So, it seems like Prof. Krugman is saying: Balooning deficits, be they a direct consequence of the tax bill, enhanced or not by tax avoidance, are cosmeticaly important but structurally inconsequential. Thus, progressives can scream about the deficits to attack the tax bill, and the GOP can scream about the deficits to cut social programs and gut the safety net -- which they are already doing, but both are just pandering. And the rationalle for this position sems to be: The U.S.A. is not Greece or Spain or Icieland or Ireland, yet. What's behind this thinking, which seems very cvynical to me? Is it that Prof. Krugman looks at WWII as the golden age of the U.S. economy, when a balooning national debt was justified and when we had full employmentt (of course, with 11 million men under arms)? Does this kind of thinking not generate the cynicism that can bring on a Constittutional crisis? Or, maybe the lesson to be learned is that progressiives cannot and should not try to make politiical headeway whining about budget deficits and the national debt, because there are times when they are necessary evils, if ievil at all.
Not IF, but WHEN! Years ago in my youth you could depend on the GOP for fiscal responsibility, now it is up to the DEMs to take care of bailing out the GOP giveaways to the wealthy. Last balanced budgets, Bill Clinton and before that Lyndon Johnson. Reagan brought us the first Laffer and now Trump brings us a second joke that will cause chaos in the households of the middle class and devastate the people struggling to make it to the middle class only to find out they maybe worse off than they were. Success should bring rewards NOT punishment.
Let's put it this way-Calvin Coolidge would be spinning-he was very much in favor of fiscal responsibility!
My problem with Mr. Krugman’s amalysis lies in his assessment of proposed the media blowback - we are in a situation of thecoopting of the media by ever larger media conglomerates with their own agendas, plus the steamroller that is Sinclair Broadcasting, which is buying up ever more independent media outlets. This means that in effect, the “media” is threatening to become the mouthpiece of the conservative agenda and critical voices may be drowned out, this cementing this giveaway to the rich for generations to come.
I think that the political effect of even the worst possible result will be near zero. If we've learned anything from the past year, it's that politics is based on identity, and people vote on mainly tribal grounds, provided there's a fig leaf of plausible deniability.
The Republicans know their tax manipulation is going to be a revenue disaster, that is part of their strategy. These people hate an America that takes care of all of its people. They love the concept of an America that lavishes the goodies on them and their worthless children, and will spend next to nothing on the children of a hard working poor family.
The Republicans push rot for economic policy. The ridiculous 'supply side / trickle down', and the ridiculous Laffer (laughable) curve for example. The only thing that is going to trickle down is vastly more national debt for the middle and upper middle class to pay. Look at the record, e.g. the GINI coefficient distorted further and debt ballooned after Ronnie Reagan's and Bush's tax cuts. Look at the results of Kansas' experiment with this voodoo economics.
These Republicans are 1. very, very greedy and 2. have zero honest respect for people who do the work and make this country function!
4
The quandary for investors can be described as someone who has seen the first and last page of a book, but does not know either how long the book is or what happened between the first and last pages. We know that a massive transfer to the rich will happen. We know that the middle class has a much higher marginal propensity to consume than the rich. We know that initially the rich, or if you rather the job creators, use their additional after-tax income to invest. This extra investment could initially boost securities prices. The higher prices for securities could enable investments to occur that might have otherwise been undertaken. These can range from factories, shopping centers and housing. It is during that period that the possibility of the classic Federal Reserve related risks is most severe. What we don't know is the path that equity prices and interest rates will take between the enactment of the tax shift and the eventual financial crisis or similar event occurs. At that point in time, the massive excess supply of loanable funds as compared to demand for loans will push risk-free short-term interest rates down to near the lower bound, as was the case during the depression of 1930s in Japan for decades and in America since 2008..."
https://seekingalpha.com/article/4127862
1
From what I've read, the "investing" won't happen-the incentive is to stash the $$$ off-shore for the next generation or do so and send jobs overseas rather than do something good like truly investing in our country and thereby making jobs available HERE.
We will find out just how much Republicans hate this country
1
The G.O.P always seems to slightly overestimate the stupidity of the populace. And they always seem so surprised.
1
In red states like Idaho the legislature will use the possibility of Medicaid funding cuts to refuse to expand Medicaid. Their natural preferences will always find some justification.
I am a regular reader of your column and share most of your views as to what government priorities should be. However, it would be helpful to me and, I think, many of your readers if you would devote a column to those of us who worry about the size of the national debt and its rate of growth. In the present column, you state that “we’re a long way from the kind of situation in which America would become so dependent on the printing press that we’re looking at potential hyperinflation.” I would very much like it if you would lay out your argument for this position. You have, in the past, referred disparagingly to those worried about the debt as “deficit-scolds,” but some of us still persist.
The national debt is presently somewhere around 75% of GDP and approaching 600% of federal government revenue. My personal debt, which is entirely in the form of a home mortgage, is roughly 400% of annual income. I don’t borrow money to pay my weekly grocery bill. I can handle this amount of debt fairly well but would have trouble if it were any more. When, exactly, do you think the government will start getting into trouble, and what is the margin of error?
You have said the day of reckoning is still a long way off and that we have more important problems to concern ourselves with now, but will we ever have fewer or less difficult problems? Wouldn’t it be prudent to start getting in the habit now of balancing our budget, especially now that the economy is doing well?
2
This is my gripe with Prof. Krugman. He never tells us when debts znd deficits are a legitimate concern for the USA. It's like a reverse of religious faith: We know it can happen, but we should be confident that it never will. And is htat because the USA can print money? Because we are "too big to fail"?
"A barrage of hostile media coverage"? Less and less likely as media companies like Sinclair Broadcasting and Fox News acquire more and more of the broadcasters upon whom you are counting. I am grateful for the NYT and others that are still independent; but I am deeply worried that this independence is diminishing and gradually becoming a giant propaganda machine. And, how long will we have net neutrality?
6
...but how independent will the NYT be in the future. It is first and foremost a business...
Net Neutrality will be a dodo-not enough $$$ in neutrality.
Turning the tax bill into a revenue disaster is a feature not a bug. You can't justify shredding social security and medicare without concocting a revenue fiasco to justify it.
The question I have is what are all those seniors who kept claiming that Obama Care was STEALING from their medicare going to say when their medicare implodes? Will they have learned their lesson - finally? My guess is no.
3
What happens? Budgetary disaster is the whole point. Then, sorry but we've got to cut back somewhere. Hmmm, perhaps these out of control social welfare budget busters. Hey it was only a promise, times change.
3
Whatever happens, good or bad, God will be held responsible, and the Republicans will demand adjustments to rituals and idolatry accordingly.
2
Dr. Krugman--When are you going to do a column on who pays taxes? The 2014 IRS data shows that the top 10% take in 9 of every 10 dollars reported to the IRS. Yes, the 90% of us are only able to earn a meager 1 of every 10 dollars reported to the IRS. Yet, the IRS data shows that the 90% are paying almost 3 out of every 10 dollars that the IRS receives. Why aren't any journalist and politicians educating the voters on this??
5
The primary change that has fundamentally changed the economy can be best described by Warren Buffett, CEO of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), who said, "Through the tax code, there has been class warfare waged, and my class has won," to Business Wire CEO Cathy Baron Tamraz at a luncheon in honor of the company's 50th anniversary. "It's been a rout."
The forces driving inequality through the class warfare that Warren Buffett points to are cumulative. It is the compounding effect of shift away from taxes on capital income such as dividends, capital gains and inheritances each year as the rich get proverbially richer which is the prime generator of inequality..."
https://seekingalpha.com/article/4119553
2
Speaking as a partner in a technology startup, let me urge the GOP to listen. A tax cut is not going to make us hire new people. There is only one thing that drives our hiring: Need.
Until we need someone to fill a role, we will not hire. It’s really as simple as that.
14
As a layperson, I understand the wealthy will keep even more of their money leaving a huge financial vacuum the Republicans will try to close by cutting spending for services while wages are flat and the interest on CC is high. They also must finance the worlds biggest defense budget. Would the wealthy not invest in the military industrial complex? Since the nation can print money and the $ is the leading currency would they not just print more money?
When Germany lost the first WW the money became worthless overnight and the middle class lost everything. This nation has been fighting wars for decades, is the economy going the German way just in slow motion?
2
The ability to print money to pay off a debt is a formula for inflation. Especially since the economy is already growing at a healthy rate. One result of the Vietnam War and the Arab Oil Embargo was overheating the economy due to guns and butter causing the US gov't to print money to forestall a melt down of the economy. This caused severe inflation that plagued the US in the 1970s till Paul Volker became Fed Chairman. The huge pressure applied by tax cuts and huge defense increases in a time when a trillion dollars more debt is added to highly indebted gov't. This will overheat the economy if the only solution is printing more money. That is the clever box that the Republicans think they have formulated so they gut the social safety net.
2
There will be inflation, but it will be asset inflation: A financial bubble of one sort or the other. All those people with a high marginal propensity to save/invest are going to be looking for returns ... and somebody is going to come up with some financial hocus-pocus to supply them with those returns, but only for a while; because any real returns based on real economic growth will be limited by the lack of effective demand.
1
Paul says: “Put it this way: Republicans would surely use big deficits as an excuse to propose big cuts in social programs, but they’d face a barrage of hostile media coverage, plus lots of public demonstrations as in the case of health care, all reminding everyone that these deficits were created by their own dishonest promises just a few months earlier.”
Would the GOP change their minds about cutting Medicare? Not likely. Ryan has made this point again and again.
The fact is: the GOP is so confident that their very few, very wacko, bonkers billionaire backers can get them re-elected that no weird actions will stop their re-election. Ryan/McConnell etc believe in the power of money to spread enough distracting prejudicial hatred, enough disinformation, enough Fox News bits, enough ads, enough propaganda to swamp all opposition and mop up all media attention. Enough to get their venal lackeys re-elected no matter how asinine they are.
So far, this calculation has proven correct. Moore’s defeat was so narrowly obtained as to reinforce confidence in this belief; after all, no other candidate is as deficient as Moore, except Trump.
7
Did I get my 15% pass through cut?
1
I think Republicans are betting that any ballooning of the deficit that will happen will be much farther down the road than 2019. They're looking to kick the deficit can down the road until a (hopefully) Democrat is in office after 2021 and then they will do the same trick they did with Obama - blame the new guy for deficits run up under a Republican President. It worked well for them last time with their base who blamed the fallout from the Republican-caused financial crisis on Obama so why not do it again?
8
Well, it’s possible Ryan/McConnell can plan a year or two ahead. They managed with Gorsuch!
2
If the results are that millions go without health care Republicans will blame it on Obama.
If millions see a reduction in their Social Security checks Ryan will blame it on Obama.
If corporations and the wealthy stash away their tax windfall offshore McConnell will blame it on Obama.
If we see no rise in consumer demand and so no rise in employment Republicans will blame it on Obama.
If we have mounting Federal deficits, trump will tweet "deficits don't matter". If that does sell he will blame it on a conspiracy between Clinton and Obama.
In short Republicans will take no responsibility for their own actions.
7
Political disaster? In prison, pedophiles get shivved. In Alabama they almost get elected to the U.S. Senate. I see a median education level in the country, in too many states, north and south, that precludes GOP malfeasance from being punished. Besides, tax cuts are hard to roll back which is why they've slid steadily downward since FDR, juicing the economy with sugar water rather than through value-add investments in education, infrastructure, health care, and environmental protection. Before PK knows it, the tax rates for the rich on income and investment returns will be cut yet again, joblessness from automation will reach epidemic levels, the rich will build walled-off communities as they do in the third world, and the Brown Shirts, in partnership with the walled-off rich, will purge the rest of us.
3
The unpleasant truth is that today's white non-college educated working class person is not your grandfather's white non-college educated working class person.
Eighty years ago, there were many very intelligent people who did not attend college because of financial circumstances or because of discrimination against their race, religion or gender. Henry George, arguably the most brilliant American economist of the 19th century, left school at age 14. President Harry Truman was not a college graduate.
Today, with many exceptions, someone under the age of forty who was never interested in college probably is not very smart. That makes them vulnerable to the lies that got Trump elected. Even some with college educations are not able to understand that NAFTA and trade agreements in general increase employment and standards of living and that immigrants are not responsible for slow economic growth. Democrats can never hope to lie better than Trump.
"..Trump would have no hesitancy in stating after any tax bill is passed something to the effect that: "The middle class got a giant tax cut and the rich did not, don't believe anyone who is telling you otherwise, especially the fake mainstream media, your accountant or H&R Block.."
https://seekingalpha.com/article/4119553
1
What about the revenue predictions Krugman? Yesterday you said:
"administration projections of approximately a 2.9 percent real G.D.P. growth rate"
"the assumed acceleration in growth, which comes out of nowhere, is extremely high"
What a blatant lie of omission!
You did not tell readers that the 2nd and 3rd quarters of 2017 (most recent data) grew at 3.2% annualized (Source: Bureau of Economic Analysis). Mr "Nobel Economist" should still be able to calculate that 2.9% is actually a deceleration from recent growth rates, not an acceleration as you falsely stated. It may be your opinion that 2.9% is a high assumption but that does not alter the facts.
These may be the opinion pages but the writers should still be subject to basic editorial standards that require factual honesty.
That was a projection of 2.9% in REAL GDP, that is, above inflation. With inflation running at 2%, that would mean a 4.9% nominal increase, well above the current level.
One of my concerns is the capping of mortgage deductions. Will this lead to a new housing bust that tanks the economy? I would be interested in your thoughts.
5
The world will go on. The debt will increase without disastrous effects on the economy, but some people will be hurt. We, the common people, will get nothing from the tax cut. We won't get improvements in infrastructure that would improve competitiveness, would actually generate jobs, potentially increase demand and possibly expand the economy. Costs to visit national parks will go up which means that only people with money can use them. There is a good chance that medical costs will increase because of the removal of the individual mandate. There is little reason to believe that wages will increase. The rich by combining the tax reductions directly in bill and the loop holes that have been created, get incredibly richer. There is a good chance that Medicare will be nailed because of the increased debt, so the over 65 crowd will be squeezed. Oh well, just another day in Republican America.
4
There is going to be rush to cut back on taxes - the 20% rate is too temping and the plan is an open door for anybody not getting a W2 to find an accountant and cut their taxes more than the Republicans are planning.
Can we start to think about how the 2021-2024 Dems can act to correct this farce. The early 20's will likely see a major recession and the Keyseian cure will call for real government stimulus. But the deficite generated by the tax plan will not leave us the space for the extra spending and the need for real stimulus will not allow for just reversing the Republican tax scheme.
So what might be possible. Some things are obvious like jack up the estate tax, but although that would get rid of the fat cats that pushed the Republicans it won't stimulate the economy. Today some may think we could just put the corporate tax rate back to where it is now but corporations are not bound to geography, they would just move. We could add some higher tax brackets maybe even the old 90% rate but it would not get money fast enough to meet the demand for stimlus.
But the solution could be doing away with the idea of corporate tax. Corporations just pass on their tax so why pretend that is a hiddentfrom the public tax. Instead we could just require that corporations track their ownership to the next larger second and at the end of their tax year they send a notice to all shareholders that their share of corporate profits is $xxx. Shareholders would then be required to add that amount to ordinary income and pay the resultant tax at normal tax rates. At the same time we could simplify the defination of corporate profit as corporate deductions would be irrelavant.
When the chickens do come home to roost, I bet the base will blame Democrats or Obama. And if they still can't do that they'll claim fake news! I'm really impressed by the Republicans to use every angle to win elections (gerrymander, have the supreme court intervene as in 2000, gut voting rights acts, have local media controlled thoroughly by the Sinclair group, and even do a hail marry with Comey...) I wonder what they have up their sleeves for 2018 and 2020.
2
I don't think any damage to the pocketbooks of the non-investment class Republican voter will result in them abandoning the R party even if the markets crash. Their well funded (thanks to the expanded tax exemptions for churches passed as part of the Civil Rights Act deals) preachers will continue to rage from their pulpits and Fox News and conservative radio about Abortion! Abortion! Abortion! and they will toe the line. This boogie man will be spiced up with threats of Gays infiltrating every restroom and schoolyard, their very own neighborhoods, preying on their sanctity and purity. And to frost this hideous cake, they will threaten the loss of their personal arsenal as the mysterious "they" will come for their guns. It gets them every time, no matter how low their incomes sink.
21
Abortion politics has almost aborted the US.
1
Don't forget that the right-wing radio jocks have been telling them for 30 years that all of their problems are because of evil, poor Democrats in other parts of the country mooching off of the government and ruining things for everyone. They've also been telling them that they can't trust anyone who tells them information that contradicts the Republican party line.
2
It is almost satisfying to watch Republicans toss off their conservative position on the national debt like a Harvey Weinstein bathrobe, and just go after the money for themselves and their donors. Now we can stop the charade about conservatism and accept what it has become--greed and bigotry.
12
Don't count on people remembering what idiots the Republicans were to pass the tax bill. They will come up with some cockamamie reason why it's the Democrats fault and have their shills proclaim it as truth. The big test will be when the next recession increases federal expenditures, and there is no wiggle room to deal with it.
I also love the comment about centrists. They are the ones who have given us the tweeter-in- chief, and they will be the ones to blame both sides.
6
A phrase stuck out in your piece, Mr. Krugman:
"Pure political poison."
On the show "Gunsmoke" years ago, there was a bunch of bad guys. Really wicked people. "Oh the dirty dogs," my Mom exclaimed. They waylaid some kind of wagon train loaded with jarred sausages. Destined for the poor and helpless. They wanted all that food for themselves.
BUT THE SAUSAGES WERE CONTAMINATED.
So we had the pleasure of seeing this or that bad guy suddenly grimacing and doubling up as the food poison hit his system. Hurrah!
I DO NOT WISH BODILY HARM TO THE REPUBLICAN PARTY.
Not this child!
But I long, Mr. Krugman, to see them handed dose upon dose of "pure political poison" in 2018. Or in 2020. In voting booths, in voting precincts all over the nation. That is my ardent hope.
Will it come to pass? Well--tauta theon epi gounasi keitai. As Homer wrote long ago.
"These things lie in the lap of the gods.
We can but hope. We can but pray.
Thanks for a fine piece. As usual.
7
What if there are no gods? Hoping and praying might make oneself feel a bit better but concrete, boots-on-the-ground action is the only thing that will create change.
America was great before the 2016 election--it isn't anymore. We need to change that.
7
There is also a famous account of a baboon troupe led by a circle of bullies that was utterly transformed to a happier state when the bullies hogged a poisoned carcass to eat themselves.
Don't bother praying. Nature has no ears to listen and no emotions to care.
I've been certain for some time that we are witnessing a society in death throes, and wondering if our ultimate destruction would come from within or without. Alabama gave me a glimmer of hope, quickly dashed by the recurring onslaught of Republican barbarism.
6
By the time the full affects of this dog would have been felt, there will be a Democratic congress, Trump will be on his way out, God will be in his heaven and all will right with the world...please, Santa!
5
The far side of the sky is, at the very least, 13.5 billion light years away. It really is silly to believe we live in a divine creator's goldfish bowl.
If the GOP and Trump think that States with millions of people who are now able to take SALT and mortgage interest deductions will take this lying down, they are clearly stupid, arrogant, or both. As soon as this legislation is signed, lawsuits will be filed over the SALT deduction in federal court.
At last 40% of the total personal income taxes heading to federal coffers come from states like California. Yes, California, with the worlds 6th largest economy, and where voters decide to tax themselves by repeatedly voting for referendums that take tax money and spend it on local improvements. We don't ask for much federal welfare, unlike those States with tiny populations backed by 2 Senators.
I think that I will end up paying 3 to 4 thousand more in federal taxes. I have not planned for this. My cash flow structure is designed to pay my taxes using the 2017 formulae. And ALL of the GOP representatives in California know it. Each and every one will have to face angry homeowners with signs that say: You Raised My Taxes.
Even Rep. Darrell Issa, no friend of Democrats, is desperately trying every means to block this. He, Dana Rohrabacher, Ed Royce and Mimi Walters know that their goose will be cooked. So does Tom McClintock and Darren Nunes. Even Kevin McCarthy is felling the heat. California will have one or two GOP left in DC one year from now, and the entire Party may as well pack their bags.
11
It seems to me that Paul Ryan skipped over the parts in Atlas Shrugged where Ayn Rand excoriates "pull" as a horrible corrupting influence to government, or he is a stone cold hypocrite--you decide
Ryan is such an awful reader he doesn't evenrecognize himself as the Wesley Mouch character in "Atlas Shrugged". The man is an empty shell of nothingness.
It's about time someone called out the 800 pound gorilla in the room; the Koch far right libertarian destroy all government agenda funding of a Radical Republican hit list of everything that protects the environment and people from predatory capitalism.
It is a coup-d'etat intended to create a billionaire oligarchy, where they can do whatever they want with impunity. There is a word for this - treason.
10
Right you are!!
1
You can still deduct contributions to the Cato Institute on your personal tax return yourself.
It will take a Democratic President and Congress to reverse the damage created by the all-GOP government we have now. The terrible tax bill, reversals of environmental regulations, continuous attempts to destroy the Affordable Care Act, Trump's stupid Executive orders all have churned up a lot of bad results for America and it will take a long time before sanity is restored. In the meantime, Americans really need to think long and hard about the kind of leaders who they want to run the country for everybody's benefit, not just some!
5
Kansas here we come!
5
I remember when Regan considered ketchup a vegetable in public school lunches. That was obscene, but it doesn’t come close to what the Republicans have done to CHIP. Children!
I’ve no doubt that this is just the beginning.
How on earth can this tax plan pass? I’m disappointed in Susan Collins and have to agree with Paul Krugman that it’s too iffy to hope for “centrists” to exercise sound judgement in this surreal political climate.
Paul Ryan should be in jail. Trump is just a disgusting smokescreen while the Troglodytes have been busy at play.
4
No one expects optimism from the Left.
1
I've watched the US grow steadily more infantile ever since the Congress had the cheek to declare this madhouse "under God" in a law that became effective when I was three years old. Trump is practically a fetus.
>>>We know what Ryan and McConnell will try to do: they’ll try to use deficits as an excuse to cut safety-net programs. But will they be able to get away with this with the memory of the tax scam still fresh in everyone’s memory?<<<
Quite naive, this idea. On a given day, most Americans are one terrorist attack or one illegal war away from a state of permanent memory loss. Don't forget that.
4
Every headline in the future that relates to our nation's destruction, i.e. to rising debt, greater inequality, lower taxes & loopholes for corporations and billionaires, cutting social security, health care, education and other programs, should start with the words: "GOP's massive tax cut for the wealthy has resulted in ... (insert the bad news here)". Maybe at some point the dumbest in this country will get it. I doubt it, but maybe.
6
One question is whether the next stock market crash will be nown as The Crash of 2017 or the Crash of 2018.
First.
Prices in the stock market are supposed to incorporate expectations. People investing in the stock market think that company profits will soar as their taxes are “reduced”. They forget that these companies pay essentially zero income tax, so that a “reduction” of 35% to 20% is irrelevant to them.
Second.
Stock prices are the product of current earnings multiplied by the Price to Earnings ratio, P/E. The faster earnings are expected to increase, the higher the P/E ratio The Tax/Jobs Cut Act is a one time occurrence. Best case scenario: earnings will increase once and then hold steady. Therefore P/E ratios will drop dramatically and so will stock prices.
Third.
Since more stock is not being issued, when some people buy stock other people sell their stock.Who is doing the selling? Why? Don’t they expect stock prices to continues rising? Why not? How is short interest doing? Who will be this time’s “The Big Short”?
Last question:
Wat will happen to the unemployment rate if the stock market does in fact crash?
2
Stock market indices are become fake news as more companies are taken private, disappear into mergers, and companies buy back their own stock. Cutting the supply of securities increases their prices. There's some supply side economics they don't talk about.
1
Instead of asking what the GOP might do - ask what their bosses (i.e. Koch Brothers) are demanding for their buying of GOP. BTW, the KOCH's need to be continuously called out for this awful tax scam especially while they do their 'charm' offensive through their 'advertising' on various media outlets including NPR.
3
Advertisers call the shots at media companies just as donors to university endowments call faculty appointments.
