Two Critical Errors In Biden's American Jobs Act.

How can the economy grow at 6%? Why raise corporate taxes by one third?

Yesterday, speaking in Pittsburgh, Pennsylvania President Joe Biden introduced his new American Jobs Act.

It was a sunny upbeat presentation of new government spending for the infrastructure and an overhaul of the tax code. And I'm sure that it resonated with many Americans, in that it was a call for economic progress and an apparent return to a more normal time in our history.

Biden called for more investment in the nation's roads, bridges, and technology. He referred to such historic moments as President Lincoln's building of the cross-continental railroad, or President Eisenhower's building of the interstate highway system.

It presented quite a Presidential Vision.

Unfortunately, there are two critical errors built into this vision of the future. Errors that may scuttle the entire effort.

The first is when he states (quote)“Leading economists are now predicting our economy will grow 6 percent this year.”And this is the critical premise upon which the entire American Jobs Act, and I might add new tax rates, is built. Here Biden is claiming that for the rest of the year, the USA will experience the greatest growth rate since World War 2.

And his reference for this statement is “leading economists.”Well, unfortunately, this comment is wide of the mark. No major economist, or Wall Street Firm, that I know of is even close to predicting this level of growth for the country.

In reviewing the estimates currently out there, only the New York Fed's GDP Nowcast comes anywhere closes to this estimate. They do see a 6.1% growth rate for the second quarter coming up. But they then drop their estimate to a mere 7/10ths % growth for Q3. Meaning that overall growth for the rest of the year will be marginal at best.

And with that rate of decline, we'll be lucky to avoid a slide back into recession.

The only reason that Q2 GDP is considered so ebullient, is those stimulus checks that everyone will receive shortly if they haven't cashed them already.

This is an economy that is far from robust.

Overall Wall Street and most economists are now estimating an annual growth rate somewhere in the 2 ½ to 3 ½ rates this year. Far from the robust economy, Biden refers to.

And so any tax hike given this weak economic growth becomes an issue. I believe that a tax hike right now, and especially one that is 1/3rd higher for corporations is ill-advised. And would certainly do more harm than good.

And speaking of Corporate tax rates, that leads to my second great error in the new Biden Proposal. A little later in the speech, Biden notes that: (quote)“In 2019, an independent analysis found that are 91 — let me say it again, 91 Fortune 500 companies — the biggest companies in the world, including Amazon — they used various loopholes so they’d pay not a single solitary penny in federal income tax."

I have no doubt that's true. In fact, let me update those figures for you. Today, there are 72 companies in the Fortune 500, who will likely pay no income tax. This includes most of the Airline companies, including American and United, most of the Oil and Gas companies, including Chevron and Exxon Mobile, most of the Travel companies, including Marriott and Hilton, Many insurance companies, and yes even Twitter.

And it's all because they've found a special “loophole” as you put it. And that loophole is no income. That's right, in case the President forgot, these have been rough economic times. And there are many companies that are losing money.

Now, just as was the case going into the pandemic back in 2019. This has been a fragile economy for a while now. And each year there have been a number of companies that have reported net losses for the year.

And our tax system wisely taxes only corporate income.

In the vast majority of cases, each time these corporations end the year without any income tax due, it is because of a loss or loss carry forward. And not some mysterious “loophole.”This is an unnecessary reform for an issue that does not exist.

So there you have it an overall upbeat introduction, with lots of “atta- boys” for everyone. But a program that is built on an economic projection that doesn't exist, and reforms a corporate tax issue that is equally ephemeral.

Start listening to GDP: The Accountant’s Puzzle
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