Democrats and the Republican Tax Plan

There is broad agreement among non-partisans the Republican tax plan is going to further blow up the deficit and undermine the strength of our economy.  Unfortunately Democrats demonizing corporations have provided cover for decades that has allowed Republicans to avoid facing the real problem.  

Corporations and Corporate taxes are not our primary economic problem.  Could they improved?  Of course.  But US economic history over the last 50 years demonstrates our fundamental economic problem isn't high corporate taxes, it is the distribution of income.

Ever since the Reagan tax cuts in 1984 our economy has been marked by two characteristics.  Rising economic inequality and asset bubbles.   Who ever heard the word "bubble" before Reagan? (Except in history books).  Constant inflation in the price of assets in the face of muted broader inflation. 

As people gather wealth at a certain point they literally have every product and service they could need or want.  What do they do with the money they receive beyond their personal wants?  They invest in existing assets.  They buy another property, or pay scores or hundreds of millions for a painting, or a rare old car.  That spending doesn't create many jobs or contribute to real growth.  In terms of generating economic growth they might as well bury that money in their backyard. 

The wealthy folks that control corporations can control the distribution of money out of the corporation.  From 1945 to 1985, when the highest tax rates for high earners in the US ranged from 70 to 90%  we had a falling deficit and a very healthy economy.  Dare we suppose it was because rich folks were loath to pay 70 to 90% of the money being paid out to them to Uncle Sam, so they left the money in the business where they could grow their wealth without such onerous tax consequences?

Economists say high marginal tax rates don't generate much income for the government.  They miss the point.  High marginal rates change behavior.  They keep more money in the circulating economy and less ends up buried in asset inflation.

Rethinking Immigration Law

At some level immigration law has always struck me as vaguely un-American.  

My basic vision of what America should be is each individual is free to do what he wants, unless his activities impact other people.  If there is potential conflict between different individuals activities, government mediates by setting rules.   So in my idealistic vision America is should be about protecting individuals from groups of people banding to use government to control the lives of other people whose activities aren't really impacting others.

The notion of "controlling our borders" is an artifact we inherited from the age of Kings and dictators who ruled by force of arms.  Certainly border checkpoints are justified where we try to identify and weed out terrorists, or smugglers, or other persons bent on fraud, theft or violence.  But why do we work so hard to keep out regular folks coming to try to improve life for their families?  That part of immigration law is always based on the most crass form of lifeboat ethics - I  got mine and I'm not sharing.  It is rooted in a view that life is a zero sum game where new folks will take from the existing population, rather than the reality in which immigrants add value to a greater society.

I think it is entirely reasonable to  have citizens who have committed to this country have the sole privilege to vote, or receive other benefits from citizenship.  But I don't think it is reasonable to set up hurdles to stop people who seek economic, political or religious freedom from coming, and staying, in this country.  

Freedom of movement about the world is is a moral issue for which we should be leader, not a naysayer.

Abortion - The Dispute that is Undermining our Democracy

Politicians have harvested the votes of folks opposed to the Roe v. Wade decision for three decades. Their resulting ability to name very conservative justices to the Supreme Court has led to the very wealthy gaining ever more power to ignore the fundamental precepts of democracy. Anonymous corporations can now pour millions of dollars into advertising to elect the candidates of their choice, even as those candidates work at making it harder for regular folks to vote. The rich get richer while regular folks often can't afford to buy a house.

(I ask my friends and relatives with whom I have agreed to disagree in the past to read and consider the following)

Please decide whether you think the following statements are true or false:

Is giving the Government the power to force women to bear children consistent with our values?  Where does an individual’s right to pursue “life, liberty and the pursuit of happiness” stop and governments control of a citizen’s life begin?

If we force a women to carry through a pregnancy don’t we owe some duty to that child to insure it has an opportunity for a good life?

Our form of government is in essence an agreement that we will each be free except to the extent our activities impact other persons.

The Ten Commandments say “thou shalt not..”   They do not say “Thou shalt not allow others to…” The 10 Commandments are God’s instructions to each of us on what we must do be meet God’s standards.  

God is the judge of whether we meet his standards, he did not delegate authority to judge sins to us.  Rather like when you leave the house and tell your kids to stay out of the cookie jar, you are telling them each as individuals the conduct you expect from them, you are not deputizing them to prevent their siblings from raiding the cookie jar - because that would surely lead to a fight.

After Moses came down with the 10 Commandments Moses people started coming to Moses with complaints about other people’s behavior and suggesting punishments.  Thus began Leviticus, an incredible collection of laws imposed, not as an agreement between the governed, but as laws of God to be enforced by man.

What made Jesus a revolutionary threat in the eyes of the Temple leaders was he rejected that notion that man was deputized to enforce God’s laws. But Jesus could directly repudiate Leviticus because the religious leaders in his time did not want their power threatened and would quickly convict him of heresy and execute him if they had enough evidence.

