The headline comes directly from Steven Mnuchin, our U.S. Treasury Secretary, who recently penned an op-ed piece which appeared in print in the Tampa Bay Times (July 3, 2018).  https://www.whitehouse.gov/articles/trump-tax-cuts-strengthened-u-s-economy/

Mnuchin’s opinion piece seems to consist primarily of fluffed-up puffery related to the Tax Cuts and Jobs Act (TCJA) of 2017.

Mr. Mnuchin omitted several critical issues which most economists agree must be included in any analysis of the U.S. economy.

First is the ‘business (economic) cycle’.  The National Bureau of Economic Research (NBER) has been tracking the U.S. economy for 160+ years.  NBER defines one business cycle as: A period of economic expansion; followed by a contraction (recession); ending at the next point of recovery.

NBER’s 160+ years of records reflect that (over that time) the U.S. economy experienced 66 business cycles. Since 1945, we have experienced 11 business cycles with an average length of expansions of 5 years, followed by an average length of recessions of 1 year.

We can’t forget that the U.S. economy almost collapsed in early 2008 following a period of ebullience and expansion apparently accompanied by loose regulatory oversight of the financial sector.

Quick intervention in 2008 by our federal government saved the U.S. economy from the deepest and longest downturn since the Great Depression.  NBER data reflects the point of recovery (beginning of expansion) of the U.S. economy occurred in June 2009, and has now entered its 10th year (109th month) of growth.

Our current economic expansion is now the second-longest expansion on record, exceeded only by the expansion from March 1991 to March 2001, which lasted a full 10 years.

History tells us we are very close to the point of contraction (recession) of the U.S. economy.

Second is the ‘Skills Gap’.  When Mr. Mnuchin tells us that “…there are enough job openings in America for every unemployed person in the country” he fails to explain that the majority of open jobs require skills which the majority of unemployed people lack. In other cases, the unfilled jobs are located hundreds – maybe thousands – of miles away from the location of potential job seekers.

One solution to filling the open jobs is to encourage migration – or immigration — of skilled workers.

Another solution is to recruit, educate and train currently underemployed or unemployed U.S. residents who live in near proximity to the open jobs.

Third involves a dangerous combination of tax cuts and deficit spending to finance those tax cuts.

Mr. Mnuchin touts benefits to U.S. workers as a result of repatriation of hundreds of billions of dollars from off-shore corporate subsidiaries to the U.S.  In fact, companies thus far have paid out dividends and other withdrawals of $305.6 billion from foreign receipts which far outstripped the amount of this cash which was reinvested domestically.  By some estimates, corporations have spent 72 times as much on share buybacks as they have spent on one-time worker bonuses and raises.

The U.S. ‘current account deficit’, which measures the flow of goods, services and investments into and out of the country, widened by $8.0 billion to $124.1 billion, or 2.5 percent of national economic output in the first 3 months of 2018, virtually all of which seems to be attributable to the repatriation tax holiday.

To make up for the loss of tax revenue, the Trump administration is relying on a combination of debt financing and mystical economic growth which they expect to occur at the end of an extended business cycle.

Mnuchin tells us that U.S. economic growth is on steroids.

Some observers have noted that the appearance of economic growth is highly influenced by the infusion of repatriated cash – somewhat similar to feeding 2nd graders sugar before sending them out onto the playground.

The energy is intense, but it won’t last very long, and it is just not sustainable.

A recent report (6/21/2108) from the U.S. Office of Government Accountability (GAO) warns that responsible action is needed on the nation’s growing federal deficit, which grew to $666 Billion in FY 2017 (10/01/16 to 9/30/17) and is projected to surpass $1 Trillion by 2020.

According to the GAO’s 2017 financial report, the federal deficit in FY 2017 increased by 13.5% from $587 Billion in FY 2016 and $439 Billion in FY 2015. Federal receipts in FY 2017 increased by $48 billion, but that was outweighed by a $127 billion increase in spending.  (Note that Deficit is an annual measure; National Debt is aggregate, an accumulation of annual shortfalls.)

The aggregate (gross) amount that the U.S. Treasury can borrow is limited by the U.S. debt ceiling. As of April 30, 2018, our National Debt was $21 Trillion, about 78% of GDP.

