Category: Tax Policy

Saturday Soother – March 11, 2023

The Daily Escape:

Sunset, Santa Elena Canyon, Big Bend NP, TX – March 2023 photo by Rick A. Ludwig. Cliff on left is in Mexico, the one on the right is in US. The Rio Grande is in the middle.

Signs that we’re starting to think about the 2024 election are everywhere. Wrongo wants to connect a few dots regarding Biden’s recent efforts to move the Democratic Party more to the middle on crime and immigration while staying left on financing the country’s social and military needs.

Biden proposed a budget to reduce the deficit, protect Medicare and Social Security, and raise taxes on wealthy individuals and corporations. From the NYT:

“In a speech in Philadelphia on Thursday, Mr. Biden said that his budget was designed to ‘lift the burden on hard working Americans’ and drew sharp contrasts with the proposals that Republicans have offered, which the president argued would threaten the nation’s social safety net programs and benefit the rich.”

This contrasts with Biden’s right-leaning position on the recent DC crime bill. Since DC is controlled by the Congress, it’s legislation can be vetoed by the US Senate. Also from the NYT:

“The Senate…voted overwhelmingly to block a new District of Columbia criminal code that reduces mandatory minimum sentences for some violent offenses, with Democrats bowing to Republican pressure to take a hard line on crime in a move that underscored the rising political potency of the issue ahead of the 2024 elections.”

By an 81-to-14 vote, with 31 Democrats voting with the Republicans, the Senate passed the Republican-written measure to undo the District’s law. It now goes to Biden, who after initially opposing it abruptly changed course and said he would sign it.

So, Biden’s tacking left on spending but to the center-right on crime. He’s making a series of calculated moves to position his Party to compete successfully in 2024. Still, it’s disappointing that Biden and 31 Democrats joined with the Right to deny DC residents the right to govern their own city.

But this shouldn’t be surprising. Last year, Biden and the Democrats turned their backs on labor during their contract battle with the railroads.

Here’s Nick Catoggio in the Dispatch: (Brackets by Wrongo)

“[Biden has]…begun to tiptoe toward the center lately on another major Democratic liability, immigration…..Centrist analysts…have warned Biden and his Party that their political viability depends on escaping the…“cultural bubble” in which an unsecured border is treated as a civic good.”

And last week Biden changed his immigration policy. He’s requiring asylum seekers to seek refuge in nations they pass through rather than waiting to do so in the US.

These new policies bring Biden closer to public opinion. Among Democrats, a plurality want to see the number of asylum applicants increased rather than reduced. Among the overall public, it’s the opposite. Biden is tilting toward the latter.

Biden wants to be seen as strong on crime. Democrats walk a fine line of being against crime but not wanting to wholly support the police. Doing that would risk looking anti-Black in cities that are so important to their political success. Dems support compassionate justice and not retributive justice, so they get tied up in knots when violent crime increases, which is rising in America. The problem of course is that the descriptor “violent” isn’t consistently applied.

Biden’s idea is to try to win more votes from people who are not fanatic MAGA types. That means picking off White suburban voters, Asian voters and Hispanic and Black voters, all of whom are concerned about crime.

Tom Sullivan points out that while the moderate-to-conservative White population is in slow decline, their votes remain significant, and that Democrats shouldn’t ignore them over the next two years:

“Sadly, Democrats often do. Campaigning in concentrated urban areas that tend to vote your way is simply easier and more cost-effective. What it means for largely rural states like North Carolina is that while it remains possible to elect a Democrat like Roy Cooper as governor, Democrats’ urban focus bequeaths him a Republican-dominated legislature…”

Sullivan says the Democrats need to start acting like the big-tent party that they used to be.

And that’s what Biden is attempting to do.

Time to say “enough” to war-gaming the 2024 election. It’s time for our Saturday Soother. The daffodils have sprung through the snow, a sure sign of spring. We turn back the clocks tomorrow night, another win for those who hate dark days.

So, it’s time to take a few minutes to center yourself. Start by sitting in a comfy chair and watch and listen to Lili Boulanger’s “D’un matin de Printemps” (On a spring morning). She wrote this piece in 1917 when she was 23. Boulanger battled bronchial pneumonia throughout her short life, dying a year later at age 24. Here, it is played by the Seattle Symphony conducted by Cristian Măcelaru.

Listen and think about her writing this during the darkest days of her life:

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What’s The GOP Plan For Negotiating On The Debt Limit?

