And in an era when wealth inequality is worse than it was in the gilded era before the Great Depression, increasing that disparity is a bad idea,

The US GINI ratio has risen by the same constant rate in the US since the mid 1960’s. Counter intuitively, there does not seem to be any statistical correlation between tax policy and inequality, probably because at the same time, the share of the total taxes paid by the rich has also continued to increase. Ergo, although I do expect income inequality to continue to rise, I do not believe that this legislation will change the constant rate of increase that it is already on.

If you look at the chart, you can see a couple of counterintuitive events where the rate was NOT constant. Bill Clinton raised taxes and inequality JUMPED in 1992, before settling back to its former rate. And if you try to match those small periods of rapid increase or sudden flattening to known events, like recessions, high unemployment, etc…….you’ll just get a headache. There’s a megatrend in play that brushes off anything the government seems to do (or have done to it.)

I don’t know what the solution to this is……..but I am not concerned that we might have exacerbated it. Inequality simply is not correlated to tax policy.

Our former tax system was the most progressive in the world; nobody else pays their low income bracket a negative rate, nobody taxes their middle earners less than we do, and nobody has such a high percentage of overall taxes from the upper brackets than we.

This tax plan does not change any of that; I’ll be impatiently waiting for the numbers to come in in 2019–2020, but I expect that we became even MORE progressive than we were before with this, overall, because of the capping of the SALT and mortgage deductions.

which decreases our effective tax rate from 35% to 20% — a lower rate than most middle class earners will pay.

Hm. I don’t think that’s true. Let;s have a look. This is one of my go-to tables, and has been for over a decade:

Image for post
Image for post

Yea……..the middle earners were paying 12.8%, and that of course is dropping a bit due to this new legislation, probably down to 10%. If you can get your burden down to 20%, you’re still paying substantially more.

Essentially, large tax cuts, predominately for rich people, are therefore paid for by everyone else in loss of benefits in Social Security, Medicare, and Medicaid.

First off, a loss of benefit from those programs is impossible without a change in current law that would require a 60-vote majority. The entitlement programs are not paid for out of the General Fund, but their own Trust Funds, and they are funded by the payroll taxes, not the income tax. So all that “they’re going to cut the entitlements” was all a lie. Can’t happen, unless the Democrats decide to roll over and play dead, and the GOP decides to commit electoral suicide.

Further, nobody has ever cut anything in my entire lifetime from any program with a constituency, Ron, and that includes my second adult-age President, Mr. Reagan. What happens is that they’ll sell bonds to cover the additional deficits and move on. If the 1.5 T additional over 10 years turns out to be accurate, that’s a 30% increase over the current deficit projections for the out years.

Because I have kids. I see my kids struggling to get by on essentially the same salary I started with, because wages have been close to flat for 40 years. But everything else is more expensive. I was able to get an apartment and buy a car, because those costs were an order of magnitude lower when I was earning that money.

Well, I agree with that part, and it’s underreported. It used to be that middle class people could afford the local college, cars, and houses without any extreme rearrangement of the deck chairs. Nowadays, people in the middle class have to sign their lives away to get any of it. The cost of these sorts of items relative to average pay is an underreported story which has lethal consequences during household formation.

But, that’s a bit of a digression. Although I do not agree with your doom and gloom predictions about the individual side of this bill, I don’t think its overly fabulous, and I wish it could have been better (and revenue neutral).

However, I see the corporate tax reform as a home run, and the variable in the equation that makes the entire meal worth eating. Time will tell.

Written by

Data Driven Econophile. Muslim, USA born. Been “woke” 2x: 1st, when I realized the world isn’t fair; 2nd, when I realized the “woke” people are full of shit.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store