Economic and Fiscal Policy
February 12, 2019
Our current POTUS rarely stands still long enough for anyone to really examine how his positions and policies impact us in the present, or potentially in the future.
Here are a couple of observations which I managed to glean from rapidly moving targets:
Fiscal Policy: Failure
By late 2017, the U.S. economy had enjoyed over 8 years of economic expansion (since June 2009), leading virtually all economists to conclude we were moving toward the end of an economic expansion cycle. Most experts agree that the government should constrain both borrowing and spending during an expansion phase, concurrently decreasing government debt.
When the expansion phase of a business cycle comes to an end, and the economy begins to sputter – and ultimately to contract – a government with reduced debt will have the capacity to spend more and tax less, helping to support the softening economy return to equilibrium faster and smoother.
The much-touted Tax Cuts and Jobs Act enacted at the end of 2017 introduced a $1.5 Trillion tax cut, sold as a source of economic stimulus when it was least needed.
In times of economic expansion, the government is on notice to reduce its deficit.
On February 12, 2019, the national debt passed a new milestone, topping $22 Trillion for the first time. According to the U.S. Treasury Department, total outstanding public debt hit $22.01 Trillion, up from the $19.95 Trillion when President Donald Trump took office on Jan. 20, 2017. This is mighty dangerous stuff, folks.
Trade Policy: Failure
Tariffs are a tax on consumption, paid by end users.
Over several decades, the U.S. developed a dependence on manufactured goods from China. In turn, U.S. exports to China – predominantly agricultural and unfinished goods – enjoyed strong growth over time.
President Trump abruptly started a trade war with China, imposing tariffs on goods imported into the U.S. beginning in July 2018.
China quickly retaliated, raising tariffs on American goods imported into China, resulting in significant shifts by China to alternative sources.
Winners? Brazil; Russia; Germany; Japan.
Losers? American agricultural producers in Iowa, Nebraska, Indiana, Missouri, Ohio, South Dakota, North Dakota, and Kansas; some American manufacturers; and American consumers overall.
It was once said, “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.”
The evidence seems to emphatically refute that position.
What! No tariff on Fentanyl?
February 1, 2019
Fentanyl is a powerful synthetic opioid created in 1960, originally introduced as an anesthetic. Because it is synthetic, it can be easily and inexpensively made in a lab. It was approved by the FDA in the early 1990’s for use as a painkiller and anesthetic. It works by binding to opioid receptors in the brain, but it does so faster — and in much smaller doses — than morphine or heroin. Like other opioids, it boosts levels of the chemical dopamine, which controls feelings of reward, pleasure, euphoria, and relaxation.
Today, Fentanyl is typically prescribed to treat patients who need long-term, around-the-clock relief from severe pain. When used for medical purposes, it is often given in a shot, a patch on the skin, or in lozenges.
China has become a global source of Fentanyl because (a) it can be easily and inexpensively made in a lab; and (b) the vast chemical and pharmaceutical industries in China are lightly regulated.
Some Fentanyl comes straight to the United States from China, while other shipments come in from China to Mexico (and to a lesser extent) Canada before making its way into the U.S.
There currently is no tariff on Fentanyl imported into the U.S. from any point of origin, which indicates that the Trump administration has missed a major revenue opportunity.
Common Sense Tax Reform
January 30, 2019
Massachusetts Sen. Elizabeth Warren recently announced the launch of an exploratory committee to consider a 2020 White House bid, vowing to be a tenacious advocate for economic fairness and rebuilding the middle class.
Sen. Warren subsequently proposed an “Ultra-Millionaire Tax” through which her campaign committee promises to raise some $3 Trillion in new federal tax revenues over the next 10 years.
Her proposal is not a tax on income; it is a tax on assets.
She identified some 75,000 U.S. families which hold assets in excess of $50 Million.
Her proposal is interesting, and it seems relatively simple. All families with assets between $50 Million and $1 Billion would owe a 2% annual tax on assets valued in excess of $50 Million; and, the rate would rise to 3% on those assets that exceed $1 Billion. What could go wrong?
Most appealing in the Warren proposal?
Senator Warren claims that this approach would affect just the wealthiest 0.1% of Americans, and that the incremental revenue generated through this novel approach could help rebuild the American middle class by providing for universal child care; student debt relief; and other critical societal needs.
What could go wrong? Let us try to explore some possibilities.
The Warren plan anticipates that if your family holds $750 Million in gross assets, you would be facing a potential annual tax of $14 Million on those assets.
What the plan doesn’t mention is that for a fraction of that amount, you could employ lawyers and other experts to help value your assets quite differently.
