Archive for the ‘federal debt’ category

Taxes Make The World Go Round

October 18, 2017

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

October 16, 2017

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.

Hand In The Cookie (Tax) Jar?

October 4, 2017

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?

September 28, 2017

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.

Is The Federal Debt A Problem?

July 21, 2017

At almost $20 trillion, the Federal Debt is a big number. Politicians’ rhetoric range from “the sky is falling” to “how can we leave this to the next generation”. Others counsel that the US can borrow at historically low interest rates, so from strictly a business perspective, the US should be borrowing more and investing in infrastructure, medical research, alternate forms of renewable energy, and increasing the skills and education level of American workers. So why is there such a divergence in opinions?

Continuing with the business analogy, no investment is wise unless there is a positive return. This means that any money spent on new or improved roads, harbors, or airports must generate enough profit to repay the amount of the investment AND some additional “profit”. So if the Government can borrow (by issuing Treasury Bonds) at 3%, any investment should return the bond value plus some interest in excess of 3% (preferably greater than 6-8%.

When the Government spending, however, goes for Obamacare, Medicare, Medicaid, or Social Security, what is the return?  The Republican debt argument roughly lies upon this premise. There is no return for entitlements and accordingly there should be no spending on them.

Democrats see Government spending on entitlements as a sacred promise Government has made to citizens. Democrats would be ok with funding entitlements through increased taxes but have not been successful getting Republicans to agree. Consequently, the Government does borrow, does put the cost onto the Federal Debt, and does pass it on to the next generation.

Considering the strength of the dollar and the credit worthiness of the US, increasing the Federal Debt does not present the catastrophic consequences many conservatives see.  Also, if entitlements come with no return, what is the return on military spending?  Hmmm.

But over and above the question of what is the return on government spending, there is still a huge problem, namely continuing to increase the Federal Debt is a default result, not a conscious decision by Congress. The inability of Congress to reconcile its spending and taxing priorities is a far greater problem with far greater potential consequences.

Behind a deadlocked Congress lies one or more special interests which stand to gain mightily. Dark Money (conservatives like Koch Brothers, Mercers, and others) seek simply to keep more of their earnings through lower taxes.   Business interests seek industry specific favoritism normally to increase earnings. This has bred a Congress of era centric, anything but statesmen members.

The current candidate for Congress is normally good looking, modestly well off, and primarily interested in getting reelected. For Representatives, most rely upon districts whose boundaries have been set with the thought towards favoring one party or the other. Who is going to think about the country as a whole?

The Federal Debt could become a problem were interest rates to increase dramatically. Today that is not the case. Never the less, the debt and the unbalanced budget both represent large warning signals about the quality of public officials Americans elect.

Heated Rhetoric

June 16, 2017

Following the baseball field shooting of Republican legislators, bi-partisan cries have gone out calling for an end to heated (often misguided and misinformed) rhetoric. “Enough”, cry some of the most practiced in the art of partisan politics. Does anyone really mean those words? Doubtful.

Why doubtful?

While those words calling for a return to civility were echoing through Congressional halls, Senate Republicans were huddling behind closed doors attempting to cobble together a healthcare plan which met the test of reducing healthcare coverage and still keeping a Republican majority to pass the bill. No public hearings, no open discussion, no Democrat input. Do you think that is bipartisan behavior?

Like climate change and the abdication of the Paris Agreement, or the pending “huge” tax cut for the wealthy, or the private sector infrastructure proposal designed to put money is special pockets, Republicans are stacking the deck with intentions favorable to a few, neutral to a few more, and dangerous to the many.

Criticism opposing legislation kept in secret is called heated rhetoric by some. One wonders why?

Special interests?

Our elected officials are called politicians for a reason. Congress members first must convince enough citizens in their districts to choose them over their opposition. Promises are usually part of the bargain and in that lies the seeds for the problems we see today.

Instead of advocating for rebuilding the infrastructure, it is preferred to call for tax cuts. Instead of warning about global warming and taken specific steps towards control, it is easier to question the science and play for time. Instead of calling for basic healthcare availability, it seems wiser to claim (falsely) that America is exceptional and has the world’s greatest healthcare system.

Heated rhetoric could be a “generation thing”. In other words, current public officials inherited a wealthy country have done little or nothing themselves to create national wealth. With no practical experience in what it takes to build a nation, it should not be a surprise that Congress members’ sphere of vision is simply themselves. The role of today is to survive and worry about the future tomorrow. Hmmm.

