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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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Saturday Soother – August 26, 2017

The Daily Escape:

Depression Bread Line by George Segal, 1999, at the NJ Grounds for Sculpture – 2017 photo by Wrongo

There are two political imperatives facing America by the end of September: The House, Senate and the president must extend the Federal borrowing limit, and pass a budget. When Obama was president, extension of the borrowing limit was a dicey thing, as was passing a budget. From 2008-2016, we largely avoided government shutdowns, we passed spending bills, but not an entire budget.

And we never even considered tax reform, but it’s the third item on the GOP’s 2017 to-do list.

In some sense, everything except increasing the debt ceiling is optional. As of now, there are only twelve days in September when the House and Senate are jointly in session. The Senate has a few more legislative days on their schedule than the House, but it’s unclear how they’ll use them.

Republicans and Wall Street used to have concerns about the consequences for America if we didn’t get our finances under control. They said that the growing federal debt could eventually drag down the economy, burden future generations, and even threaten national security. CEOs of corporations and the biggest banks joined a campaign called Fix the Debt, arguing that the size of our debt was our most pressing issue.

But now these same people are all in on Trump’s plan to cut taxes for corporations and high earners, saying it is the way to fuel economic growth. That, despite estimates that Trump’s plan could reduce federal revenue by $3.9 trillion over 10 years, thereby increasing the debt that CEOs used to hate. From Bloomberg:

Goldman Sachs Group Inc. CEO Lloyd Blankfein, a Fix the Debt supporter…in 2012 told CNBC he’d be for higher taxes if they helped mend the fiscal gap. After the 2016 election, Blankfein told colleagues…that Trump’s proposals, including tax reform, ‘will be good for growth and, therefore, will be good for our clients and for our firm.’

Hmmm. Aren’t Treasury Secretary Steve Mnuchin and Trump’s Economic Adviser Gary Cohn both from Goldman?

Dean Baker, co-director of the Center for Economic and Policy Research sees the policy shift clearly: (brackets by the Wrongologist)

They [CEOs] were yelling, Deficits, deficits, deficits… [and] as soon as George W. Bush gets in the White House? Oh, we’ll have a big tax cut.

The same thing is happening now. Bloomberg reports that according to Seth Waugh, chairman of wealth adviser Alex. Brown, many in finance have moved on from the debt: (brackets and emphasis by the Wrongologist)

It’s not a fun, sexy thing to talk about…Waugh, another Fix the Debt member, recalls playing golf with a private equity executive…Waugh told his friend it would be nice if Congress addressed deficits… [but]…The private equity executive said nobody was talking about that. It was a dead issue, and they should take the good news: Paying less in taxes, the friend reminded him, means getting richer.

It’s probably a distant dream. The GOPs plan for tax reform involves using the budget reconciliation process, which allows them to pass it with just 51 votes, that is, without Democrats. Otherwise, they face a filibuster. Reconciliation starts with passing a budget resolution for the coming fiscal year. In that budget resolution, they need to include special budget directives or instructions:

To start the reconciliation process, the House and Senate must agree on a budget resolution that includes “reconciliation directives” for specified committees. Under the Congressional Budget Act, the House and Senate are supposed to adopt a budget resolution each year to establish an overall budget plan and set guidelines for action on spending and revenue.

So they need to pass a budget, but before that, Republicans need to vote to raise the borrowing authority of the government. That may be impossible without support from Democrats.

We’ll know very soon if Dems are willing to get on board with Paul Ryan and Mitch McConnell on any of this.

It’s Saturday again, and despite the brief three-minute respite from politics brought by the solar eclipse, Trump had another successful week. (If success is his continued destruction of what remains of America’s psyche).

We are now in desperate need of something soothing to kick off next week’s war for truth. So grab a couple of Trader Joe’s Cold Brew Latte Dessert Bars (40 calories and 7 grams of sugar each), put on your best Bluetooth headphones, and listen to the late guitarist John Abercrombie, who died this week. Here is Abercrombie with Dave Holland on bass, and Jack DeJohnette on drums doing “Homecoming” live in 1995. Let’s hope it’s not the best few minutes of your week:

Pay attention to Abercrombie’s remarkable and airy technique.

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Trump’s Termites

The Daily Escape:

Missouri Breaks, MT – photo (via)

US Interior Secretary Ryan Zinke announced that there would be no change for the Missouri Breaks National Monument. Zinke is from Montana, so saving one for his peeps isn’t a big surprise.