Does anyone out there believe all those prescription drug ads are aimed at them?
What "if" it's a disaster......there're is no way that it won't be.
4
Republicans are really becoming masters at this scam. Cut taxes while they have power, let Democrats take the blame for resulting deficits.
3
Despite Kansas revenue disaster, Kobach is favored to win governor.
1
There could be a host of scenarios that come from the new tax bill, if it actually passes. The first problem I have is believing anything about the plan that I have not actually read. Both bills are available on the respective websites, and yes they are not 100% current.
Second problem, anything Trump says about the bill is a lie.
Third, creating a $1.5 Trillion dollar hole, simply to remain in office is bad, and of course, accompanied by 15-20 other negatives.
Burn this thing, in a trash can out on the East Lawn, and start over
3
so simple.. LUXURY TAX 10% on all non necessities.. including expensive bottled water!!!
1
The GOP owns this disaster. Forget fiscal responsibility and balanced budgets...give the big donors their tax cuts and to heck with the deficit.
3
That weasel Ryan is already licking his chops at the thought of cutting medicare. I agree that if he seriously pursues a program to affect these cuts, he will experience a hurricane of protest and deserved public abuse.
3
The public has already made up it's mine---they understand that this bill is trickle up or let us say a fire hose blast up. And now, as with Obamacare, watch the Republicans try to message this bill in a positive way---with the same results the Democrats experienced with Obamacare. At least with Obamacare, eventually, the middle class experienced some relief, but with this tax bill, there is no relief built into the bill, must a lot of pain.
2
I hope you're right. Since the 2016 election I had nearly come to believe that no bait and switch was too far for the Republicans and their no-information voters. But this morning the voters of Alabama have come close to renewing my faith. It may be a low bar to have a well-qualified Democrat beat a unrepentant bigot and pedofile, but it's a start.
2
"hostile media coverage"? That's just fake news. The right won't hear it.
3
Paul, you might want to review your comments on election night 2016:
https://www.nytimes.com/interactive/projects/cp/opinion/election-night-2016
What if it's Not ?
>
It will be a "Revenue Disaster", moreover, people with functioning brain cells know what will happen, but the human being being what it is, generally stupid, self-centered and only excels at folly, wants its tax cuts, dam the torpedoes.
There is plenty of documented history here to backup my proposition.
“Why are groups so blind and stupid?—men have always asked. Because they demand illusions, answered Freud, they “constantly give what is unreal precedence over what is real.” And we know why. The real world is simply too terrible to admit; it tells man that he is a small, trembling animal who will decay and die. Illusion changes all this, makes man seem important, vital to the universe, immortal in some way.”
Ernest Becker
1
I think Freud missed how rampant projection is among human animals. One cannot imagine any other animal believing the universe was created by one of its own.
Yep, the Republicans are bad, very bad. Now that we'v got that out of the way where the heck are the Democrats? Twiddling their thumbs in the corner when their not getting rid of one of our most effective senators. Stupid, very stupid, no press conferences, no opinion pieces, no speeches, no nothing. And if a ranking Democrat had something to say the press might very well ignore it unless it concerned sex.
So we are just going to lie down and roll over while the Republicans enact the most awful piece of legislation anyone can remember.
3
and a piece of legislation that I think polls state is opposed by 70% of americans.
The GOP has essentially been running a con game on the country for decades now.
5
What happens if the tax bill is a revenue disaster?
Then Lord help us.
1
"What If"? There's no question it will be. That's a feature, not a bug.
1
Passage of the Tax Bill will be a rhetorical catastrophe for Republicans and a boon to Democrats in the 2018 elections. Elimination of the estate tax for rich billionaires and the loss of healthcare benefits for millions of Americans will cost Republicans votes. Republicans will be vilified by deficit hawks and reviled by progressives. For Republicans, there will be a Roy Moore reckoning for putting the likes of Trump, an equally unfit person, in the presidency.
2
If the hypothesis is correct (less revenue than anticipated leads to economic decline) is this better or worse for Russia? What better could Putin & Trump LLC have done?
1
I believe effective interest rates on our national debt will rise because we have shown ourselves to be a risky nation to lend money to. Do you think the people who buy our bonds have not heard that we elected a President who suggested that the way to deal with the debt is to just not pay it? After all, that is how he ran his business for decades-----
3
How much Crazier can the GOP leadership get on Taxes?
No Hearings, One Page Treasury Justifications, Manufactured Economic Facts? The party of Lincoln seems to have gone completely off its wheels. What did Old Abe say, "You can Fool ALL the People, Some of the Time. Some of the People, ALL the time. But, you cannot fool ALL the People ALL the Time.
It appears that the National GOP Leadership really WANTS to give the Democrats back Control of the House & Senate in 2018. And THEY call this 'nonsense' Leadership.
WELL America, it does appear that, that not only DO Democrats care more about the vast majority of Americans, but are REALLY better at Governing. Who Knew! Merry Christmas, America!
2
I'm middle class, married, no kids at home, in my 70's and retired. I know exactly how much in taxes I have been paying to all taxing authorities each and every year. From my reading of the proposed new tax law (the little information we have been allowed to see) I fully expect my overall taxes (federal, state, county and township) to go up by 1/3rd or more. I realize that our country is all about money. I have believed in the past that here the poor got helped, the rich got richer and the middle class paid for all. I've now been forced now to amend that to, the rich get much richer and the growing poor and shrinking middle classes pay for all. I will never again vote for a GOP candidate. They are two faced and lieing out of both. My only hope is that when the rest of electorate bothers to vote, they will send the GOP, G for Greed, out to wander in the political wilderness for at least 40 years. If you get the idea I'm angry- you are correct!
7
Reducing taxes looking for an increase in economic activity has been tried
(Ronald Reagan), tried again, (George Bush) and now again (Donald Trump).
Experience, data and analysis are consistent that it does not work.
In looking at the current tax bill all some of us can ask is “Are we up against
a conflict over an understanding of economic processes or are we dealing with a learning disability?”
Experience, logic and data all support the Krugman position. Thie pending bill is a straight--forward wealth transfer. The very wealthy get more. The little folks get something but not much.
Ryan and McConnel know what they are doing. They are passing a credit card
To people who think like impulsive teen-angers. They are in effect stating,”Max it out.” “Do not worry about paying for it: we will cash in Mom and Dad’s retirement (social security) to pay for it. This all seems so obvious. It is bewildering there is not more rage.
3
And Krugman has never been wrong before. DJIA will fall?
US Treasury receipts are up sharply Oct-Nov the first two months of '17-'18.
All that needs to be understood about the intellectual honesty of the republican tax bill is evident when you read Mununchin's Treasury analysis of the the bill's impact on the American economy.
The one page "analysis" put forward by the Trump administration in support of the republican plan would be ridiculed by any competent management team in any American business. It's author(s) would either be fired for incompetence or would never be allowed to address management again.
Anyone who continues to voice that Trump and his appointees bring business expertise to government just has never worked for an honest or competent business.
Seriously, how does any thinking person justify being a republican?
2
Paul Ryan's father, a lawyer, died when Paul was 16. Paul received Social Security Survivor's benefits. He used those to pay for college. The receipt of that money did not prevent him from reading and believing Ayn Rand's nonsense fiction. It did not tech him the lesson that such payments help people with few resources to weather an unexpected problem.
Now Paul wants to take away such benefits from others.
Nice guy, right?
6
Oh, no, Paul! (I may call you Paul?) You've done what honest, conscientious people spend a lifetime doing, never imagining that someone like Donald Trump will climb to the top of the national tree and hurl down coconuts (or worse) on them for doing it.
You've acknowledged that you sometimes give in to the temptation to engage in motivated reasoning, and then apologize. Now, I would say it's human to give in, honorable to apologize, and admirable to own up to it all. I would say that. But Donald Trump would -- and possibly will, tomorrow morning -- say, "He admits his reasoning is motivated! He knows he has to apologize! FIRE HIM!"
Still, I wouldn't want you to stop being honest and conscientious. Your time will come again.
"... a political disaster for the GOP as it becomes even clearer that their tax policies reward scammers."
But wait.
The Republicans have been scammers since Reagan, and now they have a scammer on steroids as their President.
And they have not been penalized all that much, if at all.
The Republicans have been able to fool enough of the people for a very long time.
I wish I could see that changing, but I don't, even with the temporary victory in Alabama. Jeff Sessions will quit as Attorney General, come back to run against Doug Jones in 2020, and win in a walk, as Alabama goes back to worrying most about football.
My heart is with Paul Krugman. My head unfortunately is with Mitch McConnell, Paul Ryan, and, indeed, even Donald J. Trump being able to continue to get away with it just enough.
And counting on the media to call out the Republicans?
That a bit like saying that network anchors won't be blow dried, in substance if not actually in their hairdos.
1
A significant factor is missing from this analysis: monied interests are gaining power to influence public opinion. Faux News will be supplemented by Koch-bros controlled Time, etc. At a simple level, Pavlovian psychologists have studied the effects of confusion when stimuli cannot be clearly identified. Internet marketing intensifies this phenomenon. Especially with Lyin' Donnie Trump, the fog of political disinformation reduces much of the voting public to emotional salivations.
1
The economic political disaster could be overshadowed by a Constitutional crises - or a war, likely concocted with Iran next summer.
1
"Starve the beast" has been the GOP mantra all along; why should we be surprised when they do exactly what they've been trying to do for the past 30 years or more?
Tax cuts are sold as much needed relief from an oppressive, liberal government that "steals" your hard earned dollars and gives them to people ("others") who are too lazy to work.
Deficits that are caused by said tax cuts are instead blamed on those awful "giveaways" that they've been griping about for decades now. So of course you cut the deficit by cutting the "giveaways."
If the American public does not put a stop to this algorithm, we can expect the same results we saw in Kansas. If we do, we can expect the GOP to spew the same nonsense that they are in Kansas, and the same thing they shouted during Roosevelt's New Deal: you didn't give the market the chance to correct itself.
This is the problem with this approach: continued focus on the long run results in enormous pain in the short run - which doesn't much help the long run after all.
3
If it is a revenue disaster you will never hear about it. The News Media has the attention span of a Gnat. They will have moved on to breathless coverage of some celeb whose jeans were torn too high.
You say the inevitable next move--cutting services to reduce the deficit--will be a "bait and switch too far" for "centrists" and the "media." Surely you jest. Ryan and McConnell, or whomever comes next, will find the right advertising campaign and the right time--and it might not be when the tax bill is "fresh in everyone's memory"--and the right targets--who will not necessarily need to include "centrists" or the "media" but who may include a base of foaming at the mouth alt-right fools -- and they'll sell it as something other than poison.
What Happens if the Tax Bill Is a Revenue Disaster?
I don't think it can do anything but take us into negative revenue territory, after all that is the intent of it! They won't be able to attack social security and medicare unless they create a revenue crisis.
I like your work Mr Krugman but I think the better question to find an answer to is:
Why don't the people realize that every move the republicans make is intended to decrease revenue so they can justify shrinking our government services? Or
Why don't the American people who vote for republicans realize that the republicans intend to do them as much harm as they think they can get away with by distracting them with trivial arguments about religion or medical care for women or some other tangential personal issue voters have no legitimate say in?
58
I'd say probably the one-issue voters are a large part of this -- anti-abortion, for one. There's also Fox News. And a backlash against identity politics.
Well, we'll see what happens Nov 2018.
Krugman says "we're a long way from the kind of situation in which America would become so dependent on the printing press that we're looking at hyperinflation."
Our national debt is already roughly equal to 100% of GDP, which for most countries would be the danger zone.
Setting aside American exceptionalism, I wish Krugman would be more specific in explaining why we're not at risk of hyperinflation in dealing with the national debt. When a nation's debt becomes unsustainable, hyperinflation is often the inevitable consequence.
At what point would Krugman start worrying about our national debt? When the debt reaches 150% of GDP? 200%? When interest rates start to climb? When debt service becomes 30% or 40% of the budget?
Do we do something to head off a debt crisis, or do we just wait until there's a meltdown and then panic a la 2008?
1
It appears the Republicans have forgotten that much of the wealth of the nation was produced during a period of time when taxes where high, and the New Deal programs were in high gear. Now that the Republicans have enough (although they always want more) money for themselves, they want to pull up the ladder so nobody else can climb up to where they are. They also seem to not know that they can only make money when there are people able to buy stuff. The economy fails when there is nobody to consume the supply. I would think that businesses, if they cared about long term stability, would want to push as much money at the consumers as possible. Like Krugman has said, the 99% spend close to 100% of each marginal dollar, while the 0.1% spend a fraction. The economy runs on money. The faster money circulates through the system the more the economy can grow. $1 recycled 100 times through the economy in one year produces more economic activity than giving $100 to somebody who does not need it.
4
For what it is worth, giving the already rich more money is a direct extraction of money from the productive economy. The rich just put it on top of the obscene pile of savings they've already filched from the productive economy. That's why private spending is comatose investment rates declining and private debt above where it was pre 2008-09. So, recession here we come. And it won't take too long either.
5
The country could grow and prosper but it would have to raise taxes, set broad economic goals with the help of government, and undertake decades of rebuilding and a lot of debt to establish a sustainable way of life. But it cannot happen while Republicans promote their every person for themselves policies.
Huge disparities of wealth and political power skews economic performance to serve the preferences of those who control the wealth. When the new wealth created is shared so that society can fund common needs and all are gaining enough additional wealth to continue to buy more goods and services, then the economy grows and everyone does better. Growth becomes a problem when it slips out of the dynamic balance, when demand cannot be funded by new wealth and debt alone is driving it or when too much money is driving inflation. From 1942 to 1973 the new wealth created was transformational and widely shared, it made the whole country more wealthy than ever before. Yet, the national debt was always very high. It was the always reliable increasing demand funded by ever increasing growth that allowed this to happen. But eventually there were externalities which brought this to and end, political like wars and foreign affairs issues, lack of economic policies which allowed the private sector to choose profits over critical innovations, and social which turned the majority who had supported mutual risk programs into opposing them where it included discriminated minorities.
4
I listened to an interview of the CEO of Southwest Airlines on NPR yesterday. He said Southwest is doing very well right now, without the tax cut, and had invested in some new planes. When asked about the effect of the tax cut, his response was carefully worded. He said that the extra money would give Southwest an opportunity to purchase more planes and give its workers a raise. He did not in any way promise to actually take those steps. So, as is likely with most corporations, the money will be used for stock buybacks, increased dividends, pay raises for the CEO, and parking in offshore tax havens. It will not be used to stimulate the economy, create jobs, or make ordinary people's lives better.
6
The conclusion is generally accurate. However, by gutting the social and safety net programs and then losing the mid-term elections the Republicans will put a Democratic Congress in opposition to a sitting president and trying to raise taxes to re-establish the funding for the social and safety net programs. Of course, Trump (or Pence) will veto any such legislation leaving the Democrats holding the bag for not fixing the problem as the 2020 elections loom over the political horizon. The so-called conservatives will blame the Democrats for the fact that the social and safety net programs no longer meet the needs and wants of Americans, many of whom used to carry signs reading: “Keep your government hands off my Medicare/Social Security” and in the 2020 election the Democrats will be on the defensive (again) as Trump (or Pence) seeks another presidential term.
4
What will happen is what has always happened. The working classes in America will pay the price. We, not the corporations or the uber rich, will lose everything. we will lose our savings, our IRAs, 401(k) plans, access to medical care, homes, you name it. But the Koch Brothers and their like minded friends will continue down the garden path until the angry mob catches up with them. But there won't be any justice for those who have truly suffered.
It's strange to think that this country, founded in a rebellion against taxation without representation is committing the same errors it rebelled against. We have a Congress that prefers to ignore 95% of us, that claims that unemployed people are lazy and don't want to work, that none of the health care systems that work in other countries can be adapted to work here even as ours is clearly failing (partly because the GOP wants it to fail), and that identity politics don't work even as they practice them.
If anyone outside of the United States tried to inflict this group of people upon us we'd go to war or we'd oust them in NY minute. And setting aside the fact that Russia did influence the election, it's still sad that enough Americans vote for the GOP under the illusion that they care about the average American. This is how they care about us: as a source of cheap labor, taxes to pay their government sponsored jobs, and rubes they can lie to all the time.
11
So the tax cut bill will distribute over a trillion dollars to corporations and wealthy people. The corporations will use the money for stock buybacks and dividends. This will increase the wealth of the CEOs and stockholders. We have been told that about 40% or more of these stockholders are already out of the country. The wealthy will not spend this money on things since they already have all the things they want. They will bury the money overseas. Thus the tax cut will mostly just send money into accounts out-of-the country and not stimulate anything. The markets will not decline but the interest payments by the government will increase, further unbalancing the budget. How will this affect the rest of us? There will be less spending, no further infrastructure rebuilding, no expansion of businesses. I foresee a real decline in the economy and a likely slowdown with local taxing facilities hard hit. This means a worsening of the schools, roads, transportation, and hardship for real people.
10
Paul, it will be interesting to see how the Senate deals with the kinds of regressive GOP legislation you mention now that Doug Jones is there. His one seat changes the political calculus significantly. If the tax bill isn't passed before he takes his seat, then it won't pass, and the country wouldn't have to speculate about the impact of exploding deficits it would cause. The same is true for all the other Ryanesque bills meant to eviscerate the middle and working classes, especially in their later years. The entire GOP agenda could collapse like the house of cards it is. And the tax bill is the linchpin for that.
America should hope that there are enough Senators who really do care about their country and would vote against this bill. While the bill itself might not affect the deficit explosively, as you say, it would certainly cause inequality to widen significantly, and that will hurt the country in very foundational ways. So, the best bet for America is to find 2 Republican senators with actual spines who can stand up to their donor-driven colleagues and not support the insanity of the tax bill and other nonsensical legislation coming up.
It's better to be an American than a Republican, after all.
5
Not really since McConnell is up to his old tricks and refuses to seat Jones until after this session ends so they still have Strange to vote their way as long as they get a bill ready to vote on before the end of the month
1
I'm surprised at the use of the word "if" in this headline. It IS a disaster, and it will be a major undertaking to recover from it when a new Congress takes office following the 2018 elections - and Trump's loss in 2020.
1
What happens if the Republican tax bill is a disaster?
The Republicans would be delighted. Their objective is to cut off the revenue needed to fund government programs. In the Republican world, a revenue shortfall produced by the tax bill means that the tax bill was better than anticipated. That's a cause for joy and celebration.
There will be no joy for the rest of us here in Mudville.
4
Ronald Reagan signed off on several tax increases during his presidency because his so-called tax cuts short changed the treasury. President Trump will never do sign off on tax increases (and the GOP will never go for it.)
2
It is a path for the Republicans to achieve their long sought goal of attacking the "New Deal" entitlements regardless of the damage. Astonishingly, the Trump voters are surely going to be significantly impacted but seem deaf to the oncoming train wreck! However, as in the past, the Republican base will continue to vote "values" and against their own self-interest.
3
Kansas raised their sales taxes in an effort to offset the income tax reductions the Republicans put in place. Brownback and the Republicans in charge allowed the Kansas Dept of Transportation to raise a billion dollars by selling bonds after they had moved money allocated for road repairs to the general fund. In the end, after the Supreme Court insisted the state had to fund our public schools, income taxes had to be raised again. My suggestion to the Republicans in Washington is, “Don’t do it!” The problems they will cause by instituting a tax cut far exceed any benefit they might see.
3
Correct. Brownback's "experiment" in cutting taxes to near 0 for companies/businesses on the false premise that it would create jobs and therefore increase tax revenues, went exactly the opposite. Companies/businesses profited the tax savings, no new jobs were created, in fact, jobs were lost in the 1st 2 years of the experiment, revenues went down significantly, schools underwent 9 consecutive budget cuts, and roads/bridges/infrastructures were put on a 50 year maintenance plan versus the old 10 year maintenance plan. After 4 years the experiment was a complete disaster, Brownback was thrown out, and the taxes were restored. Be prepared people for the same thing on a national level.
3
I'm confused - either this is a massive tax break for the rich, or the elimination of the SALT deduction increases the taxes on the rich...which is it?!
The cap on the estate tax just doesn't move the needle that much (there aren't that many people with +$10 million estates dying each year)...so please enlighten me why this will "crush tax revenue".
The SALT deduction is chump change for the truly rich, they are going to exploit the pass through deductions, the elimination of the AMT and other plums along with the reduction in the corporate rate, which will give them better dividends, stock buy backs to increase the value of their equity holdings. The whole point of sunsetting most middle/working class breaks is to pay for the lost corporate revenue so as to get the scoring necessary to ram this through on reconciliation.
1
Add the tax cuts for the investor class as the other main reason the republicans lost the senate seat in Alabama. The message sent on Tuesday was clear, the political fallout from this bill potentially spells disaster for the republican party, and will help to dispel the notion that this legislation will be any sort win for this president. This political spring belongs to the 99% and it will chew up one and all who choose to ignore, or fail to understand, the nature and breadth of what is transpiring on our planet in these times.
3
Wait a minute, Paul Ryan recently said that once the tax reform bill is signed into law the next thing will be to reduce entitlements. That's already part of the plan whether smart tax accountants begin to exploit loopholes or not.
2
I have to return to a quote I made before re Ryan and Mnuchin. "Economics and Finance is about adding and subtracting properly ... even a child can understand it when properly explained." It seems, however, that if anyone in the republican party tries the task he/she will be dismissed.
2
Wait, you mean that if I were a billionaire with only five yachts to serve my eight sea-side mansions, I won't rush out to buy three more yachts?
I, too, am beginning to think that the stock market might not crash immediately when the deficits soar, even though it is obviously in an expanding bubble. My reasoning is that the stock market is no longer an indication of the overall health of the economy. When rich people and rich corporations have no other place to put all their accumulating wealth, they buy stock. This tax giveaway to the rich will only add to this problem. Buying back the corporation's stock has the benefit of inflating the value of your stock options. When this goes bust, it will be far worse than 2008.
1
This "bill" will take the Kansas model national. The only question is about the about of damage done before the voters throw the perpetrators out and replace them with people who will begin the process to repair it.
2
This bill is terrible. Where is the money for education, for infrastructure, for climate change, for housing, for strengthening Social Security and Medicare and Medicaid?
So many things can happen in a decade to derail any possible increases in growth. We should be making our economy stronger, not weaker, now.
4
"I just don’t see a market disaster even if we see the expected epidemic of tax avoidance."
In fact, we have been in an epidemic of tax avoidance for years. That's why we have loopholes and off-shore bank accounts like Mitt Romney's in the Caymans. This tax bill would merely exaggerate what is already the key factor driving income inequality. 'I don't pay taxes because I'm smart (and rich).' is the prevailing ethos.
We need to stabilize revenues so that we can pay for government services our people are entitled to and for infrastructure. Paying fair taxes is patriotic, which the Republicans no longer are. They stopped believing in our democracy 4 decades ago. 'Government is not the solution, it is the problem.' SAD.
3
This proposed tax system and the enormous overhang of trillions of dollars in unstable CDOs and not forgetting a possible war by an unstable Trump could bring the US monetary system in crisis. Arguing that the US cannot run out of money because it controls the printing press of the international transactional and reserve currency shows how deficient the international monetary system is where a domestic currency can be an international currency.
I for one support the search for alternative international monetary systems. I have proposed a carbon-based international monetary system with its monetary standard of a specific tonnage of CO2e per person. The conceptual, institutional, ethical and strategic dimensions of such system are discussed in Verhagen 2012 "The Tierra Solution: Resolving the climate crisis through monetary transformation". A noted international climate specialist stated: “The further into the global warming area we go, the more physics and politics narrows our possible paths of action. Here’s a very cogent and well-argued account of one of the remaining possibilities.” Bill McKibben, May 17, 2011
1
I cannot disagree with Dr. Krugman's conclusion. I am also wondering what will happen with military spending, given that there will be no revenue. I am assuming the US will not change its hawkish ways and will just run bigger deficits claiming that social programs are the true issue.
2
Some assume that the estimated deficit of the proposed tax bill was an unintended consequence due to the rush in putting it together. A more cynical view, and correct one from my perspective, is that it was very much intended as the perfect pretext to now reduce federal benefits and safety nets to make up the difference.
