Category: Tax Policy

The New Housing Bubble

The Daily Escape:

Shakers Creek flowing into the Mohawk River, Colonie NY – April 2021 photo by M’ke Helbing.

We’re hearing about bidding wars for single family homes, often with winning bids that are substantially above already high asking prices. In fact, house prices have risen by 11.2% from a year ago, the largest increase since housing bubble #1 in 2006, according to the National Case-Shiller Home Price Index for January.

The Home Price Index measures “house-price inflation” by comparing the sales price of a house in the current month to the price of the same house when it sold previously. It’s tracking the dollars it takes to buy the same house over time.

But house price inflation isn’t part of the Consumer Price Index (CPI). While about one-third of CPI is based on housing costs, it only tracks rents, not home prices. So, you can see what’s going on: Everybody knows that the costs of home ownership are surging, but only a portion are included in our inflation measures, so inflation is being understated.

Let’s look at the NY metro area. It covers NYC and numerous counties in the states of New York, New Jersey, and Connecticut. Here’s the spike in prices over the past six months:

House prices rose 11.2% for the year. There were big differences between price tiers, with low-end house prices surging by 14.9%, while condo prices remained in a tight range for the past three years, and the NYT reports that Manhattan condo developers are selling units at big discounts.

There’s another factor driving prices. The WSJ reports that: (brackets by Wrongo)

“From…individuals [with]a few thousand dollars to pensions and private-equity firms with billions, yield-chasing investors are snapping up single-family houses to rent out or flip. They are competing for houses with ordinary Americans, who are armed with the cheapest mortgage financing ever, and driving up home prices.”

The WSJ quotes John Burns, a real estate consultant: (emphasis by Wrongo)

“You now have permanent capital competing with a young couple trying to buy a house.” Burns estimates that in many of the nation’s top markets, roughly one in every five houses sold is bought by someone who never moves in.”

Houston is a favorite location, with investors accounting for 24% of home purchases. More from Burns: (emphasis by Wrongo)

“Limited housing supply, low rates, a global reach for yield, and what we’re calling the institutionalization of real-estate investors has set the stage for another speculative investor-driven home price bubble…”

This is the second try by institutional investors to play in the single-family home market. Starting in 2011, they bought foreclosed homes at steep discounts, accounting for about a third of sales in some markets and setting a floor for then-falling home prices.

It turned out that renting suburban homes proved very profitable. The pandemic has brought a new race for suburban housing. And the big new-home builders like DR Horton and Lennar Corp, are working directly with institutional investors. They’re building blocks of homes, and selling them to the investors, who rent them out.

Horton built 124 houses in Conroe, Texas, rented them out and then put the whole community up for sale. It was purchased by an online property-investing platform, Fundrise LLC, which manages more than $1 billion on behalf of about 150,000 individuals.

Lennar just announced a rental venture with investment firms including Allianz and Centerbridge Partners to which it will sell more than $4 billion of new houses.

This is late-stage capitalism at work. Young working couples are increasingly shut out of buying homes, and that’s both depressing and disturbing.  America has failed them. It would be helpful for families to buy homes instead of renting, and pricing families out of home ownership carries risks to a cohesive society.

And the Right wonders why young people are turning to socialism. Freezing young people out of the housing market could have disastrous social consequences.

We should have tax policies that disincentivize ownership of multiple single-family homes, especially by investment funds. The way to remedy this is to steer investors to other assets that don’t directly impact individual welfare to the same degree as housing.

Back in the 2006-2009 housing bubble, we had plenty of speculators and an excess of housing inventory. It was so bad that Wrongo’s barber owned nine rental houses in three states before the bust.

This time around, we have very low inventory, the lowest rates ever, and big money chasing yield. Once pension funds are investing in an appreciating asset class, you know the bubble is about to burst

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Biden’s Infrastructure Plan

The Daily Escape:

Crepuscular rays at White Sands NM, NM – photo by dantreks

Biden announced his big infrastructure plan on Wednesday. The American Jobs Plan is a $2+ trillion proposal that is an expansive interpretation of the word “infrastructure.”

Naturally, Republicans are against it. South Dakota Gov. Kristi L. Noem (R) disparaged it on Fox:

“I was shocked by how much doesn’t go into infrastructure…It goes into research and development. It goes into housing and pipes and different initiatives, green energy.”

So, Republicans aren’t sure what “infrastructure” is? Or maybe, they want Biden restricted to being President Pothole? They must know that “pipe” and “green energy” are well within the definition of “infrastructure.”

But they would be against it, no matter how little it contained. Today’s Republican Congress is even worse than it was in 2009. Back then, Obama’s stimulus bill to combat the Great Recession, (like Biden’s stimulus bill after COVID-19), received zero GOP votes in the House. In the Senate, Obama got three more Republican votes than Biden. And in the 2010 midterms, the GOP regained control of both chambers, setting its template for 2022.