Missouri Breaks is one of 27 monuments established during the previous 20 years by presidents using the Antiquities Act. The Antiquities Act allows presidents to set aside objects of historic or scientific interest to prevent their destruction. The law was created in 1906 to guard against looting of sacred American Indian sites.

In April, Trump ordered the Department of the Interior to review the status of every national monument designated since 1996. As a result of the review, these cultural and/or natural treasures could be significantly reduced in size or even eliminated, and the Antiquities Act itself could be severely limited. The land would remain owned by the federal government, but might lose its protected status, and be contracted to private enterprises. When you allow corporations to ‘lease’ land for oil, fracking, mining, ranching, etc. fences go up, private police forces are hired to keep people out for their ‘safety’.

Not everyone agrees that Trump has the authority to do what he wants. From the Washington Times:

If President Donald Trump or any successor desires the authority to revoke national monument designations, they should urge Congress to amend the Antiquities Act accordingly. They should not torture the plain language of the Act to advance a political agenda at the expense of regular constitutional order.

The LA Times disagrees:

Indeed, those who claim that the Antiquities Act does not grant a reversal power cannot find a single case in another area of federal law that supports that contention. To override the norm, legislators have to clearly limit reversal powers in the original law; the plain text of the Antiquities Act includes no such limits.

Who knows? Next, Der Donald will lease the Grand Canyon to China for use as a landfill.

But the bigger picture is that behind the smoke and mirrors of Trump’s pathological lying and the media’s obsession with Russia, his cabinet appointees are working like industrious termites, eating away much of the support beams of our nation’s rules-based edifice.

Consider Attorney General Jeff Sessions. From the New Yorker: (brackets and editing by the Wrongologist)

He [Sessions] has reversed the Obama Administration’s commitment to voting rights…He has changed an Obama-era directive to federal prosecutors to seek reasonable, as opposed to maximum, prison sentences for nonviolent drug offenders…he has revived a discredited approach to civil forfeiture, which subjects innocent people to the loss of their property. He has also backed away from the effort…to rein in and reform police departments, like the one in Ferguson, Missouri, that have discriminated against African-Americans.

Although candidate Trump promised to protect LGBT rights, President Trump last week vowed to remove transgender service members from the armed forces, and Sessions…took the position in court that Title VII, the nation’s premier anti-discrimination law, does not protect gay people from bias. Most of all, Sessions has embraced the issue that first brought him and Trump together: the crackdown on immigration…

All across the government, Trump appointees are busy chewing through the existing regulatory edifice, ending not just Obama-era rules, but others that have been in place for decades.

Another truly damning thing is Trump’s surrogates’ efforts to undermine foreign policy. The WaPo reports:

Trump signed off on Iran’s compliance with profound reluctance, and he has since signaled that when Iran’s certification comes up again — as it will every 90 days, per a mandate from Congress — he intends to declare Iran not in compliance, possibly even if there is evidence to the contrary.

According to the New York Times: (brackets by the Wrongologist)

American officials have already told allies they should be prepared to join in reopening negotiations with Iran or expect that the US may [unilaterally] abandon the agreement, as it did the Paris climate accord.

It is difficult to see how this ends well for the US. Imagine, Iran and North Korea both pursuing nuclear weapons to deploy against the US. Why would we want to engage on two fronts, when one (North Korea) is already so problematic?

What is the Trump agenda? Are there any articulated goals? What are the strategies to achieve them?

Have we heard a concrete proposal for any of his big ideas (health care, tax reform, or infrastructure)?

We have not, but his termites keep chewing, and soon, our whole building will be compromised.

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IMF Reports US Standard of Living is Falling

The Daily Escape:

Haleakala Crater, Maui

Is it the best of times or the worst of times? This is no longer a partisan discussion. We have an economy in the midst of a long expansion, the third longest since 1850. The statistics say we are close to full employment. But, our mortality rate is moving in the wrong direction, and we have an opioid epidemic that is serious enough to cause jobs to go unfilled. The NYT reports that in Youngstown Ohio, middle class factory jobs go begging:

It’s not that local workers lack the skills for these positions, many of which do not even require a high school diploma but pay $15 to $25 an hour and offer full benefits. Rather, the problem is that too many applicants — nearly half, in some cases — fail a drug test.

The Fed’s regular Beige Book surveys of economic activity across the country in April, May and July all noted the inability of employers to find workers able to pass drug screenings.

So the best of times? Probably not. Bloomberg reports that the International Monetary Fund (IMF) looked at the US economy. This is what they see:

For some time now there has been a general sense that household incomes are stagnating for a large share of the population, job opportunities are deteriorating, prospects for upward mobility are waning, and economic gains are increasingly accruing to those that are already wealthy. This sense is generally borne out by economic data and when comparing the US with other advanced economies.

