Best of the Week
Most Popular
1. Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - Nadeem_Walayat
2.Gold Price Focusing on May Cycle Bottom - Jim_Curry
3.Silver, silver, and silver! There’s More Than Silver, People! - P_Radomski_CFA
4.Is the Malaysian Economy a Potemkin Village - Sam_Chee_Kong
5.Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - Troy_Bombardia
6.A Big Stock Market Shock is About to Start - Martin C
7.A Long Term Gold Very Unpopular View - Rambus_Chartology
8.Stock Market “Sell in May and go away” Study When Stocks Are Down YTD - Troy_Bombardia
9.Global Currency RESET Challenge: Ultimate Twist - Jim_Willie_CB
10.The Coming Silver Supply Crunch Is Worse Than You Know - Jeff Clark
Last 7 days
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18
The Euro Crashed Yesterday. Bearish for Euro and Bullish for USD - 15th Jun 18
Inflation Trade, in Progress Since Gold Kicked it Off - 15th Jun 18
Can Saudi Arabia Prevent The Next Oil Shock? - 15th Jun 18
The Biggest Online Gambling Companies - 15th Jun 18
Powell's Excess Reserve Change and Gold - 15th Jun 18
Is This a Big Sign of a Big Stock Market Turn? - 15th Jun 18
Will Italy Sink the EU and Boost Gold? - 15th Jun 18
Bumper Crash! Land Rover Discovery Sport vs Audi - 15th Jun 18
Stock Market Topping Pattern or Just Pause Before Going Higher? - 14th Jun 18
Is the ECB Ending QE a Good Thing? Markets Think So - 14th Jun 18
Yield Curve Continues to Flatten. A Bullish Sign for the Stock Market - 14th Jun 18
How Online Gambling has Impacted the Economy - 14th Jun 18
Crude Oil Price Targeting $58 ppb Before Finding Support - 14th Jun 18
Stock Market Near Another Top? - 14th Jun 18
Thorpe Park REAL Walking Dead Living Nightmare Zombie Car Park Ride Experience! - 14th Jun 18
More on that Gold and Silver Ratio 'Deviant Conundrum' - 13th Jun 18
Silver Shares? Nobody Cares - 13th Jun 18
What Happens to Stocks, Forex, Commodities, and Bonds When the Fed Hikes Rates - 13th Jun 18
Gold and Silver Price Setting Up for A Sleeper Breakout - 13th Jun 18
Tesla Stock Analysis - 12th Jun 18
What Happens Next to Stocks when Russell Goes up 6 Weeks in a Row - 12th Jun 18
Gold vs. Stocks: Ratios Do Not Imply Correlation - 12th Jun 18
Silver’s Not-so-subtle Outperformance - 12th Jun 18
Why You Should Brace Yourself for Big Financial Changes - 11th Jun 18
Inflation to Skyrocket When Fed Reverts to New QE & Interest Rate Cuts - 11th Jun 18
Stock Market Topping Pattern or Just Consolidation? - 11th Jun 18
Study: What Happens Next to Stocks When the Put/Call Ratio is Very Low - 11th Jun 18
G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - 11th Jun 18
SPX Unshackled - 11th Jun 18
When Trump Met Fibonacci And Won - 11th Jun 18
FREE Theme Park Entry with Cadbury's Choc's! Legoland, Alton Towers, Chessington.... - 11th Jun 18
Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - 10th Jun 18
End of the World Stock Market Chart! - 10th Jun 18
All US Homes Are Overvalued - 10th Jun 18
Thorpe Theme Park London Car Park Exit Nightmare - Drivers Beware! - 10th Jun 18
Gold Price Summer Doldrums - 9th Jun 18
How to Prepare for Economic Uncertainty with Gold and Silver - 9th Jun 18
5 "Tells" that the Stock Markets Are About to Reverse - 9th Jun 18
Billionaire Schools Teacher in NAFTA Trade Talks - 9th Jun 18
Land Rover Discovery Sport ECO Mode Real World Driving MPG Fuel Economy - 9th Jun 18
Crude Oil Bullish Weekly Reversal vs. Bearish Monthly Reversal - 8th Jun 18
Fed’s Interest Rate Hike is Short term Bearish for Stocks - 8th Jun 18
The Deviant Conundrum Called Silver - 8th Jun 18
Pleasure Island Theme Park Cleethorpes, Last Day Trip Before it Closed Down - 8th Jun 18
America’s One-sided Domestic Financial War - 8th Jun 18
Debt Consolidation Advice: When and Why to Consolidate - 8th Jun 18
Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - 8th Jun 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

