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The Wrongologist

Geopolitics, Power and Political Economy

Can We Have an Honest Discussion About The GOP Tax Plan?

The Daily Escape:

When the dog lies about his previous sheep-herding experience

A new set of tax policies have been proposed by the White House and the GOP. They involve both tax cuts, and some tax reforms. Here are the bullet points of the GOP’s sales pitch:

  • The tax cut won’t help the rich, and won’t help Donald Trump personally
  • The tax cut will generate enough growth to pay for itself
  • Most of the benefits of the tax cut will go to the middle class

Here are the NYT’s calculations on Trump not gaining anything:

Trump could save more than $1 billion under his new tax plan

And here is the Tax Policy Center’s take on the benefits to the wealthy:

  • The top 1 percent of households (those with incomes above $730,000) would get about 53% of the framework’s net tax cuts, or roughly $130,000 a year on average.
  • The top 0.1 percent of households (those with incomes above $3.4 million) would get roughly 30% of the framework’s net tax cuts, or about $720,000 a year, on average.

Turning to the statement that “tax cuts will pay for themselves”, Trump claimed in a talk with House Ways and Means Committee a few days ago, that his tax plan will produce more than 6% growth.

An economist once said that you don’t need to look at the details of a Republican tax plan. The higher the Republican growth forecast, the worse the actual deficit in their plan. That’s because they need greater revenue growth to cover the deficit hole they are creating. Given Trump’s 6% growth forecast, you just know the tax plan is going to be a budget buster.

We have learned from past GOP tax cuts that they won’t reduce deficits or balance budgets. Want proof?

  • The George W. Bush tax cuts made the deficit larger, while doing little or nothing to stimulate the economy
  • The income-tax cuts in Kansas caused the state’s deficit to accelerate significantly, while economic growth lagged the contiguous states
  • Even Ronald Reagan’s tax analysts, David Stockman and Bruce Bartlett, have acknowledged that unfunded tax cuts don’t create growth, they make for bigger deficits.

Regarding the point that most of the cuts will go to the middle class, it won’t happen. Since 83% of the plan’s cuts are going to the top brackets, there’s not much left for the middle class.

What they don’t talk about is their plan to get rid of personal exemptions, which is a key deduction for middle class families, especially those who itemize deductions. To determine whether middle-class families get a cut or an increase under the new plan, you need to calculate if the higher standard deduction, plus the proposed expansion in the child tax credit, (no details about that yet), is greater than the loss of personal exemptions.

Josh Barro at Business Insider crunched the numbers, and his conclusion is: (emphasis by the Wrongologist)

While there are still a lot of details to be filled in, the information we have available suggests the new Republican tax proposal would raise income taxes on many families who make just a bit more than the national average.

They are promising to eliminate the “alternative minimum tax”, (AMT) a tax provision designed to ensure that wealthy taxpayers (who can have accountants find deductions) would pay some modicum of taxes rather than get off scott-free. In fact, the GOP has it backwards: People who owe the AMT should be paying more tax than they would pay with the AMT. It serves its intended purpose. Elimination of the AMT is another tax break for the wealthy:  For example, Trump has had to pay the AMT, as have most real estate developers.

Now, ask yourself why should personal tax rates be less progressive in 2017 than they were in 1963? Shouldn’t progress towards a more equal society mean our rates would be MORE progressive, not less? It’s not as if we have less inequality, we have more.

The reason we should want to tax the rich (till it hurts) is to reduce their power and overwhelming choke hold on policy.

When will the GOP engage in an honest discussion about their tax plan?

Not soon. Maybe not ever.

Here’s First Aid Kit doing a cover of Simon & Garfunkel’s “America”, from 2014:

We all need to look for America, its getting very hard to find.

Those who read the Wrongologist in email can view the video here.

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Saturday Soother – September 16, 2017

The Daily Escape:

Old Prison, Annecy, France. This 12th century prison sits in the middle of the river Thiou. Because of the canals in the town, Annecy is called the Venice of the Alps.

Yesterday, Wrongo said that we needed a special tax to be used solely to rebuild the economies and infrastructure of states hit by Irma and Harvey. It didn’t take long to hear that millionaires already pay enough taxes. In one way, that is correct. From the Atlantic:

Forty years ago, the richest 1% paid about 18% of the country’s federal income taxes. Today, they pay about 40%.