The IMF then goes on to compare the US with 23 other advanced economies in the Organization for Economic Cooperation and Development (OECD) in this chart:

The chart is a bit of an eye test unless it’s viewed on a big monitor, but its overall point is that the US has been losing ground relative to its past OECD reports by several measures of living standards. 35 countries make up the OECD. The members include all of Western Europe, Russia, Japan, Australia, and several developing nations like Korea and Panama.

This from Bloomberg:

And in the areas where the US hasn’t lost ground (poverty rates, high school graduation rates), it was at or near the bottom of the heap to begin with. The clear message is that the US — the richest nation on Earth, as is frequently proclaimed, although it’s actually not the richest per capita — is increasingly becoming the developed world’s poor relation as far as the actual living standards of most of its population go.

This analysis is contained in the staff report of the IMF’s annual “consultation” with the U.S., which was published last week. The IMF economists haven’t turned up anything shocking or new, it’s just that as outsiders, they have a different perspective than what we hear from our politicians and economists.

For example:

Income polarization is suppressing consumption…weighing on labor supply and reducing the ability of households to adapt to shocks. High levels of poverty are creating disparities in the education system, hampering human capital formation and eating into future productivity.

What is to be done? Well, the IMF report concludes:

Reforms should include building a more efficient tax system; establishing a more effective regulatory system; raising infrastructure spending; improving education and developing skills; strengthening healthcare coverage while containing costs; offering family-friendly benefits; maintaining a free, fair, and mutually beneficial trade and investment regime; and reforming the immigration and welfare systems.

In other words, they suggest substantial reform. It’s doubtful that America can take care of these things anytime soon.

The subtext to most of their suggestions is that other affluent countries have found ways to improve in these areas, while the US has not. We don’t have to look too far into the past to see when those countries were modeling their economies on ours. But today, on all sorts of issues, like taxation, labor markets, health care, and education, the opposite is now true.

One major difference between the US and the rest of the developed world is ideological: Voters and politicians in the US are less willing to raise taxes to finance a better life for our citizens.

Other wealthy countries have figured out how to raise revenue, provide quality education, help the the unemployed, reduce poverty, and keep their citizens healthier than America has.

We must catch up, or admit our time as the world’s indispensable economy is over.

Today’s music (dis)honors the turmoil in the White House. See ‘ya Mooch! Remember that in just six months, Trump has gone through two National Security Advisers, two Chiefs of Staff, two Communications Directors, two Press Secretaries, and two Directors of the FBI.

Here is “Disorder in the House” by the late Warren Zevon and Bruce Springsteen:

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

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Sunday Cartoon Blogging – July 2, 2017

Governments last only as long as the undertaxed can defend themselves against the overtaxed.” Bernard Berenson

(There is an extra ration of cartoons today. Wrongo is taking a few days to celebrate the hot dogs and potato salad he found in the fridge. Posts will resume on July 5th.)

If this week shows how well we are playing defense, we are all screwed. The party of personal responsibility always blames their opponents when things go wrong. The party of fiscal responsibility will blow up the budget whenever they get in power.

And the party of family values is merrily slashing away at programs that support families:

When it comes to health insurance, the GOP has all the right viewpoints:

Trump revealed his true self with the “Morning Joe” tweets:

The Court-tested, Judges approved Muslim ban is now in effect:

Trump (or his lackeys) made fake Time Magazine covers featuring the Donald:

Trump’s Press Team orders no cameras at most press conferences. So on to Virtual News:

Trump Election Commission asks states for each voter’s personal data, like party affiliation and social security number. What could go wrong?

Why the Fourth of July?

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Saturday Soother – July 1, 2017

The Daily Escape:

Matsumoto Castle, Japan – photo by Aaron Bedell

Wow! Trump outdoes himself with his Twitter attack on America’s sweethearts, Joe and Mika.

But today, let’s focus on Medicaid, and the possibility that it will be phased out by Mitch McConnell and his Republican Senate colleague’s effort to save America by giving more tax cuts to the rich.

Amy Davidson at the New Yorker wrote about “The Senate’s Disastrous Health Care Bill” in the July 3rd issue: (emphasis by the Wrongologist)

Medicaid, for example, covers seventy-four million low-income Americans—a fifth of the population. There is no simple picture of this group; according to the Kaiser Family Foundation, thirty-four million are children, eleven million are disabled, and seven million are elderly, a large number of whom live in nursing facilities. Many of those people led middle-class or even affluent lives, until their savings were consumed by the cost of residential care, which, in large part, is not covered by Medicare; nearly two-thirds of nursing-home patients are, at some point, on Medicaid.

