Tax Reform, Politics, the Market & Trump

1. Handicap the prospects for comprehensive tax reform in 2017.

Mark Cuban: [There is a] 25% chance it happens. And that 25% only has a shot if they change the approach. Old school approaches to reforms of any kind don’t work anymore. 

2. Do tax cuts stimulate economic growth?

MC: Minimally. There is so much concentration of wealth right now; there may be a significant percentage of those that would benefit who wouldn’t change their investment approach. The only real argument for reform is for multinational companies who could move their entities back to the USA or keep them here. I don’t know how much of the economy it would impact. 

3. Before the election you told Fox Business that Donald Trump’s tax plan could create a horrible recession. What do you think would be the result of the abbreviated plan floated?

MC: A 15% across the board [corporate tax rate] would be a disaster. The deficit would explode.  Since the proposed plan doesn’t have much meat to it, let me explain what I would do. 

I would take a page from Grover Norquist’s tax pledge book. Rather than trying to convince politicians to vote for some plan based on theories that we have no idea would work or not, I would literally start with the biggest, [most] profitable companies and ask them what they would commit to,  in exchange for getting an effective 20% or 25% rate with zero cost for repatriation of funds. 

For [Fortune 500] companies it would be easy to do the cash flow projections based on any proposed rate and know how much more cash the company would have.  I would also [ask] them to commit some percentage of that improvement to increasing wages and or benefits for the lowest paid employees on their payrolls. I would ask them to spend some of that savings to convert outsourced or contracted jobs to [pay] employees a living wage. Then, I would work my way down the list of profitable public and private companies and ask for their pledge to increase wages.  Then, I would add it all up [to] see if we can truly impact the wage growth of working families.

I would then offer a five-year tax-free opportunity to startup companies with 25 or fewer employees that offer stock to all of their employees. Obviously people will try to game the system. There will be ways [developed] to counter that. 

The more friction free we can make starting a business, the more [businesses] will be started and [that greater] stock ownership [will] reduce income inequality. 

I would substantially reduce regulation of banks, [but only]  if they went back to being partnerships, and fraud was criminalized to a far greater degree. If a banker can lose it all, they get a lot more careful. But if they [can lose it all], they should face far, far fewer regulations. 

4. In 2012, you pitched this plan: “If it were up to me, I would increase taxes and create metrics that trigger declines. If the unemployment rate falls to 6% nationally and the Debt/GDP ratio declines to a specified amount, we lower taxes.” Has your view changed?

MC: Somewhat. I think data driven rather than finite percentages is a better approach. But it would still be too complicated and make it harder to [pass a] tax plan.

5. You recently cited a blog post from 2008 in which you pitched the intriguing idea of tax-free small businesses (staff under 25); “If we really want to stimulate job creation in this country, take the same approach to small business with 25 or fewer employees that we take to Internet taxes. Outlaw them.” Do you believe this proposal could attract wide support?

MC: I still obviously like the idea, but have no idea if it could pass. I’m not a politician. 

6. Among a number of likely financing mechanisms, we expect to see a proposed lower cap on the mortgage interest deduction. Perhaps from the current cap of $1 million mortgages to $500,000 mortgages. Is this a good idea?

MC:  Good enough. We need fewer deductions.  

7. Despite Gary Cohn’s recent statement that “simplification does not mean tax cuts for the higher end of the bracket,” there is little uncertainty that Democrats will attack any proposed reforms as “tax cuts for the rich”. With wealthy paying the overwhelming majority of taxes, any broad tax reform will invariably provide benefits to the top brackets. Will Democrats play the class war, regardless?

MC:  I’m not a Democrat. You have to ask them.

8. Last year at SALT, you said of the president, “There’s that guy who’ll walk into the bar and say anything to get laid. That’s Donald Trump right now to a T. But it’s all of us who are going to get f*%ked”, more recently you referred to him as the “Zoolander President” and that his presidency was the equivalent of “political chemotherapy” on our nation. Are you contributing to the coarse and divisive political dialogue or is this simply our new normal?

MC: Coarse and divisive.  No.  This country was built on dissent. If a leader can’t handle the heat, they shouldn’t take the job. And realize, to 98% of America, politics is not top of mind.  Most of America knows far more about Beyoncé and Jay Z than they do about what’s happening politically. Those of us who like to talk politics or get involved can do just that. Have an opinion. Say what’s on your mind. 

Coarse and divisive is what you say when you don’t trust the ability of the person you voted for to deal with the issues. If we had confidence in him we would call all the media talk a circus or sideshow because the work was getting done. 

In a smaller way, owning or running a sports team is similar.  One team is smart; the rest are idiots and the haters come out and tell everyone how stupid you are. Could you imagine if as the owner of a team someone said to stop talking negatively or in such a harsh tone because it’s coarse and divisive? They would get laughed at. Politics are a lot like sports. We keep score. We track wins and losses.  Your record is who you are. Not what everyone says or shouldn’t say. 

9. For many, including a significant portion of our audience, the very notion of public service producing career politicians is offensive. That same electorate likely supported Trump as an outsider. What impact do you expect that Trump’s election will likely have with respect to future outsiders, businessmen, and other non-political public figures? 

MC: It’s not just your readers; I think it showed that voters don’t trust politicians. That they will take anyone who commits to trying a new approach with the hope it can truly help working families. I think we learned that some of the rich and elites will vote their pocketbook no matter what. 

But, we also learned that middle-America and many working families feel that they are forgotten.  Trump talks a good game about helping those families, but has done nothing and has only theory from others that I don’t think he understands, to try to help. 

If a future non-politician comes along with the leadership skills that Donald Trump lacks, and the ability to truly help reduce the stress and increase the wages of working families, they could win. 

10. Do you believe the market is vulnerable to a correction if some material tax reform is not passed in 2017? Is a correction likely regardless?

MC: No. I don’t think tax reform has any impact on equities. Stocks have become a supply and demand play. The number of public companies is dropping. People are moving money to passive funds.  That means more money for [S&P 500]  stocks. 

More money going to fewer stocks means stocks go up over the long haul. Now if there is a military action or some Black Swan event, all bets are off.