Trick or treat?

Suppose that 6 months ago you had told some progressive pundits like Matt Yglesias that the GOP tax plan would keep the top income tax rate unchanged, in other words, they would endorse Barack Obama’s decision to raise the top rate from 35% under Bush (and 39.6% under Clinton) up to 43.4%.  They would probably have assumed that you were crazy.  And yet according to the AP, that’s exactly what’s about to happen:

Although they had settled on some key details — such as a cut in the corporate tax rate to 20 percent and maintaining the top personal income tax rate for the wealthy of 39.6 percent — other elements still had to be resolved, including the income levels for the tax brackets.

[As usual the media gets it wrong, the top rate is 43.4%, not 39.6%—as there are two federal income taxes, and the rich must pay both of them.]

Yes, the top corporate rate will be cut, but even the Dems favored that move.

Elections have consequences.  Elect a libertarian President and Congress, and see Obamacare repealed and the top income tax rate cut.  On the other hand if you vote for the Dems or the GOP then Obamacare stays in place and the top rate stays at 43.4%.  So yes, it does make a difference who you vote for.

Remember how the supply-siders got all excited when Trump proposed a 25% top rate?  And remember what I predicted?




27 Responses to “Trick or treat?”

  1. Gravatar of E. Harding E. Harding
    31. October 2017 at 21:24

    Had Arizona Republicans voted for Ward over McCain, we’d have Ocare gone by now. Sad you like McCain, for whatever reason.

  2. Gravatar of dtoh dtoh
    31. October 2017 at 22:51

    Scott, In your opinion what should be the goals of tax reform?

  3. Gravatar of Ironman Ironman
    1. November 2017 at 04:08

    Everything is going almost exactly as we’ve foreseen – or in other words, the maximum federal-only personal income tax rate in the U.S. isn’t going to change by very much absent significant cuts in planned spending growth, robust growth in the U.S. economy, and an increase in the size of the population of working-age individuals. Policies that President Trump has established directly interfere with the first and third of those actions, where the third will be constrained as a result.

  4. Gravatar of Ironman Ironman
    1. November 2017 at 04:09

    Quick edit – make that last part “where the second will be constrained as a result.” Need more coffee….

  5. Gravatar of Tom Brown Tom Brown
    1. November 2017 at 06:29

    I don’t specifically recall your prediction, but I’m guessing you essentially wrote “This is all bullshit.”

  6. Gravatar of ssumner ssumner
    1. November 2017 at 07:25

    Harding, You said:

    “Had Arizona Republicans voted for Ward over McCain, we’d have Ocare gone by now.”

    No, there were other no votes if needed.

    dtoh, The main goal should be simplification. Making it easier to fill out tax forms, making it so that people don’t have to fill out insurance forms to avoid taxes, and also making it so that people don’t do various inefficient things merely to avoid taxes.

    Tom, I said they were fools for believing Trump’s promises.

    A second goal should be taxing current and future consumption at equal rates.

    Other goals are eliminating the marriage penalty (everyone allowed to file as single), making taxes progressive, etc.

  7. Gravatar of Bob Bob
    1. November 2017 at 08:14

    The trouble with tax reform is that there’s so little goal alignment. One would think that the marriage penalty would not be a hard one to fix, but it means raising rates, all else being equal, and nobody has the intestinal fortitude to do something like that.

    I don’t know if I want to tax current and future consumption at the same rate. I have way too much experience with what delaying 7, 8 and 9 figures worth of consumption does to families. If anything, aesthetically I’d rather tax future consumption more.

    Simplification, when possible, is a good goal, but it’s not everyone’s goal. Other countries have gone with some simplification, plus having the rest of the work be done by the tax authority. This has been done even for businesses: For instance, a restaurant’s taxes being determined by their number of tables, and nothing else. But the Republican party has a faction that wants lower taxes far more than it wants a cheaper process, because they think taxation is theft: Therefore, Grover Norquist will happily bomb candidates that would favor a simpler tax system that doesn’t reduce rates, as the pain of taxes increases when it’s difficult to file them, and makes it easier for him to raise money. He’d want them lower and harder to file for if he could.

    All of which leaves us with the tax system we have, as it’s very difficult to create large coalitions when goals are this varied.

  8. Gravatar of sean sean
    1. November 2017 at 09:36

    I may be crazy, but I can’t see a reason to cut taxes right now.

    Shouldn’t we deal with the growth in debt from the obamacare years. Instead of keeping the deficit high as interest rates rise.

    I would think the appropriate policy right now would be to order the FED to run looser money while the Federal government again does a sequester.

    Lower government spending is far more libertarian than cutting taxes paid for with debt. Easier money will flow to small businesses everywhere and not be crowded out by government spending.

    5-10 years from now we could once again debate tax cuts. But at that time the lower national debt and lower interest expense could be used to finance those tax cuts.

  9. Gravatar of sean sean
    1. November 2017 at 09:38

    I also see no benefit to these tax cuts especially if you are a highly paid professional in a major city. You will lose your deductions and not get a rate cut. So its a tax hike.

