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The most up-to-date information on the US financial market.

Financial Market in The U.S

The most up-to-date information on the US financial market.

Financial Market in The U.S

The most up-to-date information on the US financial market.

Financial Market in The U.S

The most up-to-date information on the US financial market.

Financial Market in The U.S

The most up-to-date information on the US financial market.

Thursday, January 4, 2018

Trump's tax bill has nothing to do with economics. It's brute-force politics

Donald Trump’s first legislative achievement is a monstrosity of doctrinaire conservatism that attacks education, healthcare and the lives of ordinary people
 Donald Trump holds an American flag made of wood as he speaks about tax reform alongside ‘ordinary Americans’ in the Oval Office this month. Photograph: Saul Loeb/AFP/Getty Images
The Republican party has achieved something nobody thought possible. They have taken the broken, regressive, loophole-riddled US tax code, and made it worse.
The Tax Cuts and Jobs Act of 2017 has nothing to do with economics. It is pure politics. Economists struggling to understand the unwieldy legislation are like biochemists attempting to explain contemporary ballet. Nobody seriously believes that the bill will boost growth. Everybody knows that it will massively increase the deficit; the only argument is whether it will be by $1.5tn, or just $1tn. The legislation has been drafted at breakneck pace, with few opportunities for costings or analysis: a recipe for errors. Senator Elizabeth Warren joked that she spent more time choosing her new refrigerator than the Senate managed for tax reform.
But for Republican lawmakers, the bill hits some very sweet political spots. Corporations? Check. The wealthy? Check. Obamacare haters? Check? When the deficit balloons, as it must, Republicans will then use that to justify cutting spending, especially on pensions and healthcare. Their cynicism is breathtaking. Their ruthlessness is impressive. Wait for the new Alabama senator, Doug Jones, to take his seat before voting? Are you kidding? There will be no waiting. This is brute force politics.
It is a tragedy, too. The only potential silver lining of Trump’s presidency was that he might do something to help the struggling middle class, Main Street not Wall Street. He ran on this very promise. But this bill offers the working class and middle class little or nothing – crumbs from the table at best. It provides a huge boon, however, to corporations and to the wealthy. This is not a populist tax bill. It is a plutocrat one.
For business-friendly congressional Republicans, three provisions in particular represent big wins: doubling the threshold for paying estate tax to $11m, slashing the corporate tax rate from 35% to 21%, and cutting the top rate of income tax to 37%. It is fitting that House Speaker Paul Ryan is heading for the exit. This is about as good as it will ever get for him.
Against a backdrop of rising inequality, the passage of this bill will mark an extraordinary triumph for doctrinaire conservative thinking. With control of both houses of Congress and the White House for the first time since 2005, Republicans have seized their moment.
During Trump’s ascent, congressional Republican leaders said, in effect, “He may be mad dog, but he’s our dog.” Ryan and Senate majority leader Mitch McConnell held their noses and hoped that, for all Trump’s populist rhetoric, they would be able to exploit his presidency to ram through some traditional Republican tax cuts.
For a while, it was not clear that Trump would be brought to heel. In one ear, he was being advised by Steve Bannon to raise taxes on the wealthy and give real cuts to the middle class. Into the other, multimillionaire treasury secretary Steve Mnuchin wanted surging tax cuts for the rich. Plutocrat Steve won the day; populist Steve has long since been banished. It says everything about the Trump administration that, on this single, narrow issue, it would have been a better one with Bannon still in it.
Trump describes the bill as “a great, big, beautiful Christmas present” for middle class Americans. But it’s not true. Even the handful of provisions helping ordinary families, such as an increase in the personal income deduction, will deliver modest gains. In the Senate version of the bill, on which the compromise version is largely based, families in the middle 20% of the income ladder families see a tax cut of less than $1,000 next year. Those in the top 1% will see an average $28,000 cut.
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Wealth inequality has grown even more rapidly than income inequality in the US. But Republicans seem to think that protecting massive inheritances from tax is the way to go. Already, the estate tax is only paid by the richest 0.2% of families. After the bill passes, that number will shrink to a mere handful. Most of them will find a way to dodge it by creative movement of money. As Gary Cohn, economic advisor to the president, helpfully explained, “only morons pay the estate tax”.
Worse, even the meagre initial benefits going to ordinary families are here today, gone tomorrow, because of two provisions in the bill that are not in the headlines. The income tax cuts expire in 2026 but the corporation tax cut does not. By 2026, many of the benefits for ordinary workers will have evaporated.
The bill is also likely to provoke a rush to self-employment. The dramatic cuts in rates for corporations and partnerships will create a huge incentive for workers to set themselves up as small businesses. A two wage-earner couple with an income of $250,000 a year would see little change in their tax bill; a couple with the same income generated through a small business would see an $11,000 annual cut, according to the Tax Policy Center.
To be fair, there are some elements of the bill that progressives would likely applaud in a different context. Reducing the cap on the mortgage interest deduction to $750,000 is a welcome step, hopefully the first towards gradual removal of this absurd and regressive provision. Capping state and local tax deductions at $10,000 will hit affluent taxpayers living in high-tax, mostly Democratic cities and states. It is a surgical strike on the liberal elite. But still, it is not clear why upper middle class Americans who choose to live in these places should be subsidized by those living in lower-tax, largely Republican areas.
The bill will not just impact the income and wealth of American households; it also has significant consequences for health and education. This is because the US does a huge amount of social policy through the tax code, one reason it is so complex.
The abolition of the mandate associated with Obamacare will help send healthcare markets into a death spiral, as the bill’s drafters know only too well.
Meanwhile, there is a tax boost in the bill for people sending their children to private elementary and secondary schools. Tax-exempt educational savings plans, known as 529 plans, previously restricted to spending during the college years, will be available for private K-12 education. Only affluent families benefit from these plans, of course, so it is yet another regressive element in a broadly regressive bill.
The Republican tax bill is sloppily designed and economically reckless. It is certain to lead to more tax avoidance and certain to massively increase the deficit. It provides a massive boon to the rich and little or nothing to the middle class and working class.
As such, it also represents a huge political risk. The gamble Republicans are taking is that the voters who put Trump into the White House will fail to notice that they are not among the beneficiaries of the first major piece of legislation to bear his signature. Trump is not draining the swamp. He is watering it.