1
You propose the idea that they will ignore the deficit and leave Medicare alone. But that is the second of two central reasons for Republicans to slash taxes on the rich. First of course is to appease their billionaire benefactors. But second is the gigantic excuse to slash Medicare, Social Security and Medicaid.
My guess is you know that well and clear and sprinkled a bit of sarcasm there.
And you're correct that there will be huge headlines of loopholes and tax evasions and when they propose cutting retirement programs paid for by retirees the tax cut will be fresh in everyone's minds.
I just pray that we an take the Congress before any of that happens. I'm 57 and haven't saved the $1 million I'll need to survive without the Medicare and Social Security I've been paying for over the last 40 years.
1
Predictions that future voters will chastise the Republicans for their economic policies and legislative overreach are a fantasy. The American electorate—if it can be generously called that—doesn’t participate in elections, let alone pay attention to anything requiring abstract considerstion of economic policy.
Come on! Suggesting that the American public might suddenly begin to reflect on anything that occurred more than ten second ago, let alone be capable of analytical thinking about it is wishful thinking on your part, Dr. Krugman.
1
Ironically, before this big tax cut 'entitlement reform' was the way to fix the budget.
I do not respect Krugman as a economist and I personally think he is wrong about the dangers of having a large deficit and my belief it will devalue the currency but I have to admire that he makes this argument even when this argument will help the other side.
Contrary to Republican theology, money trickles up in our economy, not down. Assistance (money) provided to the needy shows up on the income statements of the American companies that sell basic goods and services and then back into the hands of the wealthy shareholders. Money to the wealthy is much more fungible. While it may provide capital for more American jobs, it can just as easily be invested in China or India as Main Street. This tax bill is a short term, feel-good bill for the wealthy. It isn't going to do anything to improve the lives of the average American.
My simple mind states: Capital is cheap right now. Giving more funds to corporations will not increase investments (if there were good investment opportunities the companies would have done so already). Thus the extra profit directly flows to shareholders. These shareholders are already rich and will not consume more (perhaps pay a few more millions on auction for a Van Gogh).
Consequence: Reduced tax revenue accompanied by larger deficit.
The aftermath we will leave to politics and the voters. But remember this: Kansas is still overwhelmingly Republican. The lemmings still head for the cliff.
1
I really hate to disagree with Dr. Krugman, because he is almost always right about almost everything. And I only partially disagree with him now.
But I do disagree that this tax bill will not bring about any great crash because its effect on the inflation rate will be negligible. Actually, the crash will come precisely because its effect on the inflation rate will be negative, perhaps VERY negative, and very intractable as we have "starved the beast" to such an extent that, when the crash comes, we will no longer have the resources to fight the effects of an economic downturn.
The concentration of wealth in America is now the greatest it has ever been, far greater than the period preceding either the 1929 or 2008 crashes. As revenue inevitably falls, Republicans will try to make up the shortfall out of Medicaid, Medicare, Social Security, and other government spending that tends to increase markets for goods and services nationwide. This will make America's great consumer base smaller, they will make fewer purchases, and the deficit growth will accelerate.
The overconcentration of wealth is the underlying cause of all of the great crashes, as the demand side of the market equation no has the wherewithal to purchase the goods and services the supply side provides. While there are ways for governments to mitigate this snowballing effect, we have closed off most, if not all, of those ways.
This tax bill is not a "sugar high." It is a hit of crack.
I am usually in complete agreement with Dr. Krugman's assessments. On this matter, however, I find him far too hopeful of a political correction. I fear his optimism regarding the anger of the victims of this scam is is unfounded.
It is reasonable to assume those destroyed by the tax scam would rise up in anger and displace the guilty. An analog of that same reasoning was applied to the 2016 election. And, of course, that turned out well.
David Ricardo strikes again.
Paul is employing an old economic idea to great effect here. He was also right to employ Keynes a few years ago. Someone has to guard the wisdom of the past in times like these.
We need to keep in mind that it's no overstatement to claim that the rich pay almost all the income tax that Treasury receives. The rich should, therefore, know that they are responsible for "repayment" of the cost of future deficits. If tax cuts fail to "starve the beast" it's the future rich who will be on the hook.
The political model is simple: Kansas. You run deficits, ballooning the debt. Eventually, the loudest voices demand to cut back services, and pair it with more "job-making" tax cuts, and sprinkle in tax increases for the lower 4 quintiles for good measure (since they actually use the public services).
After enough time, there's the generally powerless left, a hard right extreme, and a few barely right of center RINOs, wondering where the other moderates went, obligated by party to go along, but questioning why it's completely taboo to think about taxing anyone in the upper quintile. You almost end up with a three party system, in which the left and the RINOs come to some understanding to produce a semblance of a functioning government.
1
Upon careful consideration over multiple decades,
I support a trickle up theory.
Let's help (cut taxes for) the working and rising lower and middle class and then the benefit will trickle up to the 1% who can afford tax planning and flow through shelters. The 1% can sip a fine wine as they discuss tax planning with their counsel and business team.
Oh, right I forgot for a minute the GOP is in "control".
Never mind. (Tip of the hat to Gilda R.)
As Keynes said -in the long run we are all dead- I don't want to have to live through another 3 or more years of Republican disasters in everything from taxes through the anti science and anti human policies of the Repulicans.
1
Let's assume, under this law the ultra rich become even richer, and find that any limits on life's pleasures are unacceptable. Why not fiefdoms such as the princes of Saudi Arabia becoming the norm, with pleasure palaces that expand so that any legal impediments can be eliminated for a price.
Why should a judge only make 200K when indulgences are sold for a large multiple of this. Those with enough wealth have their own small armies of warriors, lawyers, and politicians and why not media enterprises that can pacify those 99% who do not participate in this world of wealth and power.
They form a loose association that redefines the world to protect their wealth from all economic vicisitudes. There will be only a limited amount left for the masses, but they will learn to accept this, and to gain pleasure in promoting the world defined by the few. It will even be given a name -- patriotism; and tears will swell when they think of the suffering they are doing to perpetuate this amazing world.
You also make the conceptual error that economics is measured it wealth, when it is also power. One type is that of the weak over the strong, which had been men over women. There is a rending of this order being disturbed, and this power becoming delegitimized. But it will pass.
The vulnerability of this tax reform law to avoidance is not a glitch, it is a feature. "Paying tax if for little people" and this law codifies this truism
They should go for alternative taxes such as a vat tax or gasoline tax increase
What I love about Mr. Krugman's economic viewpoint is that he factors in human behavior--something conservative economists never take into account.
That said, there are a couple of considerations I believe are missing here:
1) Republicans will create a diversion (war with North Korea, some major civil rights violation, exploit a natural disaster, whip the media into a lather over "religious freedom") which will take news coverage away from their "tax" scam.
2) Republicans will leave the deficit to grow and not significantly touch social programs yet, and accuse Democrats of both blowing up the national debt and raising taxes to pay for Republicans' wildly irresponsible and destructive bills.
Republicans are masters at scam and trickery. They have a very good understanding of how to manipulate people--particularly those who are too busy or lazy to pay attention with any granularity. This is the skill Democrats lack and need to develop if they hope to make any dent in the next couple of elections.
Anybody with a working brain realizes that this 'tax reform' will destroy our economy and certainly lead to another recession - they come regularly when republican are in charge. Next step would be to cut Medicare, Social Security and Medicaid funding to pay for the tax cuts to the rich and corporate America. Paul Ryan's dream of further impoverishing the poor might just come to fruition in the next couple years. But once the republican voters realize in a couple years who is to blame for them being much poorer, the party will not recover for decades. It is not just the economy they are ruining it is our environment, world standing, and compassion.
1
Paul, while I seldom agree with you I do with regard to this tax plan, or should I say lack of plan. I remember an old yarn that stated quite simply—"to fail to plan is to plan to fail.
I'm all for a political disaster for the GOP. They've waged a war against 99% of the American public. They've proven that the donor class is the only one they represent. They've created a situation where we have taxation without representation. The sheer gleefulness they display at cutting off millions from healthcare while supporting pedopiles, destroying our public schools in favor of private schools, dismantling the principles and basic tenets of our democracy, such as the separation of church and state demands that they get their day of reckoning. This independent is all for waging a war against today's GOP.
1
Why would Ryan and McConnell do anything? They have a proven history of ignoring reality. Why would that change? After the tax pill efforts have ended, win or lose, they will be onto the midterms.
Paul, your reasoning makes sense, if we weren't living in the Bizzarro world we inhabit now. Likely the tax windfall to the wealthy will set off another orgy of speculation and unproductive investments in niche businesses, artwork, real estate, etc, like what happened after the 2002 tax cuts. Except now, since we have effectively a one-party government, it doesn't matter what the voters think or want. Only the big donors have influence over their bought politicians. So they are free to cut taxes and entitlements until only the Defense Dept. remains, and the government is about the size it was in say, 1870. What's to stop them now? They have been able to successfully blame everything on Obama, and that will continue to keep their base mad, since they only listen to "real" News on Fox and other outlets of the Propaganda Ministry. And of course aggregate demand will go down, because the people who actually create demand will be paying higher, not lower taxes.
It definitely will be a revenue disaster a la Kansas but it may have a silver lining, the loss of GOP political power on the federal level for a decade or more.
Brownback’s Tea Party legislature enabled the tax “experiment” (his word), in 2013 in Kansas, which has resulted in most Tea Party legislators being thrown out with the dishwater the last election cycle in 2016.
Now tax HIKES are being passed by the moderate and sane, fact based Kansas GOP legislature, over Brownback’s vetos, to infuse much needed cash into picayune projects in the state like public education and fiscal stability.
The same fate awaits Trumpo and his feckless GOP Congress when the economic whip comes down on the naive folks who voted for a celebrity selling a bill of goods he had no idea on how to deliver.
Dr. Krugman, you already know the answer to that:
We'll be told that we don't have a revenue problem. Rather, we have a spending problem.
Several things to consider:
1) Trump’s person now heads the Fed;
2) “cutting safety-net programs (as) a bait and switch that goes too far” won’t be visible to the GOP’s core supporters whose memory only goes back to the GOP’s last win and
3) GOP faced a “barrage of hostile media coverage” when they passed the Tax Bill but they passed it anyway …
I think this is a great opportunity for Democrats to remember the "Forgotten Men and Women", the white middle-class Americans. How? Put money in their pockets. Coal miners don't care if they can't work in the unhealthy and dangerous environ of coal mines if they can make as much or more money in some other job. The key words in that statement are "some other". It's up to Democrats, supposedly educated policymakers to determine what those jobs are to be. Trust me, Abortion, guns, religion become less important to men and women making a lot of money and who see a bright economic future.
It's illegal to negotiate drug costs for Medicare. One thing the GOP never addresses is cost of drugs. So that massive so-called entitlement bill's major obvious cost lies with their bill to prohibit negotiation. Allow negotiation of drug costs for a clear savings rather than attack the whole Medicare benefit.
While we are at it, can they repay Social Security for money taken out for other purposes and never repaid.
Kobach is still saying that Kansas doesn't have a revenue problem, it has a spending problem. Nobody believes him. Fortunately, there is a limit.
If what is required for a political "disaster" for the GOP is that the candidate molested teenagers, rejected the civil rights of LGBT people, suffered disbarment for defying court orders, and spouts radical crazy while sporting the accoutrements of a cowboy (and then only loses an election by a hair), then I doubt that a bit of tax chicanery that favors the business class and causes slightly higher interest rates will end in many "disasters."
All of this gets down to, for me anyway, Manichaeism, ancient Persian philosophy that designated destiny as the eternal battle between good and evil. And, yeah, this gets down to economics.
What we are witnessing under the glare of the noonday sun is the ravaging of the national economy and better welfare of the general public by highly paid professional thieves, otherwise known as senators and lobbyists.
The Koch brothers and others of their ilk want infinite wealth and power. But to take those two as an example: they are in their seventies and not long for this world. Why do they fight so ferociously to cling to every last dollar? Can they take it with them into the after-life, like Egyptian pharaohs?
1
Paul,
"it will end up worsening the deficit by far more than most estimates suggest".
You remain a puzzle and a conundrum to long time readers like me.
During the early and mid and late stages of the Obama administration you wrote fairly frequently about the benefits and necessity of deficit spending. Obama listened by more than doubling the National Debt (that on the books anyway) from 8 Trillion to 18 Trillion in 8 years. Never a peep of a concern from you Paul.
Now, with Repubs in control, you are always worried about the deficit??
I think you should step back and examine your thoughts on deficit spending outside the domain of politics Paul. For example: Did it work for Zimbabwe?
Because, the rest of us, some of whom are familiar with the history of currencies worldwide, have been concerned about deficits since Reagan showed us the way to living beyond our means to fund Military Contractors.
You cannot gloss over the "paygo" cuts that would be introduced in a hostile House by Ryan. Real people will suffer terrible consequences. Mostly, the already least fortunate among us. The answer remains in the 2018 elections. The Democrats must take the Senate back and neutralize the damage that Ryan can unleash.
No ifs. It will be a revenue disaster if it passes.
When flying BA business class from New York to London at the time when W was pushing through his $Tn tax handout to the wealthy there was an article in the Financial Times (a conservative publication offered free on my seat) where the analysis concluded that the only motive for this madness (wars on etc) could have been, when the economy inevitably took a dive, Republicans could then eviscerate the safety net - something that is always on their agenda. In this article the phrase that sticks out "lunatics in charge of the asylum."
1
Like most people I hear about a lower Corporate Tax Rate but we do not hear about any loopholes being closed. Most people know these loopholes cut the actual corporate tax paid to half the actual amount. If these loopholes are not closed the new 20% rate in reality will be 10 12%.
2
More importantly why isn't the rate 95% with the only deductions being for building factories in the Continental US and creating long term (decades) living wage jobs?
The system we had is not gone because society evolved it is gone because republicans and their allies have consciously devolved our society and government in favor of avarice, stupidity and depraved indifference to or active hatred for working peoples.
1
The stock market (and related luxury markets like Hamptons real estate, paintings, etc) will continue to go up, as there will be more money at the top, and it needs to go someplace.
The only issue will be how much does it tank the normal "loaf of bread" worker economy in that the bill takes from that economy, and how does that trickle up to the companies that depend on the worker economy for their business (most of them).
6
Reportedly, about 30% of the stock market is owned by overseas investors. Is this true?
Major European finance ministers (France, Germany, Italy, etc.) have recently written to the U.S. government to point out that proposed U.S. tax reforms, if passed, WILL destabilize trade markets by adding taxes (tariffs) on products the U.S. imports, thereby increasing costs (inflation) and/or reducing the volume of overseas exports.
The GOP owns this disaster, but the U.S. taxpayer will pay for it.
5
Paul, as you may already know, a number of the European leaders and central bankers have recently expressed real concern about the Republicans' tax plan, and this is highly unusual for them to comment so openly on any American domestic policy. Specifically, they are very worried that the Republican tax plan could do severe damage to the World economy. So, it is not just American economists like yourself who are deeply troubled, but economists universally are now sounding alarm bells about the severe potential for negative impacts to the global economy. I find this even scarier than what U.S. economists think, because non American economists live outside our political bubble and are not invested in R's and D's, and therefore, examine our tax and trade policies on more academic merits alone, and they are very worried. Therefore, we should all be worried.
9
The new tax laws, like drug advertisements, have possible side effects which include but are not limited to... Even in our “booming” economy wages have been flat, people aren’t saving for retirement, imminent technologically-induced employment upheaval is just over the horizon, the housing market is about to lose its traditional tax benefit and government spending is about to take a huge hit. Any of these symptoms and many others of an underlying shaky economy could erupt once the tax law is swallowed. One thing is certain; the well off are inoculated from any disaster and will be able to profit from the fall and eventual recovery.
6
Republicans want Americans to buy a lot, they want them to save a lot, They definitely want them to charge a lot,but they don't want them paid a lot. Sadly saving a lot seems to been thrown to the wayside.
It is really trickle down impoverishment of the middle class. Our savings are shrinking with interest rates lower than inflation, wages are flat, and the wealthy experience another gilded age. President Trump lives in a gilded palace like the King of France and spends his time golfing. His cabinet members do much the same.
Nothing has changed for the better for the people, they still have no reliable health care and don't know what will be left of their SS when they are ready to retire. All the Trump governing body does is to take more from the people to finance their lifestyle.
I've been concerned about rampant inflation. You make the point that the dollars will be in the hands of people who don't really need to spend anymore, so the dollars will not be chasing. Sounds good ... sort of. The other side is that dollars will be taken from the people who need help. They also will not be getting more money to spend in the economy so not much inflation. Is that about it? Well there is the problem of too many of our fellow Americans are harmed. Doesn't look like a robust economy creating new and better-paying jobs and increased investment in infrastructure (of both the tangible and the social to include education and healthcare). Grinches win but they will have no joy of it. But, wait! We can take a few minutes to read again Mr. Dickens' Christmas Carol.
4
The impoverishment of the people is the way to fix the economy, trickle-down economics is the way to go.
A thinking congress would raise the minimum wage, raise the ceiling on SS earned income taxes, fund improvements in infrastructure, and forget about the tax bill.
25
They are thinking... about paying the donors back, to get money for the next cycle. They TOLD you so!
1
They truly believe in austerity for the people, not for the nobility aka plutocrats.
So, if all of this increasing of the debt will have little effect on the market, inflation, the economy in general, that is, it could have been used to benefit the working and middle classes rather than the rich and powerful. Consumers would spend the tax breaks stimulating, perhaps, the kind of growth they are trying to sell as a way to pay for the 1.5 trillion. The difference would be that the rich would get so much richer. Of course, like everyone, they would no doubt benefit from the healthier economy. But in this scenario those needing and deserving a break would derive much more of the benefit. Maybe they could afford health care, a home, college for their kids, and just a little into protecting the environment. Hmmmm.
13
I wondered when someone would finally ask the obvious question: Why will this tax bill create any growth? We can talk all day about winners and losers, but the fundamental notion that keeping more money in the pockets of the wealthy who in turn will invest it back into the economy is outdated. When there was a capital shortage in the 1970s, it might have been true, but the massive amount of capital on the sidelines means this argument will produce only a small incremental increase in capital and will have no impact on growth.
In the end, this means there is sole reliance on the temporary tax cuts for the Middle & Lower Classes to fuel consumption. It is true that they will spend the money if they get tax cuts. However, not all get tax cuts, interest rates may rise more and we may see slightly more inflation due to the increasing budget deficit, depriving them of healthcare may offset some or all of the gains (in fact it may be a negative impact), and the impact on education is likely to make that more expensive. When this complex legislation is fully vetted, I suspect we will see that it will have no positive impact on growth.
In other words, it will be growth neutral, be a huge transfer of wealth to the rich financed by budget deficits, and the lack of indexing will actually cause it to be a serious drag on growth toward the second half of the decade after which it will simply implode.
3
It will "only" cost us $1 trillion if we average 2.9% GDP growth over ten years. More likely the business cycle will turn south and it will cost us ten times that much.
2
I don't like the current tax bill. I don't like the increase in our national debt and the interest that debt. Why can't we have an amendment to this tax bill which says that when the revenues don't increase, as it is argued they will, our members of Congress, who are elected to take care of the public good, personally pay for the amount the revenues don't increase, so that our national debt and the interest on that debt don't increase dramatically and this burden is passed onto our children and grandchildren? I realize I probably live in fantasy world.
8
"For one thing, the bulk of the gains will go to the rich, who probably spend less of a marginal dollar." It is yet another mechanism to increase economic inequality.
This simple truism explains a lot of things: why wage gains remain subdued even at very low unemployment levels, inflation continues to undershoot Fed target, poor labor participation rate, long bond interest rates refuse to budge, . . . etc.
GDP and GNP are measures of flow, of activity. Some of those flows leak from circulation when flows are diverted to the accounts of those who already spend as much as they want. The leakages serve to drive up prices in securities markets all over the world, but drive down sales at Walmart.
This tax cut bill, targeted as it is at the already rich, is regressive. We don't know how regressive yet, but it may put an end to the current economic expansion.
11
I agree that "Republicans would surely use big deficits as an excuse to propose big cuts in social programs" that is in the GOP DNA. But don't look for this maneuver in the short-term. It is a long-term GOP plan. The American public has a very short memory. They have already forgotten the causes of 2008 Economic crisis and are allowing regulations to prevent another crises to be cut.
So when the deficit balloons and the economy tanks, likely sometime after 2020, with a new President, likely a Democrat, who will get the blame. The GOP will then sweep back into congress and the WH in 2024 and cut the social programs with no problem. Long-term Planning!
12
It's not a matter of what if, it's a certainty. Larry Summers, every other economist worth his salt, the CBO, the JCT and experts at the Treasury Department -- whose explanation of the tax bill was taken off their web site, presumably because it did not fit with the GOP's pie-in-the-sky predictions -- have all said that both the House and Senated versions of the tax bill will be a revenue disaster. And 62% of Americans oppose it, according to the latest polls. So why is the GOP going ahead with it -- because it has Social Security and Medicare clearly in its sights. Fortunately it won't succeed because Republicans are going to lose their congressional majorities in the next election.
11
I think you give the GOP too much credit. They simply have no ideas, so they are trying to revive a 2 generation old idea and turn it into legislation so they can tell the people they did something. They are generally too short-sighted to consider what is next.
It is possible that some in the GOP like Ryan may have that on his agenda, but remember, old people getting social security are the Republican base. I would look for cuts in all the other social safety net areas and all areas of regulation.
1
Has anyone asked what happens if the country goes into a recession or god forbid depression with surging deficits? Has nothing to do with policies per se but the economy is overdue for a rough patch, we are approaching a decade of economic growth. This tax plan seems to be the exact wrong thing to inact a year or two before an economic correction.
6
Sound familiar - almost like the George W. Bush / Alan Greenspan tax debacle that caused the current deficit.
You may very well be right. But, I must say it seems strange to think that this right now is supposedly "the boom" between busts. It doesn't feel like a boom!
What if the Tax Cuts and Jobs bill is a disaster? Well, the answer is simple: cut Social Security and Medicare!
Because cutting Social Security and Medicare is always the answer, no matter what the question.
68
Cutting social programs was always the secret agenda.
It will be a revenue disaster. Other experiments (e.g. Kansas) already proved this. I await the next Republican recession with relish to make more money in the stock market.
25
There's a lot of talk about Market Collapse when it reaches new highs, of course.
I'm curious about whether it will be "different this time" because of the "Vanguard effect." No one has done much writing on this. Yet.
I'm not talking about the low fees for customers that has put downward pressure on those exorbitant, largely-hidden fees charged by Wall Streeters forever.
Instead, I'm asking about the effect that a large amount of capital (staggering amounts) now invested in Index Funds will have on a falling (or rising) market.
Logic argues that indexers tend to be savvier, individual "stay-the-course" investors who will buy rather than sell on a dip, which could stabilize a falling market, or at least not accelerate the decline.
But the larger question I have is this: What if the majority of investors in the market were Indexers? (Not going to happen soon, but what if...?) Does this flatten out the competitive valuation of stocks (based on growth or value) since the indexer is betting on total market strength (or some slice of it, depending on the index).
Even Jack Bogle seems gobsmacked by the influx of capital to Vanguard this year and he has written recently that he worries Vanguard may be getting too large, but he's focusing on the company itself and whether its fees can go any lower.
Dr. Krugman....how's the "Vanguard Effect" and wide-spread indexing going to play out in the long run?
11
My question is: Why won't these tax cuts for the rich have the same effect as the Bush tax cuts the led to the Great Recession? From my perspective here in high-tax New York, I and my wife are looking at major cuts in our deductions that mean we'll have less disposable income to spend. And New York is not alone as other states like California are in a similar situation. These two states together account for over 20 percent of the U.S. economy. It seems that if consumer have less to spend economic growth will contract and not expand as predicted. Then you have the windfall profits the bill bestows on corporations and the wealthy. Will all that money go into risky speculation and create a bubble that will burst as it did with subprime mortgage loans? Right now students have over $1 trillion in outstanding loan debt they're having trouble repaying and this bill hurts them. It seems there are good reasons to fear an economic downturn that could produce a recession, perhaps a severe one.
