Tax Relief Without Government Relief
The House and Senate both passed the GOP tax bill yesterday. As of Wednesday morning, it needed just one more vote in the House on some technical changes made in the Senate before it heads to Pres. Trump’s desk.
The media keeps calling the Republican bill “tax reform.” Peter Schiff called that, “fake news.”
Calling these tax cuts reform is a perfect example of fake news. But of course, Donald Trump is not going to complain about this fake news. See, when the fake news works in his favor, when he prefers fake news to real news, then he’s going to be quiet about it. It’s only when he doesn’t like the fake news that he calls the media out. But this is nothing to do with reform.”
Peter emphasized there are definitely tax cuts in this bill. In fact, there are substantial tax cuts. Some people will get even more tax relief than advertised due to the number of loopholes in this bill. So, at least in the short run, passage of this bill is good news for a lot of people. But it’s not good news in the long term.
Peter echoed what he said several weeks ago when he pointed out that the plan is really nothing more than tax cuts masquerading as tax reform. Again, not that tax cuts are a bad thing.
Yeah, I want to lower the top rate of tax, but I also want to make government smaller. I want to reduce government spending so that we no longer need all that tax revenue. But of course, I’ve said that over and over again. This bill provides some people with tax relief, but no people with government relief. Government is getting bigger, government is getting more expensive, so how are we going to pay for it? If we’re not going to pay for it with taxes, well then we’re going to pay for it some other way. But pay for it we will.”
We’ve hammered this point over and over again. This tax plan is going to push the massive US federal debt even higher. Debt puts a drag on growth. Promises of economic expansion due to the tax cuts simply don’t ring true. We’ve talked extensively about the impact of debt on economic growth. The US debt to GDP ratio already stands at 105%. This puts a significant drag on growth.
And as Peter pointed out in a previous podcast, incentives matter. And the incentives in this bill will likely decrease revenue even more than projected. That means an even bigger deficit than expected.
It’s not that we oppose tax cuts. But people need to understand that as long as the government is spending like a drunken sailor, we aren’t really getting any relief. Again, as Peter said, pay for it we will – most likely through money printing and inflation.
I hate it when we have to send our money to the government. The problem is, the government is spending the money whether they collect the taxes or not. So, it’s my belief as an economist the debt does more damage to the economy than taxation – that paying for big government by printing money and borrowing money does more economic damage and ultimately exacts a greater cost on the economy than paying for government with taxes.”
Peter also pointed out that the bill is also going to spell political trouble for Republicans.
But this plan, again, is going to be a disaster because the recession that’s coming is going to be blamed on these tax cuts. This is going to be the perfect campaign issue for 2018, for 2020. The Republicans are going to own this recession. They’re going to own this bear market that is going to start.”
So, the tax bill isn’t really good news. It’s fake news. But we won’t see the negative results until we get further down the road.
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