Posted tagged ‘taxes’

Real Life Catches Up

November 28, 2018

President Trump and the Republican controlled Congress trumpeted the windfall that was about to befall the US economy if the Congress passed the GOP tax cut.  The principle tax cut pieces were a dramatic reduction in the corporate tax rate and a one time waiving of the foreign profits tax (repatriation of money earned outside the US at zero or a very low tax rate).  “Jobs, bonuses, and investment”, said the President and GOP leaders.  Hmmm.

At the time, most economists and anyone with an average memory could remember George W Bush lowered the same two taxes with no broad impact upon the economy. Economists knew that businesses congenitally are wired to give any windfall to investors, if not also to top management.  And guess what…

So, once again a well intended tax cut has gone to rewarding investors and top management with only a few crumbs falling in the laps of workers.  The only one who should be surprised is “Charlie” who still believes “Lucy” would hold the football still.

This past weekend General Motors announced 5 plant closings and the reduction of some 14,000 workers.  For the economist or Wall Street investor there was much to cheer and much to be concerned about.  GM’s stated reasons were (1) sedan models were precipitously declining in consumer demand, and (2) GM wished to invest in new technology and needed cash.  Who could dispute these two business goals.

President Trump who may set long standing records for being a “head to tail” thinking reacted strongly telling GM that they should replace production at the three assembly plants with some other cars.  There seemed to be no recognition that the Trump Administration may have contributed to these job losses.  Hmmm.  

The President scolded GM calling them ungrateful in view of the Government bailout begun in 2008 and the more recent subsidies in support of GM’s electric car development.  Do you believe the President?

Most analysts see GM’s announcement as a recognition that sedans are no longer consumers’ choice when compared to SUVs, crossovers, and trucks.  The targeted plants represents over capacity and until new vehicles are ready, these plants will have no assignment.

And, by the way, GM of course, was  rewarded by Wall Street.  GM was acting in a timely manner the Street thought.  Hmmm.

President Trump has plenty to think about. 

  • Why shower tax breaks upon businesses when publicly traded companies will just return the savings to share holders? 
  • What role does the President think the additional $1 billion in cost (due to steel and aluminum tariffs) played in hastening GM’s decision? 
  • And what Wharten School economic theory is the President relying upon that says automotive sales can year after year increase and never see a contraction?

Our “economist-in-chief” would do well to get ready for similar bad behavior from other recipients of government tax breaks.  There are many signs that the economy, with or without the harmful effects of tariffs, is on the verge of contracting. As that happens, everyone will see the President has no clothes to hide the foolishness of the tax reductions and the initiation of the trade wars.

Other than hollow words, what does the President have to stimulate growth now? 

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Unpaid Tax Cuts

January 3, 2018

Just before Christmas, America awoke to a promised Christmas present. President Trump had promised the gift would be “huge” and in time for Christmas. I guess he made this happen because he so loved his fellow country men. (Well at least some of them.)

It will be some time, at least until tax season in 2019, before Americans know just how “huge” and how wonderful the tax cut each individual receives will actually be. For many it will be real but like President Trump’s hands, small.

For some, however, especially those who do not need a tax cut, President Trump will indeed have been generous. Since more than half of Americans do not pay any individual income tax, for them it will be a non-event. Hmmm.

But President “Grinch” has not told his “fellow Americans” that the tax cut will usher in huge deficits too. Republican Congress members, like Speaker Paul Ryan, have almost in a giddy voice, called for entitlement reform in order to counter the massive hole the Christmas tax cut gift has made. Hmmm.

Republicans give with one hand and take with the other?

Republicans are actually saying Medicare, Medicaid, and Social Security are too generous and many Americans are taking advantage of these programs. Republicans want entitlement “reform”. Hmmm.

Question, if tax reform is really about tax cuts, then is entitlement reform really about entitlement cuts?

Republicans have argued for some time that Medicare, Medicaid, and Social Security are projected to go broke and unless “reformed”, these programs will bankrupt America. These are alarming words and should get the average Americans attention. So, tell me why there should be tax cuts first?

How can America afford a $1.7 trillion tax cut with the benefits going to the wealthy and corporations, and then proceed to pay for it with cuts in entitlements which go to the elderly and needy?

There is a theme emerging from the Republican Administration. Basic Healthcare is not a right for all Americans. Instead, Americans are entitled to the best healthcare they can afford. When translated into the real world, less coverage and access to basic healthcare is all many Americans can afford (and in GOP minds) deserve. Interestingly Robert Mercer, Betsy DeVoss, and the Koch Brothers will experience no hardship from “reform” of healthcare or taxes. Hmmm.