34
But remember the Bush Tax cuts happened in 2001 and 2003, and the recession didn't even start until 2007. Not to mention the Bush Tax cuts, while god awful, did not on them selves create the financial crisis and recession. That took a lot of bad decisions, from Bush intentionally re-assigning white collar crime FBI agents to investigate terrorism and other crimes. The cops were not on the beat. Plus lax regulations and enforcement of laws, not to mention deregulation under clinton. The recession was long in the making. Let's say that it takes 6ish years for this to happen again (2001 to late 2007)...we won't have the recession until 2025. Trump won't even be president anymore. Or his term will be ending...
The real political solution is to figuratively bury the GOP in a crossroads with a stake through it's heart.
We now have the effects of a generation of Extractive Vampire capitalism, the only economic "expansion" Republicans seem interested in encouraging. Actually making something while paying decent wages to the people who make the product? That's so twentieth century.
The Malefactors of Great wealth have piled up unprecedented fortunes, extracting from the rest of us our wealth. More and more of the wealth is concentrated in that 1%/.01%, at some point we will have to reclaim it and redistribute it.
It isn't Medicare, it's Medicaid. It already pays for half the birth and pre-natal care in this country, and 60% (Plus) of Nursing Home care. The R's base do not realize the extent to which they and their rural health care economy are dependent on those federal dollars. Once those things start to go away ("By Popular Demand") (At least among their donor base), well see paragraph one if we frame the issue correctly.
Some fraction of the population is already living on the streets with very little. Republicans ideology insists "Those People" deserve their fate. When parts of their Base realize that is their future under Republican (mis) rule, that is when the real crisis will occur.
But first we need secure Democratic control of the Government.
51
Oh, like that "stake through the heart" thought! Yes, exactly!
Kansas is a good example of what you're saying. A reliably red state over the last few decades they conducted the big 'experiment' as Governor Brownback called it, and it's been nothing short of devastating.
The point where cultural, racial and religious propaganda can no longer overcome lower incomes, terrible education and no healthcare, may be here soon.
Then again after they get rid of Net Neutrality, millions of people might end up blaming Democrats because Comcast steered them toward Brietbart instead of the NY Times.
1
Let's not forget that the bill effectively trashes Obamacare by ending the mandate to enroll in a health care plan, driving up premiums, especially for the middle class participants who don't qualify for subsidies. And it raises taxes on the middle class by curtailing deductions for state income taxes and mortgage interest payments. So, if rich people's marginal propensity to spend extra income is low, then in terms of stimulus, the impact on growth could well be negative.
25
There is also the very real possibility that eliminating the SALT deductions (regardless of the increased standard deduction) and eliminating the mortgage interest deduction will make Middle Class homeowners feel poorer, similar to 2008.
This may make them pull back from spending on big ticket items and may lead to economic stagnation or even a mild recession, particularly as housing values decline in response to these two most sacred middle class deductions. That may put some homeowners close to or back under water with their mortgages, again like 2008.
The economy’s most productive middle income earners will also be squeezed by the loss of deductibility on college loans (which may unfortunately change their choices for a decade or more) and on major health care expenses.
And “squeezed” may be the mildest description of what we will feel. The loss of home equity to borrow against will result in both a feeling of a loss of wealth and an actual loss of wealth.
Only a thorough reversal of these horrible tax “reforms” will revive the Middle Class and restore them to the role of the drivers of the economy.
18
Tangled webs abound: division and contradiction mark the times; myths and ghosts haunt the images of our inner experience, outwardly our progress has halted--we add shipping jobs; we have missed the big industry jobs that a US mature economy can and should support in global infrastructure (rails, roads, energy, shipping, flight) for a narrow moat around military and defense sales. We have few partnerships. We miss the nexus of global trends, including the rise of a global middle class as the US shrinks. We have closed the door on educational immigration. We have a President who tweets insulting sexual memes.
The debt can be absorbed by pension funds, the wealthy, countries who seek safe havens, but beyond the balance sheet, safe haven for people are turning into death traps. To accommodate the wealthy who do not work or produce--whose increase means greater social waste and higher costs (not jobs!), debt and death both have to increase.
The balance sheet only shows one, the debt. Our sorrow and suffering of death is hidden in scattered statistics, missing from the Ryan/Mnuchin analysis. Ask big Pharma, still unaccountable for the thousands of deaths their manufactured pills cause annually; they are the new cartels. Leaders in the new political economy of wealth and privilege built on waste, missed chance, and death.
22
Is there any chance of getting the Senate parliamentarian to step in and say that until the effects of gaming the loopholes are assessed, we can't certify that it increases the 10-year deficit by less than $1.5 trillion and thus it does not meet the requirements of the budget resolution?
20
One economic wildcard that Dr. Krugman neglected to mention is the very real likelihood of some Trumped up war, whether it is with North Korea (most likely) or with Iran (less likely).
If either if these, or especially, if both happen, the effect on our economy, not to say the vast collateral destruction, it seems to me, is certainly a wildcard, but cannot be good.
13
If our economy funtctioned in a vacuum, I would not be concerned with thisGOP tax plan, but it does not. Our national issue, I think, is that much of the budget deficit is financed by money coming from other nations. Places like China and Russia buy our debt and place us in a tenuous position. Increasing the debt is a great mistake, and the cost will be greater than we suppose today.
11
No market impact. No idiocy taken advantage by tax lawyers and accountants exploiting loopholes. Just and simple: it’s a business plan designed to improve the chance of increasing and keeping a larger portion of profits. If the welfare state is a victim, as a consequence, so be it. Take the political risk. The msm and ideologues will justify that vis a vis In the name of competition with China.
2
A suggestion for the many Times commenters who ask some version of "What will it take for some conservative voters to change their minds?" The answer is nothing. Conservatives have different highest priorities. They are just as reality-centered and educated as moderates. Yet, they are not moderates. Their priorities are relative status (not actual status) and not being held responsible for their actions. This means that as long as their inherent characteristics such as race and gender provide advantages, they will vote above all to preserve those characteristic-based advantages. Conservative voters were and are fully aware that they are being lied to and stolen from by conservative politicians. They accept that because they are equally aware that those politicians will protect the voters' relative status and provide conservative voters with narratives that allow them to evade responsibility for all the bad consequences they vote for. This is true in every society and time. Which is why all conservative societies end up going the same way. For moderates, the question becomes how to motivate the non-voter in our current case. When 40+% of eligible voters did not vote in Nov 16, you are close to understanding the real issue. And it may well be that we have passed the point of no return for the US. Destructive momentum is much harder to stop than constructive momentum because breaking things is always easier than making things.
65
Have you actually looked at the tax bill?
"... Lower and middle class people will see SO many gigantic increases in their tax bills ..."
I have no idea whether the tax cuts will add to the deficit, as feared, but there's really no question that lower-income and middle-income taxpayers will pay lower federal income taxes. Seriously: look at the tax bill, notably the proposed new brackets, before you write such things!
It's far from clear that HIGHER-income "middle class" taxpayers will pay lower federal income taxes, and many in this group undoubtedly won't because the deduction for SALT will be eliminated or capped. But that will affect only HIGHER-income taxpayers, not lower-income taxpayers -- especially those who don't own homes. Lower-income taxpayers (few of whom "itemize" at all) will pay lower taxes; hard to reach any other conclusion. One can quibble about whether that's a good thing, and one can quibble about whether HIGHER-income taxpayers will pay more or less, but there's really no doubt that lower-income taxpayers will pay lower federal income taxes.
2
Lower income tax payers will pay lower Federal income tax unless they have high medical expenses which will no longer be deductible . The inability to deduct medical expenses will most profoundly impact low and middle income senior citizens.
3
NO, some lower income taxpayers will pay lower and some will pay higher taxes under the bill. Losing exemptions is huge and wipes out the bigger standard deduction for many families. Also, the medical deduction is critical for some lower income taxpayers. Also impacts under Senate and House bill, which actually raised the rate for the lowest taxpayer from 10 to 12% differ. Until we see the final obscenity, we won't know just how bad it is.
Likewise, some higher income taxpayers will pay lower taxes and some will pay higher taxes. If all your huge income is from passive income and none from wages, you will make out like a bandit. The loss of SALT is more difficult proportionately on lower and middle and some upper middle tax payers. I don't even live in a really high state income tax state -- a regressive effect straight percentage flat tax, but I am going to get skewered on SALT because I live in a town and school district with very local taxes/property taxes due to lack of commercial property in a very residential district. Old, fully built up, there is no way to solve the problem which was severe before and now is going to be devastating.
1
That would be nice if it was permanent, but it is not, and expires in a few years for the Middle Class, but forever for corporations and the 1%. Have you read the tax bill?
Say it is a revenue disaster. Why aren't your fellow media figures raising this question? Why don't they point out how past tax-cutting plans have resulted in failure over and over? Why do so few even raise the disastrous example of Kansas when talking to the GOP?
Instead it's this constant "balancing" nonsense that allows GOP shills to claim, against all facts, statistics and predictions, that they had tax-cutting successes under Ronald Reagan (who had to raise taxes 11 times--11!), George H. W. Bush, and George W. Bush!
And now we learn that the GOP is trying to lower the upper federal marginal tax rate from 39.5 to 37, giving the richest even more money. I mean, what is it going to take to get the 99%, particularly white voters, not to support the GOP, which seems to think we're all just a bunch of suckers?
26
Republicans seem only to want to remember the Reagan years when talking about tax cuts. It is true that there was significant economic growth during the Reagan years, but falling interest rates, coming off a high of about 12%, were probably the catalyst for that growth, not the tax cuts. There is good evidence for that conclusion. First, the growth rate during the Bush II years, after two tax cuts, was weak. Second, the grand experiment with supply-side economics in Kansas was a complete disaster. In both instances, interest rates were low to begin with and remained low. And, of course, we have the example of the Clinton years when taxes were raised and the growth rate even exceeded that of the Reagan years. To me the logical conclusion is that tax cuts do not appreciably stimulate the economy.
17
Kind of like Obama did such a marvelous job "balancing" the budget during his tenure, to the tune of adding $9 trillion to the federal debt? It's pretty amusing when a democrat pretends like only the GOP has a problem with creating more debt.
GWH Bush had to raise taxes (he was smart enough to know voodoo economics when he saw it and responsible enough to do the right thing) and it cost him the election.
When you get old, you recognize a bad deal when you have already seen it offered and failed before. David Stockman..."starve the beast" and let the Laffer curve solve all our problems. Did not work. History repeats itself and it is scary how people forget or don't look at history.
54
Yeah but you forget that after Congress swings back to Democratic control, it will be left to the Democrats to act responsibly and raise taxes, providing more fodder for Republican polemicists. Which rings louder in the short blurbs for voter attention: Republicans irresponsibly cut taxes OR Tax and spend Democrats raised your taxes.
20
I guess after 17 years of wars in the middle east, and the financial shoring up of Banks, Wall Street, etc., and going from $5.6 trillion when George W. Bush took office to $10.6 trillion when Barack Obama took office to $19.9 trillion when Donald Trump took office, why should we expect another group of politicians to not add another 5 trillion by the end of Trump's 4 years. That is what politicians on both sides of the aisle do, and therein lies the problem. For over 60 years, Congress and administrations have governed not by taxing for everything they want, wars, social programs, and their own government bureaucracies, they borrow. So, since the number of Republicans and Democrats in the Senate is basically about the same, it will be a time to wait and see if we continue to just borrow to keep the status quo, or borrow to take a huge gamble betting on the house, to see if the house wins, or those who vote for this lose in the long run. Another three years should give us the big picture, about the slowly dwindling Medicaid and Medicare balances that had the Democrats been leaders, and not asleep at the switch, would of come out and suggested to Paul Ryan to tackle that first, which needs to be restructured as a means test to save both programs, for the future, but the Democrats are not up to that task currently, so the Republicans have this tax bill based on cuts!
2
NO, that is not what politicians on both sides do. Clinton balanced the budget and was turning in a surplus which could have gone to pay down the huge debt load caused by Reagan's irresponsibility.
Yes, it grew under Obama, but mainly because he had to spend to try to keep the country from spiraling down into another Great Depression caused by Bush II gross irresponsibility.
We would not have anything like this tax obscenity if Democrats still controlled Congress.
2
Medicaid is means tested. Medicare is insurance we pay for with payroll deductions and premiums for Part B. As with all insurance, when the premiums aren't high enough you raise them. You don't tell some of the people they have to pay the pre iums, by they don't get the insurance.
1
"Notice, by the way, that this isn’t the conclusion I’d like to reach on political grounds. Given how terrible this bill is, I’d like to claim that it will lead to immediate market disaster."
Paul, it looks like you have learned something since 11/08/16 when you said a Trump victory would result in a meltdown in the S&P 500 Market Index. As of today that meltdown has instead turned into a 25% increase in the index.
Your fans seem to think that you are infallible, I think that you are very rarely correct in your predictions. The prior example is just one of many that I could list.
4
The massive borrowing and the prospect of much more future borrowing has powered this market. but.....don't get confused that stock prices are the same as GDP or the same as wage growth for the middle class. They are very different. And who pays off this debt? And what happens to interest rates when China stops wanting to buy our bonds?
1
This Congress is propagating fear with this tax bill. It is the fear that will do the damage.
10
I don't get the "what if" thing. You may as well ask,"What if it doesn't lead to explosive job and wage growth."
4
What will happen if / when the economy tanks? What will be the consequences? Normal politics do not apply. As long as Trump's resentful loyalists think that others (yes, it's racial) will suffer more, they'll be very slow to abandon the GOP. I think Trump, the policy-disinterested demagogue, is more likely to abandon the extremist Ryan-McConnell before his followers do.
2
I am puzzled. I believe that the forthcoming deficits will not increase demand. That has to come from an increase in consumer spending, and therefore wage growth, which doesn't seem to be happening
But wouldn't a large increase in deficits also lead to a spike in inflation, because too much money going to rich people would prompt them to buy lots of goods. Maybe expensive cars and vacation homes, but goods nonetheless.
Then interest rates would have to rise to control inflation and the stock market would take a dive.
Can anyone tell me, especially Mr. Krugman, what is wrong with this reasoning?
might lead to higher interest rates since we have to sell all that paper.
but marginal income increases to the rich do not increase consumption much.
there are not many of them and they are now already buying all that they need.
7
More likely to cause bubbles as the ultra wealthy desperately seek investments that will at least keep their piles of money above the inflation rate.
Happened before, and will happen again.
7
I'm thinking the wealthy will not spend this undeserved gift on new vacation homes, fancy cars or new shoes... they already have all that. It will be invested and that, for the most part, does not grow our economy.
2
But what about the possibility that the further accumulation and concentration of capital in the hands of fewer people will result in suboptimal investments by those people? They will not have perfect access to information in capital markets. A situation similar to the betting atmosphere of 2008, with highly leveraged investments could well result. This time there will not be an Obama to take the reigns when the crash occurs.
10
Dems victory in Ala Senate race will make it even harder for Mc-Ryan to push the deficit excuse line for gutting social programs. Prof. Krugman is likely correct on both points: there will be little market impact as the broad strokes on the tax cuts are already factored into the market, and GOP could lose control of both chambers in 2018 mid-term with dem win in Ala.
8
It is clear that our fiscal policies need to be reworked. You may have noticed we have not been able to reach a strong enough political consensus in the Congress to work through developing a fiscal program to match the requirements required for the economy to flourish and broadly share the benefits from making the US economy more efficient and a better place to live for most. Cutting corp taxes won't work.
When one considers the larger concept of infrastructure, energy generation and distribution, our infrastructure is very vulnerable to wilding weather, flooding, droughts, etc., which is the result of the climate change evolving from a greenhouse warming planet.
Our new defense and homeland security teams seem to be unaware that our coastal military bases both on this continent and around the world are vulnerable to flooding and loss of electric power from rough weather. It will cost trillions to relocate these industrial bases. Think about it. Norfolk, VA is a good example, but up and down our coasts bases and cities will be under water. We also have the problem of our major commuter systems being overtaken by flooding. My point is we need to start making a controlled evolution away from fossil fuels and begin to invest in hardening our major systems against foul weather.
So there are plenty of investment opportunities but my feelings are that the competent scientists, engineers, and trained builders are being suppressed by a narrow concept of economic growth.
7
The military has been studying the future impacts of sea level rise and other climate change effects for years now, and should have begun planning mitigation efforts. The question I have is if the necessary funds will materialize.
2
The military was just voted a huge increase in spending. They have no excuse that they don't have the money. The rest of us do.
Mr. Jordan,
Great points. For a good examination of this issue, see Jeff Goodell’s recent book, “The Water Will Come.”
Many folks here seem to think the federal debt must eventually be paid down or even off.
Now I am simply a cranky old mathematician, but it seems to me that on the basis of simple arithmetic, this would imply that the federal debt would not rise on average. If it went up for a while, it would eventually have to come down.
Historically, of course, this is not at all what has happened. On average the federal debt has grown enormously since the founding of the country. I might also point out that the six periods in which the debt went down 10% or more, 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30, were each ended by one of our six depression which begin in 1819, 1837, 1857, 1873, 1893 and 1929 respectively.
In addition, in the Great Prosperity of 1946 to 1973, the federal debt increased 75%, so it would appear that the huge debt from WWII was never paid for at all. It would also appear that every time we did what you people think we should do, the economy fell off of a cliff, and at least once when we did not, the country prospered.
20
MMT works well for dominant economies as they transfer value from subordinated economies around the world. However, it does not work in those poor and subordinated ones. The dollar is a fiat currency that serves to augment capital in the metropolis as a consequence of value transfers, phenomena studied since the 19th century, which explains British colonialism and the ruin of the Indian textile industry. The same happens nowadays ina much bigger scale without the obvious colonialism. You’re right in relative terms but not in absolute ones
2
Enri, I am not sure I understand your reply. I will just remark that we have not had a large trade surplus at least since WWII if ever. Also since the dollar is the world's reserve currency, if we do run a consistent trade surplus, that will eventually impede world trade since there will not be enough dollars out there.
2
Here's a news flash: Concerning the extremist-Republican Tax Plan, there is now "what if" it doesn't work ... we are doomed.
3
If this GOP tax legislation actually passes, then why would we ever elect any Republican, to any office, ever again? The GOP only cares about enriching their wealthy donors as the donor wealth "trickles down" to these GOP politicians. Yet we now have a Republican-controlled government. I hate to say it, but maybe the GOP is just the vehicle, and the real problem is us. Too many of us just can't consistently figure it out, for whatever reason. I don't have an immediate solution to this problem. Do you?
13
Why did any American vote for Trump?
If they were willing to do that and vote Republican after they Republicans crashed Kansas, there are enough suckers voting to constantly return their worst enemies to office.
Professor Krugman, you should know the answer: if it's a disaster of any sort, the GOP will blame the Democrats.
What astounds me more than all that expected chicanery is how you professional economists do not understand that we have build a financial house of cards. Qualitative easing, and most of modern Finance, are parlor tricks that conjure money from nowhere. At best, Finance is gambling by people in business suits.
Eventually, the US will default on its obligations, and other nations will stop lending us money: Hyperinflation and collapse will follow when no one trusts the Dollar any more. Then it will be China's century.
9
No. "Money" represents a symbolic storeof value, if total actual value increases (as measured by whatever units you want - how about "utiles", thanks econ 101) the money supply must too or money inflates meaning that everything else deflates (my car, my house, etc) which is a formula for a depression. Owning or producing things becomes a loser's game. Sure the people with all the money get symbolically "richer" but the real economy gets tangibly poorer. Digital currencies are currently learning this lesson. Anything with a capped amount becomes a symbolically higher store of represented value but in actuality it also becomes less and less desirable as a means of exchange which decreases its transaction utility. Consider if gold were $1,000,000 an ounce, there is no way I would want to sell you my car for such a messily amount of gold, better to trade it for something else or use more fungible currencies.
5
Come collapse, pinetree, I'd rather own or know how to make things. And collapse is coming. If I'm wrong, I have a diversified portfolio. If I'm right, a lot of folks currently doing financial work will be lucky to be serfs for landowners. See James Howard Kunstler's writing for why.
Henry Ford had it right - he wanted his employees to earn enough to buy one of the vehicles they were making. Adam Smith, bless his 18th Century Scottish socks, insisted that the "Good Proprietor" always put his workers first. What happens when wages are driven to the point where no-one can afford to shop at Walmart or Dollerama?
22
Alison,
We have a reasonable example from history. In 1845 the potato blight hit Ireland. Ireland had more than enough food but Ireland's peasants could not afford the meat, dairy and grains that kept Ireland's landlords prosperous.
The ships filled with food to feed Ireland's starving peasants were forbidden to land. One million starved to death and another million were deported but Ireland's food export economy prospered. It was the same economic system we now call neoliberalism and it is the ideology of both the USA's political parties but only the GOP is a true believer. The Democrats still cannot see letting go completely of ethics and morality. Adam Smith after all was an ethics philosopher before he became an economist.
4
"Rocket fuel" is hazardous in the wrong hands.
& what goes up comes down, with rockets usually blowing up, or in pieces (except of course if you're in the tippy-top nosecone with a golden parachute).
Speaking of rockets, wonder how the gop's next inevitable military disaster weighs on all this, especially if it goes nuclear as implied by Trump's "totally destroy" talk.
Suspect there's a wildcard lurking somewhere that's not booked in the projection.
But the strategy might appear to function for a while, what with the so much of the populace being too busy working 3 jobs to pay rent, college debt & medical bills & insurance to complain.
Not much riles Americans when markets balloon, people just go shopping on inflated home-equity credit. The affluent will party like 1999, the mega-rich inherit the earth tax-free & extraction industries plunder & poison.
But why think ahead, we'll be high on 'rocket fuel'... until we're not.
3
As painful as they will be for most Americans, the tax cuts will not be the cause of any future economic chaos, per se.
These tax cuts will simply put even more easy money in the hands of wealthy individuals and corporate managers than they will know what to do with. Many will become soft and lazy in their financial management and investment decisions. Speculators and fraudsters (both corporate and individual) will swoop in to "steal" this lax cash. Markets will begin to gyrate from this but not crash.
The biggest problems are and will be the declining consumption base coupled with the absence of any useful regulatory protections all the way from families to financial institutions. Aggressive, speculative, overly leveraged investments and inter-corporate "warfare" will rapidly inflate the value of all assets creating an enormous bubble. We all know what happens then.
I give it 3 years.
7
Sure hope you are right, that republican unjustifiable explosion of the United States deficit, will have deleterious consequences politically for them...unless they resort to scapegoating democrats...for lack of cooperation of a bill cooked between roosters and midnight, while willfully blind and deaf and stupid to the congressional budget office warning, the irresponsible trillion and a half debt, recoverable by ditching our social safety net. This is the awful price of an unregulated capitalistic system...when run by the current oligo-kleptocracy...headed by a vulgar liar, our 'ugly American in chief'.
4
The seemingly cavalier attitude to details and haste the GOP is bringing to this leads me to believe they're either certain they're headed for disaster at the polls not so long from now, or they believe their gerrymander-powered democracy death star is fully operational.
8
Any Constitutional lawyers care to comment on this from Hiltzik at the LA Times? It would make it even harder for the GOP to pass their bill if they had to figure out where to legally get the revenue banning the state/local tax deduction was to provide.
"Killing the state and local tax deduction may be unconstitutional. Here's why"
http://beta.latimes.com/business/hiltzik/la-fi-hiltzik-salt-deduction-20...
3
Do not count on Republican Supreme Court to find any Republican law unconstitutional.
It's hard to believe the unbelievably poor intellectual quality of Congress. Maybe it's a side-effect of democracy?
3
That's the fault of the electorate. They want a politician who they want to drink beer with instead of someone who actually understands the issues.
1
Some very smart people put a lot of effort in to develop the information that is being used by ignorant greedy people to manipulate the systems of our government and electorate and society to create the climate we have in Congress. Once reagan's criminal cabal made it legal to remove millions and billions of dollars from the US we were well on the way to being doomed to this state of affairs.
Selfish government (not Trumps America first) is not in any way wrong or anti capitalist or any of the lies the GOP has told to justify removing the regulations that kept the economy stable and the systems of our nation for all of us running well.
If you do not think that everyone should enjoy the benefits of what we create here (our main asset and eh only reason so much money can be made here in spite of 38 years of neglect or intentional destruction is the physical infrastructure and legal framework We built) then maybe you don't want to be an American who lives in a country governed by and for the people?
