Gates, Buffett, & Now Bloomberg Question Trump Tax Plan

"CEOs aren't waiting on a tax cut to 'jump-start the economy' -- a favorite phrase of politicians who have never run a company -- or to hand out raises. It's pure fantasy to think that the tax bill will lead to significantly higher wages and growth, as Republicans have promised. Had Congress actually listened to executives, or economists who study these issues carefully, it might have realized that."

(image from reuters)

It's not that Mr. Bloomberg opposes a corporate tax cut or closing loopholes, but wants it done in a bipartisan fashion that is revenue neutral. Mr. Bloomberg characterized the Trump/GOP bill as a failure in both regards (in their rush to pass a bill before Christmas, the GOP failed to include Democrats in their discussions and, as always seems to happen when there is a Republican in the White House, they no longer worry about adding to the federal debt), resulting in an "economically indefensible blunder that will harm our future."

Mr. Bloomberg also challenged whether the legislation addresses any of the country's actual economic problems:

"The largest economic challenges we face include a skills crisis…, crumbling infrastructure that imperils our global competitiveness, wage stagnation coupled with growing wealth inequality, and rising deficits… The tax bill does nothing to address these challenges. In fact, it makes each of them worse."

May 2017 - Legendary businessmen Bill Gates (Microsoft) and Warren Buffett (Berkshire Hathaway) aren't all that enamored with the corporate tax cut proposals the Trump administration announced last month. The pair appeared together recently for an interview with Becky Quick on business network CNBC.

While the Trump administration noted that, at 35%, the U.S. corporate tax rate is the third highest in the world, and that a reduction to 15% would generate economic growth, Mr. Buffett reminded the audience that the effective rate paid by America's businesses is significantly less, at roughly 24%. He added that he couldn't think of any Berkshire Hathaway businesses that were put at a disadvantage compared with foreign companies due to the current U.S. tax rate.

(image from gettyimages)

Mr. Buffett also questioned the Trump administration's claim that the reduction in rates would result in the economic growth necessary to make up for the loss in government revenue, indicating that we should be "very, very suspicious" of any academics who try to make that argument.

(For over 30 years, most conservatives have tried to argue that large tax cuts will result in revenue gains - too bad we've never seen that happen in practice: not on the federal level under Reagan or Bush Jr, and not at the state level under Brownback in Kansas, Jindal in Louisiana, Corbett in Pennsylvania, etc. Only when taxes were slightly raised under Bush Sr. and Clinton, or under Brown in California, have we seen chronic deficits eliminated.)

Mr. Gates said that he did not believe the success of technology companies will be improved by some tax change. He sees the lower corporate rates as benefitting tech company shareholders, not the businesses themselves.

Following up on Mr. Buffett's competitiveness discussion, one disadvantage that American companies do face relative to their foreign competitors was not mentioned during the interview. That disadvantage is due to the fact that many foreign countries provide health insurance to their Citizens, which means that companies doing business in those foreign countries do not have to pay any portion of their workers' health insurance premiums. In the U.S., however, a large percentage of that health insurance premium cost still is being paid for by American businesses.

One other aspect of today's economy that we would add is the fact that American corporations are widely reported to be sitting on approximately $2.3 trillion in cash. If that cash is sitting on the sidelines not being put to work, what makes the GOP and Mr. Trump think the savings from their proposed corporate tax cuts will be used any differently?