Here’s the PR statement put out by the Republicans:

The Tax Cuts and Jobs Act includes specific safeguards to prevent tax avoidance and help ensure taxpayers of all income levels play by the rules under this new fairer, simpler tax system. Our legislation will ensure this much-needed tax relief goes to the local job creators it’s designed to help by distinguishing between the individual wage income of NBA All-Star Stephen Curry and the pass-through business income of Steve’s Bike Shop.

Is it true that Steve creates jobs while Curry does not?  Not really.  In a sense both people create jobs.  Because of Steve and Steph, some cashiers have jobs at Steve’s bike shop and some concession stand people have jobs at the Golden State arena.  So certain specific jobs are created by their actions.

On the other hand, neither cause the job total in America to be higher than otherwise.  Those employed at the bike shop and basketball arena would have jobs somewhere else if not for Steve and Steph (due to monetary offset.)

The real argument for the lower pass through rate (if I understand it correctly) is that capital income should not be taxed at all, and a portion of business income is capital income.

Why is Curry the only person mentioned in the GOP document, and why in a less than favorable way?  I’m not sure.  In my view, Steph Curry is far more valuable to society than Steve (for standard diamond/water paradox reasons).  But I’d guess that many GOP voters resent the high incomes earned by African-America athletes, especially those who don’t seem grateful to America.  This is probably why Trump keeps picking a fight with the NFL—he knows it appeals to his base.  It’s all part of our stupid culture wars.

Some have argued that high wage earners often benefit from government subsidies, such as government funding of sports arenas.  That’s true, but businesses also get massive government subsidies, and only a very tiny share of Steph Curry’s income is due to these subsides; it mostly reflects his extremely high productivity (which leads to big TV ratings).  I have no problem with taxing high wage earners like Steph Curry at a 50% or 60% rate, but let’s not kid ourselves and claim that businesses are somehow more virtuous that high wage earners.  Productivity is productivity, whether from white businesses or African-American workers.  And Steph is way more productive than Steve.

PS.  It’s not good when the very first bullet point in your PR document is inaccurate:

The Tax Cuts and Jobs Act delivers tax relief at every income level – while maintaining the top 39.6% tax rate on high-income earners.

This post explains why.

I have a piece on Jerome Powell over at the Washington Post.

Trump’s instincts were apparently to reappoint Yellen, but his aides talked him out of it.  This is one of those rare cases where he should have gone with his instincts.  He replaced a highly qualified woman with a far less qualified man, and is hoping that that the less qualified man does the exact same policy as the highly qualified woman.  How does that make sense?  (BTW, I think Powell will do fine in the short run.)

Progressives are bashing the new tax plan as being highly regressive, but I’m not buying it:

1.  They claim that corporate tax cuts benefit the rich.  Actually they benefit everyone.  Do you seriously think all these left wing welfare states in Northern Europe would have slashed their corporate income taxes (and in the case of Sweden abolished inheritance taxes) if these moves merely helped the rich?  No one knows the tax incidence of the corporate income tax, but I suspect it’s pretty broadly shared.

2.  The inheritance tax is almost certainly not going to be repealed.  The Dems reinstated it last time the GOP tried to repeal it, and President Sanders/Warren will do the same.  I think the GOP knows this deep down, which is one reason the repeal was put off to 2024.

3.  The plan keeps the top federal income tax rate at 43.4%!  How weird is that?  After all the discussion of the need for supply-side tax reforms in the GOP, there is no cut in the top rate.  Obama wins!  (Just as with Obamacare.)  And still the progressives complain.

4.  They’ll point to the fact that rich people below the top rate get tax cuts.  Some do, some don’t.  Our (upper middle class) family’s marginal tax rate will rise from 43.0% to 48.1% under the new tax plan.  I’d like Arthur Laffer to explain to me how this will motivate my wife and I to work more hours.  No cut in the capital gains rate, which was raised sharply by Obama.  How does that motivate me to invest more?  I just don’t get it.  And ours is not that unusual a family in southern Orange County.  There will be lots of families that face higher marginal tax rates, while the MTR on working class families (up to $90,000) falls from 15% to 12%.  So no, this is not a highly regressive plan by GOP standards.

[My estimate of the top rate for 2017 is the California tax rate of 6.2% (after federal deduction), plus 33% plus 3.8%).  For 2018 it’s 9.3% California income tax (because no deduction), plus 35% plus 3.8%.  Someone tell me if this is wrong.]