Trump may celebrate his tax giveaway – but politically it could cost him dear

This bill stinks – the men behind it will benefit from it personally. But once it’s passed, the president is just that little bit less useful to Republicans
 ‘Donald Trump’s tax ‘reform’ is, in fact, a massive gift to the rich and super-rich.’ Photograph: Jim Lo Scalzo/EPA
Donald Trump is set to close this most turbulent year with his first big win. Today, barring a last-minute hitch, both houses of the US Congress will send the president a tax reform bill that he will sign with full ceremony. He’ll lavish praise on himself and say he’s making good on his promise to make America great again. Or as he put it via Twitter: “Biggest Tax Cuts and Reform EVER passed. Enjoy, and create many beautiful JOBS!”
The bill he’ll sign today is indeed the most substantial overhaul to the US tax system since Ronald Reagan’s tax cuts of 1986. Still, Trump and his fellow Republicans should pause before they knock back too much pre-Christmas champagne. This could be a victory that comes back to haunt them.
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 US House approves Republican tax legislation – video
For this bill hands the Democrats just the ammunition they need for their campaign to win back control of Congress in next November’s midterm elections. It’s unpopular – opposed by 55% of US voters, and supported by just 33% of them – and with good reason.
For this tax “reform” is, in fact, a massive gift to the rich and super-rich. By 2027, 83% of its benefits will go to the richest 1%. Sure, low-income Americans will see a modest improvement in their finances: the poor will save around $60 a year. But the big bucks go to those who already have the biggest bucks.
The mega corporations stand to gain the most, as their taxes fall from 35% to 21%. Republicans are trying to cast this as help for “America’s families and small businesses”, as if the chief beneficiaries will be the Mom and Pop who run the neighbourhood general store. But the reality is that Republicans are paying back the mighty plutocrats who have been bankrolling them for years. Admire the candour of congressman Chris Collins, who last month said of tax cuts, “My donors are basically saying, ‘Get it done or don’t ever call me again.’”
The stink coming off this bill is even more direct. The men who wrote, passed and will sign it will benefit from it personally. There are tax breaks for real estate tycoons in there, which will further enrich the likes of Senator Bob Corker and one Donald J Trump.
All Democrats need do next November is set those facts against Trump’s 2016 campaign talk, in which he promised to fight for the little guy even at his own expense. “It’s going to cost me a fortune,” he said of his tax plan back then. But it was all a trick. He took the votes of those left behind, and has used them to make himself and his pals even richer.
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And they will be the ones to feel the cost. Because you cannot reduce the amount coming into the public coffers by $1.5tn without cutting the amount coming out. There will now be even less money to spend on those who need it. Witness the health programmes for poor children cut for lack of congressional funding on the very day those same Republican congressmen and senators increased to $22m the amount a wealthy couple can leave to their children without paying a cent in inheritance tax.
Perhaps that moral shame doesn’t bother most Republicans. But the party did once pride itself on its fiscal conservatism. They can surely never make that boast again, not when they have passed a measure that will balloon the deficit by a trillion or more. They want to keep spending, including hundreds of billions on defence, even as they bring in so much less.
The right like to say that cutting taxes actually generates more revenue, because people are incentivised to work harder and earn more. But that is one hypothesis that does not need to be tested yet again. We know from the Reagan years, when the deficit mushroomed, that it’s nonsense. It gives magical thinking a bad name.
Trump will brag and crow, but there is a danger here for him too. Passing this tax cut has been the driving mission of the likes of House speaker Paul Ryan for decades. It’s why they’ve tolerated the daily outrages committed by Trump: they were ready to swallow anything for the sake of having someone at that Oval Office desk who would sign their tax bill. Once he’s done it, his usefulness diminishes. Should the Russia probe gather pace, should Trump’s poll numbers go even deeper underwater, then the passing of these tax cuts will lead some Republicans to conclude that he is no longer indispensable.
So let Trump and the Republican party have their celebration today. They may have reason to regret it tomorrow.
 Jonathan Freedland is a Guardian columnist