Since its passage in December 2017, the non-partisan Congressional Budget Office has warned that TCJA will add $1.84 Trillion to the federal deficit over the next 10 years, which they estimate will push the National Debt to an unprecedented 152 percent of GDP by 2028, significantly increasing the odds of a new financial crisis.

Interest rates are rising, and National Debt is increasing, thus interest on National Debt will consume an ever-increasing amount of future federal budgets.

And, of great concern is the flattening of the ‘yield curve’.  Traditionally, interest rates on short-term debt are lower than rates paid on long-term obligations.

The spread between the yields of the 2-year Treasury note (2.55 percent) and 10-year Treasury note (2.89 percent) was 34 basis points on June 23. That’s less than half of what it was in early February and the narrowest it’s been since August 2007.

An inversion of the yield curve — when long-term rates fall below short-term rates — traditionally predicts a looming recession.

—————————————————————————-

It’s not clear why Mr. Mnuchin – a seasoned financial services sector professional with a clear expertise in fixed income securities – would omit such important information in his assessment of the U.S. economy.

I am drawn to conclude Mr. Mnuchin is using his position as a high-ranking federal official to ‘butter his own toast’, likely through complex – and undisclosed — derivative positions.

We’ll have to see if the Walrus is correct…..

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Another branch of our armed forces?

I just can’t imagine an Industrial Engineer who would look at the current structure of the Pentagon and the U.S. military and not conclude that we have an extraordinarily inefficient approach to defense.

Air, land and sea.  Sounds good, right?

Except that we have 5 branches which overlap, compete with each other directly and indirectly, and don’t always communicate well.

Now, the Master Obfuscator and Distracter-in-Chief wants to start a 6th branch!

I can only conclude that The Donald is running wild trying to divert attention away from some of his self-created demons: Immigration; His war on Canada; His new love affair with Kim Jong Un; A ‘tax reform’ plan which will leave America bankrupt; The deterioration and ultimate disintegration of the American health care system; The ‘Russia thing’; Cyber security intrusions and risks across the entire U.S. public and private sector; Rapidly deteriorating physical infrastructure across the U.S.; Escalating gun violence, the NRA and 21st century gun control; Mueller and his ‘Russian Witch Hunt Hoax’; Stormy Daniels; and Dozens of other critical issues which need to be addressed in an honest, responsible and strategic fashion.

Donald J. Trump has the attention span of a gnat, the moral turpitude of a ‘made man’ and the integrity of a Carnival Barker.  Despite that, he is our POTUS, and he continues to dash along his path toward fooling many of the people most of the time.

April, 11, 2018:  Paul Ryan announced his plan to retire from Congress in January 2019, at the end of his current term, and further stated that he will not run for re-election.

Ryan said that he is proud of the accomplishments which occurred during his 20 years of service in Congress, although he regrets that ‘they were unable to achieve Entitlement Reform’ during his tenure in office.  Despite his vocal regrets, he is planning to leave Washington in January 2019 with some of the most generous and egregious entitlements remaining in the U.S.

It has been said that Ryan’s remaining goal (‘Entitlement Reform’) is razor focused on cutting federal spending on Medicare, Medicaid and welfare programs as a way to temper extraordinary increases in the federal deficit.

These increases in the deficit were willfully enacted as a component of the 2017 Tax Cuts and Jobs Act as a result of rare, curious, wild and crazy tax cuts combined with wild and crazy spending increases, at a point in our economic cycle which begs for caution and restraint.

Paul Ryan said that he is extremely pleased to have played a significant role in the passage of the Tax Cuts and Jobs Act which he considers to be a highlight of his service in Washington.

Background on Jobs:

Since 2010, the U.S. economy has supported the creation of almost 17.5 Million jobs, leading to a November 2017 unemployment rate of 4.1%, a 17-year low. (Perspective: Unemployment reached 15% toward the end of 2009; many economists agree that “full-employment” occurs when the unemployment rate is at 5% or lower.)

Hundreds of U.S companies have been looking to hire workers for skilled positions to help them meet growing demand for their products and services. These jobs are often called “family wage jobs” because they provide compensation and benefits sufficient to support a family in the local economy.

The number of job openings in the U.S. (October 2017) remained at the 6 Million level, marginally lower than at the end of 2016. (Perspective: When the Great Recession was at its worst in 2009, job openings fell to 2.2 million, an all-time low.)

