Tax Reform Shows Partisan Priorities

This week’s Courier Herald column:

The Senate managed to cobble together 51 Republican votes last week to pass a major overhaul of the US tax code. All Senate Democrats voted against the measure.

The Democrats have not only decided to double down on their strategy to resist everything, but have also accompanied the vote with histrionic rhetoric, even by their recent standards. Kurt Eichenwald, Newsweek Senior Writer and a frequent critic of President Trump and all things Republican, took to twitter upon the measure’s passage and proclaimed “America died tonight….Millennials: move away if you can. USA is over. We killed it.”

Eichenwald’s need for a fainting couch is spurred by his belief that projections of adding roughly a trillion dollars to the deficit over the next ten years will bankrupt the company. Remember the Democrats’ stimulus package? That did the same thing in one year.

Let’s look at this another way. The Congressional Budget Office projects the federal government will take in $43 Trillion over the next decade. The Democrats arguing the country is over believe that depriving the country of just over two percent of their revenue projections is the end of America as we know it.

Two. Percent.

To be clear, deficits do matter. So do governing philosophies.

Conservatives believe that more money left in the hands of individuals and businesses will grow the economy. A streamlined regulatory environment to keep government out of the way whenever possible is believed to be equally helpful.

While the economy has been growing for almost a decade, Republicans note that the growth has been anemic and below historical standards of economic expansion. Democrats are arguing that those rates are no longer achievable. They argued that once before, using the term “malaise”. That was right before Reagan provided a tax reform plan that propelled growth into a sustained 4% range.

Key among the Republican reforms is a cut in corporate tax rates. American business have been investing offshore, moving our manufacturing base abroad, and keeping many of their profits outside of the US in order to avoid corporate tax rates that are among the highest in the world. Even President Obama understood the negative effect of our corporate rate, proposing to cut it in 2012.

I participated in an interesting twitter exchange with a Democratic State Representative Sunday night on this matter. The subject was whether corporations “flush with cash” needed a tax cut. The level of ignorance of how a corporation must manage its finances for long term success demonstrates the philosophical divide.

The original claim made under debate was that General Motors had $21 Billion in savings on hand, and questioned why it needed a tax cut more than a nurse with $1,500 in savings. This premise ignores that the nurse is also getting a tax rate cut and an increase in his or her standard deduction. It also ignores that part of the reason to provide corporate tax cuts is to give companies like Apple that do have tens of billions overseas to repatriate that money and reinvest it back in America.

GM isn’t Apple. A decade ago GM was bankrupt and was bailed out by measures begun with George W. Bush and completed under the Obama Administration. Today, GM is thriving as a smaller yet growing company.

GM is doing much better, and does have $26 billion cash on its balance sheet as of the end of the last fiscal year. It also has an amount of current liabilities greater than current assets – the amount of payments due within a year versus the amount of assets presumed to be available for such payments. In accounting terms, that doesn’t mean GM isn’t healthy, but it does show that the cash needed isn’t “savings”. It’s the money in their checking account needed to pay the daily bills – employees, suppliers, etc.

GM is in a very capital intensive business, where a redesign of a single vehicle can cost several billion dollars. They must do this for each product, every four-six years. They’re also planning to introduce an entire new range of electric vehicles, which will require even more capital investment than usual. This hits home, as one of GM’s major R&D centers is in the North Atlanta suburbs.

The point is this: Republicans want that money to be invested first in employees and suppliers to grow their businesses, creating more employees and supplier partners. Democrats see a company’s working capital as a priority to fund the government first, and what’s left over can be used as the company sees fit – if they have any left.

More succinctly: Republicans want that money to go to the GM’s employees in Alpharetta, in order to make sure GM is competitive for the next round of new vehicles. Democrats want that money sent to Washington to fund the status quo.

Corporations aren’t getting money that should be given to working Americans. Corporations are being encouraged to invest and create even more working Americans. That money is being invested and creating jobs right here – not by expanding the number of bureaucrats in DC.