The Daily Escape:

Dream Lake, Estes Park CO – January 2023 photo by Rick Berk Photography

(Wrongo and Ms. Right send healing thoughts to friend and blog reader Gloria R.)

We’re all aware that House Republicans are refusing to lift the debt ceiling unless Biden gives them well, something? And Republicans still haven’t decided what they want. The GOP also wants a balanced budget, but they can’t say what should go, or what should stay.

From the WaPo: (Brackets by Wrongo)

“They [GOP] say they want to reduce deficits — but meanwhile have ruled out virtually every path for doing so (cuts to defense, cuts to entitlements, wiping out nondefense discretionary spending, or raising taxes).”

The fact that Republicans are up in the air about what to do highlights the likely Democratic strategy is against their threats about the debt ceiling. Again, from the WaPo:

“Sensing Republicans are on the verge of a blunder in their schemes to use the debt ceiling to hold the economy hostage and try to extract draconian spending cuts, the White House has developed a two-part response strategy.

Part 1: Lay out the simple argument that Republicans are recklessly inviting an economic meltdown even by talking about a possible default.

Part 2: Force House Republicans to put forward a plan on the table and watch as they struggle with the fallout.”

The Democrats along with Senate Minority Leader McConnell (R-KY) are daring Republicans to put forward a plan. Senate Majority Leader Schumer (D-NY) said:

“If House Republicans are serious about taking the debt limit hostage in exchange for spending cuts, the new rules that they adopted require them to bring a proposal to the floor of the House and show the American people precisely what kind of cuts they want to make….”

Everyone who follows politics knows that Republicans never take much interest in fiscal sobriety when their Party is in control. They agreed to raise the debt limit three times while Trump was in power.

It seems that Republicans are doing the Democrats’ job for them. They are asking for an economic catastrophe and seeking draconian cuts that their base doesn’t want.

Consider the Republican desire to reduce our deficits. They have pledged to balance the budget (that is, to have a zero annual budget deficit) within 10 years. But they haven’t laid out any plausible mathematical path for getting there. And of the current debt ceiling, 90% of it was committed before Biden took his job.

Some Republican House members want to cut military spending, an idea that both Speaker Kevin McCarthy (R-CA) and Rep. Jim Jordan (R-OH) are on board with. But others, including House Appropriations Chair Kay Granger (R-TX), have said defense spending cuts aren’t on the table. Rep. Michael Waltz (R-FL) said:

“We’ve got to get spending under control, but we are not going to do it on the backs of our troops and our military,”

Waltz thinks Republicans should focus on “entitlements programs,” such as mandatory spending programs like Social Security, Medicare, and Medicaid. But the bi-partisan popularity of these programs makes them hard to cut.

And last Sunday, Rep. Nancy Mace (R-SC) was asked to name one thing she was willing to suggest as a spending cut. She instead stated things she wouldn’t put on the table:

“Well, obviously no cuts to Medicare or Medicaid or Social Security….That’s a nonstarter for either side.”

Wrongo has repeatedly suggested tax increases which would help lower deficits, but Republicans have ruled that out.

Instead they’ve changed the House rules so tax cuts will be much easier to pass, and tax increases harder to pass. The House’s rules package now says that any increase in taxes would require a three-fifths vote (60%) rather than a simple majority as previously.

They’ve also proposed doing away with income taxes, payroll taxes, estate taxes and even the IRS itself in favor of a supersized sales tax that would provide most revenue to the government. Republicans would substitute a 30% sales tax on all purchases and in exchange, do away with income, Social Security and Medicare taxes.

That means workers would keep the gross amount of their paychecks. But it also means that buying everything from groceries to automobiles would be hugely more expensive. It also provides a big tax cut for the wealthy and businesses.

The result is a smaller tax burden for the highest earners and a bigger one for people in the middle.

Once you reject trimming entitlements or defense spending and bake in the cost of the GOP’s proposed tax cuts, you’re left with an additional $20 trillion hole in the Federal budget over the next decade.

OTOH, the White House is expected to release its detailed budget in early March. It will build on budgets it has released previously. Republicans want Biden to negotiate on what to do about money we’ve already spent.

Try doing that with YOUR creditors.

 

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Monday Wake Up Call – January 23, 2023

The Daily Escape:

Near Government Camp, OR – January 2023 photo by Mitch Schreiber Photography

Everyone is talking about the national debt and/or about increasing the nation’s debt limit. Congress should increase the debt limit because it’s the right thing to do. But there are many in the “very serious” media who are concerned that the Fed can’t continue to hike interest rates to 5.0% or higher because the government can’t afford to pay such high interest rates on our gargantuan debt.

