Still Looking for Tax Disaster, Democrats Are in for a Surprise

The Democrats and their media allies did everything they could to defeat Trump's tax cuts and reforms.  They continually lied to the public in a bid to make them believe that less than half of the taxpayers would actually get cuts and that the bill was meant to benefit only big, rich corporations.  Therefore, we got all sorts of articles, obviously fed to journalists by left-wing think-tanks and Democratic politicos, claiming that the tax cuts aren't good or aren't performing as promised. 

So, two weeks into a ten-year program, we are now hearing whining that all the promises of the broad-based reform haven't been fulfilled yet.  (Eight years into Obamacare with nothing close to what was promised hasn't caught their attention – they're still telling us how good it is.)

It's a stupid thing for Democrats to keep holding onto this mythology, because they are about to be swamped by events.

But holding onto the narrative they are.  Here's one example of a New York Times article whose purpose is to deride bonuses and tax cuts, claiming that the prime beneficiary is solely the greedy rich, particularly the corporations.  It's a narrative that's pretty close to what House minority leader Nancy Pelosi has been saying, in her claims that corporations are only handing out crumbs and pretty much keeping all the tax gains for themselves.  The article tries to portray corporations as evil and greedy and keeping too much for themselves, while the bonuses are just dog biscuits to the public.  Naturally, the government is never greedy when Democrats want to take so much money and power for themselves – just corporations.

Somehow, Democrats don't seem to care that over half Americans in surveys don't have so much as a small savings nest egg to pay for emergencies, so my guess is that the millions of these same Americans who have gotten bonuses along with the many who have gotten raises (think of how many people Walmart alone employs) are happy that they have gotten these bonuses after eight years of Obama and essentially flat wages.  A bonus of $1,000 is certainly better than zero, which is what they would have gotten had the Democrats gotten their way. 

I am actually amazed at how fast the money from the tax cuts is trickling through.  We're talking about millions in bonuses and raises in less than two weeks into a ten-year plan, and these are only the ones that have been announced.

Here's another article complaining about the tax cuts.  From the Associated Press, we read: "Less than meets the eye, bonuses are not raises."  (Isn't it great that they use the word "less" in the headline?)

The bonuses are one-time payouts, not the permanent pay raises that Trump and congressional Republicans have said will eventually result from the corporate tax cuts.  Over time, bonuses are far less valuable to employees than wage increases.

So far, most companies haven't said whether any permanent pay increases are in the works.  Economists caution that the corporate income tax cut's effect on average pay, if any, might not become apparent for several years.

"As a worker, it's great to get a one-off bonus, but that doesn't guarantee anything for the next year," said Stephen Stanley, chief economist at Amherst Pierpont.  "You'd rather have the raise, because next year you're working off the higher base."

"The bulk of the corporate tax cuts should accrue to people who hold stock in companies," said Ethan Harris, chief economist at Bank of America Merrill Lynch.  "Workers benefit much more from a cut in taxes on ordinary income.  In other words, better to get a direct cut than a spillover from cuts to others."

In some cases, the companies are sharing only a sliver of their tax-cut windfalls.  Bank of America's bonuses will cost it roughly $145 million – only about 4 percent of the $3.5 billion that Goldman Sachs estimates Bank of America will receive from the tax cut.

I believe that it is great for the economy that close to 100% of Americans got a cut in their actual tax rates, but I believe that the even bigger benefit to the economy is in the large permanent tax cuts to corporations and other businesses.  I am thinking of small businesses and their owners, who create the jobs.  Under the previous tax law, corporations were parking trillions of dollars of profits overseas while politicians were pretending they would eventually get 35% of that money because of double-taxation.  It didn't pan out as they had planned, because Democrats just don't get human nature, including how humans respond to incentives.  Now, with the new tax regime, companies will bring a significant amount of that missing money back because of new rates up to 15.5%.  As a result, the government will now get hundreds of billions of actual dollars instead of pretending it will eventually get the overseas cash in the end, which in reality has yielded zero. 

With the lower rates and the money brought back, businesses will now spend, invest, raise dividends, buy back stock, or save the money.  All of these uses are more efficient and effective in making the economy grow than the government taking a larger share and redistributing some.  The multiplier effect will be astonishing and, as is always the case, much greater than economists are predicting.  Minorities and the young will certainly have more opportunities to move up the economic ladder.

After that, we will see companies choosing to stay in the U.S., with many more coming to the U.S. because of the new 21% corporate rate, which is finally competitive by global standards, with the added benefit of no threat of double-taxation.  In addition, there will be fewer regulations, which will cause expansion and more startups in the U.S.  The business climate is now good compared to when government was seeking to step on the throat of businesses and its leaders continually badmouthed them. 

It is a shame that the Democrats wouldn't go along with the cuts and reform, which is why the individual rates can't be permanent, but at least the corporate rates are permanent.  Corporations need permanent rates to be competitive and make long-term decisions. 

Something I wish everyone would learn is that when stock prices go up, they help 100% of us, whether we directly have investments or not.  This is because all of us have a stake in how much government pension funds earn on their investments.  This generation and future generations will not be taxed so much if the public pensions and entitlements such as Social Security earn more and the government has more to spend on human needs.  Capitalism is what built this country, not government. 

We will see the media continually, on behalf of Democrats, diminish the effects of tax reform and cuts on economic growth, because, after all, there is always an election coming up.  People and businesses doing well do not help the Democrats win.  That is the goal: power for the Democrats instead of the people. 

I can't think of any other government program where the results of such a revolutionary reform have been challenged within two weeks of inception.  Democrats are in for a surprise.

Jack Hellner is a certified public accountant who works on individual and corporate taxes.

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