One recent case study was illuminated by some extensive research conducted by the New York Times on the estate of Fred Trump. https://www.bloomberg.com/opinion/articles/2018-10-03/trump-taxes-fred-s-scheme-was-quite-impressive
Stay tuned. There is more to come from The Walrus on “Common Sense Tax Reform”!
Build The Wall?
January 23, 2019
Ever ready to incite a riot and to encourage acts of violence, President Trump recently tweeted, “Four people in Nevada viciously robbed and killed by an illegal immigrant who should not have been in our Country… We need a powerful Wall!”
[Background: Wilbur Martinez-Guzman, 19, has been jailed in Carson City, Nevada since January 19 on an immigration violation. Federal immigration authorities said that Guzman entered the U.S. illegally from El Salvador. Guzman is a prime suspect in 3 home invasion burglaries in Nevada over a 6 day period during which four people were shot and killed.]
No, Mr. President. We probably don’t need a Wall. Certainly not because of this particular case.
What we need is elected officials who consistently adhere to the highest standards of mature, honest and responsible leadership.
And, we need our elected officials to separate day-to-day federal government operations from capital projects.
We need immediate restoration of funding for the day-to-day operations in all sectors of our federal government, at the same time putting debate and deliberations over capital projects into the traditional federal budget process.
World Economic Forecast Pared Back
January 21, 2019
Monday, January 21, 2019: The International Monetary Fund pared back its world economic growth forecasts for 2019 and 2020 due to sustained economic weakness in Europe and some emerging markets. They also said looming trade tensions and the longer-term ramifications of the U.S. government shutdown could further destabilize a slowing global economy.
“After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising,” IMF Managing Director Christine Lagarde said.
In addition to other forces, IMF economists pointed to: (a) challenges to German auto manufacturers due to new fuel emission standards; (b) uncertainty in Italy where a newly elected coalition government has clashed with EU leadership over a budget proposal which would dangerously increase the Italian sovereign deficit, combined with limp domestic demand; and (c) the uncertainty of fallout from a less-than-smooth exit from the European Union by the U.K. a.k.a. ‘a no-deal Brexit’.
Fears of a global slowdown began to jinx financial markets in early November 2018 as investors began to worry about increasingly weak signs in China.
The ripple effect of Sino-U.S. trade frictions over the past year apparently has exacerbated the slowing of China’s official growth rate to its weakest level since 1990, attributed to a combination of diminishing domestic demand and damaging U.S. tariffs.
Each of these issues is important, and they generally share a common theme: bad policy decisions made by incompetent and/or uninformed people, some of whom are voters; some private-sector executives; and some unconstrained elected officials.
On Day 30 of the 2018-19 U.S Shutdown: It is becoming increasingly evident that this partial federal government shutdown is taking an increasingly negative short-term toll on consumer and business confidence, and by extension, the overall US economy. The White House’s Council of Economic Advisors recently updated their estimate that the shutdown will reduce current economic growth by 0.13% for every week that it lasts. Doesn’t sound like much, you say?
We can look back to the “Ted Cruz Green Eggs & Ham” shutdown of 2013 – a mere 16 days – to see estimates of negative economic impact:
- $24 billion in lost domestic economic output;
- $2.1 billion in non-productive government costs (primarily the cost of paying furloughed workers for hours they didn’t actually work);
- $2.4 billion in lost travel spending (based on a combination of estimated reductions in business travel for federal contractors and federal employees, plus cancellations of discretionary travel by tourists);
- $7.2 Million in lost revenue at National Parks (based on an average collection of $450,000 per day);
- Most alarming? While we can estimate current economic effects, there really is no valid means to estimate long-term economic – and societal – effects of an extended shutdown.
The message? Political decisions made by unqualified and/or inexperienced individuals can and do have long term negative consequences. A comprehensive system of checks and balances is a critical ingredient in the long-term viability of any institution. In the public sector, a key ingredient seems to be the involved and active participation by a well-educated and well-informed body of citizens who are able and willing to vote.
Compromise on Federal Government Shutdown?
January 19, 2019
What is there about the simple concept of separating day-to-day operations from long-term planning that our elected federal officials seem unwilling or unable to comprehend?
Our current federal budgetary process was set into law by the 1974 Budget Control Act, based on a federal fiscal year which runs from October 1st to September 30th. Thus our current Federal Fiscal Year — known as FY 2019 — runs from October 1, 2018 until September 30, 2019.