While 40% seems high, we need to look harder at the arithmetic: The number of million-dollar-earners in the US has grown rapidly since Y2K. According to the IRS, the number of households with an adjusted gross income greater than $1 million more than doubled between 2001 and 2014, the last year with complete data. And no group has grown faster than the super-rich; the number of households earning more than $10 million grew by 144%.

Between 2001 and 2014, income earned by millionaires grew twice as fast as income earned by the rest of us. In 2001, million-dollar earners and above collectively reported income of about $600 billion. In 2014, they reported $1.4 trillion, more than double the amount in just 14 years. And the top 10% of wealthiest families in this country control 76% of our country’s total wealth.

So, we shouldn’t feel guilty about taxing them for a specific need, for a time-limited period.

If you’re a millionaire, it’s not just because you worked hard. It’s because you worked hard, and you live in a country where the government provides a well-developed infrastructure, stable institutions and markets governed by a strong commercial code.

Rich people need to stop griping and pull their weight, just like the rest of America’s tax-payers.

So Wrongo says again, we all need to pay extra taxes into a special fund for redevelopment of Florida and Texas. As the libertarian Joseph Tainter asserts in his book “The Collapse of Complex Societies” (don’t read it), when a society no longer has the reserves to help offset what might otherwise be a recoverable disaster, collapse can’t be far off.

Increased revenues will absolutely increase our reserves. And they will help us recover from this current disaster.

It’s Saturday, and we need to relax. Today Dr. Wrong prescribes a double Hayes Valley Espresso (whole bean is $ 17/lb.) from Oakland, CA’s Blue Bottle Coffee. Get it now, Blue Bottle has just agreed to be acquired by Nestle.

Brew it up, put on the Bluetooth headphones, and listen to the Flute Quartet No.1 in D major by J. J. Quantz, flute maker and Baroque composer. Quantz was extremely prolific. He wrote six flute quartets that were discovered in 2001 by American flutist Mary Ann Oleskiewicz in archives of the Sing-Akademie zu Berlin. Here is Quantz’s Flute Quartet No. 1:

Those who read the Wrongologist in email can view the video here.

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Tax Cuts Won’t Pay for Irma and Harvey

The Daily Escape:

Talking Heads Decision Wheel

It’s time to question how we pay for disasters. The estimated costs of Harvey and Irma are $290 billion. That might turn out to be high or low, it is still early days in assessing total costs. The insurance industry says that they expect to take a $70 billion combined hit for Irma and Harvey.

That leaves $220 billion to be funded by individuals, or taxpayers. Where will that money come from?

The president and his GOP buddies want to cut taxes on corporations and the wealthy, but they call it tax reform. They’ll throw some chump change at the middle class, so that their base feels they got something for their vote last November, but at best, their tax plan will be revenue-neutral. That will provide nothing new for the rebuild of Texas and Florida.

We shouldn’t accept the usual “revenues can’t be increased” mantra when we know cities and people will not be able to afford rebuilding on their own. We have to raise revenues. It’s time for a specific and time-limited National Recovery Tax. And everybody has to chip in. This can be a unifying moment. Nobody wants to pay more, but the job must be done.

Think for a second about the Hand In Hand benefit. The idea was that celebrities would induce the average person to donate to disaster relief. The minimum donation that Hand In Hand asked for on their web site is $25. The average US Net worth for 45-54 year olds is around 84k. $25 is .0003% of the average US family’s net worth.

Celebrities should ask us to open our wallets, but that can’t be the way we raise the billions necessary to fund this recovery. And we can’t count on the corporations. Apple gave $5 million, that’s nice. Apple is worth about $850 billion; $5 million is .0000058% of Apple’s net worth. They gave less proportionately than the average American. Apple pays very little tax relative to their profits, most of which are kept overseas. Here is a link to how Apple’s income is sheltered.

Think about where Apple’s money comes from. You bought the iPhone, iPad and maybe a MAC computer. You were the source of their money. The same is true for Michael Dell’s $36 million donation to Harvey relief. He gave a heroic amount, but it’s a pittance when we need $220 billion.

Disasters happen. We need a fund to make people whole, and it has to come from increased revenues. Some could be from state-level taxation in the states impacted, but other states won’t do that voluntarily. That assessment has to come from a new federal tax assessment. Congress should work out the details.

