Tax Policy – Page 16 – The Wrongologist

Your Holiday Gift Is Team Trump

From Ian Welsh: (brackets by the Wrongologist)

Trump is now Team Trump. The two most influential people in his court appear to be his son-in-law, [Jared] Kushner, a fellow real-estate developer and the guy who made the key strategic decisions which led to Trump’s victory; and {Steve] Bannon. Bannon is an economic nationalist with white nationalist leanings, who identifies with the working class and wants to bring manufacturing back to America. He’s quite willing to have a trade war to do it.

And while we are at it, Wrongo is sure that all of the Goldman Sachs alligators Trump is dumping into DC’s undrained swamp have lots of winning in mind for America. Welsh adds:

Trump’s children are influential, and it appears that Ivanka, his daughter, is the most influential of the three. She’s probably the most liberal person in the administration (even if she, strictly speaking, isn’t in the administration.)

Despite Welsh saying Ivanka won’t be in the administration, US News reported that she will set up shop in the White House space usually set aside for the first lady, which is in the East Wing. That sounds like influence!

With almost five weeks remaining until the inauguration, attempting to understand what Trump’s administration will do to you (or for you, if you are a fan), is America’s favorite holiday party game.

Trump has loaded up on oligarchs and generals to help steer his thinking on policy. More from Welsh: (brackets by the Wrongologist)

So, for example, his shift on China policy [to confrontation] is in alignment with what a lot of generals think (China is the real threat) and with what Bannon thinks (manufacturing jobs, economic nationalism.)

In some ways, Trump’s China policy is a continuation and extension of existing policy, but his style is confrontational, and more focused. All of Trump’s complaints about Chinese actions are long-standing US complaints that had not been addressed by previous administrations.

When we look at Trump’s team, they are anti-labor, pro-corporatist, pro-Wall Street, pro-MIC, Big Oil, Big Coal, climate changing denialists. With Pruitt @ EPA, Perry @ Energy, and Ryan Zinke @ Interior, all the news looks bad for those of us who want to see more alternative energy and a radically improved global environment. And Price @ HHS will have the largest and quickest negative impact on Americans.

These proposed cabinet appointments are not the source of any Christmas cheer if you favor our current domestic policies.

And it will get worse: Congressional Republicans told BuzzFeed News that the GOP plans to re-introduce the First Amendment Defense Act. The act prohibits the federal government from taking action against private businesses and individuals that discriminate against LGBT people (or others) due to their “sincerely held religious beliefs.” Trump has already stated his support for the First Amendment Defense Act:

If I am elected president and Congress passes the First Amendment Defense Act, I will sign it to protect the deeply held religious beliefs of Catholics and the beliefs of Americans of all faiths…

We got to this precipitous place after a very close election. Paul Campos tells us that the US has recorded the popular vote in 34 US presidential elections (despite having had 57 of them), and Trump received the smallest share of the popular vote of any winning candidate in US presidential election history, if we exclude elections which featured a significant third-party vote.

Jacob Levy points out that Trump eked out victories in Pennsylvania, Michigan and Wisconsin, and therefore the presidency, by a combined 80,000 votes across those three states.

That is a .05% vote margin in a 137 million vote election.

This is why vast numbers of people head into the holidays scared for their families and future.

So you need an Xmas soother. It’s not bad enough to be late in buying presents for people who you know will be disappointed when they open them. Now you gotta deal with Team Trump, and all of the winning we will see in the next four years.

Here are the Piano Guys with O come, O come, Emmanuel. It was filmed at the Church of Jesus Christ of Latter-day Saints Jerusalem Movie Set in Goshen Utah:

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

Capitalism Is Past Its Sell-By Date

“This is a government of the people, by the people, and for the people no longer. It is a government of corporations, by corporations, and for corporations…” – Rutherford B. Hayes (March, 1888)

Nearly 130 years ago at the height of the Gilded Age, President Hayes had it right. Capitalism then was an economic free-for-all. Today, capitalism again is rewarding too few people. And data show that the problem is worse than we thought. The WSJ reported on a study by economists from Stanford, Harvard and the University of California that found:

Barely half of 30-year-olds earn more than their parents did at a similar age, a research team found, an enormous decline from the early 1970s when the incomes of nearly all offspring outpaced their parents.

