Via Kirk’s Market Thoughts

Russ DeKuyper: You know how much I gotta make to keep $300 cash in our tax bracket? I gotta make 800, maybe $1000. That’s why I want that check. Now, you give me that $1000.
Archie Bunker: Why, you copper-plated phony, you. You’re money nuts. When this was just a raggy fur, you couldn’t care less about it. Now it’s $300, your whole world lights up.
Russ DeKuyper: You bet it does. You really bet it does. Three hundred bucks tax free is really illuminating.

All in the Family Edith gets a Mink 1972

We are hearing a lot of complaints from people like Chuck Schumer and Nancy Pelosi about the new Trump Tax law. I don’t blame them, it’s one more brick supporting the individual democrat welfare states removed.

Because of the deductablity of state and local taxes, when itemizing (which people of means generally do as they can almost always find more than the standard deduction in write offs) tax increases in state taxes and local taxes while annoying were not prohibitive for people living in high tax states. So when Democrats make pitches like this one described by Chris Christie back in 2012 while he was stumping in Atkinson NH…

35 years ago we didn’t have an income tax in NJ no income tax like right here in NH, we had no income tax and Governor Brendon Byrne, a democrat said: If you just give me a small income tax, a little one, I will lower your property taxes, we had the highest property taxes in America back in 1977 so 35 years later, what have we got? We’ve STILL got the highest property taxes in America and the income tax that started at 2% under governor Byrne is now 9%”

…they knew they could mitigate the effects for the rich who would be getting the biggest hit because that 2% tax which would became 9% along with those high property taxes they were already paying, would come right off their federal taxes.

Now think of states like California where all the celebs are all anti-trump all the time. If you are doing a TV series and making say $100K an episode. California’s 13.3% tax rate costs you $13,300 per episode, BUT because of federal deduction for state taxes, that adds up to 5253.50 right off the top of your federal tax bill.   Over a 26 episode season that’s $136,591 a year in taxes you aren’t paying to the feds.  It’s like getting paid for an extra episode tax free!

As Archie Bunker might say: “Dat ain’t happenin’ no more.”

Starting in 2018 California’s 13.3% income tax really costs 13,300 per $100,000 made and New Jersey’s 9% tax rate really costs 9000 per 100,000 and if you are a person with a Million dollar property a 5% property tax really costs $50,000 a year.

And it’s not just states, there are plenty of cities that have their own income taxes like Washington DC , Baltimore, Denver,  NYC,

And since the people getting these deductions are by nature the most mobile,  suddenly you have the prospect of the slow exodus of such people to low tax states and cities becoming a stampede that you have to somehow curb.

In other words you have to compete!

No longer will it be a gimme for liberals to buy off activists or pack state bureaucracies the feds aren’t going to subsidize these vote buying schemes anymore.

Now you have to give the voters a reason to stay while at the same time explaining to your base that if you don’t there will be no gravy train left to ride on.

This is why not a single Democrat voted for this tax bill, they knew that if it’s passed their overwhelming democrat legislature would face a day of reckoning.  That day has now arrived.

Welcome to the free market folks!

I should add one caveat to this.  All of these states and cities have one advantage that their worried counterparts in Germany and Australia don’t.  The Trump boom that these tax cuts will produce increased revenues that might, just might, give them enough wiggle room to make these needed changes to their tax codes over time and thus less painful.

But their window of opportunity is going to be a very slim one, will they open said window or push it closed and wait for these tax cuts expire?

Update:  I’ve gotten emails asking about NH & Tennessee listed as 5% & 6% respectively when they don’t have a state income tax, however both Tennessee and NH both tax dividend and interest income and thus those taxes would be deductible in the examples above, full details here.

The best way to descrive the effect of the tax cut bill that just passed will have on our already improving economy is to think of it as the difference between Steelers QB Ben Roethlisberger and New England Patriots Quarterback Tom Brady.