So Jesus did not directly repudiate Leviticus.  Instead he preached what God does want us to do - love your neighbor and live by the Golden rule.  His message was focus on your own relationship with God and stop judging others.  But occasionally Jesus couldn’t resist pointing out the silliness of all the rules that grew out of the notion in Leviticus  that God authorized man to judge what is a sins against God.  In the Sermon on the Mount, far from the Temple he let himself go a little and ridiculed a lot of the minor rules that grew out of the Leviticus notion men could determine what God wanted.

When Jesus later arrived in Jerusalem (John Chapter 8) the Temple leaders took a woman who had been found committing adultery to Jesus. They said to Jesus Leviticus says this women should be stoned to death, what do you say we should do?  Jesus realized they were trying to get him to directly repudiate Leviticus so they could imprison him. So at first he just said nothing.   They kept insisting, demanding an answer.  So Jesus gave them an answer that instead of rejecting Leviticus told them why Leviticus was wrong.  Let the person who is without sin cast the first stone.

Quite simply, Jesus's fundamental message was the laws of God are to be judged by God, not us.  Our job is to focus on our own behavior.

God has no problem with us creating laws among ourselves to create a harmonious society where people are free to pursue their life without interference from others.  God gave us a brain, he gave us the ability to be happy and enjoy life.  But those laws are rooted in protecting our ability to live the life we choose, not in judging and punishing others for their life choices.

Sometimes our laws overlap with Gods.  We have laws against conduct  - like murder, or theft - that has a negative impact on other people because when one person commits such an act against another person it creates anger and leads to a like response. And it interferes with the victims right to live their life. But we must guard against doing exactly what Jesus advised against - assuming the right to judge sin.

If a women in your community has an abortion it has no negative consequences on any other person in the community - it does not generally raise the possibility of someone lashing out in anger or seeking revenge.   It may be a sin but it is God who will judge that sin.

You may be concerned about the life of the fetus. You think it is somehow your duty to save the fetus. Here are some questions about that view.

1. Is not God all powerful? Does he need your help to deal with an abortion in his own way?

2. Does a fetus have a soul? If you believe the answer is yes ask yourself :
Does the soul of an aborted fetus go to heaven, or to hell?
How can a fetus commit a sin?
If it can't commit a sin do you believe God will condemn the fetus for the sins of the mother?

If an aborted fetus is going to heaven - what are you saving it for?
The chance to live life with a mother than doesn't want it so it can commit some sin and go to hell?

b. If the fetus does not have a soul until, as Genesis suggests, God breathes in the breath of life, it is the mother's soul who is at risk, and you are choosing to stand in judgment and take away the mother's right to make choices in life.

Compare to the issue of control A gun is a tool whose only real purpose is to take life.  Tens of thousands of children and adults lose their life each year to gun violence.  Regulating guns is a legitimate subject for law because it impacts living souls.

When you focus your efforts using the power of government to force a change in the behavior of women whom you judge are about to commit a sin, you reject Jesus in the same way the Temple establishment rejected Jesus.  You are focusing on forcing people not to sin instead of focusing on the Golden Rule and treating others as you would like to be treated.  

Health Care is not a Right

Saying health care is a right is drives a wedge down the middle of the health care debate rather than pulling people together for a solution.  

In our democracy rights are what we should all be absolutely entitled to do as part of being able to control our own life.  Rights are absolute except to the extent our exercise of our rights impinges on the rights of some other person or persons.  In that case the parties negotiate a compromise, or society sets up rules to govern how the competing rights balance.

Health care, by definition, is one person being helped by another person. 

Forcing a person or persons to provide health care for someone else is - well - dictatorial. Smacks of slavery.  It is a denial of the other person's rights to make their own choices about life.

That's not to say universal health care is not a laudable goal and an enlightened idea.  But it is not a right, it is something we as a society chose to do because we perceive t benefits us all.

Congress - Fix the Housing Market You Broke

In 1996, having just taken control of both houses of Congress for the first time in 40 years, Republicans pushed through a big tax cut bill.  One of the provisions buried in the bill that didn't get a lot of attention was a big change in how a personal residence is taxed.

Prior to 1996 if you bought a house and then sold it for a gain, you had to pay Capital Gains taxes.  However, if the home was your personal residence and you used the sale proceeds to buy a new personal residence you had no tax obligation.  For generations regular folk had bought a house, as the family grew or their needs changed they were free to upgrade to a bigger house without paying Capital Gains taxes when they rolled the money over into a better house.  Once they were over 55 homeowners had a one time opportunity to downsize to a smaller home, and they could keep up to hundreds of thousands of dollars of what they got in the sale that exceeded the cost of their new home to fund their retirement.  It was a big part of how regular people funded their retirement.

Speculators, on the other hand, prior to 1996, had to pay Capital Gains taxes when they bought houses and rolled them over to make a profit, which discouraged speculation on housing.

Republicans dumped this system that had worked for generations.  Their new system allowed you to sell your house at any point in life and $250,000 (or more) in gain was exempt from taxes.  

So what does history reveal about the wisdom of this change? 

Speculators almost immediately spotted the opportunity.   The price of the average house began rising far faster than average income because speculators were buying houses to flip to take advantage of this huge tax benefit.  Within a couple years you could hardly change a channel on the television without finding another program about how to get rich flipping houses.  People wanting to buy a house to live in had to take bigger and bigger loans to afford a house, and the frenzy in the housing market was one of the most direct causes for the financial collapse that began in 2006.