The market will not be hurt because this tax bill guarantees that those able to invest will get a wind fall. It used to be that stocks reflected the true value of companies, but now it reflects the GOP scam on the country. So stocks and the market are now driven by tax and economic slight of hand. These gimmicks are beyond the average person to cash in on. So the average guy loses because the rich skim off the cream from the top and leave only the dregs for everyone else.
6
Here's where the potential disaster lies: Washington will turn to protective tariffs to gin up revenue while appeasing economic nationalists. The return of protectionism will damage our economy in the long-term and endanger global stability. But the allure of this quick fix, I predict, will be irresistible to our current crop of politicians.
1
The tax bill has already started by imposing a 20% 'tariff' on Puerto Rico. The bad news is that that will cause employers to flee the island in droves and a few hundred thousand Puerto Ricans will loose their jobs, The good news is that hundreds of thousands of enraged Puerto Ricans will flee to the mainland where they can vote and pay their Republican oppressors back for what they did.
1
Which is the obvious solution. The Democrats should subsidize a few thousand Puerto Ricans to move to Wyoming at least through the next Senate election there. Think even bigger: Liberals in New York and California and New Jersey, move to Missouri and Montana and Kansas and...
1
When things blow up, the Rs will try to blame it on the Democrats, liberals, the poor, coastal elites, immigrants, anyone but themselves. Why? Because it's always worked up to now.
One can hope that THIS time, the "bait 'n switch" doesn't work, and the Rs victims will stop enabling their abusers.
4
So, basically, we shouldn't be too worried, but even if we are, then the GOP will take a hit if they come running for social programs?
I think the professor is too optimistic, underestimating the chutz-pah of the GOP to hit middle income people twice.
Why? Nothing motivates the greedy more than having some of their greed fulfilled, so why not go for more?
That's how gambling works. I don't think that the GOP knows when to fold 'em, and they will try to run the table right up until the 2018 election, and then well--pride goeth before a fall.
And then it really depends on how fed up even Trump's base (hardly wealthy) gets with Trumpian economics and pro-wealth policies.
Maybe then we'll rediscover the power of the pocketbook and that the joy of hearing Trump roar against political correctness doesn't match being able to eat, buy gas, and go to the doctor.
12
Mr. Krugman offers some hopeful comments. I hope that even the Republican party would consider a subsequent cut in benefits too crass to consider.
But the dark angel on my shoulder is telling me that this party behaves as though they have a 60 vote majority and a political tailwind.
What might they be banking on that the rest of us do not? How about: The backing of Fox news, a parade of wealthy donors and the financing to fund a permanent campaign, repeal of the Jones act opening churches to political pass through donations, gerrymandering of enough of the country to guarantee a 7-15% advantage at the polls, and the passage of more restrictive voting laws to tilt the congressional odds ever further in their favor.
1
A bit overstated. The gerrymandering advantage applies only to the House of Representative. Actually the two Senators for each state regardless of population is an even bigger problem.
Sounds like Krugman is starting to buy the MMT hypothesis that deficits aren't so important. So we can increase the deficit, maintain Social Security and Medicare, and expand infrastructure? And if he/they are wrong?
Well, Dave we can look at history. There has never been a time when too high debt or deficits has hurt the economy, but there have been 7 times when too low deficits have led to financial crises.
5
The current public debt is about $15 trillion and the annual interest on that is $266 billion. Any increase in the deficit or interest rates will increase that annual bill. This is a transfer from taxpayers to those who hold the public debt, mostly not the average Joe. So just one more way that we pay taxes which are passed on to the rich. As long as money buys votes, this is the direction we are going.
4
As a percentage of GDP, debt service is about 1.2% pf GDP. This is the interest actually paid, but then the FED returns the interest on the bonds it hold back to the Treasury. This was $97.7 Billion last year which reduces the net debt service to way below 1% of GDP. This is about the lowest in many decades.
So my reaction is Ho-Hum.
https://fred.stlouisfed.org/series/FYOIGDA188S
http://www.latimes.com/business/la-fi-federal-reserve-profit-20160111-st...
I’m interested in the impacts to the overall economy if/when lower income people rein in spending. I think this potential is exacerbated by the plan for fewer tax brackets: as proposed, the difference between the lowest bracket (12%) and the next bracket (25%) would mean a doubling of tax burden if one crosses that income line - a powerful incentive to stay below the line and tighten the personal budget. That’s my plan.
7
Actually, these are marginal tax rates; so you would pay 25% only on the income that exceeds the 12% bracket. For example, if the top of the 12% bracket were $10,000, and you grossed $20,000 in 2018, you would pay $1200 (12%x$10,000) + $2500 (25% on the next $10,000), or $3700, but your take home 'net' would still be higher than if you stopped working once you hit $10,000.
3
And there you have it -- Just Curious is another example of the financial innumeracy that is so pervasive today. Marginal tax rates are easy to understand, yet how many times have we heard someone say, "I can't afford to take that raise, it'll put me into a higher tax bracket!" Of course, the person who says that does not deserve the raise.
You do know that tax brackets are on the next marginal dollar, so net-net your take-home doesn't go down if you are just straddling an income bracket. You'll pay the lower bracket on the first chunk of income, and then the next bracket rate on any income over that bracket limit, etc...
The Republican plan is to lessen the deficit by eliminating Social Security and Medicare. Old folks who vote for the Repubs are stupid.
12
It's not the old folks that are stupid. It's the young folks who aren't paying attention. Repubs won't mess with old folks already getting the benefits they paid for and were promised, at least not much. They will go after those still working and raising children and the 20-somethings who think they'll never grow old or can "invest wisely" and have a golden retirement.
6
What we call a "revenue disaster" Republican politicians call "Starving the Beast"
They see this as their opportunity and they will take as much as they can get - damn the torpedoes!
9
Thank god for Paul Krugman.
5
The Republican Party will attack anything and anyone who stand against their dreams of a Christian-Corporate-Military Society. This party has become an official religion, where faith trumps facts. As Steve Bannon said at a recent Roy Moore rally: there is a special place in hell for those who don't vote Republican.
4
Trump says "oopsie", takes his hundreds of millions, and walks away. Ryan and McConnell take their hundreds of thousands in campaign contribution 'bribes' and walk away. The very wealthy take their hundreds of thousands and millions and go play in the 'innovative financial instruments' markets, buy really expensive houses (and condos in Trump buildings) and put the money where the taxes and the sun don't shine. And the ordinary citizen taxpayers of American pay another Trillion on the debt, plus another few hundred Billion in interest in it, plus struggle with their health care and retirement in their old age. "Oopsie" say the Republicans, we though it really would work, this time... gee we feel bad about it. But not bad enough to give the money back.
20
So perhaps a good solution (to the R's "not giving the money back") is for a future Democratic Congress + President to enact a 2 or 3% annual tax on gross assets above, say, $10 million. Undo the impending theft.
They get away with it. Why? Fox News
10
It is most likely these Tax Cuts will lead to a revenue disaster, increasing deficits, and skyrocketing nation debt. A debt we are responsible to service and pay.
Yet, America sat by and let Trump and Republicans mislead US by cooking up and presenting unrealistic growth and revenue forecasts, at best telling half-truths, and then arm-twisting and ramming through this transfer of wealth.
Trump and Republicans sold Tax Cuts as a Christmas present to the middle-class. What they didn’t tell them is this present was bought on their credit card, the borrowed money is from China, Russia, Tax Havens, and others, and the middle-class will service and repay this debt through increased taxes and decreased services.
We must find a way to hold self-interested Politicians and their staffers, from both parties, personally liable, responsible and accountable for the lies they have told US, their gross mismanagement of our county, our $20.6 T and growing national debt (108% of GDP), and our $100 T in future, unfunded liabilities they forced on US jeopardizing our economic and national security, while benefiting themselves, their staffers, their party and special interest donors.
http://www.USDebtForum.com
http://www.facebook.com/USDebtForum/
@USDebtForum
8
As I remarked above, debt service is less than 1% of GDP.
The idea that the federal debt must be paid by our children and grandchildren is one of the main political factors that is responsible for our slow growth, It is especially pernicious since it is part of the belief that the notions that apply to our personal finances also apply to the finances of our great country.
I believe in the maxim that those who ignore history are condemned to repeat it, so let's look at history. As a percentage of GDP our federal debt in 1946 was the greatest in our history. The public debt ratio was about 50% larger then than today. Did the children of the "greatest generation" such as myself have to pay down this debt?
In point of fact, we increased the debt in dollars by 75% from 1946 to 1973. During this period which has been called the "Great Prosperity" real median household income increased 74%. As the economy grew, the debt, as it always has in our history, became insignificant.
Now let us look and see what has happened when we did try to pay down our debt significantly. The federal government paid down the debt 10% or more in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929. Another maxim I like is that the definition of insanity is doing the same thing over and over and expecting different result.
2
That's the plan.
3
Worse is better. This scam has been brewing for decades. It's time to let the charlatans have their way, show their stripes, and pay the piper. The worse they are, the harsher will be the backlash. My biggest fear is that the Democrats won't have the foggiest idea what to do with their new power.
6
Professor, we eagerly await your other essay.
1
Oh, things could be so much simpler if the Scammer in Chief would just release his tax returns. Go ahead S. I. C., just do it, come out for once in your life. Come out, it will all be over quick, you'll still have friends at Mar a Lago.
Questions, we got questions...
1. Regarding R's attempting to undo the safety net, would they be able to accomplish that the same way the Senate passed the tax bill, i.e., through reconciliation? Again, excluding Dems with a simple 51 vote majority? If any change to the safety net is more than $1.5 trillion dollars, then that bird won't fly.
2. At some time in the future after the Republican party has collapsed into a racist, misogynist, Trumpist pile of ignominy, can the tax law be repealed?
2
When Appalachia comes to the white suburbs, thanks to the great GOP tax cut,
maybe then the white suburban GOP majority will wake up when forced to eat in soup kitchens and pan-handle for a living. The GOP oligarchs won't rest until Medicare, Medicaid, Social Security and the Middle Class are totally destroyed. Trump is just the beginning of the end of decency and hope in America. People like Trump live forever while decent patriotic Americans like Lincoln, John and Bobby Kennedy, Martin Luther King, Reagan, Ford, etc. get a bullet. It's a total unfathomable mystery.
4
What Happens if the Tax Bill Is a Revenue Disaster?
You should be writing for Comedy Central, Mr. Krugman.
PK - From your lips to God's ears
1
Excuse a perhaps dumb question. If Social Security money is kept in a separate account, from other government spending, how can GOP use a bigger deficit in a different account to justify cutting the supposedly separate S.S. account? Or is it all just robbing Peter to pay Paul?
It seems to me that every dollar a person spends, particularly on anything that is not essential to daily living, is essentially a vote for the most loathsome, lying, orally bankrupt, dishonest, and despicable President we have had in a very long time and the party that is continually enabling him. By spending money we are stimulating the economy in ways that will only further entrench their power increase the likelihood of their continued control over our government as they dismantle every ideal this nation stands for.
It should be obvious by now that Trump and Republican's are not beyond seizing power and dispensing with the rule of law and the very existence of our democracy as flawed as it might be. The parallels to Germany in the 1930's is just too close to be ignored.
If we want to make a difference we can't wait till the next election. We have to act now and the best way to do that is to stop giving money to Trump in the form of every dollar we spend. The time has come for economic sanctions against ourselves. The time for business as usual is over.
6
Doubtful this will hurt the GOP much, for a couple of reasons: 1) more and more, the US economy is becoming one where the rich legislate for the rich; the poor/disempowered are increasingly marginalized at all levels of societal participation, and their protests are rigidly, often violently, checked by the police state 2) just as the US gov. can print money to forestall its own (obvious) insolvency, it can also manufacture public opinion, and so voters can be made to vote in favor of their own demise, as has been proven several times of late, just as there are suckers at this very moment who support this tax plan who will suffer for their ignorance once it is passed.
3
PK omits one very scary possibility, namely that Trump will look for a way to make opposition "unpatriotic." Go to war! Hey, it worked for Dubya.
4
No economic disaster will impact the GOP for the same reason that the Communist party wasn't impacted by their economic disaster. Republicans are true believers and proceed on blind faith that the other party is morally bankrupt.
5
I like your reasoning, but I think ou underestimate something: the actual costs of creating Fox News, Fox and friends, the Sinclair Broadcast group, twitter bots, think tanks, lobbying groups. All of these are PENNIES ON THE DOLLAR for their returns in citizens giving up their heritage. So, if it costs a few more pennies to persuade the Rump/Roypublicans, so what? its still a GIANT ROI.
1
How do we start a 10 exemption movement for all W-2 filers?
If we, the people, stop sending our money to DC maybe it will shake some sense into the GOP who think only the top 15,000 of the .01% matters.
Change your withholding form January 2nd to 10. Do this for 3 months. Shock the system that relies on the constant inflow of the 99% into the system.
2
All those beautiful thousand and up blue suits your legislators are wearing. My fashion advisor tells me a police tool belt accessorises nicely, almost seamlessly. In other words you better get out the bullet proof undies. Yea they'll kill you.
All you Buffet devotees, the last real depression lasted almost 20 years and thinned the herd considerably. You won't ride this one out, don't think somehow the french fries are always gonna be on the shelf either, a couple of crop failures....., somewhat worse than Steve Bannon's hangover this AM. Your cash ain't nothin but trash.
When there is essentially full employment and a reasonable economy, the US budget should be balanced. The new tax bill should have that balance as its primary goal. Instead, congress and the president have shown that long term fiscal responsibility is going to be avoided at all costs. (really not smart) Any future recession—which will occur---will carry the inability to lower already low interest rates and will yield deficits that will break all past records. There will be no backstop for the government to reenergize the economy.
Predicting what will ultimately happen is really not possible as the range of outcomes are large. None are good however. I would expect an extreme depression…. coupled with the guaranteed GOP propaganda that the fault lies with Clinton and Obama.
This article assumes the American people have an attention span that will remember what happens today and applies it to what happens tomorrow.
They do not. So predictions about what "media coverage" will look like a year from now, or 3 years from now, or 5 years from now, is useless.
Remember, all it takes is one sighting of a black person using foodstamps to buy a T-Bone steak to make safety net slashes a done deal politically. The carnage is just starting.
3
If you're a wealthy, liquid taxpayer, you'd pull the same stunts that Paul Manafort did, even if you don't have to launder ill-gotten gains.
If only. Unfortunately, most Merikans are brainwashed into believing the trickle down supply side economics. Low taxes on wealthy so they can create jobs. Funny though, how every period of strong growth occurred during times of high taxes. So people, hope you enjoy those few hundred extra dollars you may or may not get. You are going to need it.
I think this sensible column is longer than the Treasury's "analysis" of the current tax bill in Congress.
2
If we assume that the Republican tax bills are reconciled and that the end product closely resembles the current misshaped monstrosity, which fills the pockets of the rich, has only negligible stimulus effect on the economy and swells the deficit to a degree never seen before, what is the result a year after passage?
The rich will be richer than even they had wished in their wildest dreams.
The poor, the nearly poor and the working middle class will continue to struggle.
The national debt will reach extraordinary heights, and the service on that debt will consume much more of our Gross Domestic Product than it presently does.
If the Republicans are smart, they will keep their mouths shut and have the Federal Reserve print as much money as necessary to pay the costs of operating the government and to pay the owners of federal debt instruments.
Paul Krugman is betting that the Republicans will not be able to resist liquidating and destroying the safety nets for the middle class like Medicare and Social Security.
Krugman is probably right. For the masses, it will be time for torches and pitchforks.
Ironically, many of the people storming the castle will be 2016 Trump voters.
The probability is a total shambles, Government by Spoiled Brats at its least competent. Further cuts to spending are inevitable, and as just about everyone has said, it's pretty sure that the fat cat sector spending won't be affected.
The problem with this rosy dunghill of governance is that it can't work on any level. The result will be dysfunction on a massive scale, followed by the usual social house of cards effects. If the macro picture is clear and repulsive it gets even less appealing. The rest of the economy is likely to suffer rolling 2008-9 debacles as each sector hits the fan with the cuts. This will trash America's working components very efficiently.
The corporate sector will get what it deserves; its own bottomless pit of dysfunctions, capital stampedes from one "policy" to the next,. This will be accompanied by a sweet verbal serenade based on the usual substance-less garbage of the last year or so.
That's what happens when fools rule, and any bigger collection of fools in American history would be hard to find. Anyone who remembers the total dysfunction of the Bush administration on multiple levels, particularly government administration, can guess what happens next.
America could have had Star Trek 50 years ago, if it wasn't for these mindless money grubbers and their primitive mindsets. Maybe it's karma , maybe it's, Maybelline but a major national denouement is in progress.
1
The goal is not just to cut the safety net, but reduce the numbers needing it, and ostracize them. That’s not as evil as it sounds, if it’s achieved by higher wages and employment. Which is the feat the GOP and Trump are trying to pull off: less immigration, more protectionism, less unemployment, higher wages, higher revenue, higher excise, less spend on dole.
Not easy, but also not impossible, especially in the long run. But whoever said Fiscal was easy? Monetary is way, way easier, so easy in fact, you can implement it just like Krugman writes his columns: conclusion first, then work the rationale around it. Which explains why it’s been around for decades.
But Fiscal is where the action really is. The only problem being, it can’t be done without long-term political stability, and easily undone without. In other words, to succeed, we need to rid ourselves of fictitious Russia conspiracy theories, Mueller fishing trips, outdated voter rolls, sage grouse, bear ears, junk science, “climate change”, and silly arguing over bakers, bathrooms and the like.
If that means flushing whatever remains of the Democratic Party down toilet, and looking forward to 50 years of one-party rule, so be it. At least we’ll have a budget surplus and living happily. Later.
1
It appears as though the Republicans in Congress learned from Trump how to dupe the middle class into parting with their money to give to the rich, just as Trump gained millions in Donations after promising that he, a Billionaire, was going to pay for his own campaign. People are too gullible as both Trump and Congress has taken their hard earned money to enrich themselves and the rich.
3
That's the dark side of the Capitalist Force...........ouch! I dropped my light saber. I'll be back.
I wish I shared Paul's optimism about the ability of the public to remember farther back than the last presidential tweet, but I don't. It will take time, probably a couple of years, for the impact of this awful train wreck of a bill to be felt. No one will start paying taxes under this new plan until 2019; revenue will come in over many months. It may not be until after the 2020 election that we really start to see how awful this bill is. By then the repubs will have been voted back in once, and maybe twice, on the backs of all those folks whose taxes were reduced by a few hundred bucks. Then they will just revert to that grand old play book, lie, blame the democrats, blame anybody, and never admit to what you really did. And their base will believe them.
2
Dr. Krugman, I would love for this bill to bring about the political disaster that the current manifestation of the Republican Party richly deserves. But double-speak and inverse lawmaking (say a law does one thing when it actually does the opposite) is a hallmark of the current platform yet it has not had a measurable impact on support from their base. And so it won't in this case either. Democrats now resemble their Republican counterparts, reflexively and unthinkingly opposed to any Republican policy. No change to be had there. Republicans are similarly ossified, blindly supporting their party. Not much movement to be had there. They won't turn on their party. And independents are a heterogeneous group that are unlikely to coalesce around a shared worldview on a complex fiscal policy issue.
So Republicans will continue merrily down a path where "better and cheaper healthcare" means "worse and more expensive", where "tax cuts for the middle class" actually means "tax cuts for the rich", where "protecting our future" means gutting education, environmental protection, science funding, childcare, and infrastructure, and where you can cynically attack entitlements for the neediest in the name of fiscal responsibility after creating the fiscal crisis yourself with tax cuts to your donors.
I wish it weren't true, but until something significant happens (like the Dems figure out their message) the Republicans will move forward free of consequence.
3
You say the Democrats are as "ossified" as the Republicans, unthinkingly opposing any Republican policy. But you give no examples, no evidence.
I don't think you have any.
Without addressing the subject matter directly, I have to comment on the included photo depicting the "Tax Cuts & Jobs Act"............the "&" symbol appears to be deliberately obscured into the dark background to show to a person's a fleeting glance the phrase "Tax Cuts Jobs Act". The poster appears to be an attempt at subliminal suggestion, something that was outlawed years ago when movie drive-ins flashed screens barely perceptible that said "You are Hungry" that led people to buy refreshments at the Drive-in. How ironic to see national lawmakers doing that.
Paul Ryan has so far succeeded due to the many low-information voters unable to catch him scamming. If more people would pay attention then Republicans would be concerned about being prisoners of their own rhetoric about deficits. Sadly if the nation can’t be bothered to pay attention, then deficits indeed won’t matter as much as wondering where our standard of living went, along with clean air, clean water, affordable health care, public education, and so on…
I do not believe that it helps the situation that Democrats won’t take a stand on why deficits do matter. For instance, if deficits don’t matter then why not healthcare for all and free college like some European nations? Certainly that money shouldn’t be wasted on the very wealthy who wouldn’t even see any change in their own lifestyles. The promised wage increases, in reality, would just be channeled toward Wall Street and away from Main Street. With Republicans in charge, even safeguarding consumers and the economy with necessary and meaningful banking regulation is too much to ask for.
Democrats have let the Republicans control the issue and therefore the economy. The pattern that is emerging is one where Republicans claim their huge tax cuts every decade, regardless of the massive spending on defense, and then Democrats have to deal with the cuts to social safety programs and the dismantling of environmental and consumer protections. It’s a lose-lose situation for Dems and the nation, time for a new strategy.
1
It's not that deficits don't matter. It's that say 10% more added to the deficit is manageable. Free college and healthcare for all without raising taxes would balloon the deficit by far more than 10%. Not manageable.
@ Phil
I agree deficits do matter, that's why how it is spent matters. With this #GOPTaxScam we're borrowing $1.5 for an increase in annual economic growth of possibly 0.7 percentage points over the next decade. We certainly wouldn't have free health care and college without raising taxes, agreed, but we're not even having a debate on how best to spend this money or how revenue in general should be spent.
https://www.nytimes.com/2017/12/12/business/economy/tax-plan-standard-of...
That was trillion, $1.5 trillion.
Sadly, I don’t think it matters how the tax bill plays out. Understanding tax policy is complex, and a substantial portion of the electorate vote a simple anti-abortion ticket. Look at the comments coming out of Alabama - people are voting for Moore despite his preying on children because he is anti-abortion and the democrat is pro-choice.
6
What will Republicans do if “ithe Tax Bill Is a Revenue Disaster?”
Why of course, the Reps will suddenly realize that the supply side experiment has failed miserably. That it caused the Great Recession and other untold damage to both the poor and the middle class, the environment, and the safety of laborers.
Then they will abandon they supply side dogma, apologize profusely to the poor and middle class and start pursuing sensible economic policy.
2
Inflation is on the way! The Republicans have nodded to business to let go. They will be raising prices in this lawless environment devoid of moral conduct. The best example is the price of oil which has been escalating with the oil company representatives now running our government.
On a side note; why haven't the Republican congresspeople gone along with the idea of repatriating business? The tax plan proves they are still incentivizing business exodus with a 20 or 22 percent national tax rate and a much lower tax on profits held overseas by nationally based multinational corporations. Why can't Congress and Trump do better. It would be nice and patriotic if business returned to America, say West Virginia to employ the coal industry workers in need of jobs in depressed state economies.
As long as the GOP can rig elections with impunity, they answer only to their donors. Pretty soon nobody will be pretending that the United States is still a democracy.
It's not a democracy and never has been. Originally it was called a "Republic," distinct from a democracy. But in truth it's been a constitutional oligarchy all along, with two brief periods where it was something else: the Civil War, and the Roosevelt era 1932 -1945.
What if?
Isn't it a certainty?
When in the last 50 years have Republican tax cuts managed to offset the revenue through growth?
When?
We know what happens when the GOP gives giveaways to the rich: recessions!
Remember the George W. Bush years?
1
If the Tax Bill is a revenue disaster, the Republicans win as they will have the excuse to cut, cut, cut everything in sight that prevents society from suffering. Just what corporate America wants - a poor, desperate and sick workforce that will accept slave wages.
The tax bill is a revenue disaster with optimistic numbers. How bad will it be with neutral numbers, or worse if the economy is wrecked and there is a recession or depression?
