Wed 26 April, 2017
The White House rolled out the opening salvo of President Donald Trump's massive tax cut plan Wednesday, but the one-page set of bullet points was missing some significant details.
The plan, laid out by Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn, called for three new income-tax brackets, with rates of 10%, 25%, and 35%, down from the current seven brackets.
What the plan does not detail are the income levels associated with each bracket. Currently, for instance, an individual making between $18,650 to $75,900 pays a 15% effective rate. It's unclear where that level of income would fall under the Trump plan.
For instance, if the new bracket for the 10% rate only extends to people making up to $75,000 annually, Americans making $75,001 could see their taxes jump to the 25% rate.
In response to a question, Cohn said a family of four making $60,000 would have a lower tax rate, but did not provide further details.
Another key missing detail pertains to the repatriation tax. The one-time tax would allow companies to bring profits held overseas back into the US at a lower tax rate.
This isn't a new idea: A similar repatriation was carried out under President George W. Bush in 2004. Unlike the earlier proposal, which taxed the money coming back in at 5.25%, the new plan released on Wednesday did not provide any detail on the rate.
Republican congressional leaders said the initial plan "will serve as critical guideposts for Congress and the Administration as we work together to overhaul the American tax system." But many economists decried the lack of details in the Trump plan.
"Nearly six months after the election, the administration’s tax proposals amount to less than a single side of paper," Paul Ashworth, chief US economist at Capital Economics, said in a note to clients following the release.
"The best that can be said is that the president is laying out his opening bid in what could prove to be a very long and fraught negotiation," Ashworth continued.
Citi analysts said the announcement was an "an underdelivered 'big announcement' from the Trump administration."
Or as Brookings Institution economist and New York Times columnist Justin Wolfers put it, "I have been to interpretive dance performances which contain more detail on the tax code."
SEE ALSO: UNVEILED: TRUMP'S TAX PLAN
Just five of the more than 2,500 companies in the Nasdaq Composite Index are largely responsible for Tuesday’s first-ever close above 6,000.
The big five are Apple Inc., Amazon.com Inc., Facebook Inc., Microsoft Corp. and Alphabet Inc., Google’s owner.
Together they accounted for about 45 percent of the Nasdaq’s rise from 5,500, reached on Jan. 6, according to data compiled by Bloomberg.
As a reminder, the Big 5 account for over 10% of total US stock market capitalization now... a record high...
The question is, of course, what happens next?
Shares of US Steel are getting obliterated Wednesday, losing a quarter of their value after whiffing on earnings and delivering disappointing guidance.
US Steel declared a $0.83 per share loss that was far below analysts' expectations for positive earnings of $0.35 per share. Additionally, the company missed on revenues, generating $2.73 billion versus expectations of $2.95 billion.
The enormous miss has some on Wall Street dumbfounded. Morgan Stanley analyst Evan L. Kurtz said in a note to clients after the April 26 earnings statement that he had two major questions for the company.
First, full year earnings guidance was cut by management from $1.3 billion to $1.1 billion. Kurtz said that does not totally make sense. He wrote:
"An accounting change moved $175 mn from opex to capex, so the cut was closer to $375 mn. Furthermore, HRC is about $15/t higher from last quarter and tubular has improved, both of which should have moved guidance higher. So in essence, the guidance cut was more than $400 mn."
Kurtz said that US Steel attributed the guidance cut to its "asset revitalization plan," but with capital expenditures only expected to be up $150 million, the analyst said he can't make sense of the guidance cut and needs more clarity from management.
In addition, Kurtz said he is "struggling to understand how costs moved up so much."
US Steel showed in its earnings presentation a $95 million drag on earnings from costs excluding raw materials. After adjusting for various accounting maneuvers, the drag would equal about $140 million, according to Kurtz. However, he added that he would be surprised if all of the various headwinds he could think of would add up to this figure.
For now, Morgan Stanley, is keeping its "Overweight" rating and $48 price target on the stock. However, Kurtz said said he has a lot of questions for management when it hosts a call on April 26.
Now we know a bit more about Trump's massive tax cut (the biggest in history).
We know that it's intended to be a simplification, that would cut corporate tax rates to 15% and eliminate deductions and things like the Alternative Minimum Tax (a big deal for Trump himself).
We know that, according to the Tax Policy Center, that the corporate cut alone will cost the country $2 trillion over 15 years.
Most importantly we know that if it has any hope of survival, the plan's architects must engage in a massive generational theft, and they'll to use a classic budget trick to pull it off.
The trick is a method is called dynamic scoring, which in reality is just a fancy way of justifying massive increases in the national debt.
"As we said we're working on a lot of details," said Treasury Secretary Steve Mnuchin at Wednesday's press conference unveiling the plan, "this will pay for itself with growth and reduced deductions."
Dynamic scoring has to do with the "growth" part of Mnuchin's explanation. In order to make tax cuts that look like they won't put a massive hole in the budget, policy "wonks" estimate the future benefit of tax cuts to the economy after making a load of assumptions — including about what a future government might do in response to falling tax revenue.