The Golden Goose which bequeathed such generous tax cuts upon corporations and the very wealthy is running out of golden eggs. Income inequality is strangling the purchasing power of many (maybe as much as 80% of) Americans. The American consumer will shortly not have enough discretionary money to buy the products all the new jobs President Trump has promised will produce. Hmmm.

The most laughable idea marketed during the run up to passing the tax cuts was the notion that corporations would share with consumers and their employees the windfall bonanza tax cuts brought. Under capitalism and especially a global economy, wages and salaries chase the lowest global level existing. Capitalism indeeds drives productivity and innovation but income inequality cuts the other way. Accordingly, Americans actually need higher progressive individual taxes, not lower, and corporate taxes which are based upon an “effective” (after deductions, exemptions, and loopholes) tax rate, which is competitive with other like global trading partners.

This does not seem to be Republican thinking. Hmmm.

Governing Part I

October 29, 2017

There has been much written about the inability of the 115th Congress, one with Republican majorities in both Houses, to pass meaningful legislation. In the 113th Congress, Elements within the Republican Party orchestrated a Government shut down squabbling over an ideological but relatively pointless issue. The question is why are current day Republicans so inept when at the Ship of State’s helm?

Could it be there internal inconstancy among policies Republicans claim they hold dear such as:

  • Federal Debt – “Massive, out of control, and an unfair burden for our grandchildren”. In fact, US Federal Debt is about average for all the countries in the world. US Debt is higher than Switzerland, about the same as Germany, and lower than Japan. The real underlying problem with US Federal Debt is that it results from the Congress’ inability to make rational decisions on spending and taxation.
  • Tax Reform – When Republicans mention “Tax Reform”, the are really voicing a free lunch message around “tax cuts”. Republicans claim tax reform will lower (big time) Middle Class tax burden when in fact the tax cuts are premised on lowering the tax for the wealthiest of Americans. Oh, and what about the Federal Debt? This is a shameful policy and consequently Republicans must use all sorts of misdirection and misinformation to keep the voting public from seeing through their scheme before tax cuts are enacted.
  • Healthcare – In the past, Republicans were mainly agnostic about healthcare. Since the enactment of the Affordable Care Act (Obamacare), Republicans have been like a dog chasing after a meat wagon. Not surprisingly the Republican mantra overlooks the fact that some 20 million more Americans have healthcare access with Obamacare than before, or that the US pays twice as much for healthcare than other modern countries. It would appear that the national Republican Party goal is to reduce Medicaid involvement and to eliminate taxes which the wealthy pay, and in return Republicans are willing to see millions less Americans receiving coverage. Hmmm.
  • Medicaid – Even if there was not a broader fight over healthcare, Republicans support only a much smaller application of Medicaid. Many Republicans see Medicaid as “an entitlement” (something Americans do not earn) and a naturally growing government handout.
  • Social Programs – Republicans use this broad terminology to imply that Government aid for specific social programs is a wasteful and wrong headed idea. Surprisingly, the tone was different this past week when President Trump declared an emergency around the growing (predominantly white population deaths due to overdosing with opioids. Hmmm.
  • Environment – when it comes to government policy towards issues such as smoking, industrial discharge into rivers, land, and the air, and most recently global warming, most Republicans have been unusually skeptical on the “science” demanding controls. Could campaign contributions drive Republicans to favor businesses and overlook the welfare of its citizens?
  • Immigration – One of the most convoluted arguments Republicans have made is the danger posed by Mexican undocumented workers. The approximate 11 million illegal workers has been labeled as the cause of most violence, a huge drain on social programs, and “line breakers” who are trying to gain citizenship by not following the rules. Mexicans are mostly church goers, family centered, and extremely hard workers who make model Americans if given the chance. Could it be that Mexicans, if given the vote, might vote Democrat?
  • Faith Based Issues – Probably the most shameful and hypocritical position Republicans candidates have taken lie around the issue of god and religion. Republicans stand firmly by the Constitution when they pander to gun owners but are willing to twist the Constitution and accept discrimination based upon ethnicity, gender, or sexual orientation (if the discriminator is motivated by deeply held religious beliefs). This is akin to one Bill of Rights phrase, overriding all other rights if it is favored by a large number of bible totting voters.