Tax accountants and lawyers will not have to search for loopholes - they know where they all are - indeed, they worked with Republicans to tailor make and bake in those loopholes for their clients. The outsiders will have to do the searching and hope they apply to them too.
Real inflation is only happening at the top where ever increases in too much-spare-capital is horded and where paintings can now fetch close to half a billion dollars (trump change). Inflation for the rest of us is limited because - how many of us have the spare capital to absorb higher prices?
Before long we will have the wealth generated from tax cuts and evasion going to pay for billion dollar paintings, yachts and mansions - and politicians.
Republicans will blame Democrats as usual and behind closed doors will privatize Medicare and Social Security for the wealthy to stealthily drain. Like locusts, they will do the same to the rest of the planet.
2
'What this means is that monetary policy – basically, short-term interest rates — will be set by the Fed based on economic conditions.' And there's the rub: it assumes the Fed will recognize economic conditions. Kinda shaky, given its new Chairman is a lawyer, not an economist.
What if the capital piling up in private wealth creates a demand for its use, and that demand in turn creates a systemic risk of collapse ? Think Chinese housing market. History could repeat itself.
Or, what if the cash sitting on the sidelines went into global infrastructure?
"What Happens if the Tax Bill Is a Revenue Disaster?"
The same thing that happens if the tax bill grows the economy and is not a revenue disaster; it becomes an election issue and the electorate decides which, if any, party to punish or reward. In other words, the exact same process that followed ObamaCare passage. Fortunately for us, and unfortunately for Krugman, the tax bill impact will be decided by real world results, not partisan guesses.
1
Unfortunately for Republicans, there is a pilot study of what happens when one does lots of assumptions that cutting all sorts of taxes will lead to enhanced economic growth. The name of that failure is KANSAS! Read the economic predictions vs. reality. Well reported by the "faux press", and others. At some point in time reality catches up to you. Reality has a liberal bias.
Dr Krugman,
I beg you to read The Economist 1845-1850. It gave all the economic reasons two million Irish peasants should not be fed in order to grow the economy. Ireland had more than enough food during the starvation. There was a even a blockade of food sent to feed the hungry. The GOP has the Irish starvation to teach us how to grow an economy and that is to cull the herd of its least productive animals.
I know the Temple of the Economy doesn't like to talk in simple terms but since Reagan the culling has been in full swing. It is not every demographic whose longevity is in decline. While every western economy continues to see an increase in healthy productive years there is one outlier.
9
To my mind the economy has two primary components, production and consumption. Yes this is a simplistic way of looking at it. However, producers of products rely on consumers for income. People living on Social Security and benefitting from Medicare funnel back into the economy every cent that comes their way. The same is true of people living below the poverty line and requiring Medicare. That is a huge number of people. Add in those who must spend all of their earnings just to keep a roof overhead and food on the table and clothing on their kids' backs. The tax bill as it looks today takes a huge bite out of that funnel of consumer cash and borrowing and nobody has told us how that will affect the economy, but logic tells me it will not be good for the production end, businesses the tax cuts are touted to benefit.
11
I agree completely. In addition, people's just not spending may be the biggest danger for lots of kinds of businesses.
2
Will voters finally get outraged and/or fed up with the endless tax scams of Republicans? They never really have and there is no obvious reason why predictions of a reaction will come true this time. What will bring governments and parties down is a major economic downturn. Although such a thing is inevitable under current conditions, it never seems to get mentioned by pundits. What will those who benefit from the tax cuts do with the money? There will be no increase in demand from the 99% so there will be no reason for them to invest constructively. More money for speculation, less regulation - the result is predictable though the timing is not.
18
I’m thinking the GOP is betting that rise in deficits will enable them to convince everyone under 50 that severe cuts in Medicare (despite the fact that seniors paid into the program for years while working) are warranted. Seniors will begin to do one of two things: die at home, without medical care, and/or lose their homes to high accumulated bills, all of which will force them to turn to their adult children for help. Ultimately, this will backfire on the GOP but in the short term, those of us who’ve helped our Greatest Generation and post-war generation elders live dignified, somewhat (medical care isn’t what it used to be) later lives will not get the same treatment, we will be forced to survive without help, care, and medicines.
The GOP will also go after Social Security, to try to glom onto the contributions of ordinary citizens currently receiving Social Security. They will probably be successful, since the younger generations doubt that they will get benefits and won’t want “to pay for mom and pop, or grandma and grandpa.” Benefits will be cut in half, or more.
It will be a debacle. The GOP knows this, but doesn’t care. They only care about the happiness of their donors. The only vehicle ordinary people have is to a) protest in the streets (dangerous), and b) vote them out of office (much safer).
It will take our country 20 years or more to recover from this GOP and Presidential Administration.
24
Those of us who don't have children will be expected to die of exposure in a ditch and do it quietly without making a fuss about it. Some will, while others will simply pick up a gun and spray bullets around, a situation that's been easily predictable for several years now.
2
But Paul, what happens if some smarter senators (e.g. Collins), vote NO for the final melded bill? The markets have jumped at the prospect of a tax advantage. And of course, the markets could care less about the average investor. But should the final bill fail, where are we? New day, same taxes? Do the markets tank, and does that put new pressure on trade agreements, and the business of tax management by corporations? Could we be in for a 10% Dow decline? Call it a tax correction? Somehow, none of this is business as usual, and it seems some rational minds could prevail.
5
Prediction: Pence tips the balance, 51-50, Paul and Collins voting against.
It looks politically dangerous for the GOP to cut Medicare, end the Schedule A itemized medical deduction which includes elder care while increasing taxes on Social Security payments. Messing with seniors is pretty dicey policy. Seniors vote and read that AARP magazine. The idea of privatizing Social Security was almost political suicide for Bush 2.
24
To be somewhat neutral in a macro sense, the Federal Reserve Bank's tapering will need to carefully track the change (presumably, increased) in Public Sector Borrowing Requirement each month. That's a lot of extra math for the Fed staff, but they indeed have the talent to do this, provided the Chair gives direction and guidance. But left unchecked and unobserved, it would not take too many months for tapering and expanded PSBR to widely diverge.
2
Only thing for sure is when the GOP is in total control the rich do very well and middle class takes any heat when the bubble bursts. GOP gift to the donor class and personally to Trump although as usual he denies it offering alternate facts. The next recession can be very deep and with no safety net many folks will hit bottom but the rich favored by the GOP will come out ahead as usual . The last recession caused by the bankers who walked away with bonuses while middle class folks lost jobs and homes and it took a democrat to bail us out again.
30
Speaker Ryan has already made clear that social insurance (yes, entitlements, as in the things we all pay in to and are thus due in return) will be on the 2018 chopping block.
I was surprised that he spelled it out so clearly, but in his zealous glee to enact his lifetime dream of cutting benefits and leaving people to the wolves of market capitalism, he has tipped his hand.
Voters response must be Swift and sure.
66
You mean Paul "Ayn Rand" Ryan? You mean the personal power crazed paid hack for the Koch brothers and their ilk? That Paul Ryan? A dangerous fool, making him all the ore dangerous because he is driven by his weak ego.
McConnell Ryan and GOP's demagoguery is so obnoxious and infuriating. Fixated to a supply economics which is empirically non existent, this tax legislation will shove more cash to uppermost tax bracket tiers and most likely will not spend. They will most likely trickle down a few coins and tips to average hardworking folks as low wages without increase in minimum wage rate. The latter creates the demand when they can spend for goods and services. Stock market is drowning in cash, ergo no market crisis. In contrast social safety nets erode because of widening blackhole deficits. Then people will revolt. This tax legislation has a political consequence.
10
In a normal world this tax cut for the rich and the inevitable cuts in Medicaid and Medicare would be a political disaster. But this is the Trumpistan era; this is why everyday any news that Trump doesn't like becomes "fake news". Trump wants control of the media, the free press, the internet. Net neutrality is being taken away. Not only is Trump and the GOP rewarding corporations with tax cuts but deregulating the internet in favor of corporations. I'm not sure we can trust that fair media coverage will continue if corporations who will likely side with Trump tighten control of advertising and control of internet access/speeds.
5
I see governments unable to pay for road building, laying off staff, cutting "social" spending, Medicare, Medicaid, public schools. The rich will complain about the roads, lack of services but besides that have their own parallel "bubble" society.
7
I hate to admit it, but I'm kind of rooting for the tax bill, terrible policy thought it may be, because I can personally take advantage of the loopholes while the blowback from wage earners with big families seeing their taxes spike will ensure a Democratic congress in 2019. Oh, and yes, please, Republicans, do come after medicare. That will be a lot of fun to watch.
7
"And we’re a long way from the kind of situation in which America would become so dependent on the printing press that we’re looking at potential hyperinflation."
Dear Dr. Krugman:
This sentence and your whole argument assumes that an economic Black Swan is not possible. This is a very bad assumption, but a normal assumption for traditional economists. At least warn your readers of the possibility. To quote Shakespeare "there are more things in heaven and earth than are even dreamt of in your philosophy."
6
"What Happens if the Tax Bill Is a Revenue Disaster?"
It'll be the same as when the Democrats pushed through their so-called tax bills that were supposed to place less taxes on the middle and lower working class people, but instead raised their taxes, and lowered the taxes for the wealthy.
2
They lost the Senate, House and most statehouses.
2
When was that? Clinton? The growth in inequality actually paused under Clinton , as wages rose.
1
What? When did this happen?
1
Don't worry, didn't the Treasury Department has an "analysis" that promises everyone that the tax "reform" is not only "revenue neutral" but revenue producing?
Once again, it's the wrong conversation. We don't need tax cuts for cash-flush corporations and wealthy political donors. We don't need more jobs when we have historically low unemployment. What we need are better wages for the bottom 90% that continually have more taken away at every turn.
Greed, obviously, is the driving force here. Greed to have so much more than I could possibly ever want, need or use in a hundred lifetimes.
We don't need a tax bill so much as we need a wage bill.
"The only difference between death and taxes is that death doesn't get worse every time Congress meets." - Will Rogers
15
The Republicans might be able to starve Medicare and Social Security out of existence but what is there to prevent the same malaise from starving infrastructure or precious military spending ?
7
There will be infrastructure renewal in the situations where it can be privatized or paid for by tolls and other user fees to the companies that got the sweetheart deals to do the work. Otherwise, not.
One theory given by proponents of supply side economics is that tax cuts for the wealthy and for businesses will encourage more saving which will lead to more investment and create more jobs. But corporations are already saving more than ever, mostly as a result of record high after-tax profits, while business investment has continued to languish. Corporate saving is already high in all advanced economies. See this recent paper for details:
https://www.minneapolisfed.org/research/wp/wp736.pdf
A lower corporate tax rate would tend to further increase private domestic savings either as a result of increased corporate saving (meaning the windfall would not be invested in plant and equipment but invested in short term financial assets) or increase dividends paid out to shareholders who tend to be high saving wealthy people or institutions.
The tax cuts are so heavily weighted to the top that no boost to consumption is likely. And residential fixed investment would be hit hard by the limitations on the deductibility of property taxes and mortgage interest. These tax changes might even precipitate a real estate crash in some parts of the country which would lower consumption through the wealth effect.
The revenue loss will be much higher than expected leading to automatic spending cuts and cause deficit hawks to demand even more spending cuts which will create a fiscal drag on economic growth.
The tax bills would likely reduce not boost domestic growth.
7
We already know that the huge reduction in the tax rate for pass-through corporations will be a revenue disaster. I have a deeper worry: What happens if all employees are converted to "individual pass-through corporations"? This is already widely done -- think of the "contractors" who work for outfits like Uber, the companies that operate school buses and much of the support infrastructure of State and Federal government. The danger here is massive obliteration of labor law protection.
As a child, I delivered papers, and the paper company gave me the grand title of "contractor". I was not a lowly employee. Of course, the paper company set the price for the papers, set the price I could charge the customers and levied fines against me if I missed a house and the owner complained to the paper company. And of course I had no protections at all. Isn't capitalism grand?
21
I suggest people read John Kenneth Galbraith's book, The Great Crash, a history of the 1929 and after stock market crash.
I see parallels to the current situation.
13
Maybe this is oversimplifying, but it sounds like the government is letting investors/savers keep about $1.5 trillion more via tax cuts, and it's borrowing about $1.5 trillion more from investors/savers. So there won't be any major impact on the market, but the government will go deeper in debt and consequently pay more in interest on the debt to investors/savers. Tell ya what: how about instead of paying my income taxes, I give that amount to the government in the form of a low-interest loan?
4
To answer the question, "blame the Democrats, and if you can figure out a way to blame Obama, so much the better."
59
that's the strategy. seems to be working for them at election time. problem for us is they cant lead or govern. just win elections
PoohBah2 - yes, blame Obama, just like Obama and the Democrats blamed GW Bush and the Republicans, even 8 years later.
1
Definitely blame President Obama. Because he is a Kenyan born (or was it Indonesian) Muslim usurping a rightful white man from occupying the WH the deficit is God's punishment to the foolishness of the electorate. The cure is to cut out Social Security. Medicare, and especially Medicaid, for those making less than $1 million a year, or a month.
1
What if?
What if the stock market collapsed and never recovered? That was Paul Krugman's brilliant prediction based on his years of analysis and professional insights on election night.
What if everyone saw through this Democratic party activist for what he is, and quit taking him seriously as a journalist?
6
At least Krugman owns up to it when he does make mistakes, as in fact he has done with respect to that election-night prediction -- something he has gone out of his way to mention several times since Nov 8, 2016. That's more than the Republican gloom-and-doomsayers were willing to do after their own predictions of a debased currency and hyperinflation did not pan out.
And, by the way, for a while on election night the stock market futures were pointing toward a big drop the next day. While that did not happen, the notion that it would was not something that Krugman just dreamed up out of spite.
8
Paul Krugman is not a Journalist but an Nobel Laureates economist. He also admitted his mistake in his election night forecast, unless those he calls "deficit scolds".
2
FYI:
Paul Krugman is not a journalist, he is a distinguished economist and professor of economics at Princeton and currently at NYC Universities. For his research in economic sciences he had won numerous prizes like the John Bates Clark Medal and the Nobel Prize in 2008.
To make this complicated field accessible to the general public, he writes his opinion column -in other words- he serves the country in one more capacity: Help us navigate the trickery of politicians, completely ignorant about economics, but guided by a malignant desire to keep their donors happy; a GOP united to advance a sick policy that negates one their "core principals" control of the deficit.
For these reasons we understand who he is and we take him seriously! So should you.
3
A political disaster for the GOP? How many times have we been here before? Military disasters, security disasters, highway robbery, economic crashes--the GOP NEVER pays the price for its policies. Yes, a few pundits from the MSM will point fingers. But Republican voters, the right-wing media leading them by the nose, will blame liberals, & they will blame the victims.
30
There is no looming disaster for the GOP. There is huge base of support for its racism and bigotry, the wedge issues it propagates and the single issue voters it cultivates.
The GOP is winning because it truly reflects American core values and beliefs. The Democrats have not yet achieved 50% support for their enlightened views.
3
Right! No matter how bad wrong they are, they are exceptional. Usually, that means good. But, exceptional is only a qualifier indication uniqueness. Exceptionally bad seems to be a point of pride for these "exceptional Americans."
The Republicans are playing hardball, while we nice Democrats lob soft ones over the plate, expecting the umpire to do the right thing. Trump and company disregard every rule in the book and thus far have paid no penalty. Wise up Dems and stoop to conquer. It doesn't need to be habit-forming.
1
What happens if the Trump presidency results in faster growth than we have had in a decade? And a 17 year low in the unemployment rate? And record low Hispanic unemployment rate? And record African American home ownership? Wait THAT HAS ALL HAPPENED! And political hack Krugman doesn't understand it.
4
So if it has already happened, then why change the tax code.
And I am wondering what amazing policies Trump created that made this occur? Or is this perhaps inertia from the previous administration?
14
To argue that Trump's presidency will result in faster growth is to argue George Bush was responsible for the Great Recession. You can't have it both ways.
2
Let's all thank President Obama for taking the Dow from 8000 in the depth of recession to 20,000 at the end of his tenure. Thanks President O!!
The Big Question is not so much, "What Happens if the Tax Bill is a Revenue Disaster"...in fact the question swirls around the opposite and more likely outcome--what if it succeeds?
The disaster that Liberals such as Krugman fear most is this: what happens if the tax cuts spur the largest economic growth since the 1980's? And therein lies the rub. Liberals rightly fear that the economic boom which will result from this tax plan will make them irrelevant for 2 generations.
But it's more than that. Knowing that Trump is a skilled self-promoter, (much more so than Reagan), Liberals understand full well that he will take every opportunity to claim credit for the coming explosive growth--long after his second term has ended. And with that, he will finally drive a death spike into the Liberal argument which claims government to be a better steward of our money--and the economy, than individual citizens or private enterprise.
In the end, what most keeps guys like Krugman awake at night? It's simple--that the hogwash Liberals have tried to pass off for decades as sound economic theory, will finally be exposed for what it is--exactly hogwash. And as hogwash-peddler-in-chief, Krugman is more terrified than most. After all, what excuses will he need to invent--as the economy roars to life under Conservative economic policy? Of course, there's always the income inequality meme.
One final note: when responding to this post...please don't forget to mention Kansas.
5
If you try flying by jumping off a building and flapping your arms it's nearly certain you will crash into the ground.
But what if you just DID manage to fly?
See, that's what you expect to happen, but in all the tax cuts since Reagan's first, the deficit exploded and the economy went down-hill. Reagan's cut nearly sank Volcker'r engineered recovery. And every tax cut since has only done 2 things: Expanded the deficit; and accelerated the concentration of wealth upward.
I COULD show you the Laffer Curve, posited by Arthur Laffer, and show you where it's right, and where it's wrong. Because, built into the curve IS the assumption that above a certain tax rate, increasing taxes decreases revenue, but below that point, increasing taxes increases revenue.
Our uncontrolled experiments over the past 36 years have demonstrated we are undoubtedly below that tax rate--remember Laffer's curve only works IF economic growth is SO stimulated it expands the tax base more than the lost revenue.
But we have only one data point where that happened, and that was JFK cutting tax rates from over 90%. Every other time, the deficit EXPLODED, proving we were well below that point.
I don't mind you flapping your arms -- I cannot save you from yourself. But making ME flap my arms, too in such a fruitless leap of faith only pulls me into your catastrophe with you.
No thanks!
3
I don't know. Do you mean that it will roar to life like it did after the Republican tax cuts for the wealthy under the George W. Bush administration?
Well Jesse, we shall certainly see what will happen now that Republicans have all the levers.
Certainly there is not much much economic theory or precedent to support a favorable outcome from the evergreen Republican panacea of tax cuts for the wealthy driving massive economic growth and trickle down to create unimaginable wealth for all.
Most likely there will be a sharp increase in stock markets and property prices followed by a crash for both and a government bailout for Wall Street thrown in for good measure. Why? because that is what always happens after Republicans run free with their power.
And while we remember Kansas, lets also remember the disastrous after effects of Reagan and both Bushes.
And lets also remember that the deficit is killing this country for our children.
2
Neither lower tax rates nor lower revenues, by themselves, reduce USG spending. If the spending isn't funded by tax revenue, it will be borrowed. All the available cash will be in the hands of the rich who are getting tax cuts, and they will give it to the USG for interest. The net change is an increase in interest income for holders of Treasuries.
1
"But my reasoning now is different, because both the underlying economic situation and the source of the deficits is different."
Editor? "...both...are different."
Online text has become increasingly sloppy. Is that because today's editors are young and never had grammar in school? Or is it because budget cutbacks have eliminated editing? If this were an isolated case, I wouldn't bother mentioning it.
16
If you read the-underlying-economic-situation-and-the-source-of-the-deficits as a single semantic unit (which I think is what the author meant), it's singular. Copy editing is an art, developed by experience, not a science.
1
If we want an example of what may happen if (when) the deficit explodes after this tax heist, look no further, again, than Kansas. Did bankrupting Kansas magically result in Kansas turning blue? No. What happened is that Kansas Republicans demanded slightly more moderate Republicans. The same will undoubtedly happen at the federal level. Republicans who threaten to harm Social Security and Medicare will find themselves replaced by slightly more moderate Republicans. As Alabama has most recently demonstrated, the Republican lock on Republican voters in nearly absolute. The only fallout the Republican party will suffer is a slightly reduced craziness.
46
The main issue with using states as an analogy is states can't print money like the fed can. What a nice magic trick!
The GOP has been fantasizing about drowning America in a bath tub for years. This week, they got Mr./Ms. Liberty into the tub and the water is now neck-high and rising. Next come the "required cuts in spending", which this has been all about all along. Toto, you'll wish you were in Kansas. Kansans seem to have woken up to a few of the facts of the tax matter.
35
You've got that right, PH. But those who fail to learn from history are destined...
There are two things you never want to know - how 'sausages and legislation are made'. (Otto von Bismarck) I would never trust a sausage made by Ryan or McConnell - and I feel the same way about their recipe for this Tax-Bill.
8
As. Dr.K says, the country can not go bankrupt, it can print money. however more money in circulation brings the value down. Depending on how much is printed affects the percentage of decrease in value. A decrease in value causes inflation. since the rate is low today the inflation rate should stay low.
However, the debt does have to be paid, and a big portion of that is the interest on it. In order to finance spending the government still has to borrow, the interest rate will increase with each devaluation of the dollar. This tax plan can not pay for itself, this is fairy tale thinking, a pyramid scheme.
The market is over heated, the yield on investment is already below the inflation rate, the yield on U.S. bonds is also below the inflation rate. So, investors are actually losing money. The market indexes are soaring due to the search for yield. Pension funds are unable to keep up, and several are already cutting payments. This is different than 2007/8 when a substantial number of borrowers were unable to pay back loans and mortgages. Today they will have to cut spending to preserve what they have. The market is due for a correction, P/Es are well above the normal regression to the mean, just look at the 90 day moving averages, it is out of whack.
Smart investors are hoarding cash while funds are searching for enough return to pay their investors. This tax plan is going to keep the average payer from saving, the market will respond.
5
If the government cranks up the printing presses, buy a wheelbarrow or two so you can go to the grocery...
https://www.bing.com/images/search?q=historical+photos+wheelbarrow+full+...
"However, the debt does have to be paid,"
Now I am simply a cranky old mathematician, but it seems to me that on the basis of simple arithmetic, this would imply that the federal debt would not rise on average. If it went up for a while, it would eventually have to come down.
Historically, of course, this is not at all what has happened. On average the federal debt has grown enormously since the founding of the country. I might also point out that the six periods in which the debt went down 10% or more, 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30, were each ended by one of our six depression which begin in 1819, 1837, 1857, 1873, 1893 and 1929 respectively.
In addition, in the Great Prosperity of 1946 to 1973, the federal debt increased 75%, so it would appear that the huge debt from WWII was never paid for at all. It would appear that when we did what you prescribe, the economy fell off of a cliff, and at least once when we did not, the country prospered.
There's this little equation:
P = (MV)/S
where P is prices , M is the amount of money in the economy, V measures the frequency that money changes hands usefully, and S is the dollar amount of the amount of stuff, goods and services, we can produce in some time period.
A word on V. If the government gives Scrooge McDuck a Billion for advice on the comic book market, M increases by a Billion, but if Scrooge puts the bucks in his basement, and forgets about it, that doesn't affect P at all. That Billion has a V of 0. Also, if Scrooge lose a bet to Daddy Warbucks, and the Billion moves from Scrooge's basement to Daddy's, that is a change, but the V does not change because it is not a useful change. It doesn't affect commerce.
Inflationistas cannot understand an equation with more than 2 variables. To them it looks like:
P = M.
You print more money, you debase the currency, prices go up. End of story. Of course this might happen if S and V remain constant, but in point of fact, the causes of most, if not all excessive inflations since WWI has been S getting too small, e.g.shortages. The anchovy harvest failed in 1972. There was a shortage of livestock feed & fertilizer. Then came the oil embargo. Prices rose.
Weimar - Prices were already rising because of shortages due to the war. Then reparations in kind increased the shortages. The government had to to something to help with the rise in prices. They decided to print lots of money which only exacerbated the situation.
