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  October 5, 2017

Trump's Tax Plan Helps Wall Street, Not Main Street


'It should be called the Leona Helmsley tax plan,' says economist Michael Hudson. 'Only the little people will pay taxes'
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biography

Michael Hudson is a Distinguished Research Professor of Economics at the University of Missouri, Kansas City. He is the author of many books, including The Bubble and Beyond, and Finance Capitalism and its Discontents, Killing the Host- How Financial Parasites and Debt Destroy the Global Economy, and most recently J is for Junk Economics: A Survivor's Guide to Economic Vocabulary in an Age of Deception.


transcript

Trump's Tax Plan Helps Wall Street, Not Main StreetS. Peries: It's the Real News Network. I'm Sharmini Peries coming to you from Baltimore.

A general consensus is emerging that Trump's tax plan, which he presented last Wednesday will benefit mostly the country's upper classes and corporations. In fact the only people that got a tax increase are the poorest taxpayers. A quick scan of even business press headlines will reinforce what I'm saying. For example, Bloomberg writes, "Tax reform could open a huge loophole for wealthy Americans", and the conservative magazines National Review has a headline that reads, "Congressional Republicans tax plan isn't great for Trump suburbanites." However Trump himself promised on Wednesday that he and the rich generally would not benefit from this plan. Here's what he said.

D. Trump: Our framework includes our explicit commitment, that tax reform will protect low income and middle income households, not the wealthy and well-connected. They can call me all they want, it's not gonna help. I'm doing the right thing, and it's not good for me, believe me.

S. Peries: Joining us to analyze what Trump's tax plan would mean for us is Michael Hudson. Michael is a distinguished research professor of economics at the University of Missouri, Kansas City. He's the author of several books, and the most recent among them is J Is For Junk Economics. Good to have you back, Michael.

M. Hudson: Good to be here, Sharmini.

S. Peries: Michael. Let's cut to the chase here. Everyone seems to agree that this tax plan will benefit only the rich. Give us a sense of your main points of why you want to contest this tax plan is beneficial for all.

M. Hudson: Sure. It should be called the Leona Helmsley tax plan. Only the little people will pay taxes. But about the loopholes, the interesting thing is Trump said he wasn't going to gain a penny, and he may have been telling the truth, because ... That would be true if he's already paying a zero-income tax, and his income tax rate is going to go from zero to zero. That's about the same for a lot of the biggest corporations in America. Apple, Google, Alphabet, these companies that have been taking all of their profits abroad, trillions of dollars, supposedly, that they're holding abroad altogether, they haven't paid any taxes on, because they've held them nominally in a teeny little office in Ireland, or the Cayman Islands, claiming that they have to pay hardly any income tax at all.

Now, the misrepresentation is that Trump says that now he can bring all this money back from these offshore enclaves, from these tax avoidance zones. The reality is the money's never been in these zones. The money's been in America all the time. Apple, Google, rich real estate companies, simply hold all the money in an American bank, but in the name of an affiliate, an office, registered in Panama, or some other offshore enclave.

So there'll be zero effect on the balance of payments, but it will just walk in their zero rate, enabling them to have avoided taxes for over a decade. I think 2004 was the last tax holiday. They'll bring them all back now, without having to pay much tax at all.

S. Peries: Michael, another method that wealthy individuals and companies can use to avoid paying taxes is deducting investment expenses. Tell us how this works.

M. Hudson: If you look at the real estate industry, about the loopholes, since World War II the national income and product accounts report real estate is hardly paying any income tax at all. If you own a building and you're an absentee owner, not living there, not a homeowner, but absentee owners, they avoid paying any income tax because they don't earn an income. They pay interest, [inaudible 00:04:17] for paying interest, or they pretend under the accounting rules, that the buildings actually depreciating in value, even while the building's soaring in value. It's going way up, they don't have to pay tax, and then finally, with the estate tax being ... When they die they don't have to pay any capital gains. The heirs get it without having to pay any tax. The richest people would have to pay an estate tax, but that's being knocked out also. ... I think that everybody, as you pointed out, who've looked at the tax plan, says, "All the benefits at the top. Where's the benefit for the low income people?"