In February 2018, President Trump – through the Office of Management and Budget – submitted a proposed budget to Congress for FY 2019. The operating budget for FY 2019 was discussed, deliberated and adopted, and it needs to be funded.
There just isn’t any room in the process for the President – or any other elected official — to demand modifications to the current FY budget prior to approving ongoing funding for current government operations.
While it is unfortunately true that Congress doesn’t always follow the schedule as proscribed in the 1974 Budget Control Act, the proper time for the President to present new spending initiatives to Congress is during the annual federal budget deliberations process which typically begins in January when the OMB presents a proposed FY budget to the President.
President Trump’s current demands are only legitimately appropriate as a component of a proposed FY 2020 federal budget proposal.
PLEASE: Let’s get the federal government back into its day-to-day operation by providing necessary current funding, and bring the debate over additional border funding where it belongs – in the discussions and deliberation toward a FY 2020 federal budget.
Where’s Mitch McConnell?
January 17, 2019
Where’s Mitch is a question many people are asking.
There are 800,000 federal workers and their families who are going without pay right now – including thousands of Kentuckians.
Here in Florida, we have about 5,000 Coast Guard members doing their jobs to protect our 1,350 miles of Gulf and Atlantic coastline, and they are not currently being paid.
The new Democratic House, on its first day in office, passed two bills funding and reopening the government.
McConnell has refused to allow a vote on any of those bills in the Senate. He’s even twice blocked a bill reopening the government from coming to the floor that he himself voted for back in December.
Despite the fact that Majority Leader McConnell has the ability to end this shutdown right now, Mitch is seemingly nowhere to be found.
I’m angry that this one man who has the power to stop this absurd drama has refused to do his job.
If you are nearly as angry as I am, perhaps you will consider donating $15 – or what you can afford – to the Ditch Mitch movement. Let’s shine a bright light on McConnell’s irresponsible behavior.
The Winning December Tale
December 21, 2018
Not to be outdone by venerable sources such as Franz Kafka, Edgar Allan Poe and Rod Serling (The Twilight Zone), President Donald Trump and his loyal sycophants — Sarah Huckabee Sanders and Kellyanne Conway — have created a number of fabulous and fantastic episodes for December 2018. We have endeavored to select the very best for your enjoyment tonight:
The Tale of A Shutdown
December 11, 2018: Nationally televised from The Oval Office:
“I am proud to shut down the government…I will take the mantle. I will be the one to shut it down. I’m not gonna blame you for it.”
- Donald J. Trump (speaking to Sen. Chuck Schumer)
December 17, 2018: Bloomberg News:
Among those who have opposed Trump’s wall proposal is Texas Republican Rep. Will Hurd, whose district is along the U.S.-Mexico border. Among other observations, Hurd said that the response time from the border patrol on issues of illegal immigration is hours to days, making a border wall a waste of money because a wall is no obstacle if the response time is that slow.
- Will Hurd, (R) TX
December 19, 2018: Nationally broadcast on CBS News:
Senate Majority Leader Mitch McConnell announced on the Senate floor Wednesday that he’ll introduce a short-term spending bill to fund the government into early February, and one of the president’s top aides suggested earlier in the day Mr. Trump may be amenable to that.
“We need the government to remain open for the American people,” McConnell said on the Senate floor.
Senate Majority Leader Chuck Schumer and presumptive incoming Speaker of the House Nancy Pelosi announced their support for the legislation as well, paving a path to avert a shutdown.
Pelosi said in a statement, “Democratic and Republican appropriators have been ready to pass these bills in a bipartisan way, and we are grateful for their leadership to meet the needs of the American people. This is a missed opportunity to pass full-year funding bills now. However, Democrats will be ready to fully, responsibly fund our government in January, and we will support this continuing resolution.”
- McConnell, Schumer, Pelosi
December 20, 2018: Nationally televised on “The Ingraham Angle” (Fox News):
“I think that not funding the wall is going to go down as one of the worst, worst things to have happened to this administration. Forget Mueller. The wall, the wall, the wall. Has to be built. And it’s a scandal that it hasn’t been built.”
- Laura Ingraham
December 21, 2018: Broadcast via Twitter from @realDonaldTrump:
“The Democrats, whose votes we need in the Senate, will probably vote against Border Security and the Wall even though they know it is DESPERATELY NEEDED. If the Dems vote no, there will be a shutdown that will last for a very long time. People don’t want Open Borders and Crime!”
- Donald J. Trump
December 21, 2018:
It seems clear that Donald J. Trump and his loyal sycophants have created another alternative reality in their attempt to destroy the foundation of American democracy, and Vladimir Putin is very, very happy!