One of Obamacare’s innovations was to expand Medicaid eligibility to include people slightly above the poverty level. The federal government now pays the states a percentage of what it costs them to care for eligible residents: if a state spends more, it gets more, within certain parameters. Both Republican plans would radically restructure the program, giving states limited sums. The states would then have to use their own money to make up for the shortfall—or they could choose to spend even less. This change would place particularly devastating financial pressures on the elderly, at a time when the population is aging.

We’ll see whether the GOP is successful in gutting Medicaid after the July 4th break. Josh Marshall of Talking Points Memo made a great point about how Republican goals for health care were not what they campaigned on, while talking to CNN’s Wolf Blitzer:

When you try three times to ‘repeal and replace’ and each time you come up with something that takes away coverage from almost everyone who got it under Obamacare, that’s not an accident or a goof. That is what you’re trying to do. ‘Repeal and replace’ was a slogan that made up for simple ‘repeal’ not being acceptable to a lot of people. But in reality, it’s still repeal. Claw back the taxes, claw back the coverage.

It is detestable to spin their dismantling of Medicaid as “reform”. It is even more detestable to say that with Repeal and Replace, people will have better health insurance.

So, we need to relax and try to forget all about this for a few days. Wrongo’s suggestion is that you grab a cup of Kick Ass coffee, settle in a comfortable chair where you can look out a window, and listen to Ralph Vaughan Williams’s “The Lark Ascending”.

Today’s soother was suggested by blog reader Shelley VK. We have it performed by violin soloist, Janine Jansen with Barry Wordsworth conducting the BBC Orchestra at the Royal Albert Hall in 2003. Jansen is playing a 1727 Stradivari “Barrere” violin:

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

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Saturday Soother – May 13, 2017

The Daily Escape:

Bluebells, Brussels Belgium April 2017 photo by Francois Lenoir

In many ways, it is too easy to criticize Donald Trump. While we can have differing opinions on matters of policy, they only account for a few of the issues Wrongo has with Trump. Most are his unfathomable attempts to avoid telling the truth. Consider his interview with The Economist which posted the entire transcript on Thursday. Let’s focus on this excerpt:

The Economist: Another part of your overall plan, the tax reform plan. Is it OK if that tax plan increases the deficit? Ronald Reagan’s tax reform didn’t.
Trump: Well, it actually did. But, but it’s called priming the pump. You know, if you don’t do that, you’re never going to bring your taxes down.

[Snip]

Economist: But beyond that it’s OK if the tax plan increases the deficit?
Trump: It is OK, because it won’t increase it for long. You may have two years where you’ll…you understand the expression “prime the pump”?

Yes.
We have to prime the pump.

It’s very Keynesian.
We’re the highest-taxed nation in the world. Have you heard that expression before, for this particular type of an event?

Priming the pump?
Yeah, have you heard it?

Yes.
Have you heard that expression used before? Because I haven’t heard it. I mean, I just…I came up with it a couple of days ago and I thought it was good. It’s what you have to do.

Ok, so how did the guy from the Economist keep a straight face? The reporter is thinking John Maynard Keynes, the great British Economist, who came up with the idea of “priming the pump” in the 1930’s. By the way, Keynesian pump-priming is temporary government spending to boost temporarily weak demand. It is designed to boost growth, (and jobs) during a downturn, but we can’t assume that it will boost the economy’s growth rate.

Trump’s idea for pump-priming is more tax cuts. He’s following classic trickle-down economics, and claims that his tax cuts will boost investment, productivity growth, and labor supply, and thus raise the long-term growth rate of the economy. In this regard, Trump conflates Keynes, who’s been proven right, with Arthur Laffer, who wasn’t.

But, didn’t Trump graduate from Wharton with a business degree? Nobody gets out of Wharton without knowing that Keynes was the “pump primer”. And his saying that he coined the phrase ‘prime the pump’ a few days ago? Unfortunately, there are only two explanations: first, Trump is 70 years old and his cognitive skills are starting to desert him. Or second, he is a pathological liar.

Wrongo wants to go with #2.

He just wants to sell America something with his name stamped on it. But since America isn’t buying a hotel, he’s trying to sell Trumponomics, Trumpcare, etc. He does not really care about the details, he just wants to pass it, and to claim it is a success. That’s America’s tragedy.