Well, the low income people are going to have to pay more tax. The minimum tax rate is actually raised from 10% to 12%, and people who live in Democratic states, New York, New Jersey, Maryland, California, will not be able to subtract the state and local taxes that they've been paying all these years. So the tax rate for wage earners, for people who actually have to file tax forms and declare an income, is actually going to go up, and the economy is going to be made even poorer.

S. Peries: Now, Trump and his supporters argue that tax reductions will make the U.S. more competitive, and it will lead to more investment in ... In an earlier interview that we had with Dean Baker, he points out that historically this has not happened when taxes on corporations and on the wealthy were reduced. So if it does not lead to more investment, what do the corporations do with this additional untaxed income?

M. Hudson: They're going to do the same thing they've done with 92% of corporate earnings in the last decade. They're going to pay it out as higher dividends, pushing up the stock price, and most of all they're going to use the money for stock buybacks. They're going to buy back their stocks to raise the price. They are not going to invest, and the reason they're not going to invest is ... The reason you would invest, would be to sell more goods to the market and expand the economy. But most corporations, and certainly Wall Street, know that the game is over. The economy has not grown since 2008, except for the financial sector, and the real estate sector. That is, except for the richest 5%, many ... 95% of Americans, the economy's shrunk, just like it's shrinking in Europe.

Now, corporations know this, and they say, "There's only one thing we can do, now that the game is over and the economies are shrinking. We're going to take the money and run. We're going to cut the taxes, and all the money that we get from whatever we are able to earn, we're going to give to our stockholders."

S. Peries: What are the consequences of this for us?

M. Hudson: Well, if it works it means the class war is back in business with a vengeance. But it's not going to work. There is no way that a group of Republican senators are really going to commit political suicide by going and actually voting for this plan any more than they voted for Trump's medical health plan, and revocation of Obamacare. What this is really doing politically though, is driving a stake in the heart of the Democratic party. The Democrats are so sure that the kerfuffle over this tax plan is going to backfire against the Republicans, that the knives are out and they're fighting like they've never fought before against the supporters of Bernie Sanders, against Elizabeth. The Wall Street, Hillary, wing of the Democratic party says, "Now we're going to win the election. We don't need Bernie supporters. We don't need the working class. We can form an even more right-wing party than Hillary had, what her program was."

And obviously the Bernie supporters and the bulk of the Democratic party is not going to go along with the themes of the head of the national committee, and it's going to probably split the Democratic party, because the way in which politicians are opposing the tax plan, is it's going to vastly increase the budget deficit if it would pass. Just like the Reagan and Bush tax cuts quadrupled the national debt, the same thing would happen. So what you're having is the Democrats who are arguing against the Trump plan are budget hawks. They're saying, "A deficit is bad."

Now, as you know from the people you have on this program like my colleague Bill Black, myself, the modern monetary theorists, we're all in favor of having the government run a budget deficit, if it pumps money into the economy, if it does lead to more investment, if it does employ more people. But in this case the deficit isn't going to pump money into the economy at all. It's only going to pump money into Wall Street, and the money's going to be used just to push up stock prices, push up bond prices, and push up real estate prices, and trophies for the rich. It's exactly the opposite of the kind of deficit that we've been urging all along.

So you're going to have a lot of junk economic theories on the Democratic side, opposing the junk economic theories on the Republican side, and it's not ... They're claiming that this is trickle-down economics and supply-side economics, but the people who originally introduced supply-side economics under Reagan, people like Craig Roberts, have denounced the Trump plan, saying, "This is a travesty of supply-side economics, because all it does is supply more money to the richest 1%." It supplies more money to Wall Street, not to the economy at large, and that's what really should be brought out, and I know that you're bringing it out, but certainly the mainstream press is not emphasizing this.

S. Peries: All right Michael. I thank you so much for joining us today, and I guess this discussion will only continue over the next couple of weeks, so we hope to come back to you. Thank you.

M. Hudson: Good to be here, Sharmini.

S. Peries: Thank you for joining us here on The Real News Network.



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