Saturday, November 4, 2017

The Tax Plan

It was never a convincing argument, but now we're hearing it again: reduce their tax load, and businesses will create more jobs and pay more in salaries.  It's never happened, and it never will.

Businesses expand based on increased demand for their products; demand increases when consumers (read workers) have more money to spend.  In the absence of increased demand, businesses sink extra cash into stock buybacks, shareholder dividends, and executive bonuses.

Right now, American corporations have a lot of extra cash just sloshing around, providing no economic stimulus at all.  They don't need more cash; they need more affluent customers.  The Republican tax plan may provide a fleeting infusion of cash into some middle-class wallets, but most of the $1.5 trillion addition to the national debt will wind up in the pockets of the very rich — as usual.

Still, there are some features of the plan that make good economic sense: most notably, the cap on mortgage interest deductions.  It is hard to justify subsidizing the McMansions of the "comfortably well-off," their claims to middle-class status notwithstanding.  Builders will complain – McMansions are much more profitable than the kinds of homes families earning less than six figures might afford – but an impetus for builders to provide more affordable starter homes and fewer rococo monstrosities is long overdue.

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