We need to wave off any discussion of additional tax breaks for corporations or for the wealthy, until we rebuild Texas and Florida.

We are all beneficiaries of living in America, including those companies that keep their money offshore. We all should be in this together. If we don’t look out for each other, we’re screwed.

There are other questions, such as, should we be rebuilding in the “bathtub” parts of Houston or Florida? Should we continue allowing coastal homeowners access to federal flood insurance when they tap into it every few years? Maybe we shouldn’t build on waterfront. The NYT had a piece about St. Augustine, FL. They routinely have sunny day flooding caused by rising sea water. What do we need to do to protect historic sites like St. Augustine? Should we protect them?

Can we even ask these questions? Can we agree to do a study? Views differ. But the truth doesn’t travel far in America, because the truth hurts. So, we never ask the big questions, or seek answers to them. We just occasionally donate a little to the disaster of the moment in order to feel a little better.

How can we keep America great if we fail to fund the recovery from disasters? A temporary tax on everyone is the best answer to what just happened in the South.

Here are the Talking Heads with “Once in a Lifetime” from their 1980 album, “Remain In Light”:

Those who read the Wrongologist in email can view the video here.

Takeaway lyric:

Letting the days go by, let the water hold me down
Letting the days go by, water flowing underground
Into the blue again after the money’s gone
Once in a lifetime, water flowing underground

And you may ask yourself
What is that beautiful house?
And you may ask yourself
Where does that highway go to?
And you may ask yourself
Am I right? Am I wrong?
And you may say to yourself, “My God! What have I done?”

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How Trump Exploited NYC’s Financial Crisis

The Daily Escape:

Iceberg floating near Ferryland Newfoundland, April 2017 – photo by Greg Locke

The Intercept has an interview of Kim Phillips-Fein by Naomi Klein about how Donald Trump made his first big deal during the New York City financial crisis of the mid-1970s. Phillips-Fein’s book is “Fear City”, which describes the NYC fiscal crisis of the 1970s that brought it to the verge of bankruptcy. The WSJ reports:

By June 1975, New York faced default on $4.5 billion in outstanding short-term debt owed to a few big banks and to thousands of unidentifiable small investors. Not only did the city have no way to repay $4.5 billion, it could not meet its routine, daily operating expenses, including payroll.

The WSJ says that between 1970 and 1980, more than 823,000 city dwellers left for (literally) greener pastures.

Ultimately the city did not go bankrupt. The banks and the city’s unions were willing to buy enough of the city’s (otherwise unsalable) debt to avoid bankruptcy. Important to the mix was the creation of the Municipal Assistance Corporation (MAC) run by Felix Rohatyn, who became chief negotiator between the city, its labor unions and its creditors. A new type of agency, The New York State Financial Control Board, that controlled the city’s budget, became the model for the type of emergency city managers that we saw last year in Flint and Detroit Michigan.

The NYC financial crisis helped Donald Trump emerge as a New York deal-maker. Trump convinced New York to let him take over the Commodore Hotel, which we now call the Grand Hyatt, just east of Grand Central station. Trump modernized and renovated it, it was his first construction project in Manhattan. Phillips-Fein picks up the story:

…the Commodore Hotel was a previously very fancy hotel from the early 20th century. I think it opens in 1919 at 42nd Street and Lexington Avenue. And it’s owned by the Penn Central Railroad. And the hotel kind of falls into disrepair and near collapse after Penn Central itself goes bankrupt in 1970.

The Commodore had stopped paying city property taxes and was for sale. The city was terrified that if the Commodore Hotel closed, the blight in Times Square would spread east, into the area around Grand Central Terminal. Trump saw an opportunity, while the city government saw a potential disaster. Together they hatched a plan for Trump to purchase the Commodore Hotel: (parenthesis by the Wrongologist)

What he actually wants to do is buy it and sell it to a state agency, the Urban Development Corporation (UDC)…And then the UDC will lease it back to Trump, [who was] working with the Hyatt organization.

The UDC leased it back to Trump and Hyatt. And this arrangement enabled them to pay substantially lower property taxes than usual. Phillips-Fein:

The New York Times reported that as of 2016, this tax arrangement with the Hyatt had cost New York City about $360 million in uncollected taxes in the years since the development.