Those imagined benefits are then added to future budget projections and, BOOM, you've got a healthy-looking balance sheet for America.
Now, one might think that so-called fiscally conservative Republicans would be opposed to things like this, and that Trump might face opposition from his own party.
But he won't. And that's because there is a way to make Washington's budgets sound more sensible than they actually are. That's where dynamic scoring, much beloved by deficit hawks like House Speaker Paul Ryan, comes in.
The Republican-controlled House adopted dynamic scoring last year, but it's still up for debate in the Senate, where opponents like Sen. Bernie Sanders of Vermont have been critical of the practice. They say it politicizes the budgeting process.
That's in part because there's no exact way to dynamically score anything. This is not a science. There's no set process, and there are no set rules on the assumptions made. For example, Mnuchin said during the press conference that his office is playing with a bunch of different models (that's reassuring).
So back when GOP lawmakers put pressure on the nonpartisan Joint Committee on Taxation to use dynamic scoring, it was unclear to Tom Barthold, the economist who heads the group, exactly what that means.
What we do know, though, that both the Reagan and Bush administrations argued that tax cuts, especially for the wealthy, would pay for themselves. In both instances, this got us in trouble.
More from the Tax Policy Center:
"If 'dynamic scoring' means that Congress can use any macroeconomic model it wants, then we are thrown back 100 or 150 years in terms of the rigor of our thinking. There are too many models with a very wide variety of assumptions and implications. It is not exactly true that you can find a model that will support any claims, but this is sometimes uncomfortably close to the truth."
So all Trump has to do is zoom in on the model that shows that cutting taxes for the rich while spending tons of money will be great for the economy, and this plan is a go.
How hard do you think it will be to find that in Washington?
An earlier version of this piece appeared on Business Insider in November of 2016.
In the Federal Reserve’s zero lower bound, the millennial generation in Baltimore has been flocking to the city on an illusionary premise of Baltimore’s revival. One of the largest narrative’s in Baltimore was Under Armour’s deployment of gentrification via Kevin Plank’s Sagamore Developments. The narrative has held strong for the past decade inducing millennials to move to the city and buy real estate. In recent times, the narrative has started to crack with with the recent -65% crash in Under Armour’s equity.
In response, management has unleashed the first wave of cost cutting measures including layoffs reported by The Baltimore Sun Newspaper. The first round is roughly two dozen, but we have reason to believe there could be multiple phases. The individuals who are being laid off are the very same millennials who bought into the narrative of revival.
To make matters worst, Baltimore was just ranked the third fastest city in decline by the US Census. It’s so bad, that Baltimore City has reached a 100 year population low.
In any city, a dwindling population always attracts crime, and that is exactly what is happening.
If you piece together the puzzle, it appears Baltimore’s outlook for 2017 is bleak. Residential real estate prices are stalling and it appears that the millennial generation who bought into the revival narrative could be holding the bag.
Across the country, millennials are flocking to urban areas, which is totally reverse from the prior generation of the great migration to suburbia. What millennials in Baltimore don’t understand is the current state of their community and the 50-years of decay will bring a lot of future overhang.
Bonus: Only in a stock market bubble can Under Armour CEO build his own hotel across from head quarters
But better yet, build his own whiskey distillery 1.5 miles away to numb the pain of the -65% <UAA> crash. Strange times in a zero lower bound.
President Donald Trump's long-awaited tax plan came and went with a whimper, at least judging by the stock market's reaction.
A 50-company basket of highly taxed companies maintained by Goldman Sachs pared gains following the announcement, now up 0.4% for the day.
The lack of enthusiasm for the index stands in contrast to the months following the presidential election, when it ripped as much as 14% higher through the end of February.
The muted reaction was mirrored more broadly by the S&P 500, which also fell from pre-tax plan levels after a short-lived spike up near an intraday high. The benchmark rose 0.2% as of 2:25 p.m. ET.
Now that an update on Trump's tax plan has failed to further ignite a stock market yearning for progress, investors must now reassess the areas that have gained the most on expectations of bullish policy.
SEE ALSO: UNVEILED: TRUMP'S TAX PLAN
SEE ALSO: The Trump trade looks dead
President Donald Trump's administration unveiled a tax plan on Wednesday that proposes lower taxes across the board and a number of alterations to the tax code.
Treasury Secretary Steven Mnuchin and National Economic Council director Gary Cohn announced the plan during a White House press briefing.
One proposal in the plan is the repeal of the so-called alternative minimum tax. The decades-old tax, which was enacted to make sure the rich pay their fair share, cost Trump $31 million in 2005.
As Business Insider's Jim Edwards reported, that "accounted for most of the $38.5 million in taxes" the president paid in 2005.
What is the alternative minimum tax?
The original purpose of the AMT was to prevent very wealthy Americans from using deductions and loopholes to skimp on their taxes.
