Two must read opeds on the Trump tax plan

October 9th, 2017 at 9:51 am

There are a few must-read opeds out there today on the administration’s tax plan.

I found this first one to be extremely resonant as it’s just a bucketful of common sense from an entrepreneur who lives in the real world, as opposed to the world of the DC tax cut debate, where, as former Treasury Secretary Larry Summers strongly argues, falsehoods flourish.

Marcus Ryu, co-founder of a successful software company (Guidewire Software), writes:

As an entrepreneur myself and a friend to many others, I know that lower tax rates will not motivate more people to start companies. People start companies for many reasons: a compelling idea, ambition for fame and fortune, a desire to be one’s own boss, frustration with one’s employer. I have never heard someone say, “I would have started a company, but tax rates were too high” or “I wouldn’t have started this company, but then George W. Bush cut tax rates, so I did.”

He goes on to point out that the tax code is already plenty friendly to those who would start companies, with privileged rates on capital gains and (as Summers stresses) the ability to largely write off the costs of capital investments.

Moreover, as I and other have repeatedly argued, investment capital is uniquely cheap right now, such that Ryu argues that (my bold):

…lowering the corporate tax rate isn’t going to make us create jobs any faster. What [it] would do is increase our post-tax profitability, which effectively transfers money from the federal government to our shareholders. One consequence of this would likely be a one-time increase in our stock price, but with no impact on our operations or employment plans. In theory, this could have the benefit of making it easier to raise cash by issuing more stock to the public, but with interest rates at historical lows for years, American corporations have had no trouble getting capital.

Both Ryu and Summers then stress that wasting trillions in lost revenue will make it even harder than it is already to make the necessary public investments that are going wanting as we speak, in physical (infrastructure) and human capital. Summers notes that it’s a big mistake to jack up “the budget deficit at a time when we should be preparing for the next downturn, for rising entitlement costs and potentially for the need for increased national security spending.” Larry’s also long advocated for infrastructure investment, and I’d add the damages increasingly linked to climate change to the list of why this is precisely the wrong time to be significantly cutting revenues.

Ryu gets the last word, as he perfectly sums up the absurdity of this proposed plan:

I am an entrepreneur and a businessman, but I am also a citizen. I believe tax cuts that deepen our already severe inequality in income and wealth are not in the long-term interests of any citizens, not even the very wealthy. Extreme inequality is corroding our civil society, poisoning our politics, and undermining our effectiveness as a nation. This is an extremely hard problem to solve, but when you’re in a deep ditch, the first thing to do is stop digging.

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5 comments in reply to "Two must read opeds on the Trump tax plan"

  1. Smith says:

    But Democrats and phony opposition refuse to make an issue out of the deficit and federal debt.
    They refuse to appeal to nationalistic programs of competing.
    They refuse to offer universal benefits.
    They refuse to cut waste.

    Common sense says you shouldn’t cut taxes unless the budget is already balanced. How is that not argued by even one Democrat?
    Why are we cutting taxes when we need more money for the government to compete with the Chinese and the European Union? Do we really want to have less science, less cyber defense, lose our lead in electric cars? AI? Robotics? Let our bridges and dams fail completely?
    Can we cut taxes while people die from lack of universal health care? Stop expanding medicaid, a program for the poor and need and redistributive by definition, and offer something like medicare for all.
    How do you cut taxes without cutting waste? Why agree to increases in the deficit and debt without offsetting reductions in wasteful spending?


  2. Wondering says:

    We’ll let you know when we see a party worth fighting for.


  3. Tom in MN says:

    Pointing out that the rich need stability in society and inequality undermines it does not happen often enough. I don’t understand the rich that use their wealth to destabilize the country that is maintaining their wealth, and if they think they can just move offshore they don’t understand what a collapse of the US would do to the world economy. As you often say: we are all in this together. If you are rich Clinton was the conservative pick not Trump as far as making sure your wealth was conserved.


    • Wondering says:

      It seems as though they believe they can bait and start a race war and retreat to their guarded castles while the peasants destroy each other.


  4. Dr. Robert Goldschmidt says:

    We need to promote an indicator that relates to the well-being of working families, in particular their ability to purchase the fruits of their labor. The aggregate form of this is total wages over GDP and it clearly reflects the divergence of wages and productivity since 1972. Anytime working families hear that the economy is doing great because GDP is up or unemployment is down, wages/GDP will give the true state of their family. Today’s family with two workers would need a pay increase of $2,000/month to reach the same portion of the economic pie as in 1972. Such an increase would convert our economy from lose=lose to win-win, and the gross profits are there to support it since corporate earnings have grown from 5% to 19% of GDP since 1972.

    Wages/GDP also tracks our descent from an integrative to an extractive economy as defined in the book “Why Nations Fail” which clearly points out with numerous real-world examples how extractive nations tend towards demagoguery, political and economic instability and low growth,

    We need to promote wages/GDP as the best measure of our economic health to the media.


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