December 21, 2017--4:01 In the Morning

It's 4:01 in the morning and as I do when I wake up so early I turned on the radio to get the news. To see if we're at war with North Korea and how the Knicks did last night. (They didn't play and we're not--yet.)

On all-news WINS, the first thing I heard was Senator Orrin Hatch at the victory-lap celebration President Trump organized yesterday to gather kudos to himself after 100 percent of Republican House members and senators voted for the new tax bill.

Orrin, who needs to retire immediately, said, "You're a heck of a leader [meaning Trump]. You've done everything you promised."

I waited for the list of accomplishments but they were not forthcoming. Just waves of love. Speaking about love I was glad pathetic Lindsay Graham didn't grab the mike. It's not a lot of fun getting nauseous on an empty stomach.

I switched to another station and there was some Democrat leader gushing about how this disgraceful piece of legislation will turn out to be a political blessing in disguise for progressives. Once Trump people see how little their taxes will be cut they will feel betrayed and vote in November to flip both the House and Senate to the Democrats.

Dream on, I thought, which is not an inappropriate way to put it at, now, 4:07 A.M.

I'm not so sure "average" Americans will see their taxes lowered so little. Or actually raised, as some on the left are claiming and hoping. Those of us wishing for this may have a rude awakening. Again, as it's now 4:11, not a bad way to think about this.

Here's how things will play out, noting up front that I see this bill to be a disgrace. Even if some middle-class taxpayers will see some cuts as it plays out it will continue the redistributional process begun during Ronald Reagan time (when Orrin Hatch to that point had never seen such a heck of a leader)--the rich pay less while the bottom half pay more. 

First, as early as February most workers who have taxes withheld will see some increase in their take-home pay. Maybe as much as $50 a week. 

This in part will be because the Trump people who will create the withholding tables will sweeten them by front loading them--these workers will find more in their paychecks than they should in order to trick them into seeing the value of the tax cuts to them. When they file their 2018 taxes in early 2019 they will not get any refunds but likely will have to ante up more. By then, if Trump is still around, he'll blame this on Obama and Hillary. And Robert Mueller, if he's still around.

More ominous for liberals who are looking forward to the Trump tax cuts imploding will be the effect of the doubling of the standard deduction.

For couples that will amount to nearly $25,000 per year. For many of the 31 percent who currently itemize, this bump up will amount to a significant tax cut. And it will be a good deal for many more. Perhaps another 10 to 20 percent will stop itemizing because the standard deduction is better for them. As will be the extended tax credit for children. Using the standard deduction will make it much easier to file and, in many instances, will not require an expensive accountant to do the filing. If the number calculating their taxes this way approaches 50 percent, that's a big political story.

Finally, as with the Reagan and Bush tax cuts, folks like me (professionals, managers  government workers) who are progressives and say we oppose the regressiveness of these previous tax cuts, we were actually great beneficiaries of the lowering of the tax rates and the exemptions and loopholes that were laced into the legislation.

This will be especially true for retired people who vote disproportionately. 

In other words, don't expect a tax revolt. It will not get the political job done either next year during the midterms or two years after that. We need to do what many liberals in Virginia did--get out there and run for school boards and state legislatures. Those of us who can't or won't do that, we need to be consistently activated. We can't sit back and wait for things to get better because, on their own, they won't.

As for me----it's 4:49 and time to try to go back to sleep. No radio, and no more Orrin.

April 27, 2017--Laugher Curve

As I draft this, President Trump has not as yet revealed the details of his "massive" tax cuts.

In spite of this I can speculate what his multi-trillion dollar proposal will contain and how it will be paid for.

When the non-partisan Congressional Budget Office (CBO) finishes its scoring, they will find that most of the cuts go to corporations--where the effective rate will be cut from 35% to 15%.

Also, a large slice of the tax cuts will go to America's highest earners. There will, though, to put a fig leaf on the truth, be some tax savings for middle class people, mainly an increase in the deduction for dependent children. Then in regard to children, thanks to Ivanka Trump's influence, there will be tax credits to offset some of the costs of childcare.

Unless paid for, over the decade, these cuts will add multiple-trillions to the national debt. So there will be some attempt to show how the cuts will be paid for.

Nearly a trillion will be the result of repealing and replacing Obamacare. As noted here last week, the legislation inching its way through the House of Representatives is not a healthcare bill but a tax cut bill. This of course means it has no chance of passing in the Senate and probably not in the House. So chalk that trillion up to the debt.

The real savings to pay for the tax cuts will not be from savings at all but rather from extra tax income that will be the result of a dramatic rise in economic growth.

At the moment, the Gross Domestic Product (GDP) is going up by a tepid annual rate of less than two percent. The Trump proposal will show a growth rate of about twice that. They feel they can project that because tax cuts for wealthy people and corporations are stimulative to the economy. Growth will trickle down to average folks who will in turn use the extra income they derive from tax cuts and increased economic circumstances to buy cars and houses and stuff.

This assumption, this projection is based on bogus economic theory promulgated most prominently during the 70s. and 80s by Arthur Laffer. It is graphically most famously represented by the Laffer Curve which illustrates how tax cuts spur enough economic growth to generate new tax revenue which in turn cuts into the deficit.

Arthur Laffer in 1974

Here's the problem--

There is no historical or empirical evidence whatsoever that it works. When first taken up by Ronald Reagan during the 1980 Republican presidential primaries, George H.W. Bush, who was contesting for the nomination, memorably called it like it is--Voodoo Economics. Telling the truth helped cost him the nomination and the rest is history.

That history includes truly massive tax cuts under Reagan of just the sort of which Laffer would approve. And did approve. But it did not jolt the economy as promised and it was paid for, as Trump's will be, by adding trillions to the national debt. Over time, during the eight years of his presidency, Reagan nearly tripled it.

