Last summer, The New York Times reported that the Trump administration was considering using executive authority to deliver what amounts to an across-the-board tax cut for the wealthy.
Specifically, the plan involved Trump bypassing Congress to deliver a $100 billion windfall for the rich by indexing capital gains to inflation.
As we said unequivocally at the time, the plan, were the White House to go ahead with it, would be a flagrant slap in the face to the very same everyday Americans Trump claims to represent and who came out to vote for his populist agenda in droves in 2016.
A month later, in an interview with Bloomberg, Trump confirmed that he was, in fact, pondering the legally dubious maneuver. Not to put too fine a point on it, but it almost sounded like he was trolling the poor. “I’m thinking about it”, the president said. “There a lot of people that love it, there are a lot of people that don’t”, he continued, adding that “it’s a stimulus”.
No, it’s not. It’s a handout to the wealthy, just like his tax package. The only thing it would “stimulate” is purchases of fine art, jewelry and yachts.
Read more: In Brazen Move, Trump Considers $100 Billion Tax Cut For The Wealthy
The fact that the administration was considering going around Congress was just insult to injury.
Fast forward to this summer and, according to the ubiquitous “people familiar with the matter”, Trump is now actively working on the plan again and, as tipped a year ago, it could be orchestrated in a way that bypasses lawmakers.
“Consensus is growing among White House officials to advance the proposal soon to ensure the benefit takes effect before President Trump faces re-election in 2020”, Bloomberg reports, adding that “most of the benefits would go to high-income households, with the top 1% receiving 86% of the benefit, according to estimates in 2018 by the Penn Wharton Budget Model”. (For those who need a refresher, that Wharton model can be found copied below this post.)
It is almost impossible to overstate how egregious this is. You cannot consider it in isolation. Rather, you have to think about it in the context of the Trump tax overhaul and then, on top of that, in the context of what that tax bill did to incentivize stock buybacks.
Remember, 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”.
Read more: ‘So They’ll Bleed’: Here Are The Winners And Losers From Trump’s ‘Middle Class’ Tax Cut
The tax cuts also boosted corporate profitability and unleashed yet another wave of buybacks, which in turn helped drive up stock prices. If that’s too strong, then let’s just say that buybacks were a source of real-life “plunge protection” last year during some of the more harrowing bouts of selling. Buybacks are the largest source of US equity demand – and it’s not even close.
(Goldman)
Of course, 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:
(Deutsche Bank)
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.
“The change in capital gains tax calculation would have little chance of passing Congress, which is why the White House is considering making the change on its own”, Bloomberg goes on to detail.
Despite a reluctant Treasury department, and despite historical precedent which argues against the move (George Bush considered using executive authority to do something similar, but ultimately scrapped the idea in 1992, because, to quote the Times, “the Treasury Department determined that redefining ‘cost’ by regulatory fiat would be illegal”), Trump is determined to do it anyway. “Trump has told confidants recently that he remains deeply invested in making the change”, Bloomberg says.
Almost invariably, the Department of Justice will be called upon to justify this by penning a legal opinion. Just like William Barr has acquiesced to those requests on a number of occasions recently, the DoJ will likely be more than happy to oblige Trump.
Supporters of this move include, of course, Larry Kudlow and Stephen Moore, who, in addition to claiming this would be “a giant economic stimulus for the economy”, played down the idea that it’s a tax cut for the wealthy. Again, it unequivocally is a tax cut for the rich, but reality, numbers, math and facts are not things that Stephen Moore cares about.
Amusingly, Moore’s excuse for why this isn’t clearly designed to be a handout to the wealthy is that “most Americans own stock” (that’s Bloomberg paraphrasing Stephen).
But, according to a 2015 report from the GAO, only around 14% of workers in the lowest income quartile participated in a workplace retirement savings program, compared to 57% and 76% of those in the third and fourth income quartiles, respectively.
Consider that, and then consider the following handy charts and facts from Credit Suisse:
Only higher net worth households tend to own appreciating financial assets. Figure 10 shows the share of families at different net worth quantiles which own equities (either directly or through mutual funds).
Above the 90th percentile of net worth, around 70% of families had some equity exposure, but for households between the 50th and 75th percentile, the share of equity ownership was below 20% in 2016. Ownership went down for all groups after the crisis, but again the decline is most noticeable for less-wealthy households.
In short, Stephen Moore is being disingenuous at best. At worst, he’s outright lying. Rising stock prices disproportionately benefit the wealthy, a statement so self-evident that it feels strange having to make it.
