Quote:''ITS A PONZI SCHEME": Wall Street Fears Trump's Deranged Tax Plan...Economic Euthanasia
Wall Street vets say an attack on blue states could start a chain reaction in the housing market. “Will this be the first tax cut in American history that actually results in a recession?”
BY WILLIAM D. COHAN NOVEMBER 17, 2017 6:20 PM
It’s a Ponzi scheme,” a Wall Street executive told me, dismissing the idea that a multi-trillion dollar tax cut for multinational corporations would trickle down throughout the economy and also pay for itself.
It’s a view that’s widely shared among the bankers, hedge-fund managers, traders, and quants whose job it is to determine, with Vulcan accuracy, how the Republican tax bill that passed the House yesterday will actually affect the markets.
It’s also more than a little ironic, given that the plan was spearheaded by two former senior partners of Goldman Sachs turned Trump shills—Gary Cohn and Steve Mnuchin—a pedigree that has done little to reassure Wall Street veterans who worry that the White House may accidentally nuke the economy in the name of “tax reform.” “Will this be the first tax cut in American history that actually results in a recession?” the executive asked.
It’s a great question. And the House plan provides plenty to be worried about in that regard. Take, for instance, the proposed elimination of the deductibility of state and local taxes. That is obviously a cynical, politically motivated ploy on Donald Trump’s part to penalize voters who didn’t vote for him (for good reason) in high-tax blue states, such as New York and California, and to give a benefit to the red-state voters who did vote for him.
(I get it, elections have consequences.) Eliminating the deductibility of state and local taxes is an incredibly divisive plan. “It’s a transfer to red-state wealthy guys,” said the executive, who lives in a blue state.
Worse, he says, it could lead to another housing crisis, just as the last one is (or should be) still fresh in our collective memories.
Wait, there’s more. The House plan of course does not pay for itself. According to the non-partisan Congressional Budget Office, it will add around $1.5 trillion to the federal debt over 10 years.
Forget for a moment that candidate Trump repeatedly castigated President Barack Obama for allowing the federal debt to approach $20 trillion—it is now $20.8 trillion and counting, 108 percent of G.D.P., making us the 12th most-leveraged country in the world already—and said that he would reduce the federal debt as president.
That clearly ain’t happening. The federal government is the single largest borrower in our country. With interest rates heading up along with the federal debt, that will mean higher interest expense and higher annual budget deficits.
Oh no it won’t, say the trickle-down economic hawks such as Cohn and Mnuchin, aided and abetted by the tired Reagan-era economists Stephen Moore and Larry Kudlow. What will happen, they say, is that the tax cuts will unleash our collective animal spirits and put G.D.P. growth on a much-higher trajectory, generating an additional $1 trillion in tax receipts over 10 years to partially offset the cost of the tax cuts.
Federal tax receipts in 2016 were $3.27 trillion, or 17.5 percent of 2016 G.D.P. of $18.6 trillion. In order for tax receipts to generate another $1 trillion over 10 years, G.D.P. would have to grow on the order of another 2.5 percent per year, compounded for 10 years.
In other words, the United States economy would have to grow at around 5 percent annually for the next 10 years, in line with emerging economic powerhouses China and India. Guess what sports fans?
That’s not happening , especially in an economy that has already supposedly been benefiting from absurdly low interest rates for close to a decade, and that is already at or near structural full employment.
https://www.vanityfair.com/news/2017/11/wall-...euthanasia
3
