Kruse Farms LLC in my future
President Trump’s announcement on a tax measure was mostly designed to beat the 100 day thing. Fill in a few lines, leave others blank. Trump wants to do big things that set benchmarks for history. He is not interested in a nominal tax cut but wants “The largest tax cut in history” so no one can forget it or who signed it into law. That is okay if it doesn’t break the Treasury. We want a tax cut that actually stimulates economic growth rather than one that corporations just use to buy back their stock or get fully invested in Treasury bonds with nominal impact to the economy.
Past tax cuts have not paid for themselves. U.S. Senate rules are intended to make this legislation difficult to enact in order to help insure that it is legislation that represents a consensus. President Trump wants to cut the corporate and pass through tax rate to 15 percent from the current 35 percent. I think that giving the tax cut to small businesses with pass through income will produce more economic growth/jobs/investment than when given to big corporations.
Senate budget reconciliation rules would let them pass tax legislation with a 51-vote majority rather than the 60-vote threshold. But there is also a caveat that the tax change cannot add to the deficit more than 10 years. Without offsets, the 20 percent decline in the business tax rate to 15 percent, promoted by Trump and other provisions in the proposal, would add as much as $7 trillion to the deficit so it has to sunset in a decade. Trump doesn’t care if it’s budget neutral.
I think that Congress is not likely going to pass a tax cut for the wealthy adding trillions to the deficit. That is why congressional tax proposals were for a smaller percentage reduction in the tax rate so they have to find less offset to make it more budget neutral. House Republicans have been working on a 20 percent corporate tax rate and 25 percent rate on pass through businesses. Their version also had the border tax in it that raised over $1 trillion in revenue.
They have been going after reducing the 35 percent corporate tax rate for a long time touting that it is the highest such tax rate among industrialized nations. The crux is that other nations actually collect their top rate with no deductions so the difference is not as much as it appears. With deductions and exemptions some U.S. corporations pay 14 percent. Some do not pay at all because they park profits off-shore to avoid repatriation of profits exposing them to U.S. taxes.
A tax holiday of sorts would need to be part of the new tax bill to welcome this capital back into the U.S. where it can be put to work here.
President Trump found it frustrating that Congress failed to pass the American Health Care Act to replace Obamacare. There was a good reason that they put health care first in their legislative agenda ahead of a tax cut bill. If you look at what the GOP tried to do with its AHCA it was more of a precursor to the tax cut than focused on health care reform. Their bill knocks millions off the government subsidized health care system along with cuts to Medicaid funding. Those cuts, along with elimination of ACA taxes, would have created a pool of nearly $1 trillion that they could use for offsets for the new tax bill. So were they truly concerned about reforming health care or just funding their tax cut with ACA repeal savings? It looks like the latter.
That fueled my cynicism over GOP motives. I still have not heard a comprehensive health care system reform plan from the GOP. Trump promised a 15 percent corporate tax rate in the campaign but he also promised to sustain Medicaid. The AHCA cut Medicaid. Between the AHCA and his tax proposal Trump is starting to look more and more like an inverse Robin Hood who takes from poor Medicaid recipients and gives it to his billionaire cronies. I do not know where the populism went but it is sure hiding in Trump’s recent legislative agenda.
Here is my question. I think that I personally would benefit from ending the ACA and certainly from a reduction in tax rate (although I need to see the details). The question is, is that worth forcing people off Medicaid and inflating the deficit? I was ready to accept some reduction in the USDA budget to reduce the deficit if that is where cuts went to.
The government giveth and the government taketh away. How do they offset declining tax revenue from a tax cut? They attempt to string the answer together as they gain $1 trillion from ending the ACA, they do a border tax which takes $1 trillion from trade, they eliminate the Federal tax deduction for state and other taxes for a $1 trillion and then they use a bogus number for how much economic growth that the tax cut will produce. A trillion here/trillion there in new taxes and lost deductions and pretty soon it almost adds up to paying much of the cost of tax reform. Hopefully there is something of benefit left to boost GDP which recovers tax revenue by making the pie bigger that they get their slice from.
That is optimism. I think that there are many businesses that will have to restructure to the tax law adopting LLCs as a business entity to get Trump’s reduced tax rate. Wages and personal income will be transformed through creation of business entities that pass through income if taxed at the lower rate. I would see Kruse Farms LLC in my future.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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