Naomi Klein:

So I just want to pause there, because what you’re saying is…Trump and the Hyatt put down $9.5 million…They come up with this…sweetheart deal, a tax dodge. And that $9.5 million outlay translates back into roughly $360 million in tax savings…

The Trump/Hyatt tax deal set the stage for a wholesale change in the city. The fear of bankruptcy was central to understanding NYC politics at that moment: They feared an apocalyptic future. That fear created a need for a savior, and it found two in Donald Trump and Felix Rohatyn.

The NYC government decided that working with the business community was the bail-out it needed. It set the stage for the city’s luxury developments, for using different kinds of tax breaks that stimulated the development of properties primarily dedicated to the needs of corporations and the rich. It set the stage for a wholesale change in city politics from New Dealism to Neoliberalism. And it set the stage for Trump’s political career. Phillips-Fein: (brackets by the Wrongologist)

…you can see the straight line, really, from the Commodore to this skating rink [Wollman Rink in Central Park] to the presidential bid…”I’m not a politician. Washington is corrupt. I know how to do this better…”

Fear makes things that should be impossible suddenly feel as though they’re the only answer. Klein concludes by saying we should be very wary of the political exploitation of our fears, of political exploitation of an atmosphere of crisis.

It is clear that Donald Trump’s career and his fortune were really forged by doing just that.

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Thoughts on Tax Day

The Daily Escape:

Tu Lien Bridge (design, to be built) – Hanoi, Vietnam

Today is officially the day our federal income tax returns are due. That’s because April 15 was a Saturday, while Monday is a holiday in Massachusetts. And as the Bay State goes, so goes America when it comes to filing taxes. Wrongo appreciated the extra time.

Americans shouldn’t mind paying their taxes. We live in a great country, and if you want to fly first class, you gotta pay the fare (unless, of course, you’re flying Air Force One).

The process of filing taxes could (and should) be simplified, but reducing taxes would be a mistake. America has deferred spending for social needs and for infrastructure, and not just on the federal level. Wrongo sits on his town’s Roads Committee. If we were to continue to fix our local roads at the same rate going forward as we have for the past few years, it will take us 40 years to fix just the roads that are rated “poor” quality or worse. Still, many in town think we should spend less, so they could be taxed less. As Justice Oliver Wendell Holmes noted in a dissenting opinion in a 1927 Supreme Court case:

Taxes are the price we pay for a civilized society.

Some of us are still learning that.

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Debate Prep III – October 19, 2016

“I’m addicted to placebos. I’d give them up, but it wouldn’t make any difference.”Steven Wright

The nation is addicted to Presidential debates, which cannot even remotely be characterized as a placebo. And tonight’s debate in Las Vegas is unlikely to make a big difference to voters around America, unless one of the Pant Load or the Pant Suit are extremely clever. You can expect that The Pant Load will try to make this week’s WikiLeaks disclosures a torpedo below the waterline for the Pant Suit’s campaign. There are some nuggets in the emails, but do they really add up to all that much?

This from USA Today:

Companies used Clinton fundraisers to lobby [the] State Department. At least a dozen of those same companies lobbied the State Department, using lobbyists who doubled as major Clinton campaign fundraisers. Those companies gave as much as $16 million to the Clinton charities.

Sounds terrible, until you get down to paragraph #26 in the article:

In all, 181 foundation donors lobbied State during Clinton’s leadership tenure, Vox reported last year.

These relationships and giving on their own aren’t illegal, or even unethical. But critics, including Trump, have argued they at least pose potential conflicts of interest.

So, no quid, and apparently, no smoking gun of quo. Trump asks repeatedly how these disclosures are not dominating the news cycle and blames the media for being in the bag for Hillary. The emails often don’t prove what Trump says they do: that the Clinton campaign hates Catholics, that Clinton “openly colluded” with the Justice Department during its investigation of her private email server.

Even if there is some there, there with the emails, the real issue is that The Donald remains the story of this presidential election.

It has come down to a referendum on Donald Trump.

Unless Trump can get more than 43% of the vote, he can’t be president. And focusing on Trump’s personal attributes has been Clinton’s strategy all along. Still, if we fix on personal foibles and temperament, although relevant, we will miss any discussion of the issues.

Take tax plans. Hillary shouldn’t focus on Trump’s taxes. His taxes are relevant, although no worse than Mitt Romney’s low average tax rate: This just illustrates a problem with the tax code that Trump is well within his rights to exploit. The real problem with Trump, when it comes to taxes, is not what he pays or doesn’t pay, but how his proposed tax plan would affect everyone’s tax burden.

