So, we now have the outlines of the current administration' tax reform proposal. Actually, as the President himself acknowledged, it is really a tax cut plan. As usual from this White House, we are given only a broad brush outline, but three things are immediately clear from the plan.
- It will primarily benefit the top 1%, including the President and his wealthiest donors.
- It is unfunded.
- It is bad for NJ residents, and we need to raise our voices.
The New York Time reports the Republican tax cut would benefit the wealthy and corporations the most. For the top 1%, the benefits flow less from the reduction in the top rate of income taxes, but from the treatment given to corporate taxes, investment income, the alternative minimum tax, and the abolition of the estate tax. All of this is said to stimulate investment and thus provide economic benefit to the rest of us. This strategy has been tried twice before, under President's Reagan and the younger Bush, and the only thing that increased was the deficit. Why would we think the third time would be any different?
With respect to funding this giveaway, there is only the merest nod to how this will be accomplished. The President proposes, and Congress disposes. What options does Congress have? They can cut spending or increase the deficit. We have not seen a budget from Congress yet, but with Medicaid and Medicare now apparently off-limits, Social Security sacrosanct, and a 10% increase in military spending planned, that leaves only discretionary spending. Many of the planned cuts there have already been deemed too draconian to bear. No, the party of fiscal rectitude will once more kick the can down the road and opt to increase the deficit by expanded public borrowing. We will be relying on other countries to fund our debts by buying US government securities. And, at a time when the economy is "roaring", per the President, this proposal can only lead to increased interest rates.
Which brings us to NJ. That "merest nod" to funding? That involves eliminating deductions, including the deduction for state and local income taxes for those of us who itemize our returns. In our State, with our very high property taxes, removing the deduction will be very costly for homeowners. According to the NY Times, over 40% of filers in NJ claim the deduction. According to Forbes Magazine, the number in District 7 is 53.3%, joint second highest in the nation. I don't know about you, but I don't want this gift for the President, his family and friends to be funded off my back.
All of this begs the question of why we need tax cuts. We need more public investment in NJ, not more giveaways for our wealthiest citizens. They are not going to reach into their pockets to fund the Gateway Project, or to repair the rest of our crumbling State infrastructure. And given what this proposal will do to federal debt, you can be sure no funding will be coming from D.C. to help us if this tax cut proposal goes through.
“It’s time to take care of our people, to rebuild our nation and to fight for our great American workers,” says the President. I could not agree more. But not like this.
About Merv Turner
Merv Turner was born and educated in England, where he earned a PhD in chemistry. After a career in UK academic research, he moved to New Jersey in 1985 to take a position in Merck Research Labs, in Rahway. Merv spent his career with Merck, in drug discovery, licensing and business development, and corporate strategy, and retired in 2011. He continues to consult in the biotechnology and pharma sector. He has lived with his wife in Westfield NJ since 1985.