Using tax and census data, they identified the income of 30-year-olds starting in 1970, and compared it with the earnings of their parents when they were about the same age. In 1970, 92% of American 30-year-olds earned more than their parents did at a similar age. By 2014, that number fell to 51%. Here is a chart showing the results:

wsj-30-year-olds-make-less

And we know that real median household income in the US today is basically the same as in 1989. The paper doesn’t provide specific reasons for the decline in incomes for younger Americans, but it generally blames slower economic growth and, especially, the rapidly widening income gap between the top 20% and the rest of society.

They found that the inability of children to out-earn their parents is greatest in the Midwest. This underlines that those who voted for Trump have a point: The Midwest has been hit harder by import competition, especially from Japan and China, and by technological changes, than other regions of the US.

When looking only at males nationally, the decline is even starker: In 2014, only 41% of 30-year-old men earned more than their fathers at a similar age.

There are some issues with the study worth mentioning: Most kids born in the 1940s did well in their thirties, maybe because their parents were 30 during the Depression and WWII. By the 1960s, an industrialized economy brought significantly higher wages to 30 year olds. A high denominator in the ratio of parent’s income to child’s income (compared to the past) made it more difficult for succeeding generations to exceed their parents’ incomes.

The economy also has shifted in the past 30 years and is now service-based, as factories moved overseas, and automation became prevalent. This change swapped higher wage manufacturing jobs for mostly lower wage service jobs. That alone could make it all but impossible for young adults to hit the ratios that their parents did relative to their grandparents.

Maybe the American Dream didn’t die; it just never really existed in the sense of broadly-based income mobility. Have another look at the chart, upward mobility (as measured by making more than your parents) has been declining since the mid-1940s.

Why? Between rising globalization and rapid advances in automation, we now have more people than jobs. And no matter whom we elect, this trend will continue. Those manufacturing jobs are never coming back. Even in China, robots are now displacing workers in factories.

We don’t need “good paying manufacturing jobs”; we need good paying jobs.

This is the most serious challenge capitalism has faced in the US. Without improving personal income, there will be fewer who can afford college, or afford to buy the things that capitalism produces. Low personal income growth puts sand in the gears of our economy.

The left offers a critique of contemporary global capitalism but no real practical alternative. Neither does the right, but their memes of America First, nostalgia for a golden (gilded?) age, and more tax cuts seem like less of a stretch than a Bernie Sanders-like frontal assault on capitalism.

No one in either party has a plan for a world in which robots displace the demand for labor on a large scale. And the under-30 cohort is now spending at least 4 times more (in the case of Wrongo’s university, 10 times) for a college education than what their parents paid, and they are earning less.

If people matter at all to our leaders, and if 90+% of them lack the means to live without working, America must make employment our top priority, despite the fact that many have been deemed redundant by capitalists in the private sector.

Surplus labor drives the price of labor down; allowing the employer class to afford a pool boy, or a nanny, or another cook.

And it makes the waiters more attentive to Mr. Trump.

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.

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.

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. Paying your taxes is extremely important and new rules will mean a new way of getting this done, so before you worry, take a look at a tax planning Winnipeg lawyer or one in your state to discuss on how you can plan out your taxes better and keep up to date with any changes.

Sunday Cartoon Blogging – August 14, 2016

Apparently, President Obama makes a playlist every year for his summer fun time on Martha’s Vineyard. Playlists by politicians are common, and usually are big nothingburgers. Obama has a “Day” playlist and a “Night” list. This year, The Atlantic approves of Mr. Obama’s night playlist, and thinks the day list is a snooze. Guess critics gotta criticize.

Make up your own mind: here is the Obama “Night” playlist.

It was a big week in manufactured news. Trump dominates, but Politico speaks about the Trump campaign thusly: (emphasis by the Wrongologist)

What’s bothering people on the [Trump] campaign is that they feel like they’re doing all the right things, but they’re losing every news cycle to Hillary and there’s nothing they can do about it.

It’s doubtful that Clinton has won a news cycle since the convention, but what the Trump campaign is trying to say is that Clinton doesn’t need to win a news cycle as long as Trump “misspeaks” every day. From Karoli Kuns at C&L: (brackets by the Wrongologist)

I think that’s precious, don’t you? Considering that Trump dominates the news for every cycle with his intentional demonization of President Barack Obama and [his] opponent, Hillary Clinton, it’s hard to imagine Republicans wringing their tiny little hands over losing news cycles to her.

Ok, the GOP should keep explaining Trump’s gaffes until America is tired of all the winning.