    Also if you get rid of deductions and do cut tax rates then someday you get a Democrat back in office. They hike tax rates and the tax deductions are gone forever. Doesn’t sound like a very good deal to me. Complexity in the tax code protects you from tax hikes.

    These tax cuts seem highly geared towards people with finances like Trump and not useful for professionals.

  10. Gravatar of morgan s warstler morgan s warstler
    1. November 2017 at 12:35

    This is silly.

    Ending SALT deductions will have DEEP & far reaching effects. It’s critical bc it MOVES CA & NY towards a Land Value Tax sooner, which busts up Nimby.

    Matty should be very happy.

    It’s WEIRD Scott misses that this moves SMB owners towards parity with Fortune 1000 on taxes.

    Taken together, this is HUGE SHIFT of money from the top 20% in BLUE STATES to the top 20% in RED STATES.

    TRUMP VOTERS WIN AGAIN™ and hastens the move from CA & NY to TX, which in turn breaks the back and thus the will of Blue States.

    Amazon leaving Seattle has smashed socialism in US. Ending SALT is far more effective.

  11. Gravatar of Philo Philo
    1. November 2017 at 13:20

    “So yes, it does make a difference who you vote for.” Who is ‘you’? If you mean *all of us, collectively,* then *of course* it makes a difference. If you mean *me, personally*–no, my vote did not make any difference.

  12. Gravatar of bill bill
    1. November 2017 at 14:32

    My wife stayed home with the kids – that turns the marriage penalty into a marriage bonus since I paid less tax than a single person who earned the same amount.

  13. Gravatar of Randomize Randomize
    1. November 2017 at 14:55


    You aren’t crazy. Even economists like Dr. Sumner who believe fiscal policy is a waste will agree that, because welfare spending is countercyclical, we should be racking up debt during recessions and paying it off during good times. Now is good times.

  14. Gravatar of Christian List Christian List
    1. November 2017 at 15:51

    Regarding recent events I thought about one of your last posts again:

    When the next terrorist bomb goes off in Europe, I’m going to have to work really hard to avoid thinking that they deserve it.

    Well luckily the US has a merit-based system and not some questionable system that let’s every crazy jihadist in who wins a lottery. And 23 of his “friends and family”.

  15. Gravatar of Steve Steve
    1. November 2017 at 16:20

    Obamacare created Universal Health Care without actually funding it; that’s a cancer that’s been eating at the system for 8 years and will continue to eat at the system.

    It’s impossible to properly fund the health system because that would smash the political pretense that it is already funded.

    it’s also impossible to cut benefits (or cut taxes), because too many citizens, businesses and politicians have reoriented their strategies around a big entitlement system.

    If I had my druthers, we’d create a flat $12,000 credit for every single citizen, i.e., a guaranteed minimum income, then impose a 50% flat tax on all earned income. Then do away with all welfare programs.

  16. Gravatar of Christian List Christian List
    1. November 2017 at 16:41

    I will never get the minimum income logic. $6000 x 323 millions inhabitans should be around $1,9 trillion each year. The closest thing to a minimum income is social security and you get that for around 0,9 trillion.

  17. Gravatar of Steve Steve
    1. November 2017 at 17:11


    I don’t like guaranteed minimum income either, but right now we give out $5000 to $10000 in free health care for starters.

    I’d rather just lump sum the cash and make everyone pay for their current in-kind entitlements.

    I think it was Mankiw who pointed out we basically have a 50% marginal tax at every income level (plus nasty kinks) if you consider all the means tested entitlements.

  18. Gravatar of dtoh dtoh
    1. November 2017 at 18:55

    IMHO, the reform if it goes through is huge.

    1. It causes a huge (in relative terms) shift from consumption to investment, which will substantially increase real growth rates by reducing tax rates on capital (corporate tax, tax pass throughs, expensing of capital equipment, cap gain, dividend and interest.)

    2. It reduces the money/power of blue state pols through the elimination of the SALT deduction.

    3. It reduces inequality of consumption by eliminating the housing subsidy (mortgage deduction) and pushing states to shift from income to property taxes.

    4. It solves 95% of the problem with complexity and economic inefficient tax avoidance activities by getting rid of the AMT and the estate tax.

    5. It provides no reduction on wage taxes effectively raising the tax burden on the parasite class (doctors, lawyers, athletes, entertainers, college professors, bankers, etc) and others who have benefited from government subsidies, funding, restrictions on competition and other handouts.

    Finally, I don’t understand the worry about the deficit. Shouldn’t we worry about actual production and consumption…not about how it’s funded. If you believe in EMH, the market should have already sorted out any issues about “unsustainable” government debt funding.

  19. Gravatar of Nick Nick
    1. November 2017 at 19:28

    Apropos nothing in particular, except everything this blog is about, have you seen the new book edited by Tim Congdon on Money in the Great Recession? Subtitle: Did a crash im Money Growth Cause the Global Slump? It’s a good book but I was disappointed not to see a contribution from Scott Sumner.