UK business investment on ice until more Brexit progress, warns BCC

With rate rise expected to remain on hold this week, British Chambers of Commerce urges ministers to finalise transitional deal


 The Bank of England is expected to keep interest rates on hold at its monetary policy committee meeting on Thursday. Photograph: Graham Turner for the Guardian
Britain’s biggest businesses are warning the economy will remain in the slow lane, as uncertainty from Brexit puts their investment plans on ice despite progress with Brussels.
The interjection by British Chambers of Commerce comes before a meeting of Bank of England’s rate-setting committee this week. The BCC have told ministers they now need to finalise a transitional deal to smooth the Brexit process before firms will increase spending on staff and production capacity, despite the breakthrough last week that moved talks with the rest of the EU on to trade.
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The lobby group said tepid investment levels, weak wage growth and high inflation would lead Threadneedle Street to keep interest rates on hold until the final months of 2019, far later than most expectations. The BCC downgraded its growth outlook for this year from 1.6% to 1.5%, while forecasting a slowdown to 1.1% from 1.2% in 2018.
The Bank’s monetary policy committee is meeting for the first time since raising the cost of borrowing in November – the first rise in interest rates in a decade. The MPC is expected to keep rates on hold at 0.5% on Thursday, although economists will be looking for any clues for when the next rise will come at a time of slowing economic growth.
Adam Marshall, BCC director general, said: “Despite last week’s deal, Brexit uncertainty still lingers over business communities, and is undermining many firms’ investment decisions and confidence.
“Despite pockets of resilience and success, and strong results for some UK firms, the bigger picture is one of slow economic growth amid uncertain trading conditions.”
Business investment in technology and in training for employees is key for driving up economic output as well as productivity, which has been sluggish since the financial crisis – a major cause of low rates of wage growth for UK workers. The government has launched an industrial strategy as well as more funding for skills and research at the budget last month in response.
The MPC decision, due at midday on Thursday, will follow fresh inflation, jobs and wages figures on Tuesday and Wednesday, which are expected to confirm that the squeeze on British households’ spending power is yet to dissipate. The weak pound since the Brexit vote last year is still pushing up the cost of imported goods, while wages are failing to grow above the rate of inflation, despite the lowest levels of unemployment since the mid-1970s.
The consumer price index measure of inflation stood at 3% in October, confounding an expectation for prices to rise further. City economists reckon the CPI will hold steady in November when the figures are released on Tuesday, helping the Bank’s governor, Mark Carney, to avoid writing a letter to the chancellor – which he must do when CPI is more than a percentage point above or below Threadneedle Street’s 2% target.
Analysts at Goldman Sachs say progress in the Brexit talks last week is unlikely to encourage the Bank to move any faster towards higher interest rates, given that the MPC’s economic outlook assumes a transitional period. The investment bank reckons there will be three rate rises by mid-2020, with the next one towards the end of next year.
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Some economists expect the MPC will next vote for a rate increase as early as May, while others see the next rise coming later in the year. The Bank has a balancing act to strike between keeping inflation in check to protect consumers from the rising cost of living, and also providing enough stimulus to encourage economic growth.
The central bank’s actions will come in a week when the European Central Bank is also expected to keep interest rates on hold for the eurozone and the Federal Reserve is expected to raise the cost of borrowing as the economy of the US powers ahead at twice the pace of the UK’s. The Fed rate is expected to raise from 1.25% to 1.5%, while the ECB is expected to keep its main rate at 0%.
The Fed meeting will be a landmark one – it is the final appearance for Janet Yellen as chair before she hands over to Jerome Powell, who was picked by Donald Trump to replace her.

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