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Dave Bearse
Dave Bearse

We’re borrowing a trillion over ten years to reduce the corporate tax rate by 43% forever. The middle class gets a 10% for a few years. Are we great again or what?

“To be clear, deficits do matter.” Thanks for the laugh as I head out the door to work.

Trey A.
Trey A.

It would not be hard to get the Democrats onboard with a corporate tax cut. As Charlie points out, Obama proposed one. Cutting the corporate tax rate makes sense–after all, the big guys with the cash hordes are already gaming the system, but Bob’s Autobody Inc., is paying a really high (by global standards) tax rate. Give Bob and all the small businesses in the U.S. more money, they will reinvest some of it into their businesses. But cutting the corporate tax rate is an illogical means to repatriate cash and jobs. Charlie’s argument assumes that the places where the… Read more »

Lea Thrace
Lea Thrace

My quibble is if this is truly a cut for the middle class, why do those cuts expire? I have asked and have not been given any clear answers. As I understand it, and amendment to the bill to make the middle class cuts permanent was shot down too. These things make me wary about the motivation that the cuts are about helping the working middle class. I would much rather the powers that be just be blatant and say that its corporate tax reform. (I am on board with lowering corporate rates. Though I prefer a gradual lowering to… Read more »

Lea Thrace
Lea Thrace

So was the amendment not adopted because of the rule then?

And does the sunset provision not apply to the corporate side of cuts? Cause those will raise the deficit too (and even more).

xdog
xdog

“corporate tax rates that are among the highest in the world”

Just once I’d like to hear a goper admit there’s a difference between statutory and actual tax rates. Unfortunately, that admission will probably come right after they concede that the process of passage of the 1986 plan was nothing like the current rush to pass an unread, unscored, poorly considered bill that they can wave in the 2018 campaign.

Ellynn
Ellynn

The caveat to all this… Giving a company a tax break to move money does not mean they will. If they do move money, it does not mean they will spend it in a way that benefits the consumer or their workforce (they didn’t 30 years ago) It does not mean they will send it on R & D (see link below), and if it’s a multinational corporation, is does not mean the company even benefit from keeping what money and investment it has in the country.

They could, but they don’t have to…

https://www.wsj.com/articles/passage-of-senate-tax-bill-puts-r-d-tax-credit-in-doubt-1512328243

https://www.independent.ie/business/irish/donald-trumps-15trn-tax-reform-to-hit-irish-firms-hard-36375752.html

bethebalance
bethebalance

While final votes may have been along partisan lines, it’s one-dimensional to say that only Republicans want money invested in employees and suppliers, while Democrats “see a company’s working capital as a priority to fund the government first.” There’s oddly no nuance there, and no room for a large number of budget pragmatists. I think most all Americans would support a globally competitive corporate tax rate. But policies don’t work unless you channel the incentives properly, so if you want the repatriated money to get to jobs, you have to make explicit policy connections. Giving a tax break without such… Read more »

Dave Bearse
Dave Bearse

The effective US corporate rate is in the center or next higher quintile compared to peer nations—it wouldn’t take much cutting to put it in the middle. A more than nominally lower rate could be achieved by eliminating loopholes and special interest provisions.

Noway2016
Noway2016
Noway2016
Noway2016

Sorry for misplacement!

Trey A.
Trey A.

Hard to argue with that.

ScottNAtlanta
ScottNAtlanta

Orin Hatch says they cant find the money to pay for CHIP. Thats CHILDREN’S health insurance for the needy which would be around 8 Billion, but sees no problem with financing tax cuts that come up 1.5 trillion short. Deficits didnt matter when GW Bush passed his tax cuts, expanded medicare, and financed 2 wars. They dont matter any more now. What matters is where you are spending and what you get for it. What you get with this tax bill is lots of stock buy backs, and shareholder gain. GE will still pay no tax, and the profits on… Read more »