The numbers are not pretty.

Trump’s plan is the most Oprah-esque tax proposal since Ronald Reagan in 1980: You get a tax cut! You get a tax cut! You get a tax cut! But it’s mostly a massive tax cut for the top 1%, similar to those proposed by nearly every Republican presidential candidate in recent memory. Without that revenue, the government has to collect more in taxes from middle-class and low-income households, which will not reduce income inequality, or the federal deficit, or grow the economy.

Trump’s plan is spun as a “growth plan. The idea is that if the US runs huge deficits by slashing taxes, most of that money will be spent, creating wealth and jobs. Sorry, but the failure in Trump’s plan is foreshadowed in the failed economy in Kansas, where the Republicans handed big tax breaks to a few of the highest-income taxpayers and businesses, hoping that would magically trigger an “adrenaline shot” to the Kansas economy. That didn’t happen. Since cutting taxes drastically, the state’s debt load has ballooned to an all-time high of $4.5 billion, a jump of 50% in two years.

So no growth, and mucho debt.

Trump’s plan doubles down on this failed “trickle-down” GOP fantasy as the answer to GDP growth and income inequality. Economic growth will never come from giving tax cuts to the rich. Why? Because they just sock their gains from tax cuts away in offshore tax havens.

Hillary needs to attack the Pant Load’s BS tax plan, not his failure to pay taxes. People should think hard about each candidate’s tax plan and how it could contribute to economic growth before deciding to cast their vote for president. An attack by Clinton on Trump’s tax plan will go directly against one of the core beliefs of Trump supporters, that tax cuts will give them better jobs and pay. Sow some doubt there, and it could pay dividends at the ballot box.

Hillary’s plan is to build infrastructure with tax increases on the rich and corporations. That creates jobs.

This is a message she needs to drive home in tonight’s third presidential debate.

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Friday Links – September 30, 2016

It’s been a busy week at the Mansion of Wrong, with out-of-town family staying with us. There were parties, dinners, trips to NYC, and limited blogging. Wrongo and Ms. Right accompanied our guests to the 9/11 Memorial Museum. Since our first visit, the Museum decided to exhibit a composite of five floors worth of material from one of the Twin Towers that was heat-fused and compacted during their collapse. It is a truly horrible object, a charred and pitted lump of fused concrete, melted steel, carbonized furniture and less recognizable elements, a meteorite-like mass that no human force could have forged, and it is unforgettable. It is among Wrongo’s favorite pieces in the collection:

wtc-composite

This weighs between 12 and 15 tons. It is four feet high. If you ever thought that humans remaining in the WTC when it collapsed might have survived, consider this pancake comprising five floors of the North Tower. Please visit the Memorial and Museum if you haven’t been there yet.

Here are a few links for Friday wherein Congress acted with unusual bipartisan, but self-serving alacrity:

Congress overrode Mr. Obama’s veto of the bill permitting 9/11 victims to sue Saudi Arabia: Despite the efforts of the White House to kill “The Justice Against Sponsors of Terrorism Act “(JASTA), it will become law after yesterday’s veto override. The vote was 97-1 in the Senate, and 348-77 in the House. Very few in Congress wanted to be seen as against the 9/11 families in the weeks leading up to the election. The bill allows 9/11 victims and their families to sue Saudi Arabia for damages. JASTA is fairly narrowly tailored to Saudi Arabia, but it is unlikely to result in any accountability on the part of the Kingdom of Saudi Arabia.

In another show bipartisanship, Congress averted a government shutdown Wednesday as the Senate and the House approved a short-term spending bill, allowing lawmakers to avoid a crisis and return home to campaign. The Senate approved the bill by 72 to 26. The House then approved it by 342 to 85. This kicks the can down the road for 10 weeks, when the partisans will come out all over again with knives sharpened.

The House passed a bill Thursday that would give tax breaks to Olympic athletes who win medals. The measure does not apply to athletes with incomes over $1 million. The Senate approved it earlier this year. The House approved it 415 to 1. What Congress person wants to be viewed as anti-Olympian in an election year?

The lone dissenting vote came from Rep. Jim Himes (D-CT), who said:

We’ve got a Zika crisis, an opium epidemic and gun violence in the news every day…I think those are the issues that Congress should be spending time on.

