I was somewhat startled this morning when I saw an article in Vanity Fair headlined "The Republican Tax Plan Is A Recession Waiting To Happen". It was written by someone named William Cohan who must have taken Economics 101 at 8:00 AM and slept through the class in college. Here's his key point:
But [the tax plan's] contents almost certainly presage a recession on account of higher annual deficits, higher national debt, and lower consumer spending—not to mention the inane decision to limit the deduction for state and local taxes and cap the deductibility of mortgage interest, both of which will make the cost of owning a home higher and chew up more of the average American’s disposable cash.
Cohan also "explains" that the value of homes will fall as a result of the tax plan.
Think about this for a moment. first, when Obama came into office, he rushed to pass the "stimulus". It resulted in much higher annual deficits and much higher national debt. The tax plan will not come close to what Obama and the Democrats did in this regard. Somehow, the people like Cohan who say this will now cause a recession thought it was wonderful when Obama did what they are now denouncing.
Second, limiting the deduction for state and local taxes and capping the deduction of mortgage interest will hardly "chew up" more of the average American's disposable cash. The cap on mortgage interest only applies to the portion of the mortgage in excess of $750,000. How many average Americans have mortgages of that size? In fact, how many average Americans live in homes that cost more than $750,000? The answer is roughly zero. A cap on mortgage interest for loans to the extent they exceed three quarters of a million dollars affects only the wealthy. And by the way, there already was a cap on interest deductions on loans above one million dollars. So what exactly is getting "chewed up"? People who live in very expensive homes in high tax states will get to deduct less, that is true. These same people, however, will pay tax at lower rates since the brackets have been lowered. Many of them will also escape the Alternative Minimum Tax which made the deduction for state and local taxes worthless anyway. According to reliable studies, roughly 80% of Americans will pay lower taxes and only less than ten percent will pay more. Remember, someone with an existing home mortgage will not pay a different amount each month. The cash outlay on the mortgage and the home won't increase. At the same time, most of these people will pay less in taxes, thereby increasing their cash flow. In other words, this bill won't "chew up" the average American's disposable cash; it will do just the opposite and increase that disposable cash.
But what about the people who don't yet own a home? Even Cohan admits that the bill may keep the value of homes lower. That will make them MORE affordable for that average American about whom Cohan claims to care. Isn't that a benefit?
The truth is that Cohan is just spouting hatred of the President. He's dressed it up to try to sound like he knows what he's talking about, but clearly, he doesn't.
You can say what you like about the tax bill. Nevertheless, no one can truthfully say that it will cause a recession. It won't.
But [the tax plan's] contents almost certainly presage a recession on account of higher annual deficits, higher national debt, and lower consumer spending—not to mention the inane decision to limit the deduction for state and local taxes and cap the deductibility of mortgage interest, both of which will make the cost of owning a home higher and chew up more of the average American’s disposable cash.
Cohan also "explains" that the value of homes will fall as a result of the tax plan.
Think about this for a moment. first, when Obama came into office, he rushed to pass the "stimulus". It resulted in much higher annual deficits and much higher national debt. The tax plan will not come close to what Obama and the Democrats did in this regard. Somehow, the people like Cohan who say this will now cause a recession thought it was wonderful when Obama did what they are now denouncing.
Second, limiting the deduction for state and local taxes and capping the deduction of mortgage interest will hardly "chew up" more of the average American's disposable cash. The cap on mortgage interest only applies to the portion of the mortgage in excess of $750,000. How many average Americans have mortgages of that size? In fact, how many average Americans live in homes that cost more than $750,000? The answer is roughly zero. A cap on mortgage interest for loans to the extent they exceed three quarters of a million dollars affects only the wealthy. And by the way, there already was a cap on interest deductions on loans above one million dollars. So what exactly is getting "chewed up"? People who live in very expensive homes in high tax states will get to deduct less, that is true. These same people, however, will pay tax at lower rates since the brackets have been lowered. Many of them will also escape the Alternative Minimum Tax which made the deduction for state and local taxes worthless anyway. According to reliable studies, roughly 80% of Americans will pay lower taxes and only less than ten percent will pay more. Remember, someone with an existing home mortgage will not pay a different amount each month. The cash outlay on the mortgage and the home won't increase. At the same time, most of these people will pay less in taxes, thereby increasing their cash flow. In other words, this bill won't "chew up" the average American's disposable cash; it will do just the opposite and increase that disposable cash.
But what about the people who don't yet own a home? Even Cohan admits that the bill may keep the value of homes lower. That will make them MORE affordable for that average American about whom Cohan claims to care. Isn't that a benefit?
The truth is that Cohan is just spouting hatred of the President. He's dressed it up to try to sound like he knows what he's talking about, but clearly, he doesn't.
You can say what you like about the tax bill. Nevertheless, no one can truthfully say that it will cause a recession. It won't.
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