Some pundits are pushing the idea that the Fed must cut interest rates or else. Or else what? The US government won’t go broke, regardless of how high interest rates rise.

While it’s true that the government’s cost of borrowing rises when interest rates rise, what these pundits are missing is that US tax receipts (which are used to pay that interest expense) have also spiked. They’re also missing the fact that interest expense as a percent of tax receipts was at a historic low in Q1 2022. And while it has moved up, it remains quite close to historic lows. Interest expense as a percent of tax receipts is one primary measure of whether the government can afford the interest expense or not. Wolf Richter of Wolf Street provides us with a chart:

As you can see, while the percentage of interest/tax receipts has “spiked” in 2022, it was at a historic low in 2021. And compare that to when the ratio hovered around 50% in the 1980s and early 1990s. In Q3 2022, it was 22.9%, still very near a historical low.

One reason for this was that inflation helped to increase tax receipts thereby lowering the government’s burden for paying interest on our existing debt.

Between the Trump and Biden administrations, the government’s debt spiked by 34%, or by $8 trillion, in the past three years. That additional debt quickly added a lot of interest expense for the government, as we see with the spike above on the chart in 2022.

As older Treasury securities mature, and assuming the national debt doesn’t go down, they are replaced by new Treasury securities with today’s higher interest rates, and the higher interest costs of those new securities are starting to show up in the government’s interest expense. Richter says that total interest expense in Q3 2022 spiked by 24% from a year ago and by 43% from two years ago. This spike in interest expense looks like this:

And this scary chart is what the GOP will be presenting as their reason to cut the debt. When you omit the spike in tax receipts and the historically low level of interest expense as a percent of tax receipts, as we saw in the first chart, you’re not presenting the whole picture.

Another way to look at the situation is Government interest payments as percent of nominal GDP. This is a classic measure of the cost of government debt compared to the overall economy. Richter offers us another chart:

As you can see, by this measure, interest on our national debt remains lower than it was at any time between 1977 and 2003. And it has remained in a narrow band from 2004 to today.

Without question, we should reduce our national debt. But unless and until interest expense on our debt returns to the level of 50% of tax receipts as it was in the 1980s, we shouldn’t expect much to change in Washington. If it starts to get near those highs, maybe we’ll see action by Congress to increase revenues and reduce spending. And despite all the GOP’s screaming, the Federal Reserve is doing the right thing: Hiking interest rates to stem inflation.

Time to wake up, Congress! The Fed is trying to gently nudge you into thinking that the country needs to raise revenues while also cutting expense. You need to consider the revenue side of the equation more seriously, if for no other reason than what will happen to our currently high tax receipts whenever the coming recession strikes.

To help you wake up, listen to the late David Crosby’s song “Laughing” from his first solo album, 1971’s “If Only I Could Remember My Name. Crosby wrote it for the former Beatle George Harrison, who never used it, so Crosby used it instead:

Several legendary musicians appeared on this recording, including Graham Nash and Joni Mitchell on background vocals; Jerry Garcia on pedal steel guitar, and Bill Kreutzmann on drums. Garcia is magical.

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Sunday Cartoon Blogging – January 22, 2023

There’s a difference between America’s national debt and our debt limit. Without question, our national debt must be reduced. That can happen only two ways, or by a combination of the two. We can increase taxes, or reduce future spending, or do both.

The debt limit is how much in total the US government can borrow. It uses borrowing (issuing treasury notes and bonds) to meet obligations for previously contracted goods and services. This is what must be increased as soon as possible by both Houses of Congress.

But Republicans say they won’t agree to increase the debt limit without action to reduce the national debt. The national debt is the accumulation of all the annual deficits (and any surplus – thanks, Bill Clinton!) that various administrations have racked up. It currently sits at $31.4 trillion.

The four Republican presidents from Reagan to Trump are responsible for more than half of that debt; they added $17.46 trillion to it by running whopping deficits each year. Trump was responsible for nearly half of that, $8.2 trillion, in just four years. About $3.9 trillion was pandemic relief and $2 trillion was the big tax cut he gave to the wealthy.

