Tax Bill Hysteria
In case you haven’t heard, nearly all that’s good and pleasant in the world died this week. The tax bill passed.
The
bill has variously been described as “a disaster,” “one of the great
robberies” of history, and a “massive attack” on the middle class — and
that’s just Bernie Sanders. Other critics say
it will explode the deficit, enrich the undeserving rich, immiserate
the underserved poor, and ring a “death knell” for the sinking middle
class. Nancy Pelosi calls it a “Frankenstein,” albeit one that will return to kill its Republican creators.
To which any G.O.P. political strategist would rejoin: Keep it up, folks.
There
are things genuinely to dislike in the tax bill. It raises taxes on too
many people. It barely cuts the top income-tax rate. It doesn’t
eliminate the Alternative Minimum Tax. Taxpayers will get kicked into
higher brackets (of which there are still too many) sooner, thanks to a
new measure of inflation.
Worst
of all is probably the provision for full expensing, which allows
companies immediately to deduct the cost of capital investments from
their tax bill. This is supposed to be the most stimulative part of the
bill, especially for smaller companies looking to grow. But it’s also an
invitation to invest — and over-invest — based on tax incentives rather
than the straight business case. Bankruptcies will follow.
O.K.,
no doubt your objections are different (and probably stronger) than
mine. But here are two things to know: Slashing corporate rates — the
bill’s central achievement — is good economics. And wailing against the
bill as an American Armageddon is dumb politics, at least for Democrats.
On the first point, consider the following case against the outgoing system:
“Our
current corporate tax system is outdated, unfair and inefficient. It
provides tax breaks for moving jobs and profits overseas and hits
companies that choose to stay in America with one of the highest tax
rates in the world. It is unnecessarily complicated and forces America’s
small businesses to spend countless hours and dollars filing their
taxes. It’s not right and it needs to change.”
That was Barack Obama in 2012,
with a proposal to cut rates to 28 percent. Other prominent Democrats
who have previously called for cutting corporate taxes include Tim Geithner, Ms. Pelosi, and Chuck Schumer.
Maybe
the current bill cuts the rate too far — or, as I think, doesn’t cut it
far enough. Maybe the argument that companies will use additional
revenues to hire more workers is too optimistic, if only because the
United States is already close to full employment. Maybe they’ll reward their shareholders instead — which, however, probably means you, assuming you have an I.R.A.
And
maybe there’s something to be said for Google parking several billion
dollars in profits in a Bermuda shell company, just to take advantage of
the islands’ zero rate. It’s delightfully devious coming from the
well-heeled apostles of “Don’t Be Evil.”
But
the suggestion by senior Democrats that it is now a moral abomination
to enact the very type of tax reform they themselves favored until quite
recently smacks of partisan dishonesty, if not ideological hysteria.
Many developed countries, including Germany, Sweden and Britain, have
all slashed their corporate rates in recent years. Lo, the sky did not
fall.
Now
to the bad politics. Democrats think it’s politically smart to oppose
the bill because some 58 percent of Americans were against it, according to a recent poll.
A
Times analysis of the poll also found that half of the people who will
get a tax cut under the bill don’t think they’re going to get one,
likely out of distrust for the president.
But
nothing is so splendid in life or politics as a good surprise, and
Democrats have positioned themselves to be on the wrong side of it. In
2018, according to the Tax Policy Center,
91 percent of middle-income filers will get a tax cut, averaging close
to $1,100. That’s real money, or at least enough to give Donald Trump
and congressional Republicans a good opening for a “we told you so”
moment.
The
cuts also coincide with some of the most robust economic growth in over
a decade. Ostensibly expert economic opinion now tells us the tax bill
will do little or nothing for growth. But some of the same experts also
told us Trump’s election would cause a worldwide recession and send stock markets tumbling. If there’s one thing every conservative lives for, it’s liberal whoopsie moments like these.
Time
will tell, and stuff happens — think: war on the Korean peninsula, or
perhaps a Bitcoin meltdown. For now, the G.O.P.’s legislative triumph is
only being sweetened by the wildly overblown reaction to it. Why
liberals would want to give the administration a holiday gift like this
is beyond me, but, anyway, Merry Christmas.
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