And even if you were inclined to give Moore the benefit of the doubt (which you shouldn’t, because doing so is a good way to find yourself having to ban him from your newspaper for telling lies), Bloomberg notes that “those who save in Roth IRAs or 401(k) retirement accounts wouldn’t benefit from indexing because of the way the accounts are taxed, omitting many middle-class Americans from the savings the tax break generates”.
Any questions? I hope not.
The bottom line is that if Trump goes ahead with this, it will amount to the placing of the final cog in what will be, essentially, a perpetual motion machine for inequality creation. Assuming Trump succeeds in badgering the Fed to cut rates and restart QE to the benefit of financial assets, that machine will be turbocharged.
So, middle- and lower-income Americans, consider yourself spat upon by this administration. Of course, you’re used to that by now, right?
From Wharton:
Results
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 | |||
| 0-20 | 0.0% | 0.00% | 0.2% | 0.2% |
| 20-40 | 0.0% | 0.00% | 0.9% | 0.9% |
| 40-60 | 0.1% | 0.00% | 5.8% | 5.8% |
| 60-80 | 0.9% | 0.00% | 16.5% | 16.6% |
| 80-90 | 1.5% | 0.01% | 15.9% | 16.0% |
| 90-95 | 2.5% | 0.02% | 13.0% | 13.0% |
| 95-99 | 8.9% | 0.07% | 19.1% | 19.1% |
| 99-99.9 | 23.0% | 0.30% | 15.0% | 14.9% |
| 99.9-100 | 63.1% | 0.98% | 13.6% | 13.5% |
Just when you thought things couldn’t get any worse. Trying to think of an historical analogy for Trump. Benedict Arnold?
I was thinking more along the lines of Donald Sutherland’s character in The Hunger Games trilogy…
I don’t suppose the next administration can undo the Trump tax breaks to benefit the other 99.9% of the voting population. Gosh, if they could make the other 99.9% see that they’re actually trying to help them…
So, you think that the Trump tax breaks benefited just 0.1% of the population? Mind sharing the source of this interesting statistic?
here is the full breakdown: https://heisenbergreport.com/2017/12/19/here-is-the-full-breakdown-that-exposes-what-the-tax-plan-means-for-the-middle-class/
you’re encouraged to remember that the US government itself put out the numbers on this ahead of the actual passage. Republicans knew who it would benefit and they came out and lied to the public about it. then, when asked about the actual projections from the government itself, the GOP simply said they didn’t agree with the projections.
these tax cuts are always a scam. and really, it’s not even clear “scam” is the right word. i mean, look who their constituency is. who do you imagine Republicans will design a tax cut to benefit? well, corporations and the wealthy, of course.
the sad thing is that with Trump, you got this bizarre intersection of his base (not wealthy) and a republican tax cut. which meant that the sales pitch had to be extra aggressive.
it’s unfortunate that trump thinks so little of his base that he wouldn’t even try to make his tax cut work for them
Yes, they got it over the line (although it took longer than envisaged) AND yes it did create an initial boost for various data (longer lasting than envisaged) but we’re now paying the price for Trump Tax deformity –
https://www.cnbc.com/2017/04/07/the-world-economy-might-have-a-lava-problem-according-to-mbmgs-paul-gambles.html
https://www.cnbc.com/2017/03/06/trump-tax-reform-could-tip-america-into-recession-and-possibly-serfdom.html
Not even debatable any more
I’m not sure what exactly is not debatable in your mind (I hope not the serfdom BS) but I’ll tell you what is not debatable in mine. Instead of falling as predicted in the second article, the GDP continued to grow: https://www.bea.gov/system/files/gdp1q19_3rd.png
Therefore the value of this “analysis” can be fairly assessed as zero and that’s not debatable either.
Here’s the reality https://www.politifact.com/truth-o-meter/statements/2019/mar/05/sherrod-brown/do-70-benefits-trumps-tax-law-benefit-wealthiest-1/ :
In two of the years studied, 1 percenters – in 2018, those with income of more than $733,000 per year – got an estimated 20.5 percent of the tax law’s benefits in 2018 and will get 25.3 percent of the benefits in 2025, according to the analysis.
Only in 2027 would an estimated 82.8 percent of the tax cuts go to the top 1 percent of tax filers.
SALT elimination was a mean tactic of tax warfare, no doubt, but every single person I know who lives in flyover states benefited from this. They noticed, his whole base noticed. Continue ignoring reality and you will have an encore next November. Well, with this crop of candidates you’ll probably have it anyway.
If tax cuts are always a scam then tax hikes must be always a great idea, right?