If Republicans weren't already insulated against public opinion through gerrymandering and voter suppression laws, they wouldn't have attempted this looting of the Treasury on behalf of wealthy donors. The wealthy Republican officeholders will get even richer through kickbacks and preferential treatment in guaranteed investment schemes. The conservative conceit of the self-made cowboy protects them from blame when the economy tanks. "Conservatives" in my cowboy culture believe the government is only supposed to deliver pain and the opportunity to die for (because of) one's country.
4
What Happens if the Tax Bill Is a Revenue Successr?
1
then all will be good and dandy, which is what the current government tells . The question that inquisitive minds have is what if they are wrong? How do we plan and protect ourselves in such a scenario, especially given that there is so much doubt being expressed about the validity of the economic arguments presented by the politicians.
1
well it will prove that magical thinking with phantom studies and figures pulled out of a hat works, in the face of several bipartisan estimates that claimed otherwise.
5
Pigs will fly most likely.
1
I'm usually impressed when PK goes back to his expertise, which is Economics. But a key element is missing from this argument:
Lower and middle class people will see SO many gigantic increases in their tax bills that, at a minimum, they will have to cut back on consumption. That will run into hundreds of billions if not a trillion or 2 and THAT will have a major recessional effect on the economy.
Next: The GOP and Trump have loudly trumpeted how this tax cut will "create jobs" but I'm trying to figure out what jobs you're going to create at Full Employment? And, they also say they will push up wages, but they cannot elaborate ANY mechanism by which that will actually happen.
11
Most governments would not want to get caught scribbling important legislation in the middle of the night in the margins of the bill. That makes them look like Third World countries rather than first world countries. Investors know that Third World governments tend not to be good credit risks. The smart bet is that Republicans will lose big in a future election and Democrats will bring a more professional approach to government. However, if this behavior continues, markets may eventually come to regard the US as a Latin American country rather than a European country.
A more immediate risk is that there might be something in this bill that will feed a credit bubble that will blow up a few years down the road. In 2005 the Republican Administration made some changes to obscure banking rules which allowed investment banks to take on more leverage. This helped to lay the foundations for the 2008 financial crisis. This bill seems to have been written quickly and recklessly and who knows what devils may be lurking in the details.
6
Did I hear you just use the word "memory?"
"Will they be able to get away with this with the memory of the tax scam still fresh?"
Good Lord.
Do you really think Americans have a memory?
Like history, memory is not a fact or a truth but a tool.
The Clinton boom? Ronald Reagan gave us that.
The Obama recovery? George W. gave us that.
No one ever went broke underestimating the intelligence (or the memory) of the American public.
Remember that, professor.
34
The tax bill if enacted may well reduce tax revenue, but not right away. First, some of the most dangerous parts of it do not instantly go into effect. Second, it will take a while for the effects to percolate through the system. Also, I think Krugman over-estimates how much American voters remember several months later.
12
Paul, Paul, Paul,
That has been the plan all along! This is the deconstruction of the federal government and public goods! The idea is to force the cutting of government expenditures by starving it of revenues. Look at Kansas, that's where the Republicans are going with this.
What Republicans don't realize and what public collective memory and even Academia seems to have forgotten is that the lack of government involvement in the economy is what enables greater market volatility! Bubbles, Recessions and Depressions are more likely. Couple that with the unfettered and unregulated capitalism that they are embracing, and we are looking at an economic Rodeo.
55
Reagan cut taxes and we got 16 Million jobs.
The debt tripled in eight years of Reagan.
Clinton raised taxes and we got 23 Million jobs.
And deficits came way down instead of going way up. Clinton balanced the budget.
George W. Bush gave us two "tax cuts for the job creators" and we got 3 Million jobs and he took Clinton’s balanced budget, zero deficit, and turned into a $1.1 Trillion deficit.
Obama put back the highest marginal tax rate and gave us the "jobs killing" Obama-care and we got 11 Million jobs and he reduced the deficit by almost 2/3 to $550 Billion.
The George W. Bush 2004 tax repatriation did not create jobs. The money went to stock buybacks and dividends. Also, no wage increases. In fact, companies involved cut 20,000 jobs.
Brownback cut taxes in Kansas. No job creation, huge deficits resulting in cuts to education. Eventually, the adults in the room said enough and overrode his last budget. And they were Republicans.
We have the data. It is easy to find.
Nor are we really receiving a tax cut if there is a deficit. They give us the money but they put the bill on the credit cards of us, our children, and our grandchildren.
The debate in the media is which projection for the deficit is correct.
The debate in the media should be the performance of Clinton-Obama-tax increases versus Reagan-W.Bush-Kansas tax cuts.
9
There were economists that predicted 2008 & their argument is easy to understand. The first thing to realize is that the federal deficit measures the flow of money FROM the federal government TO the private sector.
The first chart at http://www.slideshare. net/MitchGreen/mmt-basics-you- cannot-consider-the- deficit-in-isolation shows what happened.
In the 1990's the deficit was reduced. The flow of money out of the federal sector was reduced.
Simultaneously the flow of money into the private sector was reduced. Then in about 1996 money began to flow out of the private sector, out of the country in fact. In about 1998, Money started flowing into the federal sector. This is the Clinton surplus. Money was rapidly flowing out of the private sector.
In 2001, the Bush administration started, & we had deficits again, but our trade deficit was really large. Except for a brief period in 2003, the Bush deficits were not large enough to compensate for the money going out of the country. Money still flowed out of the private sector.
People then turned to banks to get money. Private debt exploded. But the banks could create only so much money.
Finally in 2008, the economy crashes. There certainly were other factors which contributed to the 2008 crash. e.g. high inequality meant the Rich had excess money to speculate with, but the cumulative effect of money leaving the private sector from about 1996 to 2008 & the resultant huge increase in private debt was the main cause.
In answer to your question, Ryan and McConnell don matching flight suits replete with codpieces and hang a humungous "Mission Accomplished" banner the length of Pennsylvania Avenue.
1
The deficit will surely rise under any Republican tax plan. More money will be hoarded at the top of our economy among people who are already marinating in capital. It's all a cruel hoax that will not create jobs, nor stimulate the economy. But it would if they gave the tax cuts to middle America, because we'll spend and invest the money. The wealthiest Americans don't start new businesses. They speculate in hedge funds or myriad other investments that don't create jobs. So, how is our economy harmed by these dynamics? They harm America by not putting money where it will be most useful: in the hands of average Americans who may want to start a small business, send a child to college, or renovate their kitchen. In other words, do something worthwhile with the money instead of hoarding it among a few Americans. Thanks to Obama, our economy is doing quite well for now, and there's no reason to believe that higher deficits will kill jobs anytime soon, but it deliberately misses a golden opportunity - all because they believe us common folk will spend our tax cuts on booze, women and movies. And, of course, they need to keep their major donors happy.
3
Yes Paul. But the key is who is paying attention. You are, or course. But unless there is a leader who can get the neurons firing of those who are effected by these measures, they will breeze through.
2
This tax bill such as it appears out of thin air is going to be a budget buster, no doubt about it. This economy does call for infrastructure and healthcare spending for sure but not a vanishing trillion to the wealthy.
Yes there are times to deficit spend but there is never a time to burn money for a political party bonfire, especially one that does not warm the middle class or kicks kids out of their healthcare.
This is the most deceitful, despicable behavior the Republicans have exhibited in my lifetime.
4
Senate Republicans had barely finished writing their changes in the margins as they were voting for this canard of "Tax Reform" while House Republicans led by Ryan and The Freedom Caucus were already talking about the "need to address spending" on Medicare and Medicaid.
They have no shame, they have no moral compass, the leader of their Party is a serial lying deadbeat conman sexual abuser who has endorsed a predatory pedophile for the Senate because he's supposedly "better than a liberal Democrat."
If Roy Moore wins today the GOP will be emboldened to believe they can get away with anything, and for very good reason.
The real question is how far will they have to go before the apathetic majority of Americans are finally motivated to get off their butts and register and actually vote. What outrage must the GOP perpetrate to finally hit the National Nerve that says "Enough?"
In a perfect world- "Trump - It's what Happens When YOU Don't Vote!" should be enough.
When the budget deficits grow due to unrealized unrealistic expectations count on the GOP to demand savage cuts to "Entitlements." Their long term goal is to starve that "beast!"
6
"What Happens if the Tax Bill Is a Revenue Disaster?
Simple. There will be widespread panic from "deficit hawks" demanding drastic cuts to "welfare" (which was eliminated more than 20 years ago), as well as serious cuts to SS, Medicare, and Medicaid.
This will not be a bug--it is a feature. In fact it is THE feature of this "tax reform" initiative. Tax cuts are temporary. Safety net cuts are forever.
7
Well, of course the tax bill is a revenue disaster. That’s the whole point, isn’t it: an excuse to destroy the New Deal and Great Society programs (social security, medicare, Medicaid) because we “don’t have the money” for them.
The tax bill is the Republican Party’s little Christmas present to anyone who will ever need any of these programs. In the immortal words of Scrooge in “A Christmas Carol,” “Then let them die, and decrease the surplus population.”
To which the rest of us may reply, in the slightly amended words of Tiny Tim, “God save us, every one.”
8
Corporations no longer need a healthy American consumer class; demand is worldwide. No real change for better or worse in regular people's lives. Worst case for GOP: they crash the bus and lose an election, while Democrats clean up their mess so they can do it all again; best case, Prof Krugman is right and there is no crash, so they just keep on getting re-elected. Something other than this tax bill will have to be the reason America wakes up to its terrible rulers.
2
Paul writes "they’d face a barrage of hostile media coverage, plus lots of public demonstrations as in the case of health care, all reminding everyone that these deficits were created by their own dishonest promises"
Maybe in the press that the voters that put Trump and the Republicans into power. But in the world of Fox News and the like the deficits will be blamed on legacy of Obama. It will then be time to get rid of Obamacare for good since it will be proclaimed as the source of the evil.
5
Thank-you Dr Krugman -- good news at last!! :))
2
It's designed to be a revenue disaster. That will provide cover to cut social spending. Once that's done, more tax cuts for the wealthy. It goes on and on until we're Venezuela.
376
Except for the fact that, in the case of the USA, it is self-inflicted.
Venezuela's case is different: the right-wing is backed-up by practically all business owners. After they lost the elections for the first time ever, in 1999, they begun a nationwide lockout, embargoing their own country (which goes on until today). Hence the rise of the black market and the food shortages (even though Venezuela's grain production remains growing).
America's case remembers us much more Temer's government in Brazil -- except for the fact in Brazil they had to do a coup d'État to achieve this: Americans voted for Trump democratically.
It's also designed to triple taxation and privatize necessary investment. Remember that "huge" investment in infrastructure the U.S. so sorely needs? States will no longer have adequate revenues. So projects will be bid to private companies and you and I will foot the bill. Tolls, tolls, tolls, and more taxes--on and on as you say, into the future!
I thought it was Greece we were becoming. Doesn't matter, I guess. Greece, Venezuela, what difference does it make? Awful incompetent governments who leech off their own people, unlike our glorious American government which merely leeches off the poor and middle class.
Piketty (of Capital in the 20'th Century fame) offers an interesting comment on the tax plan of Trump ( "vulgar American businessman with his xenophobic tweets and global warming scepticism;) and the tax bill by Macron ( "well-educated, enlightened European with his concern for dialogue between different cultures and sustainable development")
US: federal tax on corporate profits will be reduced from 35% to 20%); a reduced tax of approximately 25% will be instituted for the pass-through income of company owners (as an alternative to the higher rate of income tax at 40% applicable to the highest salaries); and inheritance tax will be considerably reduced for the richest.
France: The rate of corporation tax will gradually be reduced from 33% to 25%; a lower rate of 30% will be introduced for dividends and interest (as an alternative to the 55% income tax rate applicable to the highest salaries); the wealth tax will be abolished for the largest financial and business wealth holders holders
I.e Trump and Macron, arrived at the same conclusions (In French même combat)
The rational conclusion is that there are factors at work that forces two individual that could not be more different to arrive at similar tax reforms.
I.e. globalization (promoted by Mr. Krugman with little understanding of its political and fiscal consequences) - that has now lead to global competition in taxes.
http://piketty.blog.lemonde.fr/2017/12/12/trump-macron-meme-combat/
12
Rothschild's owns Macron, Deutsche Bank owns Trump. Is it any surprise that their policies are similar?
I have a secret hope that everything the Republicans have done in the past year (from electing Trump, supporting Roy Moore, and now their absurd tax bill) will be so alarming to any Americans with any brains that it all will lead to their complete and total demise. How can anyone, with the exception of the super-rich, who now stand to be super-duper rich, support these guys. They are immoral, lying, greedy, bigots with no empathy for the common man. All that Americans need to do is wake up, get out and vote.
275
Super - That presumes there will be any more elections; 52% of GOP'ers polled say they would be o.k. with His Unhinged Unfitness postponing 2020 elections:
http://nymag.com/daily/intelligencer/2017/08/poll-half-of-gopers-open-to...
We believe David Frum, speech writer for Dubya, is correct in his new book 'Trumpocracy', where he says:
" If Republicans become convinced that they cannot win democratically, they will not abandon conservatism, they will reject democracy. "
The donor-maintenance wealthcare tax cut legislation process proves his point.
10
"... will be so alarming to any Americans with any brains that it all will lead to their complete and total demise."
I'm not sure there are enough Americans left with the kind of brains required to see through all that has happened to be sufficiently alarmed. It isn't just brains needed but enough people who care at all about this democracy, the Constitution, the three branches of government that are now in the control of Republicans, along with too many state governorships, legislatures, etc. Then there is gerrymandering and impediments to voting.
Are there enough of us and do we know what we need to do to restore our country's sense of being America and Americans? I hope so, but I am not optimistic at the moment. One overzealous party and one inept one doesn't bode well for the future.
2
We Democrats, and likely many Independents, continue to misjudge the character and moral clarity of the average American consumer/voter/patriot. Those poor schools we've been complaining about for the last decade may be coming back to haunt us.
3
Little question, this putrid tax bill is the death knell for the Republican Party. Deficits and sloppy management portray the lack of competence that the Party leaders possess. In the long run the populace will realize the whole thing has been a major sell out of the American people.
14
dream on, Californian. It is the death knell indeed; you just mixed up your parties here.
When the republicans propose cutting Social Security and Medicare and large numbers of voters realize that they are talking about their (the voter's) social security and medicare, then things will change. It is one thing to talk about cutting programs that apply to other people; most of the beneficiaries of the Affordable care act and Medicaid don't vote. When you start talking about cutting programs that apply to me and my group of middle class people who do vote, then the time for action has come. At least I can't believe that prosperous middle class people are so dumb as to let the republicans pull the wool over their eyes.
23
KANSAS. That's what happens. Intentionally.
387
Nice polemics, but no. Kansas is required to balance its budget, and can't print its own money. Next guess?
So on the mark.
Exactly. The point is to "shrink government until you can drown it in a bathtub." Kansas is a disaster and Brownback is still delusional. I remind Republicans that the voters of Kansas finally rose up and threw Sam's crew out. I can hardly wait for 2018.
1
This description fits a corrupt government run by a few wealthy people, out of public view for the benefit of the privileged. Why does our government seem more like a banana republic every day?
75
Last week, republicans already started talking about the deficit being an issue, and how spending will have to be cut back. And they aren't even done passing their deficit-exploding tax bill. The only thing I can think of, at this point, that explains this level of hubris is their foreknowledge as to just how stupid and gullible their base voters are.
134
Krugman told us the stock market would collapse when Trump was elected President. Krugman was so very wrong with that prediction. I don't know about the tax bill. But I believe that Krugman's political leanings have so tainted his economic predictions and analysis that they have become little more than high brow political wishful thinking. Sadly, Krugman's political leanings leave him hoping for disaster to America just so he could say "I told you so." Pathetic.
2
Krugman almost immediately withdrew that prediction; I think it was within two days of the election and he said he was mistaken. Have your political leanings tainted your perception to the point that you don't realize that Republicans NEVER say they were wrong, especially Donald Trump. You are the pathetic one, Tony. Do you make note of how many times Krugman has been right? Especially about how interest rates and inflation would stay low? Stick to Fox News and Pirro, that's your speed.
1
Krugman withdrew that prediction soon after he made it, explicitly said it was wrong and apologized for it. In this case he is making predictions that little will happen -- which does not fit his political leanings.
Krugman is generally honest when he is wrong -- unlike many of his conservative colleagues (e.g. Mankiw) who never admit that they were wrong.
1
?? he specifically says he doesn't think the tax bill will lead to economic disaster even though his political leanings wish it would. Did you even read the article??!!
4
I hate to tell you, put your summary at the end seems a bit motivated...
This makes it sound that it's sodapop rather than arsenic that we are being offered. If the thing passes in any form it is going to screw the poor and the middle class individuals, especially if they live in California.
How about we pass nothing, take back the House and Senate and then do a tax thing that serves the Common Good and the General Welfare. I think that most of us on the planet who think have come to the conclusion after thousands of years of death and destruction that leads only to more of the same that war is simply not a practical solution for anything.
So, we can start by cutting the defense budget by 75%. That money goes into infrastructure, education, medical care environmental entry into the 21st century, elimination of stupid things like individuals who think they are actually entitled to live in super luxury while a billion or so are starving and so on and on.
43
We deserved a wonk warning for the first half of this column.
2
"If"?
5
I wonder if there might not be another effect from the Republican mischief: the world deciding the US Dollar isn't the currency of record. What would happen if other countries and firms decide to stop using the US Dollar to set the price of oil and to store cash? Not an interest rate rise, but a severe reduction in purchasing power I would guess.
7
Have a conference call with my R congressman tonight and will remind him not to go after social security etc, and ask him why his party is intent on punishing me as a single parent with elimination of SALT and other wonderful progressive ideas they have in this bill.
My daughter and her friends are on the brink of being able to vote, and they are very clear they will not sign on to the R program, ever.
I will not be voting for my congressman next year. Even though he voted against the tax bill, I can't vote directly against Ryan or McHenry or McConnell so I have to vote against him.
11
Thank you for thinking about the consequences of voting for one person in Congress and informing others how to vote against GOP leadership.
So few voters seem to take into consideration that control of the House and Senate matters. You may love your congressman but he drags along Ryan and all the committee chairs and subcommittee chairs who refuse to hold hearings or restrict the panels who can appear at hearings and go on the record about the consequences of legislation. Trump and the GOP agenda of not funding CHIPS and other safety net needs would be in worst trouble if their opponents held either the House or the Senate. Checks and Balances is the only way absolute power is controlled.
One party states like mine are so vulnerable to corruption and "group think" that problems go unsolved and needs go unmet.
I do not understand how the Republicans like Ryan can speak out of both sides of their mouth as to how deficits will be mitigated. One day he claims the projected economic growth will pay for the cuts and the next he claims that congress will need to make cut backs to Medicaid, Medicare and Social Security to pay for them. I am confident of one thing that if the Republicans make cuts to these programs to pay for tax cuts to the wealthy Ryan had better get on a plane to some obscure island.
6
Reasonable, but what if the GOP congress is "smart" (strategically, not actually) about this? What if they wait a a year or two to use the deficit as an excuse to cut social programs? Of course the risk is that they lose control, or partially lose control of Congress in the meantime. But Trump may take care of that by starting military hostilities agains N. Korea or Iran - the public in the US always rallies around the president in times of war, at least initially. This is likely Trump's strategy for re-election anyway....
4
There is a lot of government programs that can be cut outside of Social Security, Medicare, and Medicaid. Liberals oppose tax cuts because they depend on government funded programs to help get votes. Systemic Slavery needs to end.
1
An even better idea is to get people educated and working and paying taxes.
But too many of my Republican friends would rather pay for prison than pay for preschool.
Another problem is that we pay twice as much per capita for healthcare as most other industrial countries and we don't even get universal coverage.
We are the richest industrialized country on the planet GDP / capita but we have states with black infant mortality worse than Botswana. Alabama is one.
When Republicans fix these problems, I will gladly vote for them.
3
I, for once, have to agree with Krugman here: "Ryan and McConnell" are honorable and would not blame deficits on the tax cuts. they will blame it to where the blame belongs: on deeply misguided policies of Obama and on constant obstructionism of the Democrats in the congress, as well as on anti-patriotic "international" liberal elites who have sold this great country (read: NAFTA) to the highest bidder.
2
Have you forgotten the constant, McConnell led, obstructionism during the tenure of Barack Obama? NAFTA is not the problem, the greed of your president and the GOP is the problem.
1
"If"
Revenue estimates are wrong
Maybe the 20+ trillion debt gets in the way
the entire concept of this tax plan or the current plan are goofy.
1
Matt, do you know that $3 TRILLION of that $19 TRILLION debt is owed to the FED which returns the interest on it to the Treasury?
Do you realize that about 5 TRILLION of it is owed to other branches of the federal gov, so that that debt is merely an accounting fiction. (Actually the whole debt is merely an accounting fiction since we can create as much money as we want, but I won't live long enough to explain that to you.)
Matt, do you realize that a million dollars in today's economy means a lot less than a million in 1946 or 1835? If you want to impress us with how big the debt is, you have to look at the debt ratio, debt/GDP. The debt ratio outside the federal gov is about 75%.
It was 109% in 1946. 47% higher than today's.
Did that rob the next generation of their future? No, in the next 27 years have GDP growth averaged 3.8% and real median household income surged 74%. (If you want to raise the "Europe was Rubble Myth,". look at http://piketty.pse.ens.fr/files/capital21c/en/pdf/F1.1.pdf which shows that the output of Europe was about the same as the US in the Great Prosperity 1946 - 1973).
Did we pay down that enormous debt? No, we had deficits for 21 years out of the 27 and INCREASED the debt in dollars 75%.
Well, what happened to that huge debt? Since we invested in America, the economy grew so much, the debt became insignificant.
If this column were penned by Gail or Maureen, I’d have to speculate that as we get closer to the end of the year, she was trying to meet contractual obligations to the Times for column-inches after missing so many slots during the year. But lately we’ve been seeing a lot of extra columns from Paul, who must be the most rock-solid two-a-week-plus-the-blog contributor the Times has. So, I must conclude that he just bought a new home somewhere and needs to earn a few extra bucks to make ends meet. Ya think?
Not that I’m complaining. Just saying.
Obviously, reminiscent of the tune played by the British at Yorktown, “The World Turned Upside Down”, the notion of a pundit as liberal as Paul Krugman expressing concern about the economic effects of the deficit and national debt is vastly entertaining. That is, until we realize that the added debt, if it actually happens, wouldn’t be a result of added spending to fund ever-more-generous rations of free cheese but as a consequence of collecting less tax “revenue”. Then, the dawn. There are legitimate causes for crippling (if not “bankrupting”, as Paul points out) debt, and then … there aren’t.
But I’d offer that if the wealthier beneficiaries of tax loopholes conclude that their benefits are transitory awaiting the closing of loopholes, they may be more likely to regard them as a windfall and just spend them rather than save them, thereby shoring up the market for yachts and generally increasing demand.
My proffer has every bit as much evidence to support it as Paul’s has that they’ll save the windfall, or as that of others that they’ll use it to speculate – as if that’s the business of anyone else.
Yet, on balance, I find myself in the very rare circumstance of agreeing with Paul almost completely. Negative market impacts likely will be slight, for the reasons Paul gives; and Republicans aren’t going to be able to get away with massive reductions to social safety-net programs without committing political suicide. The entitlement ship already has sailed in America for what’s on the books: too many people now are dependent on them to allow immense cuts. However, Republicans will argue successfully that we just don’t have the money to ADD anything to our plate of free cheese.
And Paul will have fodder for yet MORE columns that entertain us each week.
1
I'm just replying 'cause I'm trying to catch up to your number of submissions.
3
roman:
I always encourage Canadians to persist in their efforts to catch up to Americans.
We currently spend 50cents of every revenue dollar on the military. This number is set to rise very steeply as revenue decreases and defense expenditure increases. This is not sustainable. It is the central issue confronting the nation. It is also hardly ever discussed.
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Yes, but as Trump withdraws from our international obligations, we will be able to cut the military budget. Seriously, we should have peaked, and as our importance declines our footprint should too.
So there's that. We can aim for a military budget more like Russia's in seven years (if Trump remains President).