The reality of this boils down to who elects Congress members and which issues are the most important. Distorting the otherwise democratic process is the unparalleled amounts of campaign donations coupled with the “legal” and huge amounts of “issues” money.   Mostly all of this money has emanated from the wealthy, and has driven the political conversation to elect a majority of RINOs (Republican in name only). This group, depending upon where in the country they represent, bring a range of intensity to the issue mentioned above.

If instead of keeping the single name “Republican”, each member chose a more applicable name like Christian Republican, No-tax Republican, Big Business Republican, etc, then the current Republican Party would not hold the majority and power would shift to others. So, banding together, even with vastly different depth of feelings around specific issues, makes the Republican brand the majority.

Republicans, however, are showing that being the majority and providing effective governance are two different matters. This year’s Republicans are hopelessly compromised owing so much to so many (tax cuts to the wealthy contributors, discrimination rights to bible thumpers, anti-immigration action to the xenophobes, anti-science policies to short sighted business leaders, and second class and hugely expensive healthcare policies to ignorant (uninformed) Americans.

Republican Congress members are complex and thinking people. Most, if not all, know the real nature of this Post’s issues. Unfortunately too many are willing to “go along”, thereby making unbalanced choices which are setting in motion collisions between common sense and prejudices or flatly unsupportable policies. In such an environment, facts are not important, and democracy suffers while governance becomes problematic.

 

Summer Recess

July 19, 2014

Congress is lumbering into its summer recess. This is the time our Senators and Representatives use to recharge their batteries, attend fund raisers, and otherwise plan for their next Congressional session.

The notebook that contains their fall upcoming plans is bare of substance, unfortunately.

For Representatives, a plan book might correctly reflect certain needs of their district. They are, of course, “representatives” of those who elected them. “Must do’s” which raid the public trough and return tax dollars to their local district will help the district and get each representative reelected.

But is that short sighted?

Without knowing the specific wish list each Representative has developed, it is safe to say their list is incomplete. There are important legislative bills that impact all districts, some directly and others indirectly. Immigration reform is an obvious challenge which may seem remote to some districts yet the way the US handles economic refugees says a lot about who the citizens of our 50 States have become.

Another top of the list bill should be a broad list of infrastructure projects aimed at maintaining roads, bridges, railways, and rivers. At the heart of this essential work would be appropriate taxes to pay for it (no free lunch). While it does not matter which tax is increased or newly added in order to afford infrastructure repair, gasoline is an ideal place to begin.

The idea of raising gasoline taxes, unfortunately, is “off the table” and that says the worst about our representatives. The US and a few other third world countries still offer gasoline at the $4 a gallon or less (an unsustainable appeasement to voters).  The modern industrialize world, on the other hand, have all increased gasoline taxes in order to covered road related expense and to encourage more fuel efficient transportation.

Even an exceptional country like the US would do well to consider this. It is not a sure bet that our Representatives will even consider infrastructure maintenance, much less how to pay for it.

Our representatives’ tactics (as opposed to a strategy of ensuring a sound infrastructure for maximum economic results) simply do not include taxes to pay for necessary services.

If you were to ask them, however, about the role of productive assets and depreciation write offs each business uses, my guess is they would be able to cite chapter and verse. He might say, “a business invests in machinery and equipment and receives a tax deduction from its revenue equal to a prorated portion of an assets value based upon the asset’s productive life”.

The representative knows a wise businessman/woman would save this deducted amount so that they could maintain the asset (say a machine or truck) so it would last a long time, and when it was too old to be useful, there would be enough money to replace it.

The fundamental law is that assets wear out and must be repaired and ultimately replaced. Why cannot our Representatives comprehend the US public productive assets the same way?

One might think these public servants were absent from class when depreciation was taught.

C-NAUGHT

March 17, 2013

The Conservative Political Action Committee concluded its annual convention Friday with a straw poll.  CPAC’s selection narrowly favored Rand Paul, thereby launching his 2016 Presidential campaign.  But Rand was not the only darling of the Convention.

The usual, fiery orators who are content to make “throw them red meat” speeches, did so again even in the face of other realities.  Each of the speakers justify their comments with the statement (to the effect), “yes we lost the last election, but that is no reason to abandon our principles”.  On the surface that sounds laudatory.  On reflection, one must wonder what they are really thinking?

On the national level, the last election’s demographics were clear.  The GOP “principles” on women, gays, immigrants, and science failed the GOP in 2012, and are not going to cut it in the future.  Gaining the GOP Presidential nomination is another matter.  So the CPAC speeches might be just aimed at that target.

Hmmm.