The Trump Trifecta
October 26, 2018
Since taking office in January 2017, Donald Trump has stood with House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell to proclaim various ‘victories’ for the American people. Here are what seem to be the top three, A.K.A. “The Trifecta”:
- Complicit with Russia, Saudi Arabia and several other suspect regimes. Trump has continued to send public messages which downplay and/or absolve bad actors from behaviors which are contrary to existing international standards.
One clear reason: Trump — and his close advisor Jared Kushner — is involved in highly leveraged real estate development. Neither Trump nor Kushner have the liquidity or availability of traditional financing sources to invest their own money. Instead, they are forced to chase shady money from around the world, including huge sums of money sourced from Saudi Arabia, Russia, China, etc.
Essentially, Trump (along with the Kushner Companies) is beholden to Crown Prince Mohammed bin Salman; Vladimir Putin; various Chinese investors; along with ‘dark money’ sources in Cyprus, Panama and the Cayman Islands, among others.
2. The “Tax Cuts and Jobs Act” (TCJA) was passed in late 2017 incorporating some modest temporary individual and small business tax cuts while focusing in on very substantial big business and corporate tax cuts.
Traditional economic models, developed and refined over countless economic cycles, encourage tax cuts and deficit spending during economic downturns as a means to stimulate economic growth. During times of economic expansion, increased government revenue from tax collections is then used to pay down public debt and help stabilize the economy.
N.B. There was a strong case to be made for a modest corporate tax cut as the U.S. economy began to improve post 2012; there was zero legitimate case to be made for the magnitude of the corporate tax cut which was a cornerstone of the 2017 TCJA.
The foundation of the TCJA was a promise that slashing corporate taxes from a maximum 35% rate to a 21% cap would result in dramatic increases in capital investment, resulting in job creation and wage growth. Americans for Tax Reform, a vocal advocate for the plan, generated promises of employee bonuses, increased wages, increased retirement contributions and/or expanded business operations as a result of the TCJA.
Actual outcomes of the Tax Cuts? Record stock buybacks; extraordinary executive compensation; flat employee compensation; and continued failure of venerable American corporations.
Definitive proof of the foolishness of cutting taxes in a time of economic expansion? A rapidly expanding federal budget deficit. According to the final monthly Treasury Statement for Fiscal Year 2018 (the year that ended on 9/30/2018), the deficit was $779 Billion — a $113 Billion (17%) increase over the$666 Billion deficit recorded from FY 2017.
Perhaps most egregious to the American people? Mitch McConnell is blaming self-funded safety net programs [Social Security, Medicare and Medicaid] as the root cause of our rising federal deficit. Visualize McConnell as he does a little smile; looks straight into the camera; and then blatantly lies to the American people. Was he also lying when he took the Oath of Office?
3. Incendiary, Irrational and Emotionally-Inspired Immigration Policy:
Right or wrong, the U.S. economy depends on immigrant workers – documented or undocumented. Industry sectors which rely on immigrants for between 1/4 and 1/2 of their employment needs include: agriculture; hospitality; construction; textile, apparel and leather manufacturing; food manufacturing; and private households.
Through a series of small moves that add up to dramatic change, the Trump administration has bypassed Congress to create new process and procedures which could have lasting effects on how the US welcomes and evaluates immigrants.
In his election campaign in June 2015, Trump told us, “When Mexico sends its people, they’re not sending their best. They’re sending people that have lots of problems, and they’re bringing those problems with us. They’re bringing drugs. They’re bringing crime. They’re rapists…”
By painting virtually all immigrants with a broad brush as criminals; as a national security threat to the U.S.; as bad people; as people who steal jobs from Americans; he has created a hostile environment on the world stage, offering fear and fallacies with no attempt to find viable and sustainable solutions.
In late October 2018, facing a ‘caravan of migrants’ moving north from Central America toward the U.S. Southern border, Trump has proclaimed that there are ‘criminals and people of Middle Eastern descent among the migrants within the caravan’ and has pointed to it as evidence that the U.S. has weak immigration laws. He has also threatened to cut off aid to Central American countries in response to the caravan.
An internal report from the Department of Homeland Security’s Inspector General found that the Trump administration’s “zero tolerance” crackdown at the border in early 2018 was troubled from the outset by planning shortfalls, widespread communication failures and administrative indifference to the separation of small children from their parents.
It has been said that the Trump Child Separation Policy is related to the worst abuses of humanity in history. Child separation is connected by the same evil that separated families during slavery, and which dislocated tribes and broke up Native American families.
What’s the point?