"We currently spend 50cents of every revenue dollar on the military. " I suggest that you do some fact checking before you repeat that spurious claim again.
Revenue is the least of the problems. I see a more sinister aim behind the tax bill: to create huge pools of money to pour into future elections. With the Citizens United decision, there is no limit on the amounts corporations can put into the political process. With that money, gerrymandered congressional districts, voter suppression laws (voter ID laws), a senate and electoral college that disproportionately favor small states, lifted restrictions on religious institution politicking, and a conservative judiciary to uphold it all, there is a real danger that the will of the people will be suppressed in favor of a permanent or semi-permanent plutocracy. It happened before; the robber-barons of the 19th century pooled their resources and elected President McKinley.
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Dear Dr. Krugman,
The debate in the media is which projection for the deficit is correct.
The debate in the media should be the performance of Clinton-Obama-tax increases versus Reagan-W.Bush-Kansas tax cuts.
4
If the Republican tax bill is revenue neutral, why do they want to cut Social Security, Medicaid, and Medicare?
That is not a rhetorical question, GOP.
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I think Paul is wrong about the political fall out. What makes everyone think levelheaded and common decency will prevail when thus far its done little to stop anything currently?
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Before readers take this Krugman column at face value they might want to consider his comments in the Times on election night, when it became apparent Trump would win:
"If the question is when markets will recover, a first-pass answer is never…So we are very probably looking at a global recession, with no end in sight. But on economics, as on everything else, a terrible thing has just happened."
A year later we are looking at record stock prices, low unemployment, and high consumer and business confidence. Perhaps Mr. Krugman should devote a column to explaining where he went wrong.
What is the role of the Federal Government?
What is the role of the states?
I live in NY State and enjoy its infrastructure which affords me the ability to study, have a family, earn a living, go on vacation, have use of hospitals and essential services, why does a state with fewer resources not have the same equivalent infrastructure?
Is the role of the Federal Government to prevent states like NY from providing for its citizens? is it their role to equalize standards of living downwards?
This tax bill with is attack on our education system and craven welfare handouts to the wealthy is a demonstration that we do live in a separate America.
For the party of business, citizens only have rights if they incorporate their souls or become an LLC or a pass through entity. This tax bill is a warning shot to the liberal mindset.
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The Republicans will do as they always do.
1. Try to ignore deficit.
2. If they must comment on deficit, they will blame it on the Democrats. That is, they will say we only added a little bit to deficit; most of it was added by Democrats.
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Pleases read Stephanie Kelton's Op-Ed in the Times on Oct 5,
"... they’d face a barrage of hostile media coverage, plus lots of public demonstrations as in the case of health care, all reminding everyone that these deficits were created by their own dishonest promises just a few months earlier."
I would like to share Dr. Krugman's optimism about that sort of potential backlash actually influencing the current GOP. I think that the proposed tax cuts precisely demonstrate the contrary.
Apart from their voter base being apparently impervious to any logic or to persuasion based on actual facts, the only explanation I can find for their tax plan is that, their base lost for the GOP establishment, they have just engaged in a scorched-earth policy in which the primary goal is getting as much donor support and personal economic gain as possible. The former to try and keep afloat in the next political cycle, and the latter in case it does not work and they are definitively engulfed and kicked out by the dominant loony sector of the party.
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Trump keeps on taking credit for low unemployment and high stock markets. I am surprised that Democrats don't challenge this narrative forcefully. Maybe Mr. Krugman can show the economy that Trump inherited from Obama and the rate change since. Trump never accepted the low unemployment numbers under Obama just like he did not accept him being born in US.
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All Obama did was blame GW Bush for everything. But never blamed himself for his failings as a president.
Dr. Krugman makes a good point. A bill patched together in a hurry., by people who really don't know what they're doing. On top of that, they're patching it as they go.
This is going to be a disaster worse than we think. And my Social Security and Medicare will pay the price!
Please hurry up and lose your majority, GOP, so the Democrats can come back into control and fix your mess. Again.
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Sadly, not cynical enough, in my view.
First...Republicans would want to legislate fixes for the loopholes exploited by the wealthy? What makes you think the loopholes are a bug and not a feature? I remember Tom DeLay blocking either funding or rule changes that would allow the IRS to catch tax evaders with off-shore accounts. His reason? Better enforcement is the equivalent of a tax hike.
Second...sure we remember the tax give-away when Orrin Hatch says we don't have enough money for CHIP as the give-away is still moving through Congress...but a year from now? Two years from now? Plenty of time for the professional centrists and deficit scolds to treat the tax regime as immutable and Gpd-given.
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I think we're in the midst of a maelstrom of chaos and cynicism that Americans have not seen before.
You have Republican lobbyists and legislators, who have been waiting for decades to dismantle the welfare state and give the savings to their clients, the top 1%, while at the same time fastidiously ignoring the clear and present danger represented, on a daily basis, by the current occupant of the White House. Meanwhile, the communication organs of both are putting out a steady stream of lies, but lies that are so transparently lame and mathematically specious that its shocking that they are even allowed to finish their sentences.
When you have public servants who fail to serve, and a citizenry more animated by anger and ignorance, then escape becomes an option of non-trivial likelihood.
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Considering the political/economic situation I would advise a young person going out to work in a career to first of all get the best education/training for your profession.
Secondly, start saving and planning for retirement on day one. The republicans are determined to undermine and ruin social security and medicare. So anything that you can do to plan and save for your future will be time well spent. Social Security might be around 50 years from now and I hope that it is. But the republicans and the right wing are serious about destroying it and there are a lot of gullible voters around. There were enough gullible people to elect trump.
Third, always be optimistic and look toward the future. The past might have been great but we live in the present and future.
Well, we all know that US corporate taxes are too high and punish companies based here or producing here, or returning profits home here. This is hurting us in many ways, including dampening job growth, obviously.
We also know that the economic disasters of the world have always followed socialist turns; Venezuela is only the most recent place to give us a clear lesson on economics. History is replete with disasters and genocide in Russian, China, Vietnam, Cambodia and Cuba following socialist turns.
Let's give a bit more credit to capitalism, eh, in the name of intellectual honesty.
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Yeah, and the disaster and genocide in the UK after WWII were really terrible. Similarly for the Scandinavian countries.
Sorry, Paul, this will not be "a political disaster for the GOP."
For that to happen you would need a functioning independent media and a functioning, genuine opposition.
We have neither.
The media is just as polarized as the country itself, with Sean Hannity screaming on one side and Rachel Maddow on the other.
The consolidation of the corporate media and the abolishment of the fairness doctrine (Thanks Bill & Obama), as well as the media's repeated dereliction of basic tenants of journalism (see Glenn Greenwald's latest summary over at The Intercept) have rendered them a toothless paper tiger, fueling the perception of "fake news" with their click-bait sensationalism and leaving almost no middle ground for alternative media.
The Democratic Party’s national leadership, as currently arrayed, is largely in agreement with the Republicans on economic issues.
They protest rhetorically, but it's actions that count, and their short stint in the White House with a filibuster-proof majority clearly showed where their loyalties lie, removing the fig leaf of plausible deniability - with the same wealthy donor class that controls both parties.
Democrats should take a deep look at themselves and their own shortcomings for having lost the election to Trump, and concentrate on trying to come up with a candidate and policies who can beat him in 2020, rather than indulge in all this “Putin Ate My Homework” shenanigans which is making them look rather pathetic.
I am not hopeful at all.
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This proposed tax legislation is nothing more than an abuse of power by a corrupt and incompetent Republican party. It will result in substantial, and harmful, unforeseen consequences that our dysfunctional political system simply will not have the capacity to correct.
Thoughtful, comprehensive reform of our federal tax system is genuinely needed. There is much that can & should be improved in our tax system. The frightfully sloppy "tax reform plan" that Republicans are forcing on our country is a travesty in terms of both content & process. Tragically, the opportunity that Republicans are wasting today will only make it more difficult to achieve the tax reforms that our country genuinely needs.
There is a silver lining in these economic games. More and more Americans are starting to see business people as liars. Trump is the obvious Liar #1.
Scientists and engineers create real, actual wealth, the kind of wealth that shapes a nation and the world. Think of the World Wide Web, x-rays, MRI (actually, anything in hospitals), images of Saturn and Pluto, cars that run for 100,000 miles without a problem, communications of all kinds all over the world (cell phones in Mongolia and Paris), clean electric power (solar, wind), intercontinental travel, and in general, our high standard of living.
Business people only move money around on the table, pocketing some of it as "profit," but the actual wealth that is put on the table is created by new ideas from scientists and engineers who make those ideas work.
The big federally supported labs in Europe, US, Japan return 2.5 dollars/euros to the economy for every dollar spent on pure science.
But a political system such as our rewards "business" people like Trump who tell simple lies (a 68 story building that is really 58 stories).
China is going the other way. I think China will win big in 100 years. The US may become, again, an agrarian society with a weak educational system and "business" people who scam what's left.
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I agree that ultimately this (and many other things) will eventually lead to a demise of the GOP, and already their approval ratings are dismally low. What I worry about is the damage they will do and the pain they will cause before that time arrives. It could be considerable.
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Thanks, Professor Krugman, Your last prediction about the markets and the economy that I can recall was in November 2016: "It really does now look like President Donald J. Trump, and markets are plunging. ... If the question is when markets will recover, a first-pass answer is never."
I don't follow the stock market closely. Was there, in fact, ever any kind of recovery for the S&P 500?
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Mr. "Greenspun," your smirk is unwarranted. Professor Krugman very quickly retracted that incorrect prediction. And during the last year, he has mentioned that error several times as "motivated reasoning," a phrase he uses in this post.
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I've never understood the need for 10 year windows on these tax changes. If the goal is to stimulate the economy, why not make the tax adjustments dynamic? Let real economic performance trigger the changes in tax rates. If tax revenue stays low, then the dynamic tax rate would cause the tax rates for next year to go up. And if the revenue is exceeding targets, then tax rates could drift down.
Wouldn't that be an honest way of dealing with rates?
But that's precisely the opposite of what you'd want to do to keep the economy relatively stable. You're proposing raising taxes during periods of poor economic performance, and lowering them in times of good economic performance.
Except for the fact that it would have exactly the opposite effect that you want. It would eliminate deficits and pay down the debt which as history unrelentingly shows is always followed by a depression. More precisely:
The federal government has balanced the budget, eliminated deficits for more than three years, and paid down the debt more than 10% in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid down 29%. 100%, 59%, 27%, 57%, and 38% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
2
Why don't we get realistic about funding our great society. First, going the wrong way, but needed, is that the corporate tax rate needs to be lowered to make it competitive with other countries (don't believe any one suggesting that the statutory tax rate is not important...it is). Increase tax revenue by taxing employer provide health care benefits which exceed a certain value (i.e. Cadillac plans), and don't carve out exceptions for anyone. Consider a VAT (likely a 10 year death sentence to whatever party enacts that), and raise the Federal gas tax. If we want services we need to pay for it, and we can't look to a small few who get away with paying less (i.e. the rich), and think that soaking them solves all of our ills...it doesn't.
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"Soaking" the rich? Funny, funny.
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Manko, are you blithely unaware that quite a few yuge American corporations, Verizon and GE to name just two, already pay ZERO corporate taxes? GE famously employs an army of lawyers and accountants to exploit every loophole, and receive rebates paid for by you and me, for taxes that 5hey pay abroad.
Taxing benefits as income would beeven more disastrous than losing the SALT deduction. For two adults and one young adult in our household, the value of the Health Insurance premiums is over $2000/month, and rising. So you propose to put me in a higher bracket by $24K per year? Thanks for nothing. Better to go Medicare for all, and excise the profit motive.
1
One of the many myths propagated by conservatives is that our corporate taxes are high compared to other countries. It is true that our nominal rate of 35% is high, but because of loopholes, this figure is meaningless.
A good parameter to look at is total corporate taxes actually paid divided by GDP because neither of these figures can be fudged by corporations. If you look at developed countries, you will see that Norway has the highest value at 12.5%. The US is tied with Turkey for the lowest at 1.8%. If you look at all the countries touted by conservatives as low tax countries such as Ireland or Canada, you will see that their corporate taxes as a percentage of GDP are higher. http://economix.blogs.nytimes.com/2011/05/31/are-taxes-in-the-u-s-high-o...
In addition, during the Great Prosperity, 1946 - 1973, this figure was about 3 times higher than today
It seems to me that if our real corporate taxes were in line with the rest of the world or maybe even higher than the average, corporations would think twice about leaving piles of cash lying around and would reinvest them to avoid paying tax.
5
it is suggested that in order to reduce the inevitable deficits the republicans would insist on cutting the safety net, but that they would get caught by the media. I believe they have already started making calls for such reductions and the media hasn't said a thing. Memories only last a couple days now.
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Contrast the Republican economics behind the tax cut to the economics behind ending TPP and NAFTA. In the former, we are asked to focus on the bigger, long-term picture and ignore the current mechanisms (i.e. focus on the future, dispersed trickle down and ignore today's tax cuts for the wealthy and benefit cuts to critical programs like Medicaid). In the latter, we are asked to reverse our perspective - i.e. focus on the few (relatively), immediately dislocated workers when jobs go offshore and ignore the wider economic benefits of cheaper goods. Of course the Democrats fell in line with the anti-trade rhetoric too, but I hold out hope that was just sheer political expediency.
2
The rich will invest more in the stock market, which will boom. They already have enough homes, cars and yachts. The tax bill's gains for the rich will not end. The bill pretends to end the tax cuts after a couple years to avoid projections of huge budget deficits over 10 years that would require Democrats to vote for the bill -- which they won't. But rest assured, just as in the case of the "temporary" GW Bush tax cuts, the cuts will be extended as long as Republicans control Congress.
2
I mostly agree with this analysis at a 30,000 foot level, but I feel like a couple of things were left out.
The first is the impact of mounting debt service on future budgets. We have been hearing that the debt and the deficit aren't big deals because borrowing is so cheap. If interest rates go up even a bit faster than the Fed desires, and the deficit goes up at the same time, the effects on the costs to service the debt are additive.
If revenue collections go down at the same time that debt service costs go up, the combined effect of those two things is additive as well. If the cost of servicing the debt goes up as a percentage of current revenue, the pressure to cut discretionary expenses (which will always be Medicare rather than the military) will grow to the point of being irresistible.
The second point is that I believe this bill will cause the debt (and the deficit?) to grow as a percentage of GDP. Dr. Krugman, you have long said that the best measure of whether the deficit is "out of control" or not is how it is moving relative to GDP. So, what say ye on this subject?
7
Once you account for the interest that the FED returns to the Treasury from the bonds it holds, debt service is running below 1% of GDP. This is, as it has always been, a red herring.
As For the debt ratio having any predictive value, it suffices to note that the public debt ratio was 109% in 1946 (almost 50% larger than it is today). That was followed by 27 years of Great Prosperity when, for example, real median household income surged 74%
On the other hand it was 16% in October of 1929, followed by you know what.
2
With our economy already at risk for overheating, stimulus spending is contraindicated.
What does the economy really need? It needs less wealth disparity. Rising wages to close the wealth gap, and create a continuum of prosperity. Along that same vein, there should be increased investment in universities, K-12, head start, and R&D. Conveniently all of these things will make the USA a better investment opportunity, and a better Democracy.
Tax breaks for the rich only prevent all that from being possible.
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Let’s also add upgrading infrastructure to 21st century standards, including net neutrality and equality of access.
2
Juan—Run for offce. You think clearly, that would probably get you in trouble.
There was a a time when yours was a Jacob Javits position but that was a wistful moment long ago. Great comment.
The "Revenue Disaster" that is a certainty will be the reduction in revenue of citizens in high tax states that will be re-taxed on their state income taxes. If that comes to pass it should be challenged in court. Meanwhile, fires rage, the infrastructure fails due to inattention, and respact for our nation on an international level dwindles. "Clean coal" anyone? How about an oil lease in a former federally protected area? Step right up, the U.S. is ready to deal.
33
Oh, the constitutional crisis is definitely coming, and we hope Mueller is prepared for it. The key might be to build the cases such that they are prosecutable in state or local jurisdictions where President Trump does not have the power to pardon. Nevertheless, the end-game here is in the hands of the citizens in 2018, when they will have the full opportunity to mete out the political punishment that is long overdue.
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We're going to have to take care of the deficit and the debt in the near future. We are going to have to raise the age on Social Security benefits. We're going to have to tax those benefits at a higher rate for people in a higher tax bracket.
5
We are going to have to take care of the deficit and debt by honestly figuring out the economic effects of increasing or decreasing the deficit, and perhaps by figuring out ways to spend enough on economic research to actually get relable results. Finding ways to increase penalties for bad economic predictions (such as stoking fears of impending runaway inflation a few years ago) would help cut down the noise in economics.
The obvious way to take care of deficits increased by tax changes is to back these changes out or to increase taxes while making them more rational and effective. To do this, something must be done to shut down tax havens worldwide. As long as countries compete against each other to be the spot where the superrich park their loot, the superrich will win and government will be starved of funds, until this unregulated stashing gets out of control and crashes the world economy. The only alternative to this is worldwide enforceable and enforced economic rules, whether the enforcement is done by governments or powerful banks.
5
Social security benefits are already taxed at 50% above $32,000 if you are married and 85% above $44,000. How much more can they be taxed? I don't think they should be taxed at all. Raise the retirement age? It's not easy finding a good paying job when you are in your 60s. There are so many older people living on a pittance in this country. If anything Social Security benefits should be increased and payroll taxes raised to support this.
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Euclid has it very wrong: You are NOT taxed at 50% (or 85%) rate. The rule is: 50% of your SS income is considered taxable, not taxed at 50%, if your combined income is >$32,000. And 85% of your SS income is considered taxable, not taxed at an 85% rate, if your combined income is >$44,000.
See: https://www.ssa.gov/planners/taxes.html for the truth.
1
These deficits will not only not raise demand from the wealthy benefactors, it will actually lower demand from the middle and lower classes. To the extent ordinary folks are meaningfully affected by the tax legislation, it is a tax increase, lowering consumer demand. Additionally, as the federal gov't spends less on safety net transfer programs like social security, medicare, medicaid, unemployment compensation, CHIP, the VA, etc. etc. ordinary people will have less to spend and will need to save more while working to build their own safety nets. Again, depressing consumer demand.
It's pretty clear that the demand-driven growth forecast for the tax cut has it backwards; this tax cut will drive us into a recession. If you want to cut taxes and boost demand, a simple and effective strategy would be to simply double the standard deduction and call it a day.
101
he is right
2
" So that’s my prediction: minor market impact, but quite probably a political disaster for the GOP ..." I hope this isn't wishful thinking. The GOP has very effective strategies for averting political disasters: gerrymandering, voter suppression , and similar chicanery. Also, a Supreme Court which will bless them all.
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What Dr. K. (and Chait) describe are features - not bugs - of the GOP'er looters'/grifters' legislation.
Remember, this crowd has primary faith in Vulture Capitalism and leaves ruination behind; His Unhinged Unfitness is the King of Bankruptcy, whose Chief Strategist (now gone) adheres to a 'blow it all up' game plan.
And, the GOP'er legislators are voting for tax cuts for their donors and themselves, which is why the tax cut legislation came up before the budget which should determine what America's needs actually are.
Remember, His Unhinged Unfitness is where he is because he pushed aside Romney and Jeb!, by labeling Bush low energy, and because djt wanted to derail a continuation of the wealth/income disparity discussion from Romney's last campaign - by pushing his gilt-edged lifestyle, celebrating himself.
(His Lifestyle of the Rich and Famous is a spectacle - flying Air Force One to Pensacola for a speech/rally Friday, then across Fla. to Mar-a-Loco to spend Friday night, then the next morning flying back across Fla. and Ala. to the Miss. museum dedication, then back down to Mar-a-Loco to spend Sat. night, then on Sun. afternoon, back to D.C.)
But the real winners in all this are the rentiers and bankers, who paid the lobbyists to suck up more money from Jane/Joe Sixpack, which the ultra-wealthy will place in over-stuffed bank accounts (some offshore) on which the rentiers will collect fees and earn their bonuses - it's a veritable perpetual motion machine.
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R. Law, your descriptors and puns are getting better and better. With all of the flying back and forth when does he have time to enjoy the perks of his fame and wealth. Do you suppose poor Hope Hicks has to iron his trousers during all of these flights so he is appropriately fit, relaxed and attired for his arrivals?
It's unlikely to hurt the GOP much, no matter how bad their policies are, while the Dems fail to step forward with their own easy to understand agenda (e.g., tax hikes on the rich to pay for universal healthcare and tuition/trade school, which is still too difficult for Democrats to agree upon).
The Economist pointed out recently that the urban vs. rural split is such that the Democrats are unlikely to regain the House or the Senate in 2018; a 7 or 8 point popular vote is now required to win the House, for example, a landslide in historical terms. Never mind gerrymandering, which is also currently in Republican favor.
So no matter how much the Republicans lie, their tribe will elect them until we find a way to have majority rule again.
242
And future demographic predictions put 70% of the population in the 14 or 15 largest states -- meaning that 70% of the population will be represented by 30 senators, and 30% of the population will be represented by 70 senators.
Not exactly the way towards a representative democracy, if we ever had one to begin with.
7
I admit that this is a concern. We may already be in a party dictatorship. I sure hope not though. It already is damaging, possibly irreparably the USA.
2
The repubs have found a way to have permanent control. Lie. Gerrymander. Suppress vote from the other side. Use your media wing to whip up the uneducated base on social issues. This is the fundamental flaw of any democracy - lying must be allowed, and you must rely on the intelligence of the electorate to discern it. When they no longer can, you are done.
6
This is Ayn Rand's dream coming true.
We've been here before, with Republican policies being slightly modified and ultimately inflating the bubble. We had the dotcom recession. Then, after the Bush tax cuts, we had the Great Recession, from which millions will never recover. Thanks to it, we now have the gig economy. Soon, in order to pay a portion of this abomination, the safety net will be dismantled. But that won't be enough to cover for what essentially will be a tax-free environment for corporations. States will be forced to raise taxes on their populations to continue providing a minimum of services, and we will see a further degradation in the infrastructure.
Given where the Fed is with what it can do in another downturn, this heist's consequences will be even worse than the Great Depression. Congress is setting us up for the mother of all bubbles when we haven't yet fully recovered from the last one.
Democrats are far too quiet. Why?
Former MSNBC host Dylan Ratigan was right in 2011. This indeed is extraction. Now, it is extraction on steroids.
---
https://www.rimaregas.com/2017/09/04/triangulation-when-neoliberalism-is...
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Rima - Dylan's incisiveness is missed.
5
You can watch him on TYT. He's back,
3
I suspect the Democrats are in a nice room,having champaigne,and realizing they are looking so good in comparison, and giggling away; cause it will prove that republicans can ruin the economy, AGAIN. --AND they will be the ones picking up the pieces.
You're partially correct: First, the GOP will try to cut safety net and other non-defense spending. But, second, when that fails they will try blaming Democrats - a fallback position - the same way Roy Moore blames his victims.
The real problem might be that I'm not sure how much attention the average voter pays to things such as the deficit; after all, it took them a few years to pay attention to what the Bush-Cheney-Rumsfeld cabal was doing in Iraq, and American kids were dying for nothing over there. The deficit is even more nebulous.
The way around this might be for Democrats to start yowling now about how the GOP is ruining the economy - and, at the same time, begin targetting so-called centrists such as Susan Collins now well before their next election.
Meanwhile, it may be time for ordinary working folks to buy a basket and lay in a supply of apples to sell on a street corner when the economy goes into a nosedive as a result of Republican economic and regulatory policies.
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It's cuts to Medicare and Social Security that terrify my wife I. We're both in our late 70's with a razor-thin budget heavily reliant on those "entitlements." I--we--doubt that Ryan Mitchell et. al. even comprehend the word "budget," especially insofar as it applies to the rabble. The days of "of, by, and for the people" have ended. We live in an oligarchy, and it's going to get a whole lot uglier.
15
--absolutely correct. Democrats will inherit the collapse, and look like angels in comparison. Even we swing voters will stop complaining about "rotten liberals" and bless our stars that we have them.
6
They aren't "entitlements", they're entitlements. You are entitled to them. The law says so and your payments say so.
11