Federal tax reform is now the law of the land. And despite severe misgivings from some (present company included), the benefits of tax reform have started to materialize.
Earlier this month, the Dow Jones industrial average closed above 26,000 points for the first time. And just last week, the Nasdaq and S&P 500 closed at record highs. The best is likely still to come. Markets are just beginning to respond to tax reform and the increased earnings and investment it will bring.
It’s not just Wall Street that’s benefitting from tax reform, either. There’s a good chance Your Street has been positively impacted, too. Almost immediately after Trump signed tax reform into law, major companies began announcing raises, bonuses and increased benefits for employees.
Walmart announced it would raise wages for new employees from $10 an hour to $11, expand paid parental leave and offer a one-time bonus to eligible workers. These actions will impact more than 1 million employees in the U.S.
Last week, Disney shared that 125,000 employees would receive a one-time $1,000 bonus and have access to a $50 million fund for a “new and ongoing education program.” Verizon and Apple are giving employees stock grants. AT&T provided employees a special $1,000 bonus.
These are real impacts benefitting real people. After an extended period of wage stagnation, these raises and bonuses should be celebrated.
Tax cuts must be evaluated not only by their effects on economic activity, but also the federal budget. In that regard, the results are not as positive. Spending cuts have yet to be discussed.
Supply side tax cuts generate increased economic activity. One need only scan business headlines from the past two months to validate that claim. However, history shows us that the tax revenue from incremental economic activity doesn’t fix increased deficit spending.
Without spending cuts, the national debt will continue to accumulate, but no one seems to care.
If a business’ sales decrease, it looks to reorganize and operate more efficiently. Just ask anyone in our local oil industry.
If your household income drops, you start looking for expenses to eliminate.
Congress finds it acceptable to give up revenue without immediately planning for ways to reduce spending.
This is irresponsible and needs to be addressed.
If the Republican Congress of the 1990s could work with President Clinton to cut spending and enact entitlement reform, there’s no excuse for the current GOP government not to. The long-term financial solvency of our nation should be more important than mid-term elections.
So it goes.
Meanwhile, in California, we have the opposite situation. The state is flush with cash.
When Gov. Jerry Brown released his Proposed Budget for 2018-19, total revenues from state funds were projected to reach an all-time high of $191.3 billion, more than 150 percent of the pre-recession high.
Revenues are so high that Brown’s budget predicts a $6.1 billion surplus.
Brown’s budget fully funds Local Control Funding Formula two years before originally scheduled and shifts $3.5 billion to the Rainy Day reserve, bringing it to its target, $13.5 billion.
The Rainy Day fund is important. Bull markets eventually turn to bear. And, the better prepared California is for the next recession, the better off Californians will be.
That said, no rainy day reserve will be sufficient to address California’s looming public debt crisis. The state’s total long-term debt is estimated at $275 billion, primarily in pension and other retiree obligations. The cost of servicing this debt will continue to increase to unaffordable levels unless addressed head on.
It’s time for California to start a debt snowball.
But, since (surprise!) debt reduction isn’t being discussed in Sacramento either, if you’re not planning to accelerate debt payments, what’s a government to do with an extra $6.1 billion?
In Wisconsin, budget surpluses have been returned to the taxpayers via income, sales and property tax reductions.
It seems clear: if you take more taxpayer money than needed, perhaps you should consider returning it to the taxpayers.
Not so in California.
Faced with a record surplus, a pair of Democratic lawmakers introduced a constitutional amendment that would create a new tax for businesses in California.
The proposal from Assemblymen Kevin McCarty and Phil Ting would levy an additional tax surcharge of 7 percent on companies with annual net income of more than $1 million in California. That 7 percent surcharge amounts to half these companies’ savings from the recent federal tax cut. Revenues would be used to expand social services for Californians.
California is regarded as one of the most difficult places to do business. Instead of making it even less attractive, why not make the state a more competitive place to do business? If we attract more jobs, maybe fewer Californians will need social services in the first place.
Newton’s Third Law of Motion states that for every action, there is an equal and opposite reaction. What’s true for physics is just as true in politics.
Republicans in D.C. can’t balance a budget, so they give away more money.
Democrats in Sacramento have so much cash, they come up with ways to have more.
Vonnegut was right.
So it goes.