On to cartoons. Simone Biles gave us a feel-good moment:

COW Americas Great Again

This is the one Burka that Trump likes:

COW Tax Returns

With all of the “resets” and “mansplaining”, the GOP could lose its balance:

COW Balance Beam

This is as understandable as any other explanation by Monsieur big mouth:

COW Trump Backs Up

Trump’s new tax policy is same old, same old. It’s a reconstitution of the standard Republican trickle-down economics that benefits big corporations and a wealthy few:

COW Trump Tax Plan

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.

The Pant Suit vs. The Pant Load – Budget Edition

Now that both presidential conventions are history, the real discussion about the merits of the candidates and their programs begins. The first question to answer is: What are the costs of the promises made to America by Donald Trump and Hillary Clinton?

Both candidates have made political promises that, if implemented, have both costs and benefits to the nation. While the analysis of benefits may be difficult to assess, the costs are not.

The Committee for a Responsible Budget (CRB) has issued a report, “Promises and Price Tags: A Fiscal Guide to the 2016 Election” that estimates how our national debt would rise under the programs of both presidential aspirants. It shows that gross debt held by the public would rise from about $19 trillion today to $23.9 trillion by 2026 under Hillary Clinton’s plan and to $35.2 trillion under Donald Trump’s plan.

They based the estimates on the public positions taken by each campaign as of June 24, 2016. They also generated a low, central, and high cost estimate of the fiscal implications of Trump’s and Clinton’s proposals.

We need to stop and say that our gross debt will rise no matter who is elected, since under existing law, gross debt is projected to rise from about $19 trillion today to about $29.1 trillion by 2026, about a 50% increase. With that in mind, here is CRB’s summary of the impacts of both candidate’s plans on the national debt:

Debt Under Candidates Proposals

Donald Trump has expressed concern about the dangers of our current $19 trillion debt. Yet his plan would increase that number significantly. Under CRB’s central estimate of Trump’s plan, gross debt would more than double from $19 trillion today to $39.5 trillion by 2026.

The increase in gross debt under Clinton’s plan would be smaller but still significant. Under the central estimate of Clinton’s plan, gross debt would rise by more than 50%, from $19 trillion today to $29.6 trillion by 2026, in line with the current law. So, her promise to pay for new spending seems to be true.

Digging a little deeper, here is CRB’s breakdown of both candidates’ plans by revenue, costs and spending. Most of Hillary Clinton’s increased costs come from spending in non-health, non-retirement programs:

She would spend $350 billion more on college education, $300 billion more on infrastructure, another $300 billion on paid family leave, and nearly $500 billion on a variety of other initiatives.
Clinton would also make several health-related changes that would cost about $150 billion.
To offset these costs, Clinton proposes a variety of tax increases – mostly on higher earners and businesses – totaling $1.25 trillion.

The largest share of Trump’s deficit impact comes from his proposed individual and business tax reforms, which would reduce revenue by about $9.25 trillion:

His plan to reform the veteran’s affairs system and increase veterans’ access to private doctors would cost about $500 billion.
And his plans to repeal and replace the Affordable Care Act and reduce illegal immigration would cost about $50 billion each.

So, what happens to the total amount of our national debt?

Donald Trump wants to dramatically reduce taxes for most Americans while maintaining spending relatively near its current levels. As a result, under CRB’s central estimate, he would add $11.5 trillion to the debt through 2026.

Hillary Clinton wants to increase both spending and taxes, adding about $250 billion to the debt over 10 years under CRB’s central estimate. Under their low cost estimate, Clinton’s plan would reduce 10-year deficits by $150 billion.

Increases in debt are not always a bad thing, particularly in times of economic slack, if the debt accumulation is driven by stimulative fiscal policy. But a 40 percentage point of debt to GDP increase, from 87% of GDP to 127% of GDP, seems unlikely to give us a positive outcome.

But, if we elect The Pant Load, that’s what we will get. Trump said to the WaPo in May:

I am the king of debt. I do love debt. I love debt. I love playing with it.

This should worry you. Trump went on to say:

Look, I have borrowed, knowing that you can pay back with discounts. And I have done very well…I would borrow, knowing that if the economy crashed, you could make a deal, and if the economy was good, it was good, so, therefore, you can’t lose.

So, Trump would stiff the nation’s creditors. Haven’t we had enough of Republican mis-leadership on the nation’s finances?

Haven’t we had enough of Republican tax cuts for the most comfortable among us at a cost to the least comfortable among us?

Remember that it was the GOP-led Congress that threatened not to raise the debt ceiling in 2011. That led to the Standard & Poors rating agency’s lowering of the US credit rating.