One way to look at it is as a secondary tax code. The AMT has a set of rates and rules that are distinct from the regular tax code and apply to certain high-income earners, trusts, estates, and corporations.
So when corporations or individuals fall under the auspices of the AMT, their tax bills are figured out differently than those of ordinary taxpayers.
According to Bankrate's Kay Bell, "Basically, it's the difference between your regular tax bill, figured using ordinary income tax rates, and your AMT bill, figured by filling out more IRS paperwork. When there's a difference, you must pay that amount, the AMT, in addition to your regular tax."
The point of the AMT is to make sure wealthy Americans who earn above a certain amount pay a flat minimum tax rate — hence the name — even if they could get away with paying zero or very little taxes in the regular system. But many opponents of the tax say it now targets people in the upper-middle class, not the uber-rich.
Here's the history
The AMT originated in the late 1960s. The Department of the Treasury said that about 150 people legally paid zero federal income tax in 1966 by claiming deductions "and not including certain kinds of income." Naturally, taxpayers of modest means were ticked off about this.
According to Forbes, Congress received more complaints about those "tax-dodgers" than it did about the Vietnam War. So it responded by enacting the minimum tax, the AMT's predecessor, in 1969. The current version of the AMT was implemented in 1982. Since then, it has received several touch-ups.
Today, however, the AMT, doesn't strictly apply to superrich Americans, as it was originally intended. Since the AMT wasn't indexed for inflation until 2013, the number of people who fall under the AMT umbrella has increased significantly since the 1970s and includes "30 percent of households with cash income between $200,000 and $500,000," according to figures from the Urban-Brookings Tax Policy Center cited by Bloomberg. In total, it applied to 3% of all taxpayers in 2005, according to data from the IRS.
Why some people think it's a good idea to repeal or replace it
Most critics of the AMT oppose the tax because it doesn't target the people and organizations it was originally aimed at.
"It was originally targeted at the super-wealthy when it came out, but the super-wealthy in most cases don't pay it," Scott Aber, a certified public accountant, told CNBC in December.
Daniel Shaviro is a professor at the New York University School of Law, and he knows a thing or two about the AMT — he played a role in changing the tax in the 1980s.
He told Business Insider that the law in its current form "doesn't address [today's] tax-avoidance methods."
"It does not address sophisticated modern tax-avoidance techniques, such as Larry Ellison, who is worth $50 billion, getting a $1 salary and borrowing against the value of his appreciated stock, or companies such as Apple directing their global profits to tax-haven subsidiaries," Shaviro added.
Trump proposal to repeal the AMT would cost the fedeal government $412.8 billion, according to the Tax Policy Center. The president has said he would make up for that cost by reducing the number of deductions in the tax code.
Treasury Secretary Steven Mnuchin said Wednesday that President Donald Trump "has no intentions" to release his tax returns.
ABC's Jonathan Karl asked Mnuchin during a press briefing on the Trump administration's new tax plan whether the president would finally make his tax returns public so Americans can see how he would benefit from proposed changes to the tax code.
"The president has no intentions," Mnuchin said. "The president has released plenty of information. And, I think has given more financial disclosure than I think anybody else. I think the American population has plenty of information on his taxes."
Mnuchin then cut off Karl as he was attempting to ask a followup question.
"Right there," Mnuchin said, pointing to another reporter in the briefing room, telling Karl, "excuse me, other people have the right to ask questions."
While Trump released a large financial disclosure report during his campaign for president, he broke with tradition by refusing to release his tax returns. Every major party candidate since 1976 made their tax information public prior to the election.
Trump has maintained for more than a year that he won't release his tax returns because he's under audit by the IRS. Last week, White House press secretary Sean Spicer said the returns were still under audit. The IRS can't comment on whether the returns are being audited, but being under audit does not prevent a person from releasing the returns.
"We're under the same audit that existed," Spicer said. "So nothing has changed."
Asked whether the president would ask the IRS to comment on the audit to prove it exists and provide a timeline for its completion, Spicer dodged.
"I think the president's view on this has been very clear from the campaign, and the American people understood it when they elected him in November," he said.
On Wednesday, Mnuchin was asked multiple times about how the changes to the tax code would financially benefit Trump, his family, and his businesses. The Treasury secretary did not provide an answer.
The tax reform outline provided by Mnuchin and National Economic Council chairman Gary Cohn included the elimination of the alternative minimum tax, or AMT. That provision in the tax code cost Trump an additional $31 million in federal income taxes in 2005, per the leaked tax information Trump filed that year. The AMT does, however, have critics on both sides of the aisle, many of whom believe it does not accomplish its goal of ensuring that the richest Americans don't avoid paying taxes through a litany of loopholes.
Watch Mnuchin's answer to Karl:
Mnuchin says Trump won't release tax returns: The president “has given more financial disclosure than anybody else" https://t.co/f1ZUqwuy6c— NBC News (@NBCNews) April 26, 2017