Republicans can’t explain why they voted to increase the debt ceiling every year of Trump’s administration. Even as he was racking up trillions of dollars of debt by increasing the annual budget deficit from the $665 billion he inherited from Obama, to a whopping $2.1 trillion deficit in just four years  ̶   the highest in US history.

But in the past two years, Biden has cut that $2.1 trillion deficit by 33%, to $1.4 trillion. That isn’t stopping the GOP from screaming that spending has to be curbed because there’s a Democrat in the White House. On to cartoons.

A high-stakes game of chicken:

Their plan is to never have a plan:

Alec Baldwin’s on line one Mr. Speaker:

Truth is always in the eye of the beholder:

Floods in California have people looking for new places to stay:

David Crosby would be spinning in his grave:

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Releasing Trump’s Taxes

The Daily Escape:

Surfing Santa via Pinterest

After more than 3½ years of pursuit, Rep. Richie Neal (D-MA), Chair of the House Ways and Means Committee finally was given access to Donald Trump’s tax returns. Trump had refused to provide them and sued to prevent the IRS from giving them to Congress.

But after a federal district court waited 2 ½ years before opining and a subsequently, a federal appeals court ruled in favor of the Committee, the Supreme Court declined to block the release of the returns to the panel last month. The Committee debated over whether to release Trump’s returns to the public and decided by a Party-line vote to do so.

The NYT tells us about the big takeaway from the release:

“The Internal Revenue Service failed to audit former President Donald J. Trump during his first two years in office despite a program that makes the auditing of sitting presidents mandatory, a House committee revealed on Tuesday after an extraordinary vote to make public six years of his tax returns.”

It’s called the Mandatory Presidential Audit Program, but the IRS never even got around to looking at Trump’s. It was only after the Committee asked about Trump’s returns in 2019 that the IRS finally opened an investigation of Trump’s 2016 returns, even though it had been tasked by that time with auditing him from 2015 through 2018.

That he wasn’t audited is strange, to put it mildly. Getting his returns has validated the Committee’s stated premise for opening the case. The Committee is now recommending that the Mandatory Audit Program, which has been in place since the Carter administration, be codified into law.

While not auditing the president, the IRS was quite busy auditing the returns of the FBI’s James Comey and Andrew McCabe, two enemies of Trump instead.

The Republican objection to releasing Trump’s returns was based on the idea that even public servants have a right to privacy about their financial matters. Wrongo has some sympathy for that, but the tax returns of all top government officials should be made public by law.

Rep. Kevin Brady (R-TX) warned that releasing Trump’s tax returns could lead to the release of tax returns of Supreme Court Justices:

Are you trying to hurt the Democrats, Kevin? Shouldn’t we routinely audit every senior government employee? Shouldn’t those audits be public? And especially the Supreme Court Justices, for whom ethics seem to be optional.

There’s also the threat that Republicans who will control of the House in January, will release the tax returns of Democrats. Wrongo thinks they should release any elected official’s return. After all, a government employee is paid by your taxes, so you have some right to transparency.

The difference is that Trump refused to release his, while most politicians release theirs after they are nominated for office.

For those Democrats who are now saying that it was a mistake to release them because of the Republicans’ possible retaliation, the last 30 years have been about Republicans going after Democrats with investigations and inventing scandals out of thin air for partisan political reasons. They will continue to do this irrespective of whether Trump’s tax returns were released.

Some media are reporting that Republicans are saying:

“….the Democrats don’t want to go down the road of releasing tax returns because where will it stop? with releasing tax returns of ordinary citizens?”

This is hyperbole. The media should ask Republicans who say this:

“Why are you so concerned about the House releasing the tax returns of ordinary citizens? Your Party will control the House. Are you concerned that your fellow Republicans would release tax returns of ordinary citizens?”

Next thing you know they’ll be asking for official college transcripts! Or, certified birth certificates. Oh, wait, they’ve already done that.

Because the Committee released Trump’s tax returns, we now know is that the IRS did not even begin its mandatory audits of Trump’s taxes until 2019 and hasn’t completed any of them.

Let’s close today with a tune for Hanukkah which this year is at almost the same time as the Christmas holidays. Let’s watch and listen to the Maccabeats perform “Latke Recipe” to the tune “Shut Up And Dance” originally performed by Walk the Moon. It’s fun, and who doesn’t like latkes?:

 

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Monday Wake Up Call – November 14, 2022

The Daily Escape:

Bison at Grand Teton NP, WY – October 2022 photo by Kerry Key

As we peel the onion of the midterms we learned something from Massachusetts that’s worth thinking about:

“Massachusetts voters approved an amendment to the state constitution that will increase taxes on those earning more than $1 million a year…. The state’s constitution currently requires all income be taxed at uniform rates. The $1 million threshold will be adjusted each year to reflect cost-of-living increases.”