So with Comeygate, Trumpcare and pump-priming, we all need to unplug and try, just try to relax on Saturday. We had a full moon and clear skies over the fields of Wrong on Thursday, so today we listen to “Claire du Lune” by Claude Debussy. It is the third movement of “Suite bergamasque”. Its name comes from Verlaine’s poem Clair de Lune, “moonlight” in French. Here it is played by Dame Moura Lympany, British pianist, who died in 2005:

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

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Buffett: Focus on Lower Health Care Costs, Not Corporate Taxes

The Daily Escape:

Ribbon Chapel, Onomichi Japan – photo by Koji Fujii

Andrew Ross Sorkin wrote about Warren Buffet and the Berkshire Hathaway annual meeting in Omaha. Thousands of people attend these meetings, which are known as “Woodstock for capitalists.” Sorkin reports that Buffet made this comment:

The tax system is not crippling our business around the world.

Sorkin said that Mr. Buffett, was blunt and pointed, implicitly rebuking his fellow chief executives, who have been lobbying the Trump administration and Washington lawmakers to lower corporate taxes. Buffett said that those who have been single-focused on seeking relief from their tax bills would be smart to shift their attention to health care costs, which are growing and swallowing evermore corporate profits. The Kaiser Family Foundation reports that 49% of Americans, about 156 million, are insured by their employer. More from Sorkin:

The need for corporate tax relief has become the lodestar of the corner office, with CEOs rhapsodizing  over President Trump’s plan to try to stimulate growth by cutting tax rates for businesses.

But as Mr. Buffett pointed out, these chief executives are missing the bigger issue: As a percentage of our GDP, the cost of maintaining our American health care system is rising at an alarming rate. And Corporate America pays a big (and growing) chunk of that bill.

Buffett wasn’t talking about the cost of health insurance, which is a fraction of the total cost of health care. He suggests that today’s corporate tax rates are a distraction, not a true impediment to growth:

If you go back to 1960 or thereabouts, corporate taxes were about 4% of GDP…And now, they’re about 2 % of GDP.

While tax rates have fallen as a share of gross domestic product, health care costs ballooned:

About 50 years ago, health care was 5% of GDP, and now it’s about 17%.

Buffett is a smart guy. He raises an argument for focusing on the underlying costs of our health care system, something that goes far beyond the debate around the Affordable Care Act, or what will replace it. Buffett says that our global competitiveness has fallen largely because our businesses were paying far more for health care — a tax by another name — than those in other countries.

As Buffett said: (brackets by the Wrongologist)

When American business talks about [corporate taxes] strangling our competitiveness, or that sort of thing, they’re talking about something that as a percentage of GDP has gone down…While medical costs, which are borne to a great extent by business, have swelled.

Here are the facts:

  • In 1960, corporate taxes in the US were about 4% of GDP. The percentage fell steadily, reaching a bottom in 1983 before rising slightly over the last few decades. Today, it is 1.9%.
  • In the meantime, health care costs as a percent of GDP have skyrocketed. Today our health care costs are 17.1% of GDP, up from 13.1% in 1995.
  • Germany’s cost is 11.3%, up from 9.4% during the same period. Japan’s is 10.2%, up from 6.6%. Britain’s health care costs are 9.1% of GDP, up from 6.7% percent in 1995.

That makes our health care cost disadvantage far greater than our tax differential. It harms American companies in particular, since they bear such a large share of those costs, which firms in our competitor countries do not. US Corporations spend $12,591 on average for coverage of a family of four, up 54% since 2005, according to a study by the Kaiser Family Foundation.

But Congress avoids the issue, and CEOs don’t talk about it. A final quote from Warren:

It’s very tough for political parties to attack it…it’s basically a political subject…

In fact, Buffett’s partner, Charlie Munger, is the rare Republican (Buffett is a Democrat) who has advocated for a single-payer health care system. Under his plan, the US would enact a sort of universal type of coverage for all citizens — perhaps along the lines of the Medicaid system.

Which brings Wrongo to his final point: Medicaid expansion is the one part of Obamacare that can be said unequivocally to work. It’s a single payer program funded by the Federal government. So it’s bitterly ironic that the Republican’s reaction to Obamacare is to assault and roll back an existing Federal program, from LBJ days.

Of course, kicking poor people who benefit from Medicaid will always be popular with Republicans. So, Republicans, by making Medicaid worse, will try to restore their natural order of things.

Lazy, uninformed voters = Lazy, uninformed legislators = Lazy, uninformed policy.

It’s that simple.

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