The point is that differences of opinion are a cornerstone of society, and a critical ingredient of humanity.
The very essence of Debate relies on formal discussion on a particular topic.
In an honest debate, opposing arguments are put forward to argue for opposite viewpoints. Genuine and honest debate can occur in public meetings, academic institutions, and in legislative assemblies.
A genuine debate requires some ground rules, particularly in the areas of logical consistency and factual accuracy, yet it also allows some degree of emotional appeal to the audience.
Sadly, today’s discussions on topics of importance to the American People seem to lack any rules about civility, logic or even factual accuracy.
Turn on the television and we find absolutism, tribalism and a “win at any cost” approach to delicate yet important societal issues. Dialogue has effectively been replaced by diatribe.
Worse, people can select news sources which support and reinforce their biases, finding comfort in “being right” by selective listening or watching. No time or need to consider other options when the platform has been fully developed to mirror your comfort zone.
Add to this dilemma the continuing disenfranchisement of American adults from the political process.
More adult males in America today are able to recite NFL statistics than are able explain issues facing American society, and women are not far behind.
Voter turnout in the United States fluctuates in national elections. In recent elections, about 60% of the voting eligible population votes during presidential election years, and about 40% votes during midterm elections. Turnout is lower for odd year, primary and local elections.
If we compare national voter participation in the 2016 presidential election to viewership of the 2016 Superbowl, we find a dead heat at around 112 Million.
Not necessarily the same people, but it does strike me that we have a real disconnect between the American public and our governance model, perhaps helping to explain why our system seems to be in need of some serious adjustments at this point in time.
Trump Family & Potential Tax Fraud
October 3, 2018
Since Donald J. Trump announced his candidacy for president in June 2015, there have been many commentaries on his financial history — particularly because he has refused to release his tax returns.
In 2016, David Barstow, Susanne Craig and Russ Buettner of The New York Times obtained Trump’s 1995 tax returns, and for their article published on the front page of The New York Times on October 3, 2018, they worked together for over a year to investigate the wealth that the president inherited from his father.
The narrative in the NY Times investigative piece is compelling.
Like most rules and regulations, U.S. tax law assumes that people will voluntarily comply in the interest of equity and fairness across the board. If the laws are not fair, they should be amended, not circumvented.
Having worked in the real estate and financial services industry for many years, I am familiar with many of the strategies exposed in the article, particularly the rather arbitrary and capricious use of independent appraisals to determine market value at a point in time.
Where many — if not most — wealthy families and individuals pay their fair share of taxes (perhaps grudgingly), the Trump family has notoriously and conspicuously fought against taxing authorities, continually challenging assessments and levies as a part of their overall family business plan.
Note a recent kerfuffle in Westchester County, NY where a Trump National Golf Club is located.
With a 65,000 square foot club house, private gourmet restaurant, swimming pool, tennis pavilion and courts, the 18-hole, 7,261 yard Jim Fazio designed course is situated on 140+ acres of prime real estate in the Town of Ossining, NY.
This ultra-exclusive private club demands a hefty 5-figure initiation fee from new members, with minimum annual dues of $19,400.
In his 2017 Executive Branch Personal Financial Disclosure Report (filed 6/14/2017), Donald Trump revealed the value of his ownership interest in Trump National Golf Club – Westchester at ‘over $50,000,000.’ with annual personal income attributable to the Club of $9,771,428.
Yet, in 2015, the Trump Organization sued the town of Ossining to lower its assessment from the 2014 value of $13.5 Million to $1.4 Million in order to reduce property and school taxes.
After the feud with Ossining became public, Trump’s lawyers raised the dollar value of the golf course, but it was still nowhere near the official 2015 assessment of $14.3 million and 2016 assessed value of $15.1 million.
The moves are consistent with repeated efforts by the Trump Organization to challenge property valuations in an effort to win massive local property tax reductions, not to mention the potentially illicit impacts on federal, state and local income tax obligations which in many cases are directly linked to these local assessments (valuations).
Over the past several years, Trump has lauded himself as “one of the most successful businessmen in the world,” who paid “no more tax than legally required.”
“I have brilliantly used [the U.S. tax] laws,” Trump said at a campaign event in October 2016. “I was able to use the tax laws of this country, and my business acumen, to dig out of the real estate mess — you would call it a depression — when few others were able to do what I did.”
It was a reported $916 Million net operating loss in 1995 which gave Trump the ability to avoid paying taxes on more than $50 Million in annual taxable income over the following 18 years.
Make America Great Again? Only if others are willing to cough up the tax revenues needed to pay the freight.
walrus51 