Nel's New Day

February 13, 2019

Tax Cuts Go to Wealthiest, Others Angry

Almost 14 months ago, Dictator Donald Trump (DDT) promised people would pay $4,000 less on their taxes this year and “have a nice, simple form.” Neither is true. An additional ten percent of tax filers will owe the IRS money since the “tax reform,” and average refunds were 8.4 percent smaller, down to $1,865 because of the same “tax reform.” And that’s from a week ago. In addition, filing taxes is as complicated as in the past. IRS refunds sent out are also down about 24 percent because of the shutdown.

People hoping to pay for their cars will be disappointed. Seven million people are at least 90 days behind on their car loans, a record and a red flag for the economy. Auto loans are the first payment that people make; delinquencies show serious economic problems for low-income and working-class people in the U.S. The nation suffers from more than a million more “troubled borrowers” now than in 2010 when unemployment hit ten percent and the car loan delinquency rate peaked. After George W. Bush’s recession, the government restricted mortgages so that people could make the monthly payments, but car financers could continue predatory practices because they have few restrictions . Subprime borrowers with low credit scores, increasing from 28 percent of the market in 2009 to 39 percent in 2015, may pay interest rates between 14.5 and 20 percent.

Howard Gleckman, a senior fellow at the Tax Policy Center, wrote about people plan buying big purchases or paying off large debts with their refunds. Some are so desperate that they pay extra to get advance lending on their refunds. Last year, 102 million taxpayers received an average of $2,778 in tax refunds, and most people spent this money, helping the U.S. economy. Lower refunds mean less spending and a shrinking economy. If people use their refunds for necessities, problems are worse than a slowing economy.

Fox & Friends told their watchers to stop whining about owing money to the government because they should have taken out more withholding—for a tax cut. The government’s guidelines did provide for less withdrawals from wages to get people to vote for Republicans in the midterm elections, a ploy that failed for many House members. But the reference to everyone’s “fatter paychecks” by Fox & Friends’ hosts applies primarily to higher income earners: most people didn’t see a significant increase in their paychecks.

Rep. Kevin Brady (R-TX), lead author of the tax bill, told taxpayers to be grateful for much smaller or no refunds because they have nothing to do with their overall tax bill. He falsely claimed that 90 percent of the middle class got a $2,100 average tax cut. Another tax cut backer, Rep. Warren Davidson (R-OH), tried to convince people that refunds are less because most people “owed less income tax.” The Tax Policy Center estimated that earners in the bottom 20 percent might each see a total of $60 less tax for the year, and the next 20 percent might expect a $380 total cut. The top 0.1 percent of people in the U.S. saved an average of more than $190,000—each.

Meanwhile, the government ran a $14 billion deficit in December—just one month—as we lost revenues because of the “tax reform” law. The U.S. has run into the red by $319 since the beginning of the fiscal year in October, up 41 percent from the $225 deficit of the same time period last fiscal year. Corporate taxes fell 17 percent, and those from individuals dropped by 4 percent. We’re not spending more: we just aren’t collecting money partly because of the tax cuts for the wealthy and big businesses, ending in a larger deficit for the previous fiscal year—almost $900 billion added to the debt. Budget Director Mick Mulvaney said that “nobody cares” about the debt.

DDT’s supporters are learning that the Democratic position on the failure of tax cuts was right and that Republicans lied. Most of the people aren’t getting any extra $4,000, businesses haven’t changed their capital investment and hiring, and tax breaks for the wealthy and big businesses aren’t paying for themselves. In addition, the economic growth is slowing instead of building. The GOP promised that corporate tax breaks wouldn’t go into stock buybacks; they did, which is the only reason that the stock market has not gone much below its level a year ago.