He is not Wrongo’s Congress Critter, but he has Wrongo’s vote. Why should Olympians get tax breaks when other extraordinary Americans don’t? Nobel Peace Prize winners and Special Operations soldiers still have to pay their taxes. You pay your taxes, (well, maybe not you, Donald Trump). Another piece of bad policy by Congress.

That’s three cases of false bipartisanship in one week by the cynical people we keep electing.

This article suggests questions that should be asked of Trump about his taxes. Trump claims he can’t release his returns because he’s under audit. That could be a legitimate concern. It would hardly be fair if hundreds of tax professionals who oppose Trump politically helped the IRS by publishing their own analyses of the returns.

But, Trump pissed off Wrongo when he said how smart he was not to pay any taxes. On the one hand, none of us wants to pay more than we have to, but then along comes a billionaire who pays no taxes, and brags about it.

This is the guy who complains about the size of national debt, and says NATO members aren’t paying their “fair share”, when he isn’t paying his “fair share”.

Finally, a statue of Eagle Glenn Frey has been installed in the “Standing on the Corner” Park in Winslow, Arizona. Frey died in January. You remember the lyric:

Well, I’m standing on a corner in Winslow, Arizona, such a fine sight to see/It’s a girl, my Lord, in a flatbed Ford slowin’ down to take a look at me.

Frey’s statue joins that of song co-writer Jackson Browne that has been in the park since the late 1990s.

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Trump’s Same ‘Ol GOP Tax Plan

Neil Irwin at the NYT compared the Clinton and Trump tax plans. Hillary’s raises taxes on the rich, and adds ~$1.1 Trillion to federal tax revenues over the next 10 years. The Pant Load’s plan is under revision (again), but, his old plan reduced revenues by ~$9.5 Trillion over the same period, and while his new plan will probably cost less, it will still create red ink.

Jared Bernstein had a few points which you might not have picked up on:

…the plan is pure, old-fashioned, supply-side, trickle-down orthodoxy. How that squares with Trump’s play for disaffected working class voters hurt by globalization is left as an exercise for the reader.

Bernstein’s best point is about the “pass-through” income loophole Trump creates. His new plan sets the top income tax rate at 33% but creates “a much lower rate than 33% for a substantial number of very-high-income households by allowing people to pay a new low rate of 15 percent on “pass-through” income (business income claimed on individual tax returns). According to the Tax Foundation, pass-through businesses now earn more net income than traditional “C” corporations (like GE or Ford). So of course, Republicans want to lower their tax rates. More from Bernstein:

More than two-thirds of all pass-through business income flows to the top 1 percent of tax filers.

And it will probably get worse: When you can pay a lower rate on a particular type of income, you will visit with a tax lawyer and set up a Limited Liability Corporation (LLC). Then off you go to the boss and say, as Bernstein points out:

“I’m no longer Joe Paycheck, I’m Joe Paycheck, LLC. Pay me the same salary but call it a consultant’s fee for services provided by my limited liability corporation”. Joe then passes that income through from the business to the personal side of the tax code and pays 15% on it.

Where Joe might have formerly paid as much as 39.5%. This will allow the hedge fund and private equity guys to move from paying a mere 24% that they pay on earnings today to 15%, if Trump gets the GOP-led Congress to go along.

Trump also wants to repeal the estate tax. Like the prior “improvement”, this one will benefit the Donald personally. The estate size that must pay estate taxes today is $10.9 million. So if a couple has an estate smaller than that, they pay no estate tax. How many are paying it? Only 0.2% of estates (that’s 2 in a 1,000) pay it today.

So none of these are the “small family businesses” and “family farms” that Republicans whine about. If you have the better part of $11 million in assets, you ain’t that small.

A minute more on the LLC: LLCs were created by Congress to give owners of businesses the ability to avoid “double taxation” on taxable income they receive from their businesses. The theory is, business income from a C corporation is taxed twice: once at the corporate level and again at the personal level when dividends are paid to owners. Businessmen could have avoided double taxation by simply operating their businesses as proprietorships or general partnerships. But then they would lose the limited liability protection from creditors that C corporations and limited partnerships provide.

So Congress created the LLC hybrid to enable businessmen to have their limited liability cake and eat it too. But you don’t get the same deal: Wrongo and Ms. Right have paid into Social Security for over a combined one hundred years. Along the way, we could not deduct our yearly SS contributions, which means we paid income taxes on the income that we used to make our contributions. Now that we are receiving Social Security payments, we pay federal and state income taxes again on the payments we receive.

