The federal government appears to be having the same trouble with sluggish tax revenues that South Dakota is having. On Wednesday, super-rich Treasury Secretary Steve Mnuchin told House Ways and Means that Congress needs to raise the debt limit sooner than expected, before the August recess, because federal tax revenues are coming in below projections.
Wait a minute: tax revenues come from economic activity. Is Donald Trump slowing down the economy?
In a way, maybe! Trump and Mnuchin’s super-rich friends may be holding onto their stocks in anticipation of Trump tax breaks:
Donald Marron, who was a member of President George W. Bush’s Council of Economic Advisers, said the tax-receipt slowdown could be the result of investors waiting to sell their assets in the hope that Trump and Republicans in Congress will reduce taxes, allowing them to pay less when they realize their gains. For instance, the Republican effort to repeal the Affordable Care Act would also eliminate a levy of 3.8 percent on gains from investments.
“You have some investors that are out there saying: ‘Huh. If the health-slash-tax bill goes through, taxes on capital gains go down 3.8 percentage points,” Marron said. “Maybe there’s a chance that tax reform would go even further.”
While detailed data on federal taxes is not yet available, reports from Connecticut — which many wealthy investors call home — support that theory. The state is in serious financial difficulty, with officials saying collections are 30 percent below expected levels this year. They attribute the shortfall to quarterly income returns, the kinds of payments often made by investors. (Workers who earn wages and salaries, by contrast, pay with each paycheck as their taxes are withheld.) [Damian Paletta and Max Ehrenfreund, “Trump Administration Warns Tax Receipts Are Coming in Slowly, Government Could Run out of Cash Sooner than Expected,” Washington Post: Wonkblog, 2017.05.24]
Jeepers—Trump doesn’t have to pass more handouts to his rich friends; he just has to promise those tax breaks, and he’s able to plug up the flow of capital and throttle the government of the cash it needs to do our business. Clever.