illegal to implement as proposed.
“Mr. Bush’s Treasury Department determined that redefining ‘cost’ by regulatory fiat would be illegal — a conclusion buttressed by the Justice Department’s Office of Legal Counsel, which found that ‘cost’ means the price that was paid for something”, the Times goes on to recount.
Why, yes. The “cost” of something “means the price that was paid” for that same something. Makes sense, no? Not to Steve Mnuchin it doesn’t. Here’s what he has to say about the prospect of simply thumbing his nose at Congress:
If it can’t get done through a legislation process, we will look at what tools at Treasury we have to do it on our own and we’ll consider that. We are studying that internally, and we are also studying the economic costs and the impact on growth.
This is really – really – convenient for our vaunted Treasury Secretary, because guess who would benefit handsomely from this change? People like Steve Mnuchin, whose net worth is north of $300 million.
Oh, and guess who else loves it? Larry Kudlow.