Fifty-two percent of voters approved the amendment which will add a 4% tax on annual incomes above $1 million, on top of the state’s current 5% flat income tax. It takes effect in 2023, and will fund public education, roads, bridges, and public transportation.

It’s expected the new tax will affect roughly 0.6% of Massachusetts households, according to an analysis from Tufts University. The new tax also applies to “one-time millionaires,” including people who make more than $1 million in taxable income from selling their homes or businesses. It’s estimated to bring in roughly $1.3 billion in revenue during fiscal 2023, according to Tufts.

Supporters applauded the new tax as a necessary step to address MA’s income inequality gap. The Economic Policy Institute ranks Massachusetts as the sixth-worst state in the country when it comes to income inequality.

It is true that the US is one of the most economically unequal nations in the developed world. Most of the income and wealth gains of the last decade have gone to the richest 0.1%—households with annual incomes of $2.4 million and wealth of at least $32 million.

So it isn’t surprising that a similar idea has floated around DC for some time. In October 2021, Biden introduced a “millionaire’s surtax,” bill that would raise taxes on all forms of income, including wages, capital gains, and dividends. It would have imposed a 5% tax on incomes above $10 million and an 8% tax on incomes above $25 million, raising $230 billion over 10 years from the wealthiest 0.02% of Americans.

Naturally, it didn’t pass.

So the effort moved to the states, with success in 2022 Massachusetts and failure in California, where its millionaire’s surtax was defeated, 59%-41%.

In some ways, the millionaire tax debate is emblematic of the nation’s deep political divide. Republicans everywhere only want to see taxes go down, and Democrats are seeking to raise them to fund long term problems like battling climate change and adding better infrastructure.

The GOP asks: If climate change is an existential issue affecting us all, does it make sense to address the issue by taxing only a handful of households? Your answer may be different from Wrongo’s who sees the question as a way to deflect the discussion into an endless loop of “whataboutism” regarding who pays taxes.

Republicans have refused to support carbon use taxes. They’ve refused to support cap-and-trade carbon taxes. Most of them deny that climate change is happening and refuse to pro-actively plan to moderate greenhouse gas emissions, here or anywhere else. So they aren’t engaging in a serious discussion when they ask the question.

Although efforts to raise taxes on millionaires have stalled in Washington, they haven’t gone away. That will happen if Republicans control the House in January 2023.

Time to wake up America! Deficits can grow to the sky at the national level but states have to balance their budgets yearly. That’s why some states are making the choice to raise taxes on millionaires, the very people who have gained the most in the past 50 years. Raising taxes is a must in most states for the remainder of this decade.

To help you wake up, watch, and listen to Molly Tuttle channel Grace Slick while covering the Jefferson Airplane’s “White Rabbit“. Tuttle was just named the International Bluegrass Music Association’s Guitar Player of the Year, so you’re seeing “White Rabbit” done as bluegrass, performed in October 2022 in Portland, ME:

Tuttle is an amazing performer. You can learn more about her here.

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An Economic Closing Argument for Democrats

The Daily Escape:

Snake River, Grand Teton NP, WY – October 2022 photo by Hilary Bralove

Yesterday, Wrongo said that the Dems should add a focus on inflation and the economy to their closing argument when asking voters to keep them in power. Here’s a suggestion of what that argument might look like from David Doney (@David_Charts on Twitter). Doney draws his stats from the Federal Reserve Economic Data (known as FRED) and the Congressional Budget Office (CBO). Below is an extract from his Twitter feed:

Jobs: More Americans are working than at any time in history: 153 million. The economy now has 500k more jobs than it did before the pandemic. The unemployment rate is 3.5%, the lowest since 1969. With more people working there’s more spending.

Wealth: The bottom half of US households have an average real net worth of $67,200, the highest ever. Under Trump, it was just $34,648. (While Trump gave tax cuts to the wealthy. Biden gave them to the middle and lower class.) Even those in the 50th to 90th percentile are doing better under Biden: average real net worth is now $747,010 vs. $699,530 under Trump. It’s important to remember that these are averages not median net worth numbers, which are lower. Median net worth in the US is $121,700, up 17.6 % from 2016.