Average hourly earnings had risen just 2.5% over the 12 month period ending in October 2017, helping to support the theory that a significant skills gap continues to impede hiring for family wage jobs which typically require advanced reading, math and computer skills.

In addition to the dilemma of finding skilled workers in shrinking regional labor market pools (“skills gap”), hiring managers and economic development experts also report obstacles cited by job seekers such as: transportation (including long commutes); day care/child care; and noncompetitive wage rates.

Despite these documented facts, Paul Ryan, many members of Congress and President Trump actively and enthusiastically supported “The Tax Cuts and Jobs Act” of 2017, telling us – among other things, “Our legislation is focused entirely on growing our economy, bringing jobs back to our local communities, increasing paychecks for our workers…”

At a point in time when we had apparently reached full employment; when some 6 Million higher-skilled, family wage jobs were unfilled, at least 2 questions remained unanswered:

– Other than engaging in war, or the innovative programs launched in the 1930’s (CCC, WPA, etc.), has the federal government ever succeeded in an effort to create sustainable private sector employment?

– If new family wage jobs are created, who would be available to fill them?

Background on the tax side:

When George W. Bush (POTUS 43) took office in January 2001, he inherited a federal budget from his predecessor.

Fiscal Year Ending (FYE) 9/30/2001 resulted in revenues of $2.39 Trillion and expenditures of $2.23 Trillion, resulting in a budget surplus of $0.15 Trillion. FYE 2001 federal debt held by the public was $3.34 Trillion, representing 31.7% of GDP.

Fast forward to his final full year in office (FYE 9/30/08), Bush watched over a federal budget which included revenues of $2.52 Trillion and expenditures of $2.98 Trillion.

That left a FYE deficit of $458.6 Billion, which (combined with prior deficit spending) resulted in total federal debt of $9.99 Trillion at FYE (9/30/08), representing 67.7% of GDP.

The federal budget for FY 2009 was developed by then-president Bush, submitted to Congress, and inherited by Obama (POTUS 44). The actual federal revenues for FY 2009 were $2.10 Trillion; expenditures were $3.52 Trillion. That left a 2009 FYE deficit of $1.41 Trillion, which (combined with prior deficit spending) resulted in total federal debt of $11.88 Trillion at FYE (9/30/09), representing 82.4% of GDP.

Most reasonable people will agree that a newly elected President who inherits a spending plan from his predecessor should not be given credit for its success or failure.

POTUS 44 (Obama) presided over 7 years of steady economic growth in the U.S., and under his watch, the close of FY 2017 budget reflects an increase of total federal debt to $14.67 Trillion, which was a numerical increase, but which represented a relative decrease to 76.3% of GDP.

Not great, but a clear improvement over what Obama inherited from Bush.

Some economists have suggested a 60% ceiling for publicly held debt vs. GDP which seems to make sense.

Although policies enacted during the Obama administration did reduce the ratio for 82% to 76%, we have a long way to go.

The correct way to address this situation is through tax policy reform designed to create balanced federal budgets, focused on reducing federal deficits.

That is not what our Congress has approved, and what President Trump signed into law just prior to Christmas 2017.

Most recent analysis by the Congressional Budget Office (4/10/2018) estimates that the combined effect of the 2017 tax cuts and the March 2018 budget-busting spending bill is sending the annual federal deficit toward the $1 Trillion mark in 2019.

The CBO report says our nation’s current $21 Trillion debt would spike to more than $33 Trillion in 10 years, with debt held by investors spiking to levels that would come close to equaling the size of the economy, reaching levels that many economists fear could spark a debt crisis.

CBO says economic growth from the tax cuts will add 0.7 percent on average to the nation’s economic output over the coming decade. Those effects will only partially offset the deficit cost of the tax cuts.

The administration had promised the cuts would pay for themselves.

Best I can see, only Robert Reich has focused on the Real Facts, and who would listen to a guy like Reich, who has degrees from Yale, Oxford, Dartmouth — clearly a left-wing Liberal Snowflake….

As interim Pres. Trump tweeted today, “We are with you, Paul!”

Americans for Tax Reform

November 5, 2011

I am an American, and I am fully in favor of Tax Reform.

In my view, Tax Reform means removing all of the crazy loopholes that allow certain special interests to avoid paying taxes, or to shelter income under some special rule that allows their income to be taxed at some artificially low rate.

Tax Reform also means capturing federal and state income taxes from the “Shadow Economy.”