Now In 2021, Republicans no longer run on policy. They’re running against a mythic Democratic party bent on imposing socialism, demeaning Christianity, defunding the police, coddling menacing migrants, and supporting angry American minorities.

If you’re a Republican politician, you’re not offering any actual policy. They’re offering to fight Democrats, and that seems to be enough to get reelected. This means that Republicans will filibuster any bill the Democrats can’t pass through reconciliation.

Biden knows that. So, his legislative strategy prioritizes rebuilding American infrastructure, something that has a broad consensus within the electorate. His plan includes a commitment to confronting climate change (and creating jobs) by modernizing the electrical grid, encouraging the development of alternative energy sources, and building charging stations across America.

He plans to combat poverty and buttress the middle class through funding childcare, universal pre-K, and free community college, while extending the child tax credits authorized by his stimulus plan.

Taken together, his American Jobs Plan represents Biden’s belief that the pandemic has changed what is politically possible. He proposed to open the way to expanding government’s role in addressing our economic and societal weaknesses, on a scale of spending we wouldn’t have dreamed possible.

He’s taken the ideas originally outlined in the Green New Deal in 2019 and repackaged them under the more politically popular umbrella of infrastructure, including some of the same goals. Biden’s plan isn’t the Green New Deal in sheep’s clothing, regardless of what Republicans say.

To help cover the costs of his plan, Biden proposes raising taxes on corporations, the affluent, estates, and capital gains, starting with corporate taxes. He’s proposing an accompanying tax plan, the Made in America Tax Plan. If it passes, it will pay for the American Jobs Plan in 15 years, and reduce deficits from then on.

Biden proposes to set the corporate tax rate at 28%, from its current rate of 21%, nowhere near the 35% tax rate before the 2017 tax cuts. He also plans to discourage offshoring of corporations and to get rid of subsidies for fossil fuels. Here’s a chart that gives some historical perspective about Biden’s corporate tax proposal:

It’s clear that despite Republican wailing that the infrastructure plan is a “trojan horse” for raising taxes, the reality is that corporate taxes will still be lower than at any point since the 1940’s.

Even this may be a bridge too far, since the Senate’s most conspicuous swing vote, Sen. Joe Manchin (D-WVA), says that while he favors tax hikes, he insists that infrastructure legislation should be passed with bipartisan support.

This suggests a longish legislative process. As a realist, Biden will be happy to again pass landmark legislation with no Republican support. But first he must get Manchin to labor through the thankless work of establishing that the GOP is unwilling to work toward a meaningful compromise.

OTOH, a new Morning Consult/Politico poll says that by a two-to-one margin voters prefer an infrastructure bill that includes tax hikes to one that does not have those tax hikes. That means the GOP may be in trouble if it castigates Biden and Democrats if they pass his plan.

Despite Wrongo’s early misgivings, Biden is the reset button that America desperately needed. He was outwardly moderate but has moved to embrace more progressive positions.

But we shouldn’t underestimate the damage Republicans can do with their singular focus on power and winning the 2022 mid-terms.

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Monday Wake Up Call – IRS Funding Edition, March 22, 2021

The Daily Escape:

Slot Canyon, Grand Staircase Escalante National Monument, UT – photo by chipotle42

Today we turn our attention to the IRS. David Sirota wrote in the Daily Poster that new IRS figures compiled by Syracuse University show that in the past eight years, there was a 72% drop in the number of IRS audits of people making more than $1 million.

Last year, 98% of individuals making more than $1 million didn’t face an audit. At a time when Americans face growing economic inequality, the IRS is letting billions of dollars in tax revenue slip through its fingers because budget and staffing cuts have left the agency incapable of effectively auditing the 637,212 millionaires now living in the US. It’s worth noting that the number of American millionaires has increased by 88% since 2012.

What’s more, the IRS audit focus has shifted from the wealthy to the poor. A large group of progressive organizations sent a letter to the Biden administration saying: (emphasis by Wrongo)

“Since 2011, audit rates for millionaires, who are disproportionately white, have dropped more than twice as much as for taxpayers claiming the (Earned Income Tax Credit), who are disproportionately people of color. Audit coverage is now the heaviest in many low-income majority-Black counties.”

A recent Treasury Department report concluded that at the IRS:

“…high-income taxpayers are generally not a collection priority, nor is there a strategy in place to address nonpayment by high-income taxpayers.”

As evidence, the report showed that the agency failed to recover more than 60% of the $4 billion in back taxes owed by those making more than $1.5 million.

At the same time, overall enforcement has been hobbled by draconian budget reductions that have resulted in 43% fewer IRS revenue agents and 26% percent fewer IRS criminal investigators in the last decade:

There’s also been a 51% drop in the number of audits of America’s largest corporations. Sirota says that in 2012, almost all of our corporate behemoths were audited. However, in 2020, only about 38% were audited.

There are two separate problems here. First, the IRS budget has been cut dramatically by Republicans. Between 2010 and 2018, the IRS’s budget was slashed by more than 20%, and its enforcement budget has been cut by 24%, according to the Center on Budget and Policy Priorities, leading to the substantial reduction in IRS agents shown above.

A July 2020 report from the Congressional Budget Office found that increasing funding for IRS enforcement by $40 billion would boost revenues by more than $100 billion over the next decade. From Sirota:

“To that end, Reps. Ro Khanna (D-CA) and Peter DeFazio (D-OR) — both Congressional Progressive Caucus members — have recently introduced separate bills that would boost the IRS’s enforcement budget and audit rates.”

Khanna’s legislation would increase IRS enforcement funding by $70 billion and require the agency to audit 95% of large corporations, 50% of individuals reporting more than $10 million of annual income, and 20% of individuals reporting more than $1 million of income. Sounds about right.

IRS referrals for criminal prosecution and Justice Department tax convictions have both hit an all-time low. The US is estimated to be losing roughly $600 billion/year in revenue from unpaid taxes, while wealthy taxpayers are evading or avoiding paying their fair share. Better enforcement will produce revenue and bring renewed respect for our legal system.

We must have more tax revenue, and while Rep. Khanna’s bill would go a long way toward making things right, we also must raise our corporate tax rates, and the IRS must reassess its audit priorities.

We can’t be auditing more poor people than millionaires.

Wake up America! It’s time to stop our largest corporations and our wealthiest individuals from skating out on their tax responsibilities. To help you wake up, listen to the Tedeschi Trucks Band performing  “The Sky is Crying” at the Royal Albert Hall. Performing at the Royal Albert seems to bring the best out of American groups. Here’s another great example:

Some prefer the Stevie Ray Vaughn version, but this is at least as good.

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Monday Wake Up Call – Infrastructure Edition, March 15, 2021

The Daily Escape:

Ruby Beach Overlook, Olympic NP, WA – 2021 photo by Erwin Buske

Back in pre-history or as Wrongo likes to call it, 2004, John Edwards said that there were two Americas. He was talking about social stratification and its pernicious impact on social cohesion in America.

Biden and Congress have just passed the American Recovery Plan into law. It provides a temporary assistance to many Americans, particularly for those in the two Americas who are struggling in our economy. As Wrongo said yesterday, although total wages are now at the level they were before the Covid recession, almost 10 million fewer Americans are working! If we are to be a healthy society, these people need jobs.

Listening to Republicans, there’s no money left in the piggy bank to fund the rest of what America needs to do. They say our debt is too high, and that it would be a terrible mistake to raise taxes on corporations or the wealthy to fund our needs.

Yet, something must be done about the disaster that is America’s infrastructure. Biden has said that improving and modernizing our infrastructure is a high priority for his administration. He campaigned on a $2 trillion infrastructure plan to create a:

“modern, sustainable infrastructure and an equitable clean energy future.”

But there is a huge chasm between where we are and where we need to go. From the WaPo: (parenthesis by Wrongo)

“America can put a rover on Mars, but it can’t keep the lights on and water running in the city that birthed the modern space program (Houston). It can develop vaccines….to combat a world-altering illness but suffers one of the developed world’s highest death rates due to lack of prevention and care.”

America’s recent historic breakthroughs in science, medicine and technology coexist alongside monumental failures of infrastructure, public health, and education. More from the WaPo: (emphasis by Wrongo)

“The disparities reflect a multitude of factors…but primarily stem from a few big ones: Compared with other well-to-do nations, the US has tended to prioritize private wealth over public resources, individualism over equity and the shiny new thing over the dull but necessary task of maintaining its infrastructure, much of which is fast becoming a 20th century relic.”

One of our two Americas pays a heavier price for our politicians’ unwillingness to build new infrastructure. Yet politicians kick the can down the road, since higher taxes to fix things is rarely a winning political strategy.

From highways to airports, from internet access to schools, to the electric grid, our infrastructure isn’t distributed equally. Even in richer zip codes, infrastructure quality is uneven. The myth that America treats everyone equally regardless of race, color, or creed is as decrepit as our bridges and highways.

Americans used to be proud of their infrastructure. But since Reagan, Republicans have believed that government spending is a problem. Loving new roads, bridges and tunnels changed to outright suspicion when austerity became the Republican religion.

They are always willing to cut taxes by $trillions to further enrich wealthy people. But they scoff at building a high-speed rail network, a high-speed internet network, or an integrated electric grid. If you’ve ever traveled through a Chinese airport, or traveled by rail in Europe, you have experienced awesome infrastructure projects, things that are normal in most developed nations.

Yet in America, we’re far behind, mostly because Republicans put growing personal wealth ahead of supporting the public good. Much of this hurts the bottom half of the US population more than the top half. It hurts rural America more than urban and suburban America. Most suburbs are as modern and safe as any major city in Europe or Asia. Their public schools are modern and largely well-equipped.

None of these are true in rural or inner-city America.

The time has come to address infrastructure. At least some of it must be paid for by new taxes, even if that means zero Republican political support.

Time to wake up America! We can do better for both Americas by investing in education, infrastructure, and people. And we can give some of those 10 million long-term unemployed workers a new opportunity to succeed in a growing US economy.

To help you wake up, let’s go back to the 1980s, and listen to the Eurythmics do a live version of “Would I Lie to You”. High energy and lots of fun:

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New Relief Bill Rewards Businesses

The Daily Escape:

Hayden Valley, Yellowstone NP – December 2020 photo by Jack Bell

Politico reports that Congressional leaders are nearing a deal on Covid relief. The deal could be done by the time you read this.

The relief package is divided into two parts. The first bill, with a stated cost of $748 billion, funds the Paycheck Protection Program (PPP), along with $300 per week for unemployment benefits.

The second bill ties liability protections for companies demanded by Republicans to the Democrats’ demand for funding for state and local governments.

The big-ticket items in the first bill include one-time stimulus checks to individuals in the $600 to $700 range, an extension of federal unemployment benefits with an additional weekly amount of $300. There is $325 billion for small businesses, $257 billion for the PPP, some $ billions for vaccines, and to help schools open safely.

Delayed until the New Year is bill two, including money for state and local governments faced with laying off municipal workers, and liability protection for companies that put their employees in danger from the virus through inadequate safety measures. The items in the second bill are what have stalled negotiations for weeks.

Lee Fang of the Intercept reports that the draft of the first bill circulating on Capitol Hill contains several adjustments to the PPP, the centerpiece of the government’s earlier efforts to curb job loss stemming from the pandemic. One of the revisions is a radical change that would result in a major windfall for the highest-income Americans and large corporations. That provision allows businesses claiming expenses reimbursed by PPP forgivable loans, (already tax-free), to also be used as deductions when calculating taxable income.

In other words, the change would allow a corporation that claimed $1 million in PPP reimbursements to also deduct the same $1 million on its tax return, thereby reducing their taxable income by $1 million. Until now, IRS rules prohibited tax-free government grants and reimbursements from being used as deductions. The Intercept quotes Steven Rosenthal from the Tax Policy Center, who estimates that this PPP deduction provision could reduce the taxes of the highest-income taxpayers by at least $100 billion without benefiting workers or the unemployed.

This tax deduction provision technically applies to all PPP recipients, but few will be able to take the additional tax benefit. Wealthy business owners and large corporations claim the lion’s share of business expense deductions. This group would include wealthy doctors and financial consultants, and those who make over $1 million in yearly income.

This tax provision has been pushed by Rep Richard Neal, (D-MA), and Sen Chuck Grassley, (R-IA). There has been little pushback to these tax giveaways, reflecting a general consensus in Congress around the value of more business tax cuts. Lawmakers, including Senate Majority Leader Mitch McConnell, (R-KY), have described the PPP extension and expansion as an “uncontroversial” aspect of stimulus talks.

This should be pretty simple. If you get a PPP loan, and it is later forgiven, the expenses paid with the loan proceeds shouldn’t be deductible. The company didn’t pay taxes on the PPP loan cash proceeds and thus shouldn’t receive a deduction against taxable income for the expenses paid. That’s double-dipping.

The big idea behind PPP loan forgiveness was to help businesses retain employees and pay certain qualified expenses like rent and utilities, not to enrich employers.

Also buried in the bill is another bailout for US Airlines. They stand to get another $17 billion taxpayer-funded bailout if the first bill becomes law. From Wolf Richter:

“Democrats and Republicans may not agree on much of anything these days, but they both love to bail out airline shareholders and bondholders. And that’s what this is – dressed up as payroll protection and airline support program.”

The new airline bailout comes on top of what they received in the original stimulus bill: $25 billion in payroll support, an additional $25 billion in loans for passenger airlines, and over $10 billion in grants and loans for cargo airlines and aviation contractors.

Let’s remember that the top four airlines have burned their cash by repurchasing $45 billion of their shares since 2012. They don’t need more of our money, Chapter 11 bankruptcy works. Delta, American and United have previously restructured in bankruptcy court, and it worked fine. They know how to do that.

And let’s tell it like it is: If there wasn’t a majority of Republicans in the Senate, the people would get the checks and the unemployment relief they really need.

Win in Georgia!

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Can America Avoid Becoming a Failed State?

The Daily Escape:

Fall sunset, Shenandoah NP, VA – photo by juliend73

Sorry, but this column is going to be a downer.

We’ve been talking for the past few days about how hard it is to get politicians to focus on fixing what’s wrong in America. Wrongo originally started down this path in 2009. His plan was to lay out the problems, and to suggest ways in which America might fix them.

But 11 years later, little of what has been suggested here has occurred. Explaining what’s wrong has made very little difference.

Our really big problems now seem to be locked in: Climate change will happen. We can’t (or won’t) deal with the burgeoning disinformation platforms that threaten civil society. It’s difficult to see what will change our growing income inequality. As always, politicians are itching for a fight with some country. Today, the villain is China. Globalization has won, our supply chains now hold us hostage, and our economic future is increasingly controlled by Asia.

America is fast becoming a failed state: Our president tells people to drink bleach. There are more than 100,000 dead in the pandemic, and a significant percentage of them probably were needless deaths.

We have the ability to deal with the crises,but we’re choosing not to. Trump and McConnell, along with Biden, Pelosi and Schumer, all have access to the same, or more likely better information than we do.

They are choosing to ignore that the country is going to hell. Instead, they use each individual crisis for their own political benefit, and for their patrons’ financial benefit. They choose to ignore the near-certainty of a second wave of infections in the fall of 2020, bringing with it the possibility of a second economic collapse, along with more deaths.

We no longer provide the basics for our citizens. We live in a nation where income, savings, happiness, trust in government, and social cohesion are all in free-fall.

This is a recipe for social collapse.

In America most infrastructure is decrepit, from airports, to schools, to roads, because there hasn’t been much public investment. That’s because Americans don’t want to pay higher taxes like the Europeans do. Politicians on both sides still believe the evidence-free ideology of neoliberalism: We’ll all be rich if we invest in nothing, and wait for Mr. Market to correctly allocate resources.

No one cares about anyone else. Nobody will support any group’s pursuit of any goal unless it is also their goal. American life is becoming purely individualistic, adversarial, and acquisitive.

We haven’t invested in the systems that provide healthcare, education, retirement, and childcare. As a result, the average American family now goes without many of these things, since they’re priced out unless they have high paying jobs.

We pay absurd prices for health care. Having a child? That’ll be $50K. An operation? It will cost about what you would pay for a starter home. If she didn’t have health insurance, Wrongo’s daughter’s medication would cost $10,250/month. These basics of life are affordable in the rest of the rich world, but in America, they cost more than the average person can pay.

The average American now dies with $62k in debt. Life has become a sequence of unrepayable loans. Student debt becomes credit card debt and a mortgage, which leads to medical debt. These forms of debt define life in America. The average American is now a poor person, in the sense that they barely make enough to pay for the basics of life. Today, 80% of Americans live paycheck to paycheck, struggle to pay their basic bills, and 63% can’t raise $500 for an emergency.

These are the statistics of a nation that is descending into poverty.

Can it be fixed? Sure, but who’s going to pay for it? If taxes can’t be raised, if deficits can’t grow, what will happen? Nothing.

Except that we will move closer to a collapse. Our leaders say it’s because there isn’t an alternative. They say that we don’t have the money to pay for the changes we want. 70% of Americans say they want decent healthcare, retirement, and education, but they never vote for it.

Not even when it is offered during the primaries.

And it’s never offered in the general election, because nobody will vote for higher taxes to fund a functioning society. The idea simply isn’t acceptable to either of our political parties.

Wrongo’s decade of writing about what’s wrong hasn’t changed anything. Change requires a commitment to taking political risks, and massive voter turnout.

Otherwise, same old, same old is the path to our society’s destruction.

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Monday Wake Up Call – May 18, 2020

The Daily Escape:

Colorado River, from South Kaibab trail, Grand Canyon NP, AZ  – photo by DJ Memering. The bridge is called the Black Suspension Bridge. It is 5,260 ft below the canyon rim.

The CARES Act was sold as emergency funding for individuals and small businesses. In all, Congress has authorized $3.3 trillion in coronavirus relief in four separate acts over the last two months. The stated intent of those bills was to protect the American economy from long-term harm caused by the overall impact of the virus.

Alas, Congress also took care of their true constituents, Big Oil and other fossil fuel companies. Those companies got CARES Act tax breaks. The subsidies were supposed to help bail out small businesses pounded by the pandemic, but at least $1.9 billion of it was sent to fossil fuel companies and their executives.

Bloomberg News reports:

“$1.9 billion in CARES Act tax benefits are being claimed by at least 37 oil companies, service firms, and contractors”

Bloomberg used the example of Diamond Offshore Drilling Inc. who manipulated the bailout: (emphasis by Wrongo)

“As it headed toward bankruptcy, Diamond Offshore Drilling Inc. took advantage of a little-noticed provision in the stimulus bill Congress passed in March to get a $9.7 million tax refund. Then, it asked a bankruptcy judge to authorize the same amount as bonuses to nine executives.”

But, Diamond’s refund wasn’t all. Some went to their larger competitors. More from Bloomberg:

“…$55 million for Denver-based Antero Midstream Corp., $41.2 million for supplier Oil States International Inc. and $96 million for Oklahoma-based producer Devon Energy Corp.”

In addition, Kevin Crowley reports that Marathon Oil got $411m, Occidental $195m, and Valero $110m.

Hats off to all of our Senators, Congresscritters and the Trump administration! They all continue pursuing a pro-fossil fuel agenda, even as the economic disaster of the pandemic unfolds. Bernie Sanders tweeted:

“Good thing President Trump is looking out for the real victims of the coronavirus: fossil fuel executives,”

But, Bernie apparently voted for the bill, which passed the Senate in a unanimous vote. Hypocrisy much, Bernie?

These loopholes in the Act were deliberately written in so that corporations could feed at the trough along with small businesses, and we the people. Moreover, the initial bill was written in the House, although presumably in consultation with Trump and the Republicans. So, you can view this as either the cost of doing business for Democrats, or as just another day at the office listening to the lobbyists. Subsidy legislation has been a bipartisan objective.

Its always been this way. Here’s a cartoon from 1920 that could be drawn today:

Let’s remember that a big issue was the requirement for oversight, particularly after Trump said he wasn’t interested in having any. A compromise was struck so that an oversight commission could be empaneled to keep track of how the money was spent.

Today, it remains without a leader. Four of the five members of the Congressional Oversight Commission have been appointed, but Speaker Nancy Pelosi, (D-CA) and Senate Majority Leader Mitch McConnell, (R-KY) have not agreed on a chair.

While the current members of the panel can perform some oversight, without a leader, it can’t hire staff or set up office space. In addition, the four members have not met as a group since the economic rescue law was passed. The PBS NewsHour quotes John Coates, a professor of law and economics at Harvard Law School:

“If the commission is not functioning — which it is not — then there is no oversight on a huge part of the economic rescue law…”

We seem to be able to bail out the rich every few decades, and we always seem to do it on the backs of the poor. It will probably happen again in another 10 years or so. Between these bailouts, politicians and pundits appear on all of the news shows, and write very serious articles proclaiming the need to resist socialism and to preserve “the free market” for the sake of “wealth creation and innovation”.

Time to wake up America! This great con has been going on for all of Wrongo’s lifetime and by looking at the cartoon above, for a few lifetimes before. Yet voters seem to be oblivious to this insidious form of corruption each and every time they go to the polls.

To help America wake up, let’s listen to Drive by Truckers, and their tune “Armageddon’s Back in Town” from their 2020 album, “The Unraveling”

Sample Lyric:

There’ll be no healing
From the art of double-dealing
Armageddon’s back in town again

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

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Tax Revenue Has Never Been More Important

The Daily Escape:

Harris & Ewing “Less taxes, more jobs”, US Chamber of Commerce campaign in 1939. Photo via Shorpy. Maybe the sign should have said “lower taxes”. It was the first of 25,000 such signs put up all over the nation as part of a drive for a reduction in corporate taxes. And it worked. An alliance between the Chamber, Henry Morgenthau, Treasury Secretary, and Sen. Pat Harrison, (D-MS) conservative chair of the Senate Finance Committee, prevailed over the New Dealers. He blocked further tax hikes, and helped to create new corporate tax loopholes. Roosevelt went along, expecting that business would support him. The following year, the Chamber simply demanded more tax breaks, while backing Wendell Willkie. It’s all so familiar. Trickle down is an old idea, and everything old is new again!

 Here’s an interesting chart from End Coronavirus.org showing the progress of states toward beating the current COVID-19 pandemic. The numbers are through May 5. Those in green are winning the fight, those in yellow are nearly there, and the red ones still need more action:

There are four states in the green: Alaska, Hawaii, Montana and Vermont. Ten are nearly there, including Maine, Louisiana, New York and South Dakota. The remaining 37 still need work, some more than others. And many of the “needs more work” states are exiting their lockdowns this week.

So it goes in America. States and cities are going broke, primarily because of the sharp drop in tax revenues since the shutdown. They all face increased costs, from unemployment claims to spending on additional hospital capacity, and overspending on new purchases of PPE because of federal government inaction.

New York City says it will need $7.4 billion in federal aid, while NY state faces a $13 billion shortfall; Alaska’s budget gap might top $1 billion; Colorado’s at $3 billion. California? Its shortfall may be $54 billion. Red ink will be true for nearly every state, county, city, town and village in the country. States can’t deficit spend. They and their local governments must balance their budgets somehow, with some combination of federal aid, budget cuts, or tax increases.

In addition, the WSJ reports that some manufacturers that furloughed employees during lockdowns say their plants definitely won’t reopen.  Manufacturing output last year finally surpassed the 2007 previous peak, but factory employment has not returned to levels reached before the great financial crisis. It appears that in 2020, it will again fall below 2007 levels. And the more that job losses turn from temporary to permanent, the bigger the hit to unemployment insurance, to consumer spending, and to every company that relies on it—including manufacturers.

Wrongo spoke by phone with the mayor of his little town this morning. We are still not sure how we will balance the town’s 2020-2021 budget. In most years, the budget has been approved by the voters in May, but that will not happen this spring. The consequence is that, regardless of how the budget gets balanced, the town’s recovery will likely take several years.

So, states and cities think they have little choice but to reopen. They need the tax revenue, while they face even higher costs if they start an aggressive test and trace program. And they can’t expect the federal government to fund that new testing and tracing.

So most states are moving toward opening, regardless of whether they are red, or blue.

But, states may not all be EQUALLY reckless in what they choose to open, some are planning a phased reopen, followed by a re-evaluation before moving forward to the next step. Some are opening up just about as fast as they closed businesses six – eight weeks ago.

We are living in a federal system with a broken central government. The federal government has handled the pandemic badly, and shows no interest in trying to do better now. Even a robust federalism will fail if there is no federal financial help for the states.

It is a hell of thing to be shown clearly and in no uncertain terms that your federal government doesn’t give a shit if your citizens live or die.

Or if your state suffers a debilitating blow to its finances and future.

Wrongo can’t be sure, but this is probably how black people have felt forever. Now it applies to the rest of us.

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Monday Wake Up Call – April 6, 2020

The Daily Escape:

Texas bluebonnets, Round Rock, TX – 2018 photo by dried_fruit

Here are the latest national numbers (which will be out of date by the time you read them). From The COVID Tracking Project: (as of 4/4)

  • Number of daily cases: 305,755, up 33,767 or +12.4% vs. April 3
  • Rate of case increase: 12.4% vs. 13.75% on 4/3 and 15% average for the past week
  • Number of deaths: Total 8,314, up 1,352 vs. April 3
  • Rate of deaths increase 4/4 vs 4/3: 19.4% % vs. 20.4% on 4/3
  • Daily number of tests 4/4 vs. 4/3: 1,623,807, up 226,945 over 4/3
  • Rate of increase in tests: +16.2% vs. previous day

The rates of growth in cases and deaths have begun to slow. In the past week, they are in a decelerating trend, declining by about 1%/day. Testing is growing, which is a very good thing.

Just when you think you can’t get any more cynical about America’s response to the pandemic, we tumble to the fact that about a third of hospital emergency rooms are now staffed by doctors on the payrolls of two physician staffing companies, TeamHealth and Envision Health. They are owned by two Wall Street private equity firms. Envision Healthcare employs 69,000 healthcare workers nationwide while TeamHealth employs 20,000. Private equity firm Blackstone Group owns TeamHealth; Kravis Kohlberg Roberts (KKR) owns Envision. Private equity is the term for a large unregulated pool of money run by financiers who use that money to invest in, lend to, and/or buy companies and restructure them.

Wrongo began hearing that despite the urgent pleas from hospitals on the front lines of the COVOID-19 outbreak, nurses and doctors were being taken off schedules in nearby places once “elective” procedures were suspended, as they are at many hospitals and clinics. That means the associated revenues were lost, or at the very least, postponed.

Here’s a report from Yahoo Finance:

“KKR & Co.-backed Envision, which carries over $7 billion of debt amassed through one of the biggest leveraged buyouts in recent years, reported steep drops at its care facilities. In just two weeks, it suffered declines of 65% to 75% in business at its 168 open ambulatory surgical centers, compared to the same period last year, the company said in a private report to investors. About 90 centers are closed.”

Private equity has taken over more and more of hospital staffing, including emergency departments. The legal fig leaf that allows private equity firms like Blackstone and KKR to play doctor is that their deals are structured so that an individual MD or group of MDs is the nominal owner of the specialty practice, even though the business is stripped of its assets. The practices’ operating contracts are widely believed to strip the MDs of any say in management.

Care of the sick is not the mission of these companies; their mission is to make profits for the private equity firms and its investors. In 2018, Paladin Healthcare, an entity owned by private equity baron Joel Freedman, bought Philadelphia’s Hahnemann University Hospital. This hospital served the poor, and Freedman closed it down so he could use the land to build luxury apartments.

When the city recently asked to use the empty hospital as part of its solution for the Coronavirus pandemic, Freedman demanded $1M/month in rent. Overcharging patients and insurance companies for providing urgent and desperately needed emergency medical care is bad enough. But holding a city hostage?

In another example, STAT reports on another private equity firm: (emphasis by Wrongo)

“Alteon Health, which employs about 1,700 emergency medicine doctors and other physicians who staff hospital emergency rooms across the country, announced it would suspend paid time off, matching contributions to employees’ 401(K) retirement accounts, and discretionary bonuses in response to the pandemic…The company also said it would reduce some clinicians’ hours to the minimum required to maintain health insurance coverage, and that it would convert some salaried employees to hourly status for “maximum staffing flexibility.”

NY’s Governor Cuomo and others are pleading to have doctors come out of retirement, and here we have skilled doctors who have the training and are being asked to work fewer hours? All of the Republican talk about “choice” and “markets” in healthcare is just self-serving BS that benefits their buddies.

Time to wake up America!

Why do private equity firms continue to benefit from the “carried interest” tax loophole? Shouldn’t they shoulder their part of the financial grief the pandemic is causing to our country?

To help you wake up, here is John Lennon’s 1970 song, “Isolation”. It appeared on John Lennon/Plastic Ono Band. It has a whole new meaning in today’s context:

Sample Lyric:

We’re afraid of everyone,

Afraid of the sun.

Isolation

The sun will never disappear,

But the world may not have many years.

Isolation.

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

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We’re In Uncharted Territory

The Daily Escape:

Sunset, Factory Butte, UT – photo by goat_chop56

Blog reader David K. emailed:

“Now, what do we common folk do?  Start our “victory gardens” and shelter in place?  Volunteer to help our local farmers raise food? Hoard?  Wish I had a great idea, because I agree that our leaders don’t have a clue how to respond.”

That gave Wrongo pause. What do those of us who aren’t part of the “smart money” crowd supposed to do, particularly if what we’re facing is a worldwide depression? John Pavlovitz frames the existential issues quite clearly:

What happens if the stores run out of essentials for good?
What if you run out of money to stockpile them?
What if your neighbors stop sharing with you?
What if the government won’t help you?
What might you do then?

Politicians say we’re at war, but as Kunstler says: “At least in wartime, the bars stay open. That’s how you know this is a different thing altogether from whatever else you’ve seen in your lifetime.”

We’re attacked by a novel virus that’s created a completely novel social and economic situation. By definition, we aren’t prepared for an abrupt crash of both our social fabric, and our economic well-being.

Our politicians have no answers, despite most of them having been around for the 2007-2008 Great Recession. The Fed hasn’t done us any favors since then, either.

Last Saturday, Wrongo said that we’re crossing a threshold between what we know and an unseen future. Our traditional systems are no longer capable of keeping society and the economy on an even keel. Nobody really knows how deep and how harsh this will get, but the situation presents two questions:

  • How much disorder will we have to endure?
  • What does the world look like when this thing is over?

All this is happening in an election year, when the entire government and the political parties’ power structures are vulnerable, and could change. We are facing a new reality, for which no one has any answers.

Politics being what it is, the White House and the Congress are trying to work together to come up with solutions. On Monday, Trump gave another press conference on COVID-19. During his talk, the stock market dropped nearly 3,000 points. It was the market’s worst day since Black Monday in 1987.

The smart money was behind Trump in order to get its corporate tax cuts, but now, they’ve voted with their money. And Trump’s starting to look a little bit like Herbert Hoover.

Sen. Mitt Romney (R-UT) floated Democrat Andrew Yang’s idea of giving every American $1,000. He was joined in principle by Sen. Tom Cotton (R-AK). We’ll see if this is just more Republican grandstanding, or if they actually back a real plan of support for working people.

With Trump, you can expect to see bailouts for several industries, including banks, airlines, casinos and cruise lines. Imagine: Casinos are asking for help from the guy who only knows how to bankrupt casinos.

Reuters reports that the US airline industry said that it needs $50 billion in grants and loans to survive the dramatic falloff in travel demand from the COVID-19 outbreak. This is just more socialism for America’s corporations.

Two thoughts: First, $50 billion is higher than the book value of all the airlines combined. Why should they have any of our money? Either Republicans are for free market capitalism, or they should just shut up. Most of these airlines have implemented stock buyback programs when they should have been building contingency funds instead.

Second, this $50 billion should be added to whatever Congress spends on small businesses that are forced to close due to quarantine, or on parents forced to stay home to take care of kids who aren’t going to school anymore. They’re the ones who are really hurting.

We’ve lived through a time of unprecedented affluence. We’ve told ourselves we deserved it all, that we were entitled to all that our country has provided.

But that’s most likely over, and it might not return in Wrongo’s lifetime.

We have to think about what must change if we are to have a functioning society and economy in the decades to come.

The list of all the things that we need to change is far too long to enumerate here. At a minimum, we need to reform capitalism, make health insurance universal and strengthen worker’s rights.

We have to do a better job of sharing the wealth. It we don’t do that voluntarily, our children’s children’s generation will come and fight us for what we have.

To protect our families and their future, we need to become even more active politically in order to make these and other changes happen.

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