While there are plenty of examples to support this theory, there is also a more sinister hypothesis. Americans are people. People are by nature greedy. Politicians are people and therefore without adequate checks, are greedy too.

Share that realization with clever and also greedy wealthy citizens and in not too much time, politicians learn to promise one thing but do another (and what they do is what their financial backers want).

Heated rhetoric may simply be the natural end which occurs when politicians make one false claim after another, long enough. Explaining behavior which leads no where can only be done so long before citizens sense dishonesty or incompetence. Raising the tempo, going negative, and if necessary, using “dog whistles” of race, religious, or national origin helps mold the electorate into “we” and “them”. Hmmm.

IMO, Congress reflects middle and upper class American. Congress’ ineffectiveness and willingness to engage in “heated rhetoric” is what any of us would do if public life were our chosen field. Fortunately, most Americans do not seek public office and the power to change government lies in our hands.

Ask the simple question, “what is the problem awaiting a fix”?

The problem is not necessarily that the US is spending too much money as those who say “the Federal Government” is too large. Rather, if there is a problem, one must cite the problem first.

For example, Medicare is often cited as a major contributor to the growing federal debt. Why not collect more fees and taxes to eliminate the deficit? The problem, rather is not the spending amount, it is whether there a need for Medicare at all.

Once there is agreement on why some healthcare subsidy for those on fixed incomes is fair and warranted, then the discussion on how Medicare should be paid for should begin. The same applies to Medicaid, Social Security, and healthcare in general.

Each American can figure out whether the incumbent is interested in the problem or just some special interest outcome (like paying less in taxes). Term limits by voting the incumbent out of office is the fastest way to get Congress members’ attention and to begin to lessen this problem.

I bet, however, that “heated rhetoric” will rule the day until Americans use the ballot box to over come “dark money” and other special interests.

Free Market Health Care

June 11, 2017

When President Obama set in motion steps to expand healthcare coverage, in the wealthiest country in the world, for more Americans than ever before, he and his aides made a questionable decision to build the expansion around traditional healthcare insurance companies, like Aetna, Cigna, Anthem, etc. These cowardly chickens are now coming home to roost.

The Obama White House convinced the legacy healthcare insurers that their margins would be protected when they were presented with new enrollees who might not be able to pay for the entire premium. There would be government subsidies in other words.  That promise was enough to get the insurance companies loyalty.

With this promise (and recognition that there would be another 7 years with a President Obama), healthcare insurers signed on citing the importance of new customers and their dedication to improving Americans’ health.

When the Democrats lost control of Congress, the wheels soon began to come off the Affordable Care Act wagon. Republicans tried their best to outright repeal Obamacare and when not possible, the GOP tried to jeopardize the subsidy streams. Any uncertainties about rate coverage was enough to send healthcare insurer CEOs into orbit.

“Oh my, our shareholders simply won’t accept that”, these CEOs moaned.

In quieter moments, healthcare insurers raised rates and cited the “higher than expected” number of “sicker than average” enrollees. Imagine, these big name insurance companies were finding that previously uninsured Americans were devouring healthcare services at amounts greater than the average American?

After thought (and realization that not much more money was coming from the government), these insurance companies proposed a resolution. They would exit the market!

The Aetna’s of this world would no longer sell policies to exchanges and abandon the exchange market to someone else. So, unless the government renewed its pledge to provide adequate subsidies, these newly healthcare covered Americans would join the ranks of the uninsured again.

So much for these insurance companies’ concern about individual healthcare.

One might fantasize that a Government truly interested in its citizens’ healthcare might say to these companies that they might as well withdraw from the rest of the State’s health insurance business. Cheery picking is not in the publics best interest.

Should that hard ball tactic not convince the insurance company to stay, then employing the “public option” might win the day. Expanding Medicare (with its requirement for paying premiums) would be quick and easy to roll out. Insurance companies might then think carefully on whether they needed to become more efficient or face the creeping invasion of “single payer” insurance.

Republicans might jump up and say “how is the government going to fund the public option?  Of course the answer is through taxes combined with individual payments.  And if the Affordable Care Act is repealed or simple succumbs to the death spiral, how is the cost of the 25 million or so Americans without coverage to be covered?

How about taxes and higher doctor and hospital payments?  Which path seems more humane?  Oh, I forgot the Republicans want to cut taxes, not increase them.  Take a hike you 25 million soon to be without insurance Americans.

Hmmm.