Trump Deficit Spending Will Stop Tax Reform

Politics / Taxes May 13, 2017 - 04:29 AM GMT

By: John_Mauldin

Politics

BY PATRICK WATSON : Many people still assume a big tax cut is coming. I think we won’t get any tax cut at all—but if we do, it will cause another problem.

In other words, we’re going to lose either way.


Here’s Why The Trump Plan Won’t Work

The tax reform wish list the White House unveiled recently isn’t exactly a “plan.” It’s more like an outline, minus the details.

Still, the goals are clear enough: Trump would reduce almost everyone’s federal tax burden and make the system somewhat less complicated.

Objections fall into two categories:

  1. The biggest tax reductions would go to the wealthy.

There’s truth to this, but it’s hard to make the math work differently. The top 20% of Americans pay 84% of all income taxes. You can’t cut someone’s taxes unless they pay taxes.

Of course, the 40% of Americans who are “income tax-negative” still face payroll, property, sales, and assorted other taxes. Maybe it would make sense to cut some of those, but that’s largely a state and local matter.

  1. The tax cut would blow up the deficit.

This one has more merit. No one has figured out how to cut income taxes in a way that is both politically balanced enough to get through Congress and neutral to government revenue.

That’s necessary because we obviously can’t cut spending. The president’s budget proposal shifts money from other departments to defense but doesn’t reduce the total.

As a result, the Trump administration didn’t even try to keep the plan revenue-neutral with spending cuts. They instead claim it will spur economic growth, which will create more future tax revenue.

Is that true?

Probably—but not to the extent they hope. Lower tax rates should spur a little more business investment and consumer spending. Few economists think it will be enough to fully offset the lost revenue.

(Brief tangent: I really don’t like describing tax cuts as “lost revenue” for the government. The government can’t lose what it never owned. Your income is yours first. You simply keep whatever amount Washington allows. I use the phrase only as convenient shorthand, reluctantly.)

The Deficit Will Explode

But deficit spending isn’t really the problem. Our disease is excessive spending. Deficits and too-high taxes are merely its symptoms.

All government functions cost money to deliver; that’s why we have taxes. The real issue is we have let government grow to a size where it now needs $7.03 trillion to get by (that’s how much federal, state, and local governments combined will make in fiscal year 2017).

Looking at the big picture, it doesn’t matter if the government funds itself with a). taxes now or b). borrowing now and taxes later. Both funding methods divert equal sums from private sector uses that could be more productive.

Longer term, though, it makes a huge difference.

Suppose I’m wrong. Suppose a series of miracles will give Trump everything on his wish list. Then what?

Unless another series of miracles cut government spending to the bone, we will get huge budget deficits.

The Treasury will issue more bonds to finance the deficit, crowding out private borrowing and forcing interest rates higher.

Higher rates will send the dollar up against other currencies, hurting US exports and corporate earnings.

At some point, long-term bond yields will look more attractive than stock dividends. Then stock prices will adjust lower… maybe a lot lower.

And while this unfolds, the Federal Reserve may be raising short-term rates and winding down its bond portfolio.

Not to mention that we’re overdue for a recession and first-quarter GDP looked dismal.

Be careful what you wish for.

FREE PREMIUM REPORTS: 3 Stocks You Need (and 3 You Don’t) in 2017

Discover the best and worst stocks in 2017. This bundled series of exclusive reports reveals three companies set to soar and three you should steer clear of (one of them will surprise you). Download Three Deadly Dow Stocks and Three Top Picks for Income & Growth for free now.

John Mauldin Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules