Taxes Make The World Go Round

Congress and in particular, the Republican majority are in a whirl. With majorities in both houses and a Republican President, the GOP has nothing to show for its hold on the reigns of power. I should be quick to say, nothing yet.

The two signature pieces of legislation Republican leaders boast about have been the “repeal and replace” for Obamacare and the “tax reform” for individual and corporate taxes. For a host of reasons the GOP has not been able to agree upon legislation which would accomplish these goals and have looked impotent in their efforts.

The most obvious reason for the GOP inability has been the absence of a sound logical rationale for either healthcare or tax reform even in the face of overwhelming evidence that the Affordable Care Act (Obamacare) and the current tax code are badly in need of modifications. One wonders why?

Would you believe that Republicans do not really care about either healthcare or about tax reform? True. Despite all the rhetoric and chest thumping, at the end of the day Republicans do not care about healthcare as a right of all Americans nor do they care about a tax code which generates sufficient revenue to cover government expenses. Hmmm.

One wonders how Republicans can justify a reduction in both benefits and the number of Americans covered with healthcare insurance while at the same time, and with a straight face, push for ending the individual mandate and the taxes higher income Americans pay under Obamacare. Republicans promise more healthcare options and lower costs for coverage without telling many Americans that they better hope they never get really sick (need coverage) or have pre-existing conditions.

But make no mistake Republicans do care about reducing taxes, especially on those Americans who are the major funders of their political campaigns. Hmmm.

The current individual tax code offers another insight.

Marginal Tax rate	On Earnings Per Year
10%	$0 – 9325
15%	$9325 – 37950
25%	$37950 – 91900
28%	$91900 – 191650
33%	$191650 – 416700
35%	$416700 – 418400
39.6%	$418400+

While the specifics of the Republican tax reform bill are not fixed, think about the impact of the rumored new rates and brackets. Gone will be the 10% bracket so one would assume that 15% would apply to all income from $0 to $37950. Sounds like a tax increase to me. (In truth, increased standard deductions could make the increase much smaller or even disappear.)

But let’s look at the other end where the top bracket of 39.6% is said to disappear. Someone earning, say $500,000 per year would see an immediate tax reduction $23,000 (4.6% x $500,000). For the average Fortune 500 corporate CEO earning $15,000,000 the savings looks more like $690,000. And you do the math for the billionaire earners.

For 2018 mid-term elections, it should not take a genius to inform American voters what the GOP has done (or tried to do) for the last two years and what lies in store for them in the future.. Most Americans have employer provided (group plan) health insurance or are on Medicare. They are not affected… now.

If the GOP is content to do dirty with some Americans, what makes anyone think that other Americans will soon be at risk?

The prognosis on taxes is just as dangerous. It is possible that the reformed tax code will only slightly hurt the average American (new deductions could offset those eliminated (like State and local taxes or mortgage interest). The baked in tax break for the very wealthy will reduce overall tax revenues which in turn will limit government spending on a variety of programs, and possibly leading to cuts in Medicare, Medicaid, and Social Security.

And, if Republicans do not try to cut enough spending to offset the tax revenue loss, the difference will go on the “credit card”, our Federal Debt.

Hmmm.

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Go Figure

President Trump along with Republican Congressional leaders are getting hot over the prospects of tax reform. The President, in his usual manner, is questioning the manliness of key Republican Senators and asking rhetorically, can Congress finally pass key legislation.

Apparently, President Trump has something in mind and thinks it is Congress’ job to figure out what will satisfy the President, pass the Senate, and meet the smell test of a “huge middle class tax cut”.

Senator Ted Cruz is panting that unless this tax reform passes, the 2018 elections will not go well for incumbents. Other Senators like Lindsey Graham are saying more or less the same message. I wonder why?

Could it be that Republican incumbents are carrying two “bull’s eyes” on their backs?

The first bull’s eye comes from the conservative right who now view anyone who hesitates on proposed legislation as “too” moderate. Without clear and definitive action, moderate Republicans should expect an extremely well financed primary challenge. Hmmm.

The second bull’s eye is probably not as obvious to Republicans. Simply stated, what will happen if these greedy Republicans do pass tax reform?

Will anyone, other than the wealthy and big corporations be better off?

The answer is assuredly the middle class will see nothing despite the President’s promises. And, when nothing appears in middle class pockets, Republicans will urge patience, the roaring economy is coming. And, so is Christmas.

The Republican Party boasts about 30-35% of the electorate. This groups is home to wealthy “dyed in the wool” Republicans who will vote GOP almost every time. It is just a question of how conservative one of this 35% will vote.

Democrats sport a similar 30-35% who will find it difficult to vote Republican ever. Simplifying the tax code and offering a “huge” middle class tax cut will get more than a snap rejection for these Democrats. If Democrats pay attention and do not get lulled into believing the President and thinking Congress has their interest in mind, a tax bill which primarily helps the wealthy and big corporate interests to the exclusion of the middle class, will become obvious.  Consequently the recognition should come back to haunt Republicans.

The middle group (30-40%) who like to call themselves independents will see this issue as well as healthcare more similar to Democrats. Should Republicans pass tax reform, aka tax cuts for the rich and corporations, and leave the middle class out in the cold, independents will help make 2018 and 2020 bleak for the GOP.

The irony is that there is real need for tax reform and the corporate tax codes put US corporations at a disadvantage on a global basis. The current corporate tax code also allows corporations to shield billions of foreign earnings from the the US tax man.  There is a genuine need for tax reform, not tax cuts for the wealthiest Americans.

Regretfully, we are living in a world where “what I mean is not what I say”. Shame, shame, on the GOP.

Beautiful Healthcare

The Tweet-meister has once again promised Americans “beautiful” healthcare, without the “high premiums” some individual insurance seekers are experiencing. What magic does President Trump have in mind? Do you think he will embrace Medicare for all? Do you think he will recommend the US adopt a single payer system like Australia, Canada, or most of Europe?

Unlikely.

To date, the GOP has been serious about controlling cost exposure for those in the single payer market. Shamefully, the Republicans have chosen various forms of “less coverage”, “fewer insured”, and outright mistruths to portray their proposal as providing “beautiful” healthcare coverage. Why?

Opposition towards the Affordable Care Act (Obamacare) has been mainly a partisan political event. Republicans have never been serious about maintaining (or increasing) the basic healthcare insured rolls. Republicans have eyed the single payer (largely individual owner proprietorships) who could be counted upon to vote Republican.  The rest of Americans were far less important.

The GOP has lamented rising rates and declining insurance company participation in certain markets. Behind these crocodile tears, however, has been (you select which one), either (1) a basic ignorance of how any insurance market works, or (2) a cruel belief that those added by Obamacare were mostly lazy Americans unwilling to do what it takes to work hard.

Why would insurance companies keep raising rates in many markets? Does anyone connect that people who were sick and now have insurance might just be using it?

Does anyone think that many who otherwise reneged on paying doctors and hospitals previously (and by the way, those costs were written off by everyone else paying through insurance), and were now enrolled in Obamacare, were not going to use healthcare?

There have been some commonsense proposals, short of single payer, such as putting all single individuals seeking insurance into a group composed of all other single individual Americans (forming groups like employers do). The idea is that insurance companies could then set rates based upon this much large pool.

This approach might stabilize insurance markets but over all there is no way this proposal will lower healthcare spending. People who are sick or have experienced healthcare coverage for the first time with Obamacare will still get sick and will still want to use healthcare services.

The tweet-meistre might do well if he asked questions about how to lower healthcare costs without reducing coverage or those covered.

Such a line of questioning will invariably lead to where costs are generated, namely doctors, hospitals, and drug companies. This healthcare industry is like no other in the modern world and represents 1/6th of the US economy. If in some magical way, President Trump decreed that the US should adopt a healthcare model like Germany or France, where healthcare spending is about 1/2 that of the US (with equal or superior healthcare outcomes), it would require years to transition to that model without bankrupting many doctors, hospitals, and drug companies, not to mention healthcare insurance companies.

All I can say is that after such a transition, healthcare would be “beautiful” for the average American.

Strategic Thinking?

President Trump has signaled that he plans to “decertify” (not recertify in terms of the agreement with Congress) the Iran Nuclear deal. This Presidential act is expected to add this mind boggling foreign policy move to walking away from the Paris Climate Agreement and the abrupt withdrawal from the Trans Pacific Trade Pact. The President seems to be steadily making progress isolating America from the rest of the world.

It might not be difficult to understand why the Iran Nuclear Deal might not seem such a great success. Iran promised to side line its nuclear development activities in return for an end to crippling economic sanctions. Iran, however, did not agree for ever and explicitly did not agree to change its ways beyond the narrow scope of the agreement.

For the John Boltons of this world, this was a weak, maybe useless, agreement.  Israel thought much the same.  Drive for a “better deal” was the conservative mantra.  Hmmm.

The preposterous justification for stretching out Iran negotiations was that their economy was failing and soon there might be a regime change.  What makes anyone think a new Iranian regime would be better than the one that currently exists? Recent history would strongly suggest that Iran would tend towards even greater extremes and regional destabilization. And which Middle East country might lead a better power than Iran? Syria, Iraq, Saudi Arabia Egypt, or Turkey?

Should the US impose economic sanctions and effectively refute the agreement, most foreign policy experts foresee a global realignment with China and Russia supporting Iran.

If the Trump Administration is expecting Europe to stand solidly behind US policy, this may be a short sighted view. From all technical reports, Iran has abided by the terms of the 6 nation agreement. How could Germany, France, or England convince its citizens that reimposing sanctions was now the right thing to do?

Of course being tough on Iran does play well with many Trump supporters and is music to the Bush era chicken hawks. But this does not answer the question, what is or would be President Trump’s strategy?

One could conclude the President could initiate some new round of negotiations where his self proclaimed deal making skills would come out on top. This is not a strategy.  One could also conclude that there might be some other motivation for what appears to be illogical behavior.

For example, President Trump could be so insecure that he will not rest until he has dismantled every policy established during the Obama years. The President may be so blinded that he can not grasp the advice aides are providing unless the advice reinforces his instincts.

One could also conclude that the President seeks an isolationist USA, separated from other world alliance by self inflicted decisions.  President Trump could see such a situation as producing a ripe set of financial opportunities for the Trump brand.

With no permanent alliances where there were implied mutual behaviors placed upon the US and the other country, the Trump enterprises (and its supporters) could forge all sorts of “one off” deals around the world without fear of breaking some treaty or international understanding. Hmmm.

President Trump is our President thanks to an open election. Although the outcome was close, as Americans we are expected to abide by the results. The implication here is that the President is free to disengage from, refute, or even form, new bilateral arrangements which may not be good for most Americans. Elections have consequences.

There is a picture emerging around the Trump Presidency. President Trump is combining the worst elements of the Republican Party (petty and selfish interests) with his own turmoil loving tendencies to turn the US into a country others do not understand and certainly do not trust. Previous Administrations gave far more attention to both domestic and foreign events, especially as they related to the overall strength of the US economy.

Today, the stock market is at all time highs. The President may think that this is the vote of confidence and high Dow Jones averages protects him from any unanticipated blow back from his policies. Think again Mr President. If big money, pension funds, and hedge fund managers. lose confidence when the market crashes, the Trump Presidency will be a lame duck if it even last to 2020.

Whether it be unpaid tax reform, cheapened healthcare, or discrimination under the name “religious beliefs”, history will quickly show how devastatingly poor the Trump Administrations choices have been.

And then someone will again ask, what was the President’s strategies? What was he thinking?  Did it consider the average American, or just himself?

Hand In The Cookie (Tax) Jar?

This past weekend, Republican talking heads shared with Americans their absolute guarantee that Republicans would work “hard” trying to deliver middle class tax cuts. Americans found out that not every tax return was the same and so officials such as Steven Mnuchen, Treasury Secretary, and Gary Cohn, Chief Economic Advisor simply could not predict that every middle class American would receive a tax cut.

These leaders did emphasize that corporate tax relief would bust open the dam holding back job creation and that was a good thing they said. Interestingly the leaders were silent over whether there would be cookies for America’s wealthiest in their Christmas basket. A drop in the top bracket from 39 1/2% to 35% should reward these wealthy Americans handsomely.

One of the cute features of the Republican tax reform would be the elimination of deductions for State and local taxes along with mortgage interest deductions. (Surprisingly, it just happens that “blue” States use these deductions more than “red” States).

In the concept stage, Republicans had thought lower tax brackets and larger personal deductions would offset State, local, and mortgage deductions and allow the middle class to see a tax savings. Ironically, at this time the details (you know where the devil lives) are not set and Republicans are unable to categorically say one way or the other. Just as with the repeal and replace Obamacare, Republicans are beginning to realize how bad the “optics” will look if the middle class gets nothing and the wealthy get a lot.

Regrettably, truly simplifying the tax code and adjusting corporate taxes more in line with global competition could be useful efforts. The big money funding so many Republican legislators, however, does not think that way unless they get their cut first and right off the top.

As it stands now, the “repeal and replace” fiasco will make Republicans look good compared to how they are setting out to “reform” the tax code.

Taxes Anyone?

The President and the Republican controlled Congress are ready to move onto what they are really interested in and have been too worried about incidental blow back to confront. Their focus is on how to deliver significant tax reduction for their many supporters who have shelled out the billions to get the GOP crowd elected. One might sayits “pay back” time.

So, why the reluctance?

Republicans realize that if they do not handle the messaging parts extremely well the public will wake up and see what a one sided deal Republicans are offering. With this new awareness, voters might put the screws to a few GOP Senators and Representatives. And, if enough GOP Senators cave, Americans will see a repeat of repeal and replace. Hmmm.

Is this a legitimate concern?

The President has announced the tax reform will be a huge break for the hard working middle class and the wealthy, like him, will get little, maybe nothing. Doesn’t that make you want to sign up right away? Hmmm, but does the President have a track record of telling the truth on important matters? Or for anything?

Like healthcare, the Republican plan lacks any input from public hearings, assessments from reputable think tanks, or the public existence of any plan details. But this lack of information has not inhibited Republican spokespersons from explaining why the tax reform is necessary and in America’s best interest.

The tax reform, the President says, is about stimulating the economy and creating jobs. Why? Entitlements are projected to increase the size of our yearly Federal deficit and unless the economy grows faster than the current 1.5-2%, the increase in tax revenues will not keep up, the deficit will grow, and the $20 trillion debt will get bigger.

This is a reasonable and logical argument which deserves a fair review. Admittedly, one has a perceived debt problem and the answer is to lower taxes.  Hmmm.

The first problem is there is no evidence this works based upon previous attempts at supply side economics. Most corporations and wealthy individuals take the tax cuts and say thank you and do not reinvest.  With interest rates currently so low, any sensible business person would borrow and invest if there was a reasonable prospect that there were customers.

 

Second, with 4% unemployment now, where are the workers going to come from and where are they going to suddenly find the skills need to expand the economy. Are all the new to be employed going to work at Starbucks or Walmart?

 

Third, global macro forces can unexpectedly influence US economic performance. Add to this the current US hostile trade negotiations, what are the chances that other countries will want to trade with the US?   A global slowdown, if not a recession, is a distinct possibility.

Are Congress leaders telling us everything?

