The GOP plan to turn students into Trump voters – Michael Whinston

MIT Sloan Fellows Professor of Management  Michael Whinston

From Boston Review

Much has been written about who the likely “winners” and “losers” are if the Republican-controlled Congress is able to pass a version of its tax bill. The middle class: losers; the wealthy, who own nearly all of the stock in U.S. corporations that isn’t owned by foreigners: winners. Those whose income comes from wage earnings: losers; those whose income comes from “passive” ownership of businesses: winners.

It has even been suggested that several geographic distinctions in the legislation may be “payback” for how California, New York, and other coastal blue states voted in the 2016 election. Taxpayers in high local and property tax states such as California and New York, for example, are losers in the GOP plans while Texans and others in low-tax “Red” states are winners.

If that seems like an overly sensitive reading, consider this: under the GOP plans, the ability to deduct personal casualty losses from wildfires and earthquakes would be phased out. The deduction for damage from hurricanes and floods, however, would be kept. As California State Senator Mike McGuire, a Democrat whose district includes areas ravaged by wildfires, told the New York Times, “. . .it’s hard not to think that Congress has their sights set on the Golden State.”

But the aims of this legislation are more politically ambitious than mere retribution, and nowhere is this more evident than in the House bill’s assault on higher education. If enacted, three provisions promise to have a devastating effect on college students, graduate students, and higher-education institutions. First, the House bill eliminates the deductibility of interest payments on student loans—a deduction that more than 12 million people used in 2015, according to the New York Times. Next, it taxes the tuition grants given to graduate students, grants that enable them to forego entering the workforce and instead pursue a Masters degree or PhD. As a result, a typical graduate student on a $20,000 stipend and a tuition waiver could end up owing nearly $10,000 in additional tax. And finally, it taxes the endowment investment income of roughly seventy universities and liberal arts colleges, reducing the funds available for undergraduate and graduate scholarships.

While these changes will help offset the massive tax reductions for the rich, they are a pretty small drop in the bucket towards that goal. And it is strange that pro-growth and pro-investment Republicans would sign off on something that so harms those who want to invest in human capital. So why then did the House pass this bill? The answer can be found by looking at the 2016 election results. Read More »

Why the Trump tax plan’s fuzzy math​ doesn’t add up – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From MarketWatch

Senate Republicans last week agreed on a budget resolution allowing a $1.5 trillion increase in the federal deficit over the next 10 years from tax legislation. This resolution paves the way for 51 Republican Senators to enact mammoth tax cuts by September 30, 2018.

Let’s be clear: these are tax cuts, despite their tax reform rhetoric.

As the centerpiece of these tax cuts, President Donald Trump has proposed to lower the corporate tax rate to 15% from 35%. However, despite the deficit cushion of $1.5 trillion allowed by last week’s budget resolution, a 15% rate is totally unrealistic.

Cutting the corporate tax rate to 15% would cost the U.S. Treasury $3.7 trillion over 10 years. But that cost cannot come close to being offset by repealing existing tax preferences, which all will be fiercely defended by special interests. A realistic legislative target would be a corporate tax rate of 25%. And under Senate rules this rate would have to expire after 10 years because it creates future budget deficits.

Let’s do the math on corporate and individual rates, together with optimistic assumptions about limiting existing tax preferences. The numbers are based on dynamic estimates from the nonpartisan Tax Policy Center, unless noted otherwise.

Read More »

Taking steps to reduce foreign social-media meddling in our elections – Neal Hartman

MIT Sloan Senior Lecturer Neal Hartman

MIT Sloan Senior Lecturer Neal Hartman

From Huffington Post

One could almost pity the executives from Facebook, Google and Twitter as they were grilled on Capitol Hill earlier this week by senators upset about Russian meddling in last year’s presidential election, via the posting of cleverly worded propaganda ads and messages on social-media sites.

After all, how do you detect – let alone stop – a small group of determined foreign nationals manipulating and taking advantage of what’s supposed to be open, free-flowing Internet platforms idealistically designed to allow billions of people across the globe to voice their thoughts on everything from world politics to the type off pigeons in Trafalgar Square?

Of course, the Facebook, Google and Twitter executives at the Senate hearing earlier this week bowed their heads, expressed remorse and vowed to do better in combating the threat of foreign interference in our democratic elections.

But the question is: Can they do better? Is it possible? Remember: Facebook alone acknowledges that it received only about $100,000 in paid ads by those it later learned were tied to various Russian groups, but those ads were still seen by about 10 million people, according to media reports.

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Under Trump, Wall Street’s Future Is Bright. Yours and Mine? Not So Much – Simon Johnson

MIT Sloan Professor Simon Johnson

From NBC News

After much speculation, President Trump has announced his pick to lead the Federal Reserve System: Jerome “Jay” Powell. How should we think about this appointment in the context of the overall Trump administration thinking on financial regulation?

Trump slammed Wall Street throughout his campaign, asserting big banks had “gotten away with murder.” The Republican National Convention platform even mentioned a new Glass-Steagall (the Great Depression-era restriction on banks’ activities). Still, many questioned whether the Trump administration, including Powell, was committed to implementing policies tough on global megabanks.

The answer is no.

There are actually two Trump administrations. One, which attempts to deal with issues that require legislation, like health care, is having trouble making progress. But the second, which can change the rules of regulation, is moving full-steam ahead. We can already see the ground being cleared for a major round of financial deregulation.

There are three important signs of intent when it comes to finance. First, the top people on economic policy in the White House and at Treasury have all worked on Wall Street — and mostly at one big bank, Goldman Sachs. Gary Cohn, the former Goldman Sachs president, is chairman of Trump’s National Economic Council, and he has brought in a team that apparently is running the show in terms of policy. Cohn has made his intentions clear: He wants to rollback regulation.

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The People vs. Donald Trump – Simon Johnson

MIT Sloan Professor Simon Johnson

From Project Syndicate

In American politics, the next election is all that matters. Despite the Republicans’ big win in November 2016, US President Donald Trump’s ability to pass legislation still depends on what congressional Republicans expect to see happen in the November 2018 midterm election. Owing to a major shift in public sentiment in the past few months, many Democrats are now convinced that they will win seats, and potentially reclaim control of the House of Representatives.

One can already see grassroots activism gaining momentum in congressional districts that would not have seemed competitive just five months ago. For example, in California’s 45th district (in the traditionally conservative Orange County), University of California, Irvine, law professor Dave Min is taking on the incumbent Republican, Mimi Walters. This past November, Walters was reelected with 58.6% of the vote, but her district favored Hillary Clinton over Donald Trump by two percentage points.

This kind of House seat can easily flip to the Democrats in 2018, if a candidate like Min can persuade voters that Walters is out of touch – and too close to Trump. So Min has highlighted Walters’ support for Trump’s attempt to “repeal and replace” the Affordable Care Act (“Obamacare”), as well as her backing for his broader budget-cutting agenda. Moreover, her positions on many social issues seem quite distant from those of her constituency.

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