Income: Real wages are higher than before the pandemic. Despite what some pundits say, they have outpaced inflation. From February 2020 to last month, wages for production and non-supervisory workers have risen 15.6%, while the Consumer Price Index (CPI) has risen 14.6%. So Americans’ purchasing power is greater today than it was in 2019.

The deficit: Our annual federal budget deficit is 50% lower than it was last year. It was $2.8 trillion in fiscal year 2021 and is $1.4 trillion this year, according to CBO estimates. Government income is up and government spending is down: Revenues are $850 billion (or 21%) higher and spending is $548 billion (or 8%) lower.

This continues the historical pattern of Democratic administrations being more fiscally responsible than Republicans. Yet the GOP’s closing argument includes screaming about Democratic spending which they say caused inflation. They are trying to convince Americans who either don’t read or bother to check facts that it’s the Democrats who spend like crazy. The opposite is true.

The economy: The Gross Domestic Product (GDP) hit an all-time high of $20 trillion in the fourth quarter of 2021, and currently is $19.9 trillion (for the second quarter of this year). The Atlanta Fed thinks GDP will grow 2.8% in the third quarter. So no recession just yet. In fact, Doney reports that the six key indicators that the National Bureau of Economic Research (NBER) uses to decide if we’re in a recession  were all up from June to September.

Health insurance: Biden revived the Obamacare signup campaigns and advertising that Trump had eliminated. And now 92% of Americans (and more than 98% of kids) have health insurance, an all-time high. Before Obamacare, close to 18% of Americans had no health insurance.

There’s no doubt that many Americans are worried about the high prices at the grocery store and at the gas pump. But one reason inflation has increased is because people have more money in their pockets. Americans have $4 trillion more in their bank accounts than they did before the pandemic. So they’re working, earning money, and spending it.

The other factor driving inflation is the consolidation of companies into just a handful of major corporations, and the ability of those corporations to jack up prices. Corporate profits are at a 70-year high, yet American corporations are still raising prices. They’re doing so because there’s so little competition.

Republicans in Congress won’t stop corporate price gouging. And we know the GOP will blame Dems for high federal spending (which, as said above, is down 8% so far vs. last year). But the GOP won’t let the facts get in the way of their bad policies. They’ll use this manufactured crisis, along with refusing to raise the debt ceiling, to try to force Democrats to support cuts to Social Security, Medicare, and other social safety net programs.

As blog reader T. Grosso commented yesterday: (Brackets by Wrongo)

“It is such a good question to ask what the Republicans will do if they gain control. We obviously know the answer. They will block anything and everything that might help people so they can blame Biden for [it in] 2024.”

The Democrats’ closing argument needs to include a strong, populist message. They should be saying that Democrats believe people must come before profits. Dan Pfeiffer reports:

“The folks at Data for Progress tested a series of messages on inflation and found that emphasizing corporate greed was an effective pushback on concerns about inflation.”

OTOH, the inflation and economic message must be carefully crafted. It could backfire with some who have missed the current jobs market and are struggling to pay their bills.

Democrats should acknowledge the pain caused by high prices while pointing out that a strong economy and the Party’s fiscal responsibility are helping many people cope with higher prices today and will help to reduce inflation in the near future.

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Sunday Cartoon Blogging – September 25, 2022

Liz Truss’s big bet since taking over as UK prime minister is to lower taxes just like St. Ronnie and Trump did in the US. Said Truss:

“Lower taxes lead to economic growth, there is no doubt in my mind about that,”

Trickle down will work this time, we promise, say UK Conservatives.

The tax reductions will require the UK government to borrow bigly to balance their budget. They hope that there will be so much growth that the UK will make it all back in future tax payments. Just like in the US, the lie is that these tax cuts will pay for themselves! Something that has never happened.

The UK Treasury said that the top personal rate will be cut from 45% to 40%. That will be more beneficial for the wealthy than the majority of British society. Shortly after the cuts were announced on Friday, the pound sank almost 2.6% to its lowest level against the US dollar since 1985. Wrongo hates to quote Larry Summers, but he said this:

“The UK is behaving a bit like an emerging market turning itself into a submerging market…it is pursuing the worst macroeconomic policies of any major country in a long time.”

Bloomberg’s Mark Gongloff tweeted:

“Liz Truss just announced the UK’s biggest giveaway to the rich since 1972, which resulted in an IMF bailout. Now the pound is crashing in the middle of the worst inflation since the 70s. Bold strategy….Let’s see if it pays off.”