5.  Last month we put a $1000 down payment on a new Tesla.  We will now lose the $7000 tax credit.  Meanwhile Trump will do just fine:

There are several proposals in this plan that would directly benefit President Trump’s family.

Currently, owners of “pass-through” companies, like LLCs, partnerships, sole proprietorships, and S corporations — the Trump Organization, for example — are taxed as personal income. The Republicans proposal offers a new low tax rate for owners, at 25 percent, a substantial cut from what is typically taxed at 36.9 percent.

The Trump Organization is a large pass-through; it owns golf courses and hotels and pulls in about $9.5 billion in annual revenue. But because it is exempt from the corporate income tax, and its profits are instead taxed upon distribution to shareholders, this new low pass-through rate is a huge win for the Trump family — and the many other businesspeople who structure their companies like this. . . .

Another provision in this bill would also directly benefit Trump’s family. While most companies would have a new limit on interest deductions — capped at 30 percent of earnings before interest and taxes — real estate firms and small businesses would be exempt.

Become president to cut your taxes.

One of my biggest disappointments is that they did not equalize the treatment of debt and equity financed investments.  Interest can still be deducted, but not dividends.  Also, they did not eliminate the marriage penalty, which is a disgrace.

However . . . the tax proposal contains lots of real reform, more than I expected.  If it passes as is (a big if) it would make our tax system far simpler for most people. Most people would simply take the standard deduction.  The truly evil AMT would be abolished. I could do my taxes again!  Investments are expensed; no complicated depreciation schedules.  These are amazingly good reforms.  Best of all, the deductions for mortgage interest and state and local taxes would be so weakened that they could easily be eliminated in a future reform.  There would be little left to protect.  That makes me think this is too good to be true, and the reform parts of the plan won’t go through.  I hope I’m wrong.

One other thing. Whereas the Dems will bring back the inheritance tax, I don’t think they’d unwind the “tax simplification” reforms.  If we can get those through Congress, I think they would stick.  Yes, other complications will be added over time, but the biggies are getting rid of itemizing and getting rid of the AMT.  We have an insane system (which other countries don’t have) and it has to end at some point.  Just end the misery.  Please.

PS.  People ask about my ideal tax system:

1. No personal or corporate income taxes.  No inheritance tax.

2.  A VAT where the poor pay nothing (due to a rebate of the VAT times poverty level income.).

3.  A steeply progressive payroll tax.  People who are self-employed or form corporations to avoid tax have their income treated as wage income.  Investments are expensed.  Low wage workers get wage subsidies.  No universal basic income (except the VAT rebate).

4.  A progressive property tax.  (The opposite of the current property tax, which has much lower rates on NYC mansions than ordinary homes.)

5.  A carbon tax.

This system of multiple taxes raises enough revenue, without requiring the sort of high rates that a single system would require.  You don’t want a 50% VAT, tax evasion would be massive.

We can have a consumption tax system that is highly progressive, simple and efficient.  So let’s stop bickering and do it.

In a recent post I criticized a headline on cryptocurrency bubbles.  Ryan Avent (who wrote the piece) told me to read the entire article, which is indeed much more nuanced in its discussion of whether Bitcoin is a bubble.  I should have pointed that out.

I’m not sure when I first predicted that (misdiagnosed) bubbles would be the new norm of the 21st century.  This is from January 2014:

I’ve also argued that low rates will create more “bubbles” in the 21st century.

And here’s what I said in July 2011:

My most important argument is that low real interest rates might be the “new normal.”  . . .

But (seriously) are stocks now overvalued?  Because I’m an efficient markets-type, the only answer I can give is no.   So why does Robert Shiller say yes?  Apparently because the P/E ratio is relatively high by historical standards.  And he showed that for much of American history investors did better buying stocks when P/Es were low than when P/E ratios were high.  Of course hindsight is 20-20.

[I feel so sorry for people who make their investment decisions based on Robert Shiller’s public statements.]

So how has my prediction held up?  Are so-called “bubbles” the new normal of the 21st century?

Here’s the real NASDAQ index:

And real house prices:

(Both indices deflated by the PCE price index.)

And Bitcoin:

All three major “bubbles” occurred after my predictions.

Bubbles, bubbles, as far as the eye can see.