Instead of putting their tax breaks into higher wages for employees, companies in the S&P 500 spent almost $800 billion of their tax windfall on buybacks for the 2018 fiscal year that started nearly three months before the tax “reform” bill passed into law. The Dow Jones spiked until it went back to the same level as the beginning of 2018. The 2019 buyback projection is about $900 billion, almost all one third of all corporate cash spending and up 25 percent from 2017.

Senate Minority Leader Chuck Schumer (D-NY) co-authored an op-ed for the New York Times with former presidential candidate Sen. Bernie Sanders (I-VT) that criticized the tax law and suggested the prohibition of a public company from buy back shares “unless it invests in workers and communities first, including things like paying all workers at least $15 an hour, providing seven days of paid sick leave, and offering decent pensions and more reliable health benefits.” They also suggested other ways to require companies to invest in workers, including a change in tax rates on dividends.

A divided Congress with a Republican president can’t pass these laws, but the ideas have generated discussion. Lloyd Blankfein, former head of Goldman Sachs, tweeted that money doesn’t vanish with stock buybacks, that money “gets reinvested in higher growth businesses that boost the economy and jobs.” Sanders retorted that Blankfein was right in his claim that money “doesn’t vanish” but it Mr. Sanders quickly responded on Twitter that Mr. Blankfein was correct that the money buybacks “doesn’t vanish” but it “increases the wealth of billionaires” like Blankfein.

Republican leaders who financially benefit from the buybacks lambasted the buyback proposals as “socialism.”  The GOP case against “socialism” ignores the difference between pure socialism and “Democratic socialism.” Republicans plan to use the term as a one-word meme slamming Democrats during the 2020 election campaign after they failed with “witch hunt.” Today, the White House blared the headline, “Not one more person should suffer under socialism.” Republicans’ definition for socialism may be anything that doesn’t benefit themselves. [In the chart to the left, you could add flood protection, sports coliseum, “freedom of religion,” a 40-hour work week, child labor laws, Social Security, Medicare–the list is quite long.]

Axios chief financial correspondent Felix Salmon asserts that the tax cuts will never pay for themselves and no one ever believed that they would. The increase in the national debt is faster than pessimists predicted at the time the GOP pushed through the cuts, and the CBO estimates that the annual deficit will top $1 trillion beginning in 2022. It’s almost there now. DDT campaigned with the promise that he would immediately eliminate the deficit, but in two years, he’s increased the national debt from under $20 trillion to $22 trillion. Salmon added that the nation is “awash in debt” with trillions in student loans, credit card debts, and car loans. Asked about the debt, DDT said that he’ll “get rid of” the entire debt “fairly quickly,” “over a period of eight years,” “paying off that debt like water.”

DDT plans to unleash predatory payday lenders on the majority of people receive less in tax refunds by gutting rules from President Obama’s era that shield people from “easy” loans with interests over 400 percent. If people borrow the money for the two weeks between paychecks, they pay $75 for a $500 loan. Over 60 percent of 12 million borrowers took out seven or more consecutive, digging themselves deeper and deeper into debt, and a majority of borrowers paid more in interest than the money borrowed.

In charge of making these changes is the Consumer Financial Protection Bureau (CFPB), which Budget Director Mick Mulvaney destroyed before he moved on to help DDT spike the national debt and works at failing as acting chief of staff. Vanita Gupta, president and CEO of the Leadership Conference on Civil and Human Rights, described the result of the change in rules for payday loans:

“This decision will put already struggling families in a cycle of debt and leave them in an even worse financial position. This administration has moved the CFPB away from protecting consumers to protecting the very companies abusing them.”

Almost 80 percent of people in the U.S. live from one paycheck to the next, and wages remain stagnant when inflation is taken into consideration, even dropping in the second quarter of 2018. Almost all the gains in the country go to the top—chief executives of big companies, financiers, and creators in the digital world. If the average wages go up at all this year, it will be due to the 18 states that raised the minimum wage although the increases in almost half these states were $.20 or lower—about 2 percent.  The GOP system makes the vast majority of people in the United States more and more desperate.

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