Of course, a portion of our shadow economy involves illegal activities such as burglary, robbery and drug dealing, but the lion’s share of our shadow economy is comprised of regular people who don’t seem to want to be obvious criminals.

As our official economy has continued to deteriorate and unemployment hovers in the 9% range, some creative people have found opportunities in the shadow economy.

It is no surprise that in hard economic times, creative people turn to resourceful solutions in order to get by, and Americans are noted for their ingenuity. With high unemployment, informal entrepreneurs — particularly those who don’t pay taxes – have come out of the woodwork.

Unshackled by excessive regulations, license fees, and (yes) various taxes, people work in the shadow, trying to keep their family from becoming a statistic.

Could be a day laborer waiting on a street corner for a construction gig; a single mother running a day care center out of her apartment; an unlicensed street food vendor; a plumber who offers a discount to clients who pay cash; or an auto repair shop that prefers cash over checks or credit cards, and offers an incentive to customers who are willing to pay cash.

Various sources have estimated that the shadow economy makes up a larger portion of the economies of countries like Greece (25 percent) or Mozambique (more than 40 percent) than it does in the U.S. where consensus pegs the shadow economy somewhere between 8 to 10 percent of total GDP — in 2010, an amount equal to around $1.4 trillion That translates to lost federal tax revenue of $280 Billion, assuming a 20% federal tax rate.

Added to this opportunity to increase tax revenues at the individual level, the awful state of our corporate income tax code further exacerbates the problem.

A recently released look at the inefficiency of our corporate tax policy and rules by the nonpartisan research group Citizens for Tax Justice gives us a picture of some simple changes that could be enacted to help create tax equity and to generate significant new revenue at the Federal level. The full report is available at

http://www.ctj.org/corporatetaxdodgers/CorporateTaxDodgersReport.pdf

Here is a brief excerpt:

“The corporate Alternative Minimum Tax (AMT) was established in 1986 to ensure that profitable corporations pay some substantial amount in income taxes no matter how many tax breaks they enjoy under the regular corporate tax. The corporate AMT (unlike the much-maligned personal AMT) was particularly designed to curb leasing tax shelters that had allowed corporations such as General Electric to avoid most or all of their regular tax liabilities.

But laws enacted in 1993 and 1997 at the behest of corporate lobbyists sharply weakened the corporate AMT, and now hardly any companies pay the tax. In fact, many are getting rebates for past AMT payments. In late 2001, U.S. House of Representatives leaders attempted to repeal the corporate AMT entirely and give companies instant refunds for any AMT they had paid since 1986. Public outcry stopped that outrageous plan, at least so far, but the AMT remains a shell of its former self that will require substantial reform if it is to once again achieve its goal of curbing corporate tax avoidance.”

So, while the organization known as “Citizens for Tax Reform” makes plenty of noise and strongly encourages candidates for public office to sign a Taxpayer Protection Pledge, the real deal here is that they are perpetuating the loopholes which corporations and wealthy individuals are able to use to avoid the tax bracket they ought to be in.

We don’t need to increase tax rates at all. What we need is real Tax Reform that will eliminate these tax avoidance scams once and forever.

Property Tax Caps?

June 27, 2011

Property tax caps! Starve the beast!

The current skirmish in New York is the latest round in the battle between revenue and expense.

Local governments – sometimes trying to hide behind the shield of “unfunded mandates” – raise local property taxes to balance the local budget.

Taxpayers – perhaps feeling victimized — become enraged, and start a local TEA Party chapter.

Things can quickly get mean, ugly and out of control…

Could there be a better way?

In Indiana, property tax caps imposed as an outcome from 2007 property tax spikes, ended up with layoffs of police officers and firefighters, and significant increases in business fees, all because the caps reduced local tax revenues.

Commercial taxpayers in Illinois were angry with the caps because legislators allowed property-tax rates for businesses to be three times the rate for homes.

Property tax caps tend to be very popular with voters who are homeowners.

If we could couple property tax caps with government spending reform, we might have a real solution!

In New York State, let’s start by consolidating our 700+ school districts into 70.

Let’s get rid of the practice of packing 200% overtime for police and firefighters into the final 2 years to generate six-figure pensions. Let’s eliminate defined benefit pension plans. Let’s eliminate free lifetime health benefits.

There are likely dozens of other ideas that could do more good than trying to cap property taxes at 2%, but they will all enrage union representatives.