By any standard Ben Roethlisberger is a great quarterback. His stats are impressive. He has thrown for over 4000 yards five times, has thrown 25 or more touchdowns a season seven times, had seasons with a QB rating over 100 three times, thrown less than 10 interceptions a season 4 times. Counting this season He has led the Steelers to ten playoff appearances, seven division titles and two Super Bowls both wins.

Any competent list of elite NFL quarterbacks over the last decade includes him and in different era a credible case could be made for listing him as said era’s top Quarterback.

But unfortunately for Big Ben this isn’t another era. It’s the Tom Brady era and as excellent as Roethlisberger’s stats are they pale before Brady’s. Tom has thrown for 4000 or more yards 9 times (over 5000 in 2011) He has thrown 25 or more touchdowns 13 times (including 50 in 2007) , ha seasons with a QB rating over 100 6 times (three seasons over 110), thrown less than 10 interceptions a season 7 times (only 2 last year)

And of course counting this season Tom Brady has led the Patriots to the Division every single year (15 seasons years) but one (2002) and has taken his team to the Superbowl seven times winning five.

Or to put it another way. While Ben Roethlisberger is a great quarterback, a Hall of Fame Quarterback, a quarterback any team would be proud to have, he is not even in the same league as Tom Brady who is the greatest and most successful Quarterback to ever play the game.

What does that have to do with the Trump Tax plan? Just this.

The Obama Economy was, put simply a disaster:

The latest numbers mean that Obama’s economic forecasters missed their growth targets every year that he was in office. And, once again, economists who had been promising that strong growth was just around the corner — most recently because of a relatively strong third quarter — had to eat crow.

It also means that GDP growth has not exceeded 3% for 11 straight years. . . .

And despite th predictions of naysayers and experts galore:

Jason Furman, who chaired the Council of Economic Advisers under President Barack Obama, told reporters earlier this year that the chances of reaching 3 percent growth over a decade were about 1 in 25 — which is what many political experts said was Trump’s chance of winning the election. Another Obama economist, Alan Krueger, called the 3 percent growth forecast “extremely rosy.”

Larry Summers, a top economic adviser to Obama, questioned the “standards of integrity” of the Trump economic team’s forecast for 3 percent (or more) growth. “I do not see how any examination of U.S. history could possibly support the Trump forecast as a reasonable expectation,” he wrote in The Washington Post.

It took Donald Trump less than one year to change this achieving the 3% economic growth that others have said was not possible

President Donald Trump’s goal of 3 percent growth has been realized in two of the three quarters since he took office, and economists say the trend can keep going for at least another quarter and possibly longer.

Third-quarter GDP grew by 3 percent, well above the 2.5 percent expected by economists surveyed by Thomson Reuters and below the 2.8 percent in the CNBC/Moody’s Rapid Update. The third-quarter number comes on top of 3.1 percent growth in the second quarter, making for the best back-to-back quarters since 2014 and ending a long streak of sluggish 2 percent growth.

To put it one way. Trump’s first year Economic numbers are something to be proud of, particularly compared to Obama’s. Clearly above average and heading in the right direction. They are the Ben Roethlisberger of economic stats.

Now take that above average economy and add to it a tax plan that cuts corporate tax rates from 35% to 21% while cutting taxes on a resurgent middle class a package that produced this reactions from Germans:

“The tax competition will have a new dimension,” said Christoph Spengel, chairman of the corporate tax department at the University of Mannheim. Mr. Spengel, who is also a research associate at the Center for European Economic Research, and a group of tax experts at the university have done a detailed comparison of the two countries’ tax systems and published a report under the heading, “Germany loses out in US tax reform.”

Clemens Fuest, who heads the Ifo economic think tank, also said he believed German business would suffer. “Investments and jobs will migrate to the US,” he said.

Once the full effect of this tax bill hits we will go from a Roethlisberger economy to a Brady economy and leave that solid 3% growth in the dust.

Get ready folks, golden days are ahead.