Not withstanding the sincerity of some supply side economists, Congress is regrettably tied to huge campaign election costs. At one end of this rope is the Senator or Representative and at the other end is a special interest or wealthy donor. What one must acknowledge is that the rope is both real and susceptible to being cut. If cut, the Congress member can say goodbye to his seat. Under these circumstance there should be no surprise that items like eliminating the AMT, lowering corporate taxes from 35% to 20% while still allowing pass through earnings, and reducing the top bracket from 39.5% will be in the final bill. These provisions represent payback for the billions already advanced in general elections.

The ‘free lunch” theorists will offer assurances that the tax code can be cut, Americans will flock back to work as new jobs are created, and the economy will blossom while the Federal Debt shrinks. If this could happen, it truly would be a great tax reform, but what if it doesn’t happen this way?

The first signal will be the deficit increases faster than currently projected. Americans will be advised to be patient and next quarter these stimulations will take affect.

 

The second signal will be income inequality continues to grow, possibly even faster.

 

The third signal will be a desire from many conservatives and deficit hawks to cut government programs like Medicare, Medicaid, and Social Security (but not Defense) because America can’t afford to spend with its deficit and debt so high.

 

Sadly, the fourth signal, if history repeats, will be the initiation of a war requiring Americans to turn their attention from domestic issues to supporting our flag and troops overseas.

Belatedly, Americans will realize that the “free lunch” was served only to the very wealthy while the rest of America had to pick up the bill.

The size and shape of tax reform should be know soon and at that time, the predictions of this post can be judged. The best outcome, IMO, will be that in pursuit of greed, GOP Congress Members will choke on this ambitious reform, and consequently, this reform fails to pass into law. With Republicans in control of both house failure is a long shot but hope still shines eternal.

Obamacare’s 9 Lives

With Senator Susan Collins’ thumb down, it appears the Affordable Care Act (Obamacare) will live to die another day. This is a victory for decency to be sure, but fiscally US healthcare remains a uncertainty. What does this say about those who govern?

Senator Rand Paul said the GOP bill (Graham-Cassidy) was too much like the Affordable Care Act (too much entitlement), and he said he would not vote for it. Senator John McCain told Senate Republicans to use a bi-partisan approach when Congress deals with 1/6th of the economy. Republicans did not, and McCain said no thanks.  And, Susan Collins announced her “no” following the release of the CBO score indicating millions of Americans would lose coverage with Graham-Cassidy. Others such as Senators Cruz and Murkowski were rumored as “no” but have not spoken out.

The general theme of Republican opposition has been exploding cost. Republicans seem concerned that the Federal Government will pump billions into healthcare and that amount will not be enough as healthcare cost will increase each year. A subset of these fiscal worriers sees Medicaid expansion as the culprit and have selected block grants to States as a way to cap the Federal Government’s financial obligation.  Both of these concerns are reasonable but is it reasonable to take healthcare away from some in order to keep the Federal cost down? Hmmm.

Senator Bernie Sanders has seized this opportunity to hype “Medicare for all”, a single payer system, as the best way to fix Obamacare. OMG, here comes socialism Republicans are crying out.

What an opportunity for someone to articulate in a calm voice that the rest of the modern world provides basic healthcare to all their residents at 1/2 or less what it costs America and these other countries have excellent (better than the US) health outcomes.

If Republicans were really serious about the fiscal aspects of Obamacare, one would think that adopting a healthcare system similar to France, Germany, or Switzerland’s would make sense. Unfortunately, these universal, single payer systems cut out insurance company profits and in turn campaign donations to politicians.
Hmmm.

There might be a tendency to take a deep breath that Obamacare has survived again.  Obamacare’s nine lives are not a forever thing.

Republican’s disregard about pre-existing conditions and even whether everyone, regardless of means, should have access to basis healthcare pose a menace to most Americans.

One might think that faced with a ground swell for Universal, single payer, Republicans might see Obamacare as a preferred alternative.