For one thing, you’re looking at just the 1%. But more importantly, you clearly did not read the article I linked to, because if you had, you’d know it contains a chart showing the actual breakdown you’re talking about. but what’s really hilarious is that you apparently didn’t even read your own link, because it contains the following rather inconvenient factoid: “When PolitiFact evaluated the bill just before Trump signed it, we found that every income group would pay less in taxes in 2019, but that the benefits would flow disproportionately to wealthier taxpayers.
And by 2027, every income group below $75,000 would see a tax increase, while only those income ranges above $75,000 would still see a cut.”
here’s the thing: a narcissistic billionaire with a long history of pissing on the poor by rubbing his (inherited) wealth in everyone’s face and a Treasury Secretary whose wife enjoys spending her spare time trolling working moms on Instagram by reminding those working moms how poor they really are, does not care about flyover America. that is a joke. Donald Trump played/duped undereducated voters in 2016 into believing a ridiculous narrative and, let’s face it, you are lying when you say “every single person I know who lives in flyover states benefited from this. They noticed, his whole base noticed.” You and I and everyone reading this knows you do not work for a polling company. At best you might either live in flyover country and discussed this at the local diner where people are still buying Trump’s narrative. At worst (and far more likely) you’re simply making it up. Stop doing this to yourself. If you’re any semblance of intelligent you probably know, deep down, that you were sold a lie. If you want to keep buying that lie, feel free, but just know that everybody who has ever bought Trump’s lies has been burned. From the investors in Trump Steaks, to the thousands of “students” at Trump U. who Trump was forced to pay $25 million to for defrauding them, to the banks that Trump defaulted on loans to. He’s a con man and a charlatan. period.
Here’s what GOP tax cuts do to inequality: https://i1.wp.com/heisenbergreport.com/wp-content/uploads/2018/01/TaxCuts.png?ssl=1
What percentage of Trump’s base do you thing benefits from that?
Oh, and note the year this line started sloping up again: https://i0.wp.com/heisenbergreport.com/wp-content/uploads/2018/01/WealthBoom.png?ssl=1
Do you think that’s a coincidence?
Here’s the reality: If you do not make more than $175k a year (and maybe you do, in which case great, carry on), then you are a moron for voting Republican. Any honest economist (hell, any sociologist) will tell you that.
You actually think that accusing the opponent of lying and then freezing the replies is an honorable way of conducting a debate?
No, I’m not lying, I never do. “every single person I know” means all 25 people I know. I need not work for polling company to say this with full honesty. You could dispute the statistical significance of this statement, that’s another matter, but statistics is not your strong suite, is it? And no, I live in a blue coastal state. I lost money on tax reform – but less than I expected to lose, TBH.
Yes, I’ve read the article that I linked including the sentence that you think I didn’t. I don’t know by what logic you concluded otherwise. Perhaps the same that led comrade of Lourdes to lament about 0.1%.
You need not write long paragraphs to convince me that Trump is a mega-asshole. You’re barking at a wrong tree. Our only disagreement about him is that you think that he’s also an idiot and I don’t. And I absolutely don’t give a flying fuhk about what wives of the administration officials do.
I think (growing) inequality is a problem but not THE problem. Socialists push it up to play on people’s primitive instincts to achieve higher (and higher, and even higher) taxation to make everyone equal – in misery. The problem is poverty and lack of opportunity.
Maybe (or maybe not) I’d be a moron for voting republican but you’re a moron for concluding that I did. In fact, I never did. That’s another thing about TDS: you’re a smart guy but you keep making silly logical mistakes as if you are in middle school. Chill out.
wtf are you talking about “freeze replies”?
And on this: “Statistics is not your strong suite, [sic] is it?” Actually, yes. I taught prob and stats, which is something you’d know if you weren’t a newbie to Heisenberg Report.
Finally, I don’t know why you keep lying about flyover county. At least make it convincing. Like, try this: “I’m talking about Aunt Janie, Uncle Jim and everyone who lives in their neighborhood”. Or hell, say 31 people. Or 17 people. Don’t use 25. That makes it seem even more unbelievable.
I’m talking about the magically disappeared Reply button.
25 was a figure of speech of course, I didn’t count, it’s a number between 15 and 30 but it’s every single person I know.
Thanks for grammarizing me.
Simple donald trump is an assh*le.
That is simple. What is no so simple is whether he needs to be replaced by an imbecile?
The irony is it will probably cause more selling to lock in the benefit which will surely be undone in Jan 2021 when a new prez will be in office.
What’s a rich guy to do??? Support Republicans and risk that Trump burns down the nation. Support democrats and get a big tax increase. Choices, choices…