Cohn’s tax legacy: $1.5 trillion of debt and dubious job prospects

Cohn’s tax legacy: $1.5 trillion of debt and dubious job prospects
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Gary Cohn was only in the Trump administration 14 months. Yet, he managed to champion so-called tax reform which saddles Americans with an additional $1.5 trillion in debt. How do you load up $100 billion in debt on the backs of Americans taxpayers for every month you are on the job?

Adding insult to injury, for the all the promises he made regarding job and wage growth, there are no requirements for companies to add jobs or increase wages to receive tax cuts. That’s quite a legacy.

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As champion of the so-called tax reform bill that President TrumpDonald John TrumpPompeo changes staff for Russia meeting after concerns raised about top negotiator's ties: report House unravels with rise of 'Les Enfants Terrible' Ben Carson: Trump is not a racist and his comments were not racist MORE signed into law, former National Economic Council Director Gary Cohn made many promises. In a Nov. 2, 2017 interview he said: 

 

"We believe that just by lowering the business tax in the United States and becoming much more competitive in the rest of the world ... we are going to grow our economy at a faster rate than the model is going to suggest.”  

Cohn also said, “We also believe that by lowering the tax rate on the middle, America's hard-working families are going to spend more money, velocity is going to increase, and the economy is going to grow."  

In an interview from Nov. 9, he was quoted as saying, “…it’s hard for me to not imagine that they’re not going to bring businesses back to the United States.” That’s an awful lot of "belief." There must have been something, some mechanisms in the tax bill to instill a level of belief that rivals that of children believing in the tooth fairy? 

Turns out there really wasn’t much in the bill to support his belief. There are no requirements for companies to create jobs to have their tax rates lowered. There are no requirements for companies to increase wages. There are no requirements to increase business investment. There are no requirements for much of anything. 

If faith is believing in something without proof of its existence, then Gary Cohn is a model of faith. Not only is there nothing to provide assurance of Cohn’s claims, there are actual factors detracting from the likelihood of achieving the promised job creation and wage growth. 

First, the bill favors machines over men and women. While there is immediate and 100-percent deductibility of equipment investment, there was no similar change made for hiring. The bill encourages buying machines over hiring people.

Second, the bill doesn’t even require investing in American-made equipment. Companies can buy foreign-made equipment and receive the same immediate and full deductibility as a company buying American-made equipment.  

Where’s the incentive to buy American? Where’s the connection to creating American jobs? How important is this? More than 50 percent of global industrial robotic exports come from Japan and Germany. The tax bill Gary Cohn championed not only places machines over people, but it is in effect subsidizing foreign-made equipment. 

Third, adding insult to injury, the tax bill eliminated the deduction for domestic manufacturing activities. Companies can no longer take deductions for “qualified production activities,” including manufacturing and software development.  

So much for tying tax cuts to production in America. Instead, Gary Cohn gave out universal and unconditional tax cuts like candy that is going to give the American taxpayer major financial indigestion. 

Fourth, while small business was most in need of tax reform, it is big business that will benefit the most, and Gary Cohn said as much. During an interview with NBC’s John Harwood he said, "The most excited group out there are big CEOs about our tax plan." 

And they should be. With foreign profits now taxed at a pittance, big company CEOs who derive much of their income overseas are much bigger winners than the small- and medium-sized enterprises with most of their sales in the U.S. 

Gary Cohn is leaving a clear legacy — a legacy of debt and a whole lot of job and wage growth promises with not much to suggest they will ever be fulfilled. But this tax bill was never really about jobs and wage growth. If it was, they would have made hiring and wage growth conditions for companies to receive tax cuts.  

In reality, it was always just about the campaign donations. Sen. Lindsey GrahamLindsey Olin GrahamThe Hill's 12:30 Report: Trump digs in ahead of House vote to condemn tweet Why Trump's bigoted tropes won't work in 2020 The Memo: Toxic 2020 is unavoidable conclusion from Trump tweets MORE (R-S.C.) summed it up in a moment of uncommon political candor stating, “The financial contributions will stop.” That pretty much sums up why a tax bill sold based on promises of job creation and wage growth had no requirements for job creation or wage growth. 

Chris Macke is the founder of Solutionomics, a think tank focused on developing solutions for a more efficient, merit-based corporate tax code. He has advised the U.S. Federal Reserve by providing market updates and implications of monetary policy changes on asset valuations and market distortions, and he's a contributor to the Fed Beige Book. Find him on Twitter: @solutionomics.