GOP TAX MYTH

Republicans keep insisting that tax cuts promote economic growth even though this is proven to be a myth.*  The best growth followed the tax increases of President George H.W. Bush ("read my lips no new taxes") followed by another big tax increase by President Bill Clinton.

Much of the tax cuts on companies has been wasted by companies buying back massive amount of stock ($800 billion in 2018).**
Buyback Monsters
Share count reduction since 2010:**

Travelers: 51 percent
AutoZone: 48 percent
Kohl’s: 46 percent
Northrup Grumman: 45 percent
Lowe’s: 44 percent
Gap: 42 percent
IBM: 32 percent
Apple: 26 percent
Source: S&P Global

Home Depot has bought back about 35% of its stock making a phony increase in the earnings per share without any increase in revenues or profits.**  Also, such massive buybacks mean the company is slowly liquidating, whether that is the purpose.

A few excerpts from a  particularly good recent (April 2019) analysis*** of the 2017 tax cuts follow:
The Trump tax cuts cost the government even more. The Act increases the deficit by $1 trillion over the next 10 years according to the Joint Committee on Taxation. It says the Act will increase growth by 0.7% annually, reducing some of the revenue loss from the $1.5 trillion in tax cuts. 
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The JCT analysis is probably the most accurate since it only analyzes the cost of the tax cuts themselves.
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Increase in sovereign debt dampens economic growth in the long run. Investors see it as a tax increase on future generations. That's especially true if the ratio of debt-to-GDP is near 77%. That's the tipping point, according to a study by the World Bank. It found that every percentage point of debt above this level costs the country 1.7% in growth. The U.S. debt-to-GDP ratio was 104% before the tax cuts.
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Many large corporations confirmed they won't use the tax cuts to create jobs. Corporations are sitting on a record $2.3 trillion in cash reserves, double the level in 2001. The CEOs of Cisco, Pfizer, and Coca-Cola would instead use the extra cash to pay dividends to shareholders. The CEO of Amgen will use the proceeds to buy back shares of stock. In effect, the corporate tax cuts will boost stock prices but won't create jobs.***

This blog has had many discussions on taxes and tax cuts, see: http://stopcontinentaldrift.blogspot.com/2018/08/taxes-discussions-on-reunite.html

* https://www.washingtonpost.com/news/posteverything/wp/2017/09/28/i-helped-create-the-gop-tax-myth-trump-is-wrong-tax-cuts-dont-equal-growth/?utm_term=.afb5b3bd82f6
https://www.politico.com/story/2018/05/14/tax-cut-economic-boom-republicans-584197
** https://www.cnbc.com/2019/02/27/companies-keep-buying-their-own-stock-in-force-led-by-buyback-monsters-like-home-depot.html
*** https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968

TAX CUTS AND FEDERAL DEFICITS

Well, the chickens are coming home to roost. and there are going to be bigger Federal deficits despite the public comments by Republicans that the tax cut will pay for itself.   They always say this, but it never happens.  After the tax cut, there is an increase in deficit spending by the government that does help boost the economy and smoothes a recession.  But now with a tax cut on top of a roaring economy, the Federal deficit is increasing, not decreasing or staying the same.

• The federal government recorded a $76.9 billion deficit in July, with increased government spending and tax cuts keeping the country on track to record its biggest annual deficit in six years.
• The Trump administration last month sharply revised upward its deficit estimates, projecting annual deficits will once again top $1 trillion next year.*

I hate to be hard on Bush-43,** but I think that having a tax cut during a war was criminal.  Having a tax cut during a recession may just happen to help to speed the economic recovery.  But to have a tax cut on a roaring economy, like we had to 2017, is pouring gasoline on a fire.  Companies will have a record amount of stock buybacks (see figure).  The best you can say about this is that it helps buoy up the stock markets, but stock buybacks are largely wasted money.  Rather than a tax cut, we should be paying off the deficit incurred because of the Great Recession.

(click on figure to enlarge)

I subscribe to Keynes who said that the government should borrow money during the downstage of the business cycle and pay it back on the up part of the business cycle.  We have been pretty good at borrowing money on the down part, but we forget to pay it back, including now when Federal deficits are on the upswing because of the tax cuts, rather than paying off the borrowing as a result of the Great Recession.

Republicans need a Democratic President so that they can rediscover their job of cutting the deficit, but a tax cut trumps all for Republicans.  At war, cut the taxes.  Roaring economy, cut taxes.  Irresponsible.

Note To Readers: The effect of tax cuts has been a central theme of this blog.  In a separate post, I will list my items that have something to do with taxes, including tax cuts.

*https://www.cnbc.com/2018/08/10/--us-budget-deficit-increases-21percent-on-track-for-biggest-gap-in-six-yea.html
** George W. Bush (Bush-43) is a candidate for worst president ever.   Not only did he preside over the financial collapse of 2008-2009, but got us involved in the quagmire of Middle East politics by going to war with Iraq, something we are still in.  I believe he is also the only president to have a tax cut during a war.  Unbelievable.  I don't blame him for Afghanistan war.  We had to do something, even if it ended badly.  Bush also showed sympathy for Hispanic illegals, which was admirable, but unfortunately, other events dominate.

TAX CUTS DO NOT PAY FOR THEMSELVES

Though income tax cuts do not pay for themselves* and are proven to be an inefficient way of stimulating the economy,** business tax cuts are a different matter.  To some extent business tax cuts may pay for themselves to a certain point, but there is no proof they will increase investment in corporate plant and equipment, result in more hires, or increase wages.

Currently would be a good test corporate tax cuts because companies are rolling in money. and are buying back stock which shows they don't know what to do with the money they have.  Back in 2004, companies were given a tax holiday to repatriate foreign profits to the U/S. and employment actually dropped!***  Most of the money was wasted on buying back stock..  My guess is that the same thing will happen in today's economic climate.

What about small business?  The definition of a small business is complicated.****  Many pay at the income tax rate.  A tax cut for small businesses might well increase their investment in their companies and is worth a try.  Of course only the largest small business would benefit from a maximum rate of 25%.
The GOP plan revealed on Thursday set the pass-through rate  [i.e. small buiness and partnerships] at a maximum of 25 percent, but to deal with concerns it could be abused by individuals rather than truly benefit small businesses, the GOP bill includes prohibitions on what kinds of businesses qualify for this tax reduction. The tax reform bill also allows businesses to immediately write off the cost of new equipment, as well as business loan interest.****

* https://www.cnbc.com/2017/11/07/gop-tax-cuts-will-not-pay-for-themselves-add-to-us-debt-fitch-report.html
** http://stopcontinentaldrift.blogspot.com/2010/05/effectiveness-of-taxes.html
http://stopcontinentaldrift.blogspot.com/2016/09/tax-cuts-and-economic-stimulation.html
*** http://stopcontinentaldrift.blogspot.com/2017/11/corporate-taxes-cuts-unintended.html
**** https://www.webopedia.com/TERM/S/small_business.html
https://www.cnbc.com/2017/10/23/main-street-to-trump-tax-reforms-needed-to-keep-american-dream-alive.html