It’s hard to believe this will go well with the UK already in a recession. On to cartoons.

Russian men are facing tough choices:

Ukrainian ballot:

Reserves get their orders:

Trump’s building something new in NY:

He says witch hunt a LOT:

The coming election may surprise some people:

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Monday Wake Up Call – September 12, 2022

The Daily Escape:

Harvest Moon, Cape Cod National Seashore, MA – September photo by Tom Baratz

With all of the media’s coverage of the comings and goings of the British monarchy, Wrongo’s certain that you missed the reviews of a new book, “Slouching Towards Utopia” by Brad DeLong, an economist from UC Berkeley. Dylan Matthews in Vox quotes DeLong from the book:

“The 140 years from 1870 to 2010 of the long twentieth century were, I strongly believe, the most consequential years of all humanity’s centuries.”

Matthews thinks it’s a bold claim. After all, homo sapiens has been around for at least 300,000 years; DeLong’s “long twentieth century” represents 0.05% of that history.

But DeLong says an incredible thing happened during that sliver of time that had eluded our species for the other 99.95% of our history: Before 1870, technological progress was glacial, but after 1870 it accelerated dramatically. More from Vox:

“DeLong reports that in 1870, an average unskilled male worker living in London could afford 5,000 calories for himself and his family on his daily wages. That was more than the 3,000 calories he could’ve afforded in 1600, a 66% increase….But by 2010, the same worker could afford 2.4 million calories a day, a nearly five hundred fold increase.”

DeLong is speaking of the nations of the rich north, not about all nations. He’s saying that food surplus was the key driver of progress. What’s implied is that the greatest difference between the wealthy and everyone else was that the poor were living on the verge of starvation. Those basic economic facts shifted once having enough to eat ceased being society’s most critical status distinction.

Another interesting statistic from the book:

“…the average number of years of a woman’s life spent either pregnant or breastfeeding…has gone down dramatically, from 20 years of a typical woman’s life in 1870 to four years today.”

Most historians present modern history as a long 19th century (from the French revolution in 1789) to the crisis of 1914. Which is then followed by a shorter 20th century ending with the fall of communism. DeLong, by contrast, argues that the period from 1870 to 2010 is best seen as a coherent whole: the first era, he argues, in which historical developments were overwhelmingly driven by economics.

From the Economist:

“…despite the Industrial Revolution…for millennia, technological improvements never yielded enough new production to outrun population growth. Incomes had stuck close to subsistence levels. Yet from around 1870, growth found a new gear, and incomes in leading economies rose to unprecedented levels, then kept climbing.”

DeLong says that economic policy in this period was a duel between the ideas of Friedrich von Hayek, who extolled the power of the free market, and Karl Polanyi, who warned that the market should serve man, not man serving the market.

Before WWI, markets generated rapid growth along with soaring inequality. People pushed back, demanding greater political rights, which they used to pursue regulation of the economy and improved social insurance.

After WWII, a mix of a market economy and a generous safety-net made for a happy marriage of Hayek and Polanyi, improved by Keynes, who said that governments should act to prevent economic recessions. This led to a three-decade post-war period of growth unmatched before or since. DeLong calls them the Thirty Glorious Years; from 1945 to 1975, as the US and Europe recovered from World War II.

But when growth sagged and inflation rose in the 1970s, voters supported politicians promising market-friendly, or “neoliberal”, economic growth reforms, like lower taxes and reduced regulation. But those reforms didn’t keep economic growth high. And they also led to even worse inequality. Still, the US and other rich countries pressed on with them, right up to the 2008 global financial crisis, which marks the end of DeLong’s 20th century.

According to a paper by Carter C. Price and Kathryn Edwards of the RAND Corporation, had the more equitable income distribution that America experienced in those thirty glorious years stayed constant, the aggregate annual income of Americans earning below the 90th percentile would have been $2.5 trillion higher in just the year 2018. That’s an amount equal to nearly 12% of GDP.

Price and Edwards say that the cumulative inequality cost for our 40-year experiment in government-supported income inequality added up to $47 trillion from 1975 through 2018. And probably equaled $50 trillion by 2020.

That’s $50 trillion that would have made the vast majority of Americans far more healthy, resilient, and financially secure.