The more polished speakers, such as Marco Rubio and Jeb Bush refrained from saying really stupid things.  Paul Ryan, also a polished orator, pitched his deficit eliminating budget.  Ryan’s budget, however, relies on repeal of Obamacare (again with no plan on how to provide the coverage), and proposed tax reforms (oh yes, without any description of the exemptions that would be eliminated but the plan has been described as a tax break for the wealthy).  Hmmm.

Speakers with less substance, such as Michelle Backmann and Sarah Palin, said nothing but, what they said, was hailed by the audience as breathtaking.   Palin’s ignorant display of a 32 ounce Big Gulp while a clear statement on individual choice also showed an even greater lack of appreciation for “star appeal”.  Sarah was telling anyone looking on that unlimited intake of sugar bore no risk to ones health.  Sad.

If one considers the entire conference one is left with an unmistakeable impression that CPAC was not “packed” with anything sensible.  It would have been better labeled C-NAUGHT for the hollowness of the ideas and speeches.  Hmmm.

I am struck with thought that just possibly CPAC speakers are not serious about the White House.  Rather, the GOP sees itself as better suited as a perpetual minority party.  From this platform, the GOP can pontificate on how things should not be, and still keep getting elected in highly gerrymandered districts.

Hmmm.  Maybe C-NAUGHT is pretty clever.

 

 

The Herd

January 3, 2013

Yesterday the Dow Jones Average rose over 300 points, allegedly on news of the tax increases Congress passed.  Market reactions to world events are often swift and dramatic.  A 300 point rise is a pretty strong response.

The market has often been likened to a herd of wild animals.  As we known, herds are prone to stampedes.  That means their herd behavior is not rationale even though their movement may have begun with a authentic warning signal.  For investors 300 points in the positive direction is great news.  We must remember, however, the Wall Street herd contains many wolves in sheep’s clothing.

The wolves would gladly help the market rise way above any consensus value.  Wolves delight in later selling the market short and reaping profits on the way down too,  We all know that the market does not moves in straight lines.  There are always ups and downs.  But most people hold that over time, positive underlying factors will support a rise in the market, and the opposite is true too.

So what was the big deal about Tuesday’s tax agreement?

Most probably it was simply that there was any agreement at all.  The market does not care what the agreements are (even though it would be happier with some more than others).  The market can not process “no agreement”.

Set the rules, let the games begin.  Tuesday’s agreement clarified some of the rules, mostly on the tax side.  The agreement did almost nothing for the deficit and gave no hint at what type or level of spending cuts will follow.  Again, when these are decided, the market will most likely rise again.  The market has no heart, and no anticipation of the future.  The market is all about today (meaning the immediate future).

The deficit can not be really fixed until there are fundamental reforms of health care and national (world) security.  Medicare and Medicaid are driving our deficit increases and our Defense budget is right behind.  It makes no sense to be paying twice as much for health care as other modern countries, and it makes even less sense that the US defense budget is about the same size as all other countries combined.

I think the herd has sensed that there will be no fundamental reforms any time soon.  That makes life a lot easier to predict, it will be a lot like yesterday.

Deficits build debts, and debts sink ships.  Hmmm.

The Night Before… What?

December 24, 2012

Twas the night before Christmas and all through the House (and Senate), not a creature was stirring, not even a lobbyist.

Congress has adjourned.  Congress members have returned home for their holidays.  So for today and tomorrow, the wheels of government are at rest.  It is time for rest and merriment.  It is a time to recall how fortunate the US has been and like the “Romes” before, the duties of elected officials carry large responsibilities.  A little rest and then back to work.

Guess again.

Based upon the collapse of the President’s grand bargain, and John Boehner’s DOA Plan B, there is something seriously wrong with Congress.  But what could it be?

Our two party system works because, in the past, Congress agreed to go with the majority decision and each side understood it could not get 100% of its wishes, in other words, compromise was necessary.  That does not seem to be apparent to the current crowd that occupy Congress.

Use of a “majority of the majority” to advance legislation in the House, and the reliance upon the “super majority” in the Senate have ground both chambers to a halt.  But why have our political parties forgotten the past and adopted these disruptive policies?

The price of being a Congress member has gone through the roof, that’s why.  This is a bit a “chicken and egg” argument.  Has the cost of campaigning driven elected officials to do what was necessary to induce special interests to support them?  Or has the flow of special interest money which spills freely into each Congress members’ office emboldened more and more members to steer more and more of that money into their own pockets, and they don’t want to get off that gravy train?

Maybe a couple days of rest might clear enough members heads that they will put the needs of all Americans ahead of their own interests.  Hmmm.  I guess it is me that is dreaming.