And if we need further evidence, when 20 years later, George (the son) Bush pushed another round of tax cuts through Congress, the economy collapsed and the debt doubled.

As the French would say, Viola.

On the other side of the ledger, there are other voila moments--the resulting state of the economy after Bill Clinton and Barack Obama raised taxes. Clinton raised them on the highest earners and the GDP increased annually, on average over his eight years, by 3.8%. Obama inherited a prostrate economy from George W. Bush and managed to more than halve the annual debt while the economy grew by about 2% a year.

One might, therefore, conclude that tax cuts of the Laffer kind do not follow the Laffer Curve but in spite of this here we are again with voodoo economics resurrected. Why anyone would believe Treasury Secretary Mnuchin that "The tax plan will pay for itself with economic growth" is beyond my comprehension.

He knows not all of us are economic illiterates and so he confesses that the preposterous 3-4% GDP growth rate is the result of "dynamic scoring." This is when growth rate projections are based not on observable reality but are derived from assumptions about where the economy will be as the result of various hypothetical actions. In other words, rather than projections based on a semblance of reality ("static scoring") economists such as Laffer and government officials such as Mnuchin just make things up. They pick a growth number out of the air that fits their theory and proclaim it to be the empirical truth.

These might be considered economic alternative facts. Let's see if the public and Congress will again take a sip of the Kool-Aid.

March 27, 2017--The System (Sort Of) At Work

In response to my Saturday blog, "The System At Work," where I argued that the defeat of the Republican's attempt to repeal and replace Obamacare was evidence of the system working and that this should be comforting to the fear many progressives have had that Donald Trump is a crypto-fascist, an American Benito Mussolini, a very good friend wrote--

System working? Sort of. 

They will find other ways to gut Obamacare instead of fixing it. The system is way broken. The American people come last. No one wants to find real solutions which would alienate each sides gerrymandered bases.  

Though I understand this view and acknowledge she may be right, I sent a note back to her in which I said--

For me the system working is more than "sort of." 

I've been arguing here for more than a year, as more and more progressives saw Trump to be our own Duce, that we need to give the system a chance to bring him to ground. So, of course, as a result of the repeal-and-replace fiasco, immodestly I think my predictive ability is being confirmed. 

For example, almost as many "moderate" Republicans as Freedom Caucus Republicans were set to vote "no" because they felt the health plan before them was too severe.  

Even more potent an argument for the system working is the diminishment of Trump's perceived power. His perceived power is at least half his appeal and I expect to see it erode further as more people feel released to abandon him. His approval numbers are already at all time lows. And have been falling. Then of course there is the Russian connection ticking. Wait 'til we hear more about the Trump part of that connection. 

This of course doesn't mean we will see an outburst of progressive legislation and behavior. For me it means very little will get done and all things considered that's a good thing. This may also very well mean that Trump will be a one-term president.  

Further, expect to see Ryan go after the Freedom crazies. Mainly to seek vengeance and also to protect his speakership. Rather than the Freedom Caucus being empowered by what happened they are weakened. Note that "only" 15 of the 29 of them were "no's." That means almost half defied their own leadership. 

I also think Trump will back way away from anything having to do with health care. It never was a priority for him. Too wonky a subject and too divisive  A virtual policy tar baby. Just ask Nixon, Hillary, and Obama. I expect to see him focus exclusively on tax cuts and infrastructure. The two things I think he actually cares about and about which he at least knows something. OK, a little. 

He'll need Dems for both and we'll see if he gets them. I suspect only for infrastructure and corporate tax cuts will the Dems play along. They don't want to prop Trump up or help him become successful. Then Ryan won't need the 14-29 Freedom votes. He can make them irrelevant by working with a handful of Democrats.

My friend also wrote that--

Steve Bannon still wants to try to destroy administrative state. Cabinet departments now have fairly low level loyalist appointees who spy and report back on the civil service professionals.

To that, I said--

Having eyes in the departments is not in any way new. Pretty much every modern president has had his plants in most departments. If I were president, I'd want some loyalists there too to keep an eye on who was working on my agenda and who was freelancing. So I don't worry too much about that.  

I worked a lot in a few federal departments in my day and knew a number of people who were there to report back to the Clinton, W, and Obama White Houses. This sort of thing is also common in corporations and NGOs. Like it or not, this is basic management stuff. A way of trying to maintain control of large, bureaucratic institutions. 

But of course I could be wrong about this and if pushed could make the case that all is perilous and that we are doomed. I'm not wired  that way and thus will continue to keep an eye on the system at work.  

Only 65 days into the Trump admin and I already see progress at whittling down the scary stuff. Including Bannon's agenda which after this debacle has little chance of being realized. Expect Trump to move closer to the advice of the practical people (Jared Kushner--when he and Ivanka return from skiing is Aspen) and less to the ideological Steves (Bannon and Miller). I think Trump's already had his fill of the latter.  

He now has a glimpse of what the far-right are really about. They are not his natural constituency--he ran mainly as a populist. Bannon helped guide him into the healthcare mess since the bill that was finally pulled represented "progress" on reducing the administrative state--the end of Obamacare and the beginning of the end of Medicaid.  

So, in sum, I'm OK with the direction in which I see this headed. I'm optimistic about the rest of the domestic agenda. That is won'r get through Congress. 

To me, if you really want to make yourself crazy think about N. Korea, Russia, far-right crazies in Western Europe, laptop bombs . . . sadly I could go on. 

But in spite of this I plan to have a good weekend. I hope that's true for you as well.

And I know she will also continue to challenge me and keep me in line. That's what good friends are for.

She qualifies.