That goes right back to the premise that progress is only possible if we work together in an honest and non-confrontational way.

We need to find people who can focus on the needs of their future grandchildren.

That really helps to separate the wheat from the chaff….

A Zero Sum Game

June 27, 2011

“The central problem in our economy now is not putting idle resources and unemployed workers back to work, but of ending slow productivity growth; of causing the nation to save and invest more and consume less of its income; of preventing inflation from sapping the vigor of the economy whenever it approaches high employment; and of wiping out the enormous budget deficits that are weakening the national economy and its ability to compete in world markets. And just as important, and even tougher to solve, are the problems of individual companies and industries stemming from inadequate research and innovation; poor labor-management relations; and myopic management that seems incapable of looking beyond the short-run bottom line.”

“Cutting Federal expenditures (military and/or civilian) is not a viable way to wipe out the deficits. Government at all levels has an important job to play if the nation’s economy – its educational system, its industrial base, its infrastructure, its power to innovate and forge ahead in world markets – is to be strengthened.

Higher taxes are the only way to eliminate budget deficits, and the optimum way to accomplish this is through a value-added tax (VAT), which would replace the corporate income tax and permit a sharp reduction in payroll taxes. A VAT is determined by subtracting a company’s purchases of materials from its gross selling revenue and levying a tax on the difference: it is really a national sales tax. With a 15 percent VAT, a $20,000 car would cost a consumer $23,000.

A VAT would be a good thing not just to wipe out the budget deficit, but also to help the nation to consume less and save and invest more, to collect taxes from participants in the underground economy and to encourage exports by rebating the VAT on them as foreign countries do.”

Does this sound like something from a recent economic analysis you may have overlooked? Not to worry — it is not!

It is an excerpt from THE ZERO-SUM SOLUTION: Building a World-Class American Economy, written by Lester C. Thurow, a professor of economics and management at the Massachusetts Institute of Technology. It was published in 1985 following up on an earlier book, ”The Zero-Sum Society” (1980).

Dr. Thurow argued that the United States was caught in a trap of sluggish growth from which it could not escape without making some politically powerful groups worse off in the short run, yet resulting in strengthening the U.S. by making the nation as a whole better off in the long run.

The term ”zero-sum” — apparently borrowed from John von Neumann’s and Oskar Morgenstern’s theory of games — refers to that class of games (such as football, poker and some wars), in which the total gains equal the total losses.

A negative-sum game—(a nuclear war, for example) — is one in which everybody loses.

A positive-sum game – i.e. a good trade or a happy marriage – is one in which both sides win.

The majority of challenges Thurow identified three decades ago persist today because an elite few with tremendous political influence and power refuse to step back and “bite the bullet” in the short-term to support real and sustainable long-term reform.

One clear difference between 1980 and today is the absence of rampant inflation. Fed Chairman Bernanke has consistently supported a policy of ‘quantitative easing’ which has ensured interest rates near zero and an almost endless availability of credit.

During the Reagan years, a combination of relaxed fiscal policy (resulting in huge budget deficits) was accompanied by tight-money policy (resulting in double-digit interest rates).

Thurow contended that turning big budget deficits into a moderate budget surplus would eliminate a big drain on national savings. That proved to be true during the Clinton years.

We have plenty of historical data which clearly shows that reducing taxes and increasing government spending (whether domestic or defense) is a recipe for economic disaster.

Stay tuned for more positive ideas on how we can restore the U.S. to the pinnacle of economic power, meanwhile, don’t believe what you might hear from Elected Officials along the lines that, “…enormous tax hikes on the wealthiest Americans will slow down economic growth because they will transfer resources from the productive hands of the private sector to the wasteful hands of Congress, raise energy prices, and reduce incentives to work, save, and invest. Tax hikes are not the right solution for Americans—nor are they needed to reduce the deficit. Congress should cut spending and reform the tax code so it inflicts less of a burden on businesses and families and is more conducive to job creation.”

It is great rhetoric, but as written, it’s just not true.

Real reform requires serious collaboration and involves a very carefully designed combination of spending reform; tax reform; and re-engineering of government, starting from the federal, then cascading to state, county and local levels.

Yes, there will be some pain and agony. It’s long overdue, and I predict will result in great long-term benefits across economic classes.

Isn’t that what the U.S. is all about?