The Voodoo Tax Reform…what could possibly go wrong?

It seems like a million years ago that George Bush “the Elder” was accused by Michael Dukakis (the Democratic Challenger) of using Voodoo Economics to explain the Art Laffer concept of Trickle Down Economics.  That was 1988, and Dukakis was hammered 456 Electoral Votes to 111.  George Bush “the Elder” made ONE campaign promise:  “No new taxes EVER!”.   In between, George Bush “the Elder” launched the war build-up in Kuwait….called Desert Shield.  That took from August of 1990 to January of 1991 when Desert Storm commenced and Saddam lost most of his military and hunkered down with his two sons.  Uday and Qusay…..we had Baghdad Bob, Chemical Ali and more.  In any event, in September of 1990 George Bush “the Elder” raised taxes….just under two years into his term of office.  A lot of Middle Class Taxpayers were audited in 1991-1992 which wasn’t so nice either.  All in all, George Bush “the Elder”, was challenged in 1992 by Ross Perot and Bill Clinton and lost in his re-election efforts.  

Changing the tax code can be a very dangerous endeavor.  There will be winners and there will definitely be losers.  It all reminds us of the guy that said:  “If you aren’t nice I won’t even put your bill into the can this month…..to see if I pull it out and pay it.”  Events have huge consequences and policy changes have a way of punishing certain folks and helping others.  Right now they want to reduce the Corporate Tax Rate from 36% down to 20%.  The theory is that with this reduced tax burden to Corporations they will not flee the United States to put up Corporate Offices in the Turks and Caicos or Niger.  The thought is that they will bring back Billions and Billions of dollars safely tucked away in places like Ireland, Portugal and Iceland…..and bring them back to the United States, to put in banks and Investments that will create lots of new jobs right here in the good old USA!  Hmmm.  Guess these folks have never heard of the Global Economy or how you can transfer Billions and Billions of dollars Digitally in less than the blink of an eye?  Funds, stocks more equities, more debt bonds, more fair trade coffee and commodities, more of just about everything….all done on computer!  Can you believe it?  All those patriotic American (Now Global) Companies bringing back their money to the good old USA…..just because they are nice!

Meanwhile, the Trade Negotiations with all 180 countries can mess with the system pretty good and pretty fast.  Unless those Trade Negotiations are finalized….Corporations can simply continue to avoid paying taxes, continue to raise prices without penalty, continue to buy on the cheap and sell for premium pricing.  That is how critical Trade Negotiations are and how much they can affect our tax structure.  Next come removing certain tax deductions.  Let’s see, removing the million dollar Mortgage Tax Deduction….sounds good, doesn’t affect many folks that rent or are safely in their homes for the last 20 years or more.  However, how about the price of that property.  Real Estate folks rely on Investment Property buyers and 2nd home buyers to keep Real Estate Values raising.  Take away the Mortgage tax Deduction and New Home Buyers are slammed, Investment Buyers are Slammed and Speculative Real Markets dry up in both Residential and Commercial.  

Then we have State Tax Deduction.  You pay the State of California a big tax to live in the Goldfish State.  We get taxed on everything we buy from gasoline to junk food, usually around 7% or more.  So, if the Feds remove that deduction – we wind up double paying on everything.  The so-called fix is to double the Standard Deduction.  That sounds good until you realize you have to pay tax at the marginal rate (where you fit) in the tax brackets:  25% or 35%…..(right now that rate is 20%) unless of course you live in Alabama where you can rent a two bedroom apartment for $850 dollars a month….if you don’t mind too much, living in Birmingham.  So, let’s do an exercise:  You have a family of four, your combined income with both working is $162,000 a year.  The current Standard Deduction is say $11,000.  That becomes a deduction of $22,000……simple you now pay taxes on $140,000.  No Mortgage Deduction, No State Tax Deduction ….nothing.  So, you pay 25% tax on the $140,000 – $35,000 to Fed, plus what you have to pay the State, plus healthcare, plus mortgage or rent, plus insurance and  transportation, plus food for the year.  Not so pretty is it?  How much do you put away for retirement and your 401K?  How about those investments in the Stock Market?

The kicker to the Trump Tax Reform is what they call, taking the Inversion Money (from Foreign Banks) bringing it back to the USA to retrain American workers for new jobs while Making the American Work Force More Efficient.  MAWFME stands for automation, robotics and downsizing of the American Work Force to increase USA PRODUCTIVITY!  So how many jobs will be lost and how many created?  What effect will automation, robotics and artificial intelligence have on society at large?  What jobs are we going to train West Virginia Coal Miners to do in the new society?  How long might that take?  With 340 million Americans, 87% of manufacturing jobs have been lost to automation, 13% to foreign trade.  According to reputable reports that the United States will lose MOST of its jobs in metropolitan areas of the country to automation and artificial intelligence within the next 20 years.  The current number of folks currently working in the USA is around 158 million.  87% of that is about 137 million who will be unemployed in 2037.  But then that doesn’t count the additional innovation and further productivity cuts that will be required.  

Opponents of Voodoo Tax cuts as our dear friend Art Laffer will tell you ….don’t grasp the stimulation of the economy that occurs by lowering taxes.  But then we have to tell our dear friend Art Laffer…..America no longer does business out of a cigar or shoe box much anymore.  The global grasp and the digital revolution has been a huge game changer.  International Banking has cut through traditional borders, Global Investment Banks have a death grip on consumer lending, spending and saving.

 Our point is simply: The Voodoo Tax Reform…what could possibly go wrong?