If we use some of our Social Security income to buy gas, we are taxed again in federal and state motor fuel taxes. Same when we buy goods and services, and pay state sales taxes.

Double, triple and quadruple taxation are pervasive throughout our economy, but it’s only the average Joes that pay them. So no tears for Mr. Trump, the Kochs and “job creators” who say they need a break from double taxation.

Or maybe ask your Congressperson for a similar break for you.

Trump is cutting taxes for the rich. If you think he is gonna help the middle class, he is hoodwinking you. You may see a few pennies in tax cuts while the rich take in extra millions to buy bigger, better penthouse apartments.

Meanwhile, the roads and bridges that you use to get to work will crumble even further, because he’s planning to give away the store.

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Capitalism, It’s Not You, It’s Me

There is a meme that has gone global since the early days of the Occupy movement. Here it is as a wall graffiti from Greece that uses the same meme we first saw in NYC in 2011:

Capitalism Lotek

Just kidding capitalism, it really is you.

The artist is a Greek who styles himself as Lotek. The name Lotek is derived from the short story (and later, a film) by William Gibson called Johnny Mnemonic. The story is set in 2021, in a world ruled by corporations. An anti-authoritarian gang that are called Lo-Teks, fight the power. They are in fact not low tech at all, but are high tech hackers. Sound familiar?

Greece is surely a place at war with neoliberalism and free market capitalism. So is it also time for us to reconsider capitalism?

Consider this from Mark Blyth in Foreign Affairs:

An inherent tension exists between capitalism and democratic politics since capitalism allocates resources through markets, whereas democracy allocates power through voting.

The compromises both systems have struck with each other over recent history shapes our contemporary political and economic world. Blyth observes:

  • In the three decades that followed World War II, democracy set the rules, taming markets with the establishment of protective labor laws, restrictive financial regulations, and expanded welfare systems.
  • Starting in the 1970s, a globalized, deregulated capitalism, unconstrained by national borders, began to push back.

And today, capital markets and capitalists are setting the rules, and democratic governments follow them.

Some background: Cutting taxes in the 1980s caused government revenues to fall. Deficits widened, and interest rates rose as those deficits became harder to finance. At the same time, conservative govern­ments, especially in the UK and the US, dismantled the regulations that had reined in the excesses of the financial service industry since the 1940s.

The financial industry began to grow unchecked, and as it expanded, investors sought safe assets that were highly liquid and provided good returns: the debt of developed countries.

This allowed governments to plug their deficits and spend more, all without raising taxes.

But the shift to financing the state through debt came at a cost. Since WW II, taxes on labor and capital had provided the foundation of postwar state spending. But, as govern­ments began to rely more on debt, the tax-based states of the postwar era became the debt-based states of today.

This transformation had pro­found political consequences. The increase in government debt has allowed capitalists to override the preferences of citizens:

  • Bond-market investors can now exercise an effective veto on policies they don’t like by demanding higher interest rates when they replace old debt with new debt.
  • Investors can use courts to override the ability of states to default on their debts, as happened recently in Argentina
  • They can shut down an entire country’s payment system if that country votes against the interests of creditors, as happened in Greece in 2015.
  • Citizens United dictates who runs for office in the US, and in many cases, who wins.

Now that the financial industry has become more powerful than the people, should we blindly follow capitalism’s meme as the only way forward?

Free-market rhetoric hides the dependence of corporate profits on conditions provided for, and guaranteed by, governments. For example:

  • Our financial institutions insist that they should be free of meddlesome regulations while they depend on continuing access to cheap credit from the Federal Reserve.
  • Our pharmaceutical firms have resisted any government limits on their price-setting ability at the same time that they rely on government grants of monopolies through our patent system.

To use a sporting metaphor, it’s as if the best football team purchased not only the best coaches and facilities, but also bought the referees and the journalists as well. Those responsible for judging economic competition have lost all authority, which leaves the dream of ‘meritocracy’ or a ‘level playing field’ in tatters.

In our country, the divide between the business oligarchs, the political class and “the people” increasingly appears unbridgeable, marked by hostility and deep distrust. When people are told for a generation that government mustn’t make decisions that interfere with free markets, it is inevitable that people will lose faith in democratic governance, and in government’s capacity to help them solve their problems.

