Tax Reform for the 21st Century

z36636yizqbi6dvmme3cepovuxqawvak.jpeg

You would think by now intelligent investors understood the circular firing squad that is the 2017 Republican Party. But judged on the last few weeks run of stocks (BTW—I was out of the country for 12 days as you know if you follow me on my Facebook page—and when I leave the country the market ALWAYS goes up!) it appears to me they are still living in the same delusional world as our economically clueless commander-in-chief. 

Take "Tax Reform."  Wednesday President Trump will be in Indiana to read a teleprompter speech promising “the greatest tax reform in the history of the world.” It will be “terrific” and create “3-4% GDP growth again" just like the glory days of late 90’s. Small business will go on a hiring binge sucking up millions of unskilled mostly unemployables and pay them middle class wages for jobs that do not even exist in 2017. 

This will all sound snazzy except for one thing; this economic delusion is 100% destined to fail.

Read my lips: The way things stand today, President Trump, Mitch McConnell and Paul Ryan have 4 days until midnight Sept. 30 to pass comprehensive tax reform. They have to FIRST pass a 2018 fiscal budget in order to pass a "tax reform" bill under Senate reconciliation rules that can pass 10-year legislation with 51 votes.  

There are just 40 legislative days till the end of the Congressional year. Key point: Of COURSE tax reform won’t happen because Oct. 1—Sunday—fiscal year 2018 begins. This makes a messy issue even more so, and anyone thinking that tax reform would be easy or quick should quit drinking the #MAGA kool-aid and think like an adult and not a star struck teenager.

How do I know this "tax reform" is doomed to fail? For one these are the same politicians who bragged and promised that repealing Obamacare would be a breeze; how’d that work out? They, or at least Trump, also peddled another kind of snake oil, namely that tax reform would also be a cakewalk with 15% corporate tax rate that would "unleash the American economy from the horrors of Obamanomics."

Reality? We’re eight months into the Trump era now and that cakewalk is about as likely to happen as Trump beating Steph Curry in a game of horse on the White House basketball court.

For investors, here’s the real question: Why on earth should anyone believe anything that Trump, McConnell and Ryan have to say anyway? They run both ends of Pennsylvania Avenue and haven’t passed one major piece of legislation—not one, including what will be another embarrassing triple flop on "Repeal and Replace" Obamacare this week.

Yet the market, still surging, has clearly priced in tax reform like it’s a done deal by the end of 2017 Congress. 

Economically worse: This plan is nothing more than a recycled 20th century solution for the very real economic problems of the 21st century economy.  What someone living in and legislating for the 21st century SHOULD address with tax policy are the very real 21st century dislocating economic effects of  

  1. Globalism and highly automated global supply chains
  2.  Massive levels of income inequality (where the top 20% earn 72% of taxable income and hold 91% of total household wealth)
  3.  Secular sluggish productivity and disinflation
  4. Advanced manufacturing automation that has eliminated 85% of manufacturing jobs 2005-2017

If properly framed and focused, smart Republicans and Democrats should be able to agree on 21st century solutions: 

  • revenue-neutral corporate tax reform (to attract investment and retain multi-national capital)
  • economically focused legal immigration reform (to attract the best talent)
  • vastly expanded job training, apprenticeships and education reform (to create workers who can thrive in the 21st-century economy).

They would also agree to couple free-trade deals (see the latest E.U.-Japan deal, for example) with effective support for those displaced by creative destruction accentuated by globalism. They would abandon the insanity of ending NAFTA (which would cause a recession if enacted) and bring this ZERO tariff plan into the digital 2020's.

And finally...properly focused legislators from both sides of the aisle would agree to

  • intelligently designed long term infrastructure building/replacement plans (funded with self-liquidating 30-50-year debt sold to individual IRA and 401-k plans) and
  • expansion of the earned-income tax credit to promote work and reduce dependence on cash benefit payments we can no longer afford.

None of that is possible, however, so long as

  1. The GOP is enthralled by a 20th century brew of dubious economic plans (read "marginal tax cuts are the key to GDP growth" and the Kansas state tax cut disaster) and
  2. They cannot devise a budget that is both politically feasible and fiscally responsible that could get 60 votes (so the tax reform would be PERMANENT and not 10-year sunset via a 51 vote reconciliation vote). 

We have serious 21st century economic problems to address--to attempt to solve then with 20th century thinking and solutions is insane and insulting to the intelligence of most people who have not fallen into a #MAGA hypnotic trance.  

Blog/Eletterverst_user