Think carefully about what Trump’s glib plans imply for America.

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.

Hillary Should Grab Populism and Run With It

The biggest change in our politics in the past 20 years is the rise of populism on the left and right. The populists believe that we are led by a selfish elite that cannot—or will not—deal with the problems of ordinary working people, and there is ample evidence that they are correct.

Trump and Clinton say they will bring back jobs that corporations have shipped offshore. They make China the scapegoat for lost economic opportunity, while the real causes are automation and the triumph of the spreadsheet in corporate strategy.

Those jobs are never coming back, and a candidate who says they can negotiate with foreign governments to bring jobs back demonstrates either their naiveté about the true cause of job loss, or a simple desire to BS the American public.

Voters can see through that.

Economic and cultural insecurity are the bedrock causes for populists. Unemployment and stagnant wages hurts working-class whites, while cultural issues are a top issue for older white Americans. The first group sees their jobs threatened by automation and globalization. They join with older whites in seeing immigrants as scroungers who work for less, grab benefits and if you believe Trump, commit crimes.

Both groups also believe that American society is being undermined by diversity and foreign-born citizens.

This is the battle line of the 2016 presidential election. The mediocre economy that has been with us for nearly 20 years has caused real harm. We remain a wealthy country, but certain groups now see their opportunity slipping away. Slow growth, or no economic growth, means only a few elites will do well, and most voters see the self-serving political class as siding with the elites.

So can a candidate unify an electorate that now plays a zero-sum political game?

The Pant Load has the better position in this game, since he can exploit pre-existing fears that are based in fact.
The Pant Suit must carefully calibrate her message, but she cannot be a “maintain the status-quo” candidate and win.

Clinton would do well to consider what William Berkson said in the WaMo:

If there is one national goal that Americans can agree on, it is opportunity for all.

Berkson makes the point that since President Reagan, Republicans have advocated a simple theory of how to grow the economy: The more you reduce government involvement in the economy and the more efficient markets become, the more the economy grows.

Sorry, but the simplistic theory of free market economics has been drowned in a tsunami of fact in the past 35 years. Berkson says:

Both Democratic administrations since Reagan—that of Bill Clinton and Barack Obama—have raised taxes, and under them, the economy grew more rapidly than under the tax-cutters Reagan and George W. Bush.

This opens a path for the Pant Suit. In order to win, she must assure voters that she will deliver more and better jobs. Family income must go up. But how to achieve this?

By advocating a policy of economic opportunity through public investment in infrastructure. It fulfills the promise of opportunity for all, a populist message that has proven to work throughout America’s past. And it allows Clinton to hammer the GOP Congress and Paul Ryan about the lack of any track record for laissez-faire policies, since they have never worked, not even once, as a miracle cure for jobs and income inequality. This would be an open return to Keynesian economics. Here is Eduardo Porter in the NYT:

The Keynesian era ended when Thatcher and Reagan rode onto the scene with a version of capitalism based on tax cuts, privatization and deregulation that helped revive their engines of growth but led the workers of the world to the deeply frustrating, increasingly unequal economy of today.

And led to the low growth economy that drives today’s populist anger.

How to fund that infrastructure expense? More revenue. For the last 40 years, Democrats have been unwilling to counter the conservative argument that higher taxes are a redistribution of wealth between classes. Clinton should argue that current tax policy is really a transfer of resources from tomorrow’s generation to today’s. This is a strong populist message.

Younger Millennials understand this clearly. They already believe Social Security will not be there when they need it. She can win them over if she makes a case for new jobs and new revenues.

When conservatives say that it is unfair for people in their highest earning years to pay more taxes on that income, Clinton can point out that this is a past-due bill that they need to pay just as their elders paid higher taxes that supported the current earners when they were starting out. It was that investment in public resources such as public education and infrastructure, and in research, technology and industry that enabled today’s peak earners to get where they are.

While the strategy opens Clinton to criticism from Grover Norquist and the right about fiscal irresponsibility, it pits Trump against the Tea Party and the GOP. He would need to choose between being a populist or a doctrinaire fiscal conservative. Either way, it will bleed votes from some part of his base.

The strategy could work in down ballot races as well, particularly in the Rust Belt. Maybe working class conservatives will hear her, and not vote against their economic interests for once.

We’ll see if she will move from status quo, to “let’s go” as a campaign strategy.

The Wrongologist

Geopolitics, Power and Political Economy

Category: Tax Policy