  20. Gravatar of Mark Mark
    1. November 2017 at 22:51

    I agree with what Sean says. Much as I think lower taxes would be nice in the long run as well, all else being equal, reducing spending should be the priority. That’ll never happen, for obvious political reasons. We can dream though of some noble president with no desire for a second term cutting spending and putting it toward the deficit.


    Do you believe that a guaranteed minimum income would really be a substitute for in-kind entitlements? Because I don’t believe that’s what will actually happen. Once some people squander their monthly UBI check in the first week and are starving or sick, politicians, bureaucrats, and voters won’t let them die in a gutter, and we’ll still end up with some in-kind entitlements to take care of them; and once everyone else realizes that the government will take care of their needs even if they burn through their UBI check, they’ll spend it on wants instead, and more and more will end up getting in-kind entitlements in addition. I don’t for a second believe that the UBI will merely serve as a substitute rather than a supplement to existing entitlements.

  21. Gravatar of Benjamin Cole Benjamin Cole
    2. November 2017 at 05:24

    “Productivity rose 1.5 percent from the third quarter of 2016; unit labor costs, which are adjusted for efficiency gains, were down 0.1 percent from a year earlier….”

    U.S. Productivity Rises by Most in Three Years as Output Jumps


    So the Fed has been suffocating the economy because of tight labor markets….so tight that unit labor costs are falling…

    and gee, more demand means businesses invest in equipment to boost productivity?

  22. Gravatar of morgan s warstler morgan s warstler
    2. November 2017 at 05:55

    Mark / Steve

    So you can play with #Uber4Welfare now if you want (take mnda)

    I’d suspect sometime late next year early 2019, we’ll put the platform out for public to play with & give it to GOP to advocate for non-medical welfare block grants, let Trump etc run on it.

    Whats important to get is the larger framework:

    A single platform, that each state can use in their own way:

    amount of weekly grant?
    work required?
    work required for just SMB, private, non-profit, public?
    minimum weekly offer $ from employer?
    max job distance from home?

    And on and on…

    The takeaway for you wonk wannabes is grok the large concept.

    The PLATFORM contains all needed variables for each state to express their values / culture via DIALS.

    Set minimum job offer at $150 a week, only let non-profits hire.

    Do Full UBI

    Do Morgan’s / TX version: Guaranteed Income / Choose your job at $40 min a week, only hired by SMBs.



    Whats critical here is that we are NO LONGER stuck with Econos all arguing about BS regressions and models and NOISE.

    Instead, the citizens themselves see in the near and medium term, the effects of dials settings.

    Economic growth?


    More minority wealth?

    Seniors working longer?

    Kids working full-time at 14 during Summer?

    EVERYTHING becomes a A/B test. As it should, bc everything is digital.


    UBI is dumb of course bc of physics production = consumption and most poor low skilled given money want and need to buy things that other poor low skilled provide.

    But rathe than argue about it, we should let VT and OR do it!

    Let VT poor SEE the poor in TX living large.

    Let VT voters see what VT poor do with the $, inside a platform they KNOW they can turn into TX dial settings overnight if they need.

  23. Gravatar of TallDave TallDave
    2. November 2017 at 06:59

    As expected the 401k is reportedly not being changed much… the value of that $53,000 a year you can put in a solo 401k to small business owners is enormous, would have been shocked if that went away — my guess is they will just add some caps at around $2-3M… the state tax credit is a giant giveaway to high-tax states, they might cap it instead of throwing it out entirely but I think it happens one way or another, just makes too much sense.

  24. Gravatar of Major.Freedom Major.Freedom
    2. November 2017 at 15:49

  25. Gravatar of Major.Freedom Major.Freedom
    2. November 2017 at 20:02

    Podesta indictment on Nov 3 and Huma on Nov 6.

    The money hrc got for the Uranium One deal was used to pay for her campaign and to pay off the debt from Obama’s expensive 2012 run. Obama needed her help paying of that debt, which is why he too rolled over for her in 2016. So THEY are the ones who colluded with Russia, not Trump.

    This is exactly why they accused Trump of Russia. Now that it’s come out that they did it themselves the impact is lessened because they’ve gaslighted half the country.

  26. Gravatar of Larry Larry
    3. November 2017 at 10:26

    Do the Republicans propose doing away with the carried interest loophole which Trump argued for?

    Is the net effect of all the proposed changes anything other than the rich get richer? (Individual tax rates may remain the same, but drop in corporate and pass thru rates may mean a tax reduction for the wealthiest among us including our President)

    Mitt Romney said something like, “Corporations are people, my friends.” Well if corporations are people like he said why are they treated better than flesh and blood people? After all I do the same things corporations do except on a smaller scale. I invest in skills that I can sell. I sell my product to the highest or best bidder. If my skills aren’t producing a good enough return then I learn additional skills. If I start a small business I am taxed at personal income rates. If a corporation starts a small business it is taxed at corporate rates. Bottom line: there is no justification for the reduced tax rate on NET corporate profits other than it benefits the rich and powerful: Mitt Romney and the users of the carried interest loophole among others.

  27. Gravatar of ssumner ssumner
    3. November 2017 at 20:11

    dtoh, You said:

    “It provides no reduction on wage taxes effectively raising the tax burden on the parasite class”


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