Capitalism in its current form no longer works for the people. We have seen a reaction in the start of movements by Occupy, by Bernie, and by others in Europe.

Remember that the greatest prosperity in living memory in the US came during the brief social democratic moment, in the 1950s and 1960s, when the constraints on business were the greatest.

More democracy and more economic justice are the necessary foundations for the path to a more prosperous, and sustainable economy.

A reformed capitalism must be a part of what emerges from that fight.

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How Not to Cut the Deficit

Congress returned from the Independence Day break on Monday. They will leave again on Friday, and won’t return until after Labor Day. From The Hill:

Congress is poised to leave Washington…without passing funding to combat the Zika virus or completing work on spending bills to avoid a government shutdown.

One bill that might get passed is the re-authorization for Federal Aviation Administration programs that expire on Friday. Since Congress likes to fly, most think they will pass an extension that will last through September 2017.

If you’ve taken a flight this summer, you’ve likely been tied up in long TSA security lines. But you may not have focused on the real reason: Funding for the TSA has been sliced by 8.5% over the past five years, leading to a 5.5% drop in the number of screeners.

Yet, in the same period, the number of air travelers has increased by more than 15%. And those business wizards in Congress should be forced to tell the rest of us how a labor-intensive business can successfully process increasing numbers of customers with a smaller work force.

Steven Rattner in the NYT:

This year, discretionary spending — which encompasses airport security, infrastructure, education, research and development and much more — will be lower than it was in 2005. (Adjusted for inflation.

The discretionary portion of the federal budget, including education, research, infrastructure and other programs, has been falling, while spending on mandatory programs (including Social Security, Medicare and Medicaid) has been going up. Rattner reports that total government spending is up by 23% since 2005, while mandatory spending is up 45% in the same period, and discretionary spending is down 3%.

Here are some examples:

  • Since 2003, the National Institutes of Health (NIH), have seen their funding fall by 23%, forcing an 8% reduction in grants to researchers even as grant applications were rising by 50%.
  • In the past 10 years, spending on all education has fallen by 11% percent.
  • Since 2010, the IRS’s budget has been slashed by about 18%, even as the IRS was given new duties in connection with the passage of the Affordable Care Act. The result: The enforcement staff has shrunk by 23%, leading to a similar reduction in the number of audits. Fewer audits have meant additional uncollected taxes, estimated at $14 billion over the past two years. And almost a million pieces of unanswered correspondence from taxpayers need responses.
  • The EPA’s budget has been cut by an enormous 27% — about $3 billion since 2010. As a result, the agency had to eliminate more than 2,000 workers, bringing its staffing to the lowest level since 1989.

Last fall, a bi-partisan group added $80 billion in new discretionary spending over the next two years. Then, Congress doubled the cost of the deal by giving more money to the military and to Medicare, taking the deal to $154 billion while paying for about half the tab with legitimate savings.

A few months later, Congress retroactively extended a raft of expired tax provisions — without even a pretense of paying for them.

As a result of Congress’s fudging, the projected 2017 deficit rose to $561 billion, from the $416 billion that was estimated just six months earlier.

We shouldn’t expect that Congress will make any big decisions involving taxes or spending in an election year. But at the least Republicans need to stop using the appropriations tool to take aim at agencies such as the IRS and the EPA, whose missions they reject.

In the case of the TSA, Republicans want it privatized. Not because privatizing will save any money or make the TSA more effective, but to help a few of their corporate sponsors have another feed at the government trough. Republicans want to see schools, prisons, and the postal service privatized. The people who are employed by these private, profit-making companies will not be paid as well, and will not receive benefits they have today.

This is what you get when you believe that government should be “run like a business.” Certainly, we need a more efficient, better managed bureaucracy, but the deficit-cutting value of their fix is peanuts compared with the simple act of generating revenue.

You know, that would be raising taxes sufficient to pay for the critical tasks we require of the government.

The GOP would like you to think that Donald Trump represents a threat to Republican tax and deficit-cutting orthodoxy. To the extent Trump has revealed his thinking on tax policy, it looks consistent with the Republican Party. Trump’s grand accomplishment is to create an alliance between the true economic interests of the Republican Party and that segment of the American electorate largely marginalized and displaced by the actions of that same elite.

Welcome to the Republican paradise.

 

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