So, the big unanswered question is: Can we again return to a period where we see both economic growth and equitable growth? It’s highly doubtful. As DeLong says in Time:

“Our current situation: in the rich countries there is enough by any reasonable standard, and yet we are all unhappy, all earnestly seeking to discover who the enemies are who have somehow stolen our rich birthright and fed us unappetizing lentil stew instead.”

The problem here is that our entire culture, economy and even our civilization is predicated around growth and people haven’t known anything else. Hope you’ve enjoyed the ride.

Time to wake up America! We need to reimagine capitalism, our taxation policies and our welfare scheme if we are to survive. Expect a rough adjustment.  To help you wake up, listen, and watch Bruce Springsteen perform “Darlington County” live in London in 2013:

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Monday Wake Up Call, Recession Edition – August 1, 2022

The Daily Escape:

Monopoly, Revere Beach, MA – From the 2022 Revere Beach International Sand Sculpting Festival. July 24, 2022 photo by Jack Daryl Photography.

From Paul Krugman:

“The US economy is not currently in a recession. No, two quarters of negative growth aren’t, whatever you may have heard, the “official” or “technical” definition of a recession; that determination is made by a committee that has always relied on several indicators, especially job growth.”

Nonetheless, Wrongo predicts that over the next few months, the Big Brain News Pundits will spend mucho time arguing among themselves while we watch, about the meaning of the word “recession“. They will ensure that the word “recession” is said at least once every 30 seconds.

Wrongo brought this up a few weeks ago. Recessions are determined not by pundits but by a committee of economists at the National Bureau of Economics (NBER). The two measures that have had the most weight are real personal income and non-farm payroll employment. So, despite what you’re hearing, it boils down to income and employment. If income and employment turn south, there’s a good chance economic output will be lower. From Robert J. Shapiro:

“Start with employment, which normally contracts in the first two quarters of recessions. Over the first six months of the 1990–91 recession, employment fell by 690,000, or 0.6%. Similarly, over the first two quarters of the recessions of 2001 and 2007–09, employment fell respectively by 761,000 and 426,000 positions, or 0.6% and 0.3%.”

But in the first two quarters of 2022, employment actually grew, increasing by 2,740,000, or 1.8%.

The main factor behind the lower GDP in the second quarter was business inventories. Businesses generally finance increases in their inventories. So as interest rates rose in the second quarter, inventory purchases fell sharply, subtracting 2% from GDP. GDP growth in the second quarter was -0.9%, so inventories accounted for all of the loss of GDP.

Inventories grew. but at a slower pace, bringing about the negative GDP performance. But this change in the rate of growth in inventories is not tied to either employment or to income, so we’re not in a recession, even though GDP fell.

But our bigger economic problem is inflation. Back to Krugman:

“Obviously gasoline prices are down — almost 80 cents a gallon from their mid-June peak. (Remember those scare stories about $6 a gallon by August?)”

We all know that the Big Brain Pundits only really care about how much it costs to fill their gas tanks compared to what it may have cost when some other guy was president. Expect that they will ignore our record low unemployment, and the growth in median wages.

Despite growing slower than inflation, wages are growing at about 5.4% annually. That’s good, although it could be better. Yet, the Big Brains want us all to be worried about the possibility of recession and inflation occurring at the same time. They’re worrying about that old 1970’s bugaboo, stagflation, which is highly unlikely to occur, despite how much Republicans are rooting for it to happen.

If America really wants to stop inflation in its tracks, we know how to nudge prices in the right direction: Implement a windfall profits tax on oil and food companies, whose profits are off the charts, along with their prices. Also, we could pass the corporate minimum income tax that is a part of the proposed Inflation Reduction Act.

How well the Federal Reserve addresses inflation will decide how soon the current economic expansion ends, and a recession begins. Although the economy’s fundamentals are sound, there’s a danger that the Fed’s interest rate hikes may dampen demand and employment too much. That’s a 50/50 call right now.

Time to wake up America! We’re not in a recession, although we may see one in 2023. We don’t have inflation under control yet, although that’s likely to happen within the next year.

To help you wake up, watch and listen to Sir Elton John from his “Farewell Yellow Brick Road” tour. Wrongo and Ms. Right got to see him in Foxborough, MA last Wednesday, courtesy of daughter Kelly and her partner Bob.

It was Wrongo’s second time seeing Sir Elton, the first was at the Budokan in Tokyo in 1974.

Last Wednesday was a great night with an adoring audience for what seems to be near the end of his touring career. Here’s his final encore from last week’s performance, “Goodbye Yellow Brick Road” performed on the night we were there:

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