The financial collapse brought housing prices down considerably (although prices were still significantly higher than the long term average of price to income).   A lot of the house flippers got clobbered and lost places to foreclosure along with a lot of regular folks just trying to afford a house.  But the landlords sitting on the sidelines saw a great opportunity and began snatching up houses to rent and driving the prices back up again.  

Now, 20 years later, people who want to buy a house pay a much bigger chunk of their income, and have far less left over, than their parents or grandparents, and the only reason they can afford to buy at all is because interest rates are the lowest they have been in modern times.  Yet, despite historically low interest rates the percentage of people who own a home is well below the percentage of our parents or grandparents who owned a home.

In some markets some of the people who own a house are essentially trapped in their house. Prices have jumped so much if they want to sell to move they will have a Capital gains tax obligation that may preclude them from affording to buy another house in their neighborhood.  So folks hold on to houses way to big for them until they die, reducing supply and further driving up prices.

The worst may be yet to come.  When interest rates ever start going up housing prices will collapse.   The price of a house a family can afford is a lot less when the interest is 5% or 6% than it is at 3% or 4%.  So we will once again have big chunks of folks underwater on their houses.

It has also been apparent for years pension funds across the country are vastly underfunded.  

The retirement future for many folks in the US does not look rosy.

The economic health of our country is at risk and regular folks are getting screwed because in 1996 Republicans wanted to close a budget deficit at the expense of regular folk instead of taxing people with real wealth.

Trump - Part 4 - Less regulation

President Trump and the Republican Congress, as the supplement to their claim reducing taxes will boost the economy, say we also need to reduce regulation.  This idea also has been a Republican staple since at least the 1920's..

While the notion tax cuts are what we need right now is a fantasy, there is some merit to looking at reducing legislation.  However, we first have to draw a distinction.  

Nobody who has ever dealt with a government agency has any illusions that what they are doing is being done as efficiently as possible.  But making government agencies more efficient is time consuming drudgery, so generally that is not what politicians want to do.  They want to just abolish or cripple the regulatory effectiveness of agencies they oppose for ideological reasons.

Historically the two biggest financial collapses in our country grew directly out of ideological undermining of financial regulation.  Republicans took control of Congress in 1919 ideologically committed to "freeing" banks and financial institutions from government regulation and the promptly acted on that belief.  Greed and market pressure soon prevailed over good sense and we ended up in the great depression of the 1930's where 5000 banks failed (and their depositors lost all their savings), millions of homes were foreclosed upon, and unemployment soared to 25% of the workforce by 1933.

The next time the Republicans gained control of the Congress for a period more than two years was in 1996.  Again Republicans ideologically committed to  - yes, you guessed it - "freeing banks from burdensome regulation" - went at it with gusto.  10 years later we were sliding into the Great Recession, where huge banks had to be saved by infusions of taxpayer cash to avoid a full on depression.

Now Republicans are again claiming business needs to be free of burdensome regulations.  Given their history I can only imagine they are going to cut what works and leave alone what doesn't work.

President Trump - Part 3 - Improving the Economy - Infrastructure spending

President Trumps two big ideas to boost the economy are:

1. Spend lots of money on infrastructure

2.  More tax cuts, particularly for the wealthy.

This blog addresses the notion of increased infrastructure spending.

At the current time our National debt amounts to about 104% of GDP. 
In the history of this country only twice has debt exceeded 100% of GDP, at the end of World War II (when it hit an all time high near 120%) and in the aftermath of the Financial Crash of 2008, where the previous round of infrastructure spending continued the explosion in the debt begun by the invasion of Iraq and pushed the debt to GDP ratio up each year since 2009. 

On top in infrastructure spending President Trump has talked about major increases in military spending.

President Trump says he can cut taxes and regulations and spur growth that will generate additional taxes that will reduce the debt.  As discussed in the last blog, history suggests that notion is a fantasy.  Even the vaunted Reagan tax cuts in the 1980's cost more than they produced in increased revenues (according to a Congressional Budget Office study a few years later) even though that was a period of rapid worldwide growth.  In fact the Reagan years were where our National debt began climbing again after falling continuously beginning a few years after the end of WW II.

Infrastructure spending is a good thing, but the current problem we have with crumbling infrastructure is a direct result of the Republican conviction that has dominated politics for the last 35 years that focusing on tax cuts and reducing Government spending are the keys to a good economy.  Their formula has not worked in the past and will not even come close to working this time.

Next - the flaws history reveals of the conviction reducing regulations will spur to growth.

President Trump - Part 2 - Improving the Economy - Tax Cuts

President Trumps two big ideas to boost the economy are:

1. Spend lots of money on infrastructure

2.  More tax cuts, particularly for the wealthy.

This blog addresses the efficacy of  further tax cuts. 

President Trump says tax cuts are the answer.  Reduce government income in the hope the tax cuts generates enough economic activity to increase tax Revenues.

The notion tax cuts will boost the economy enough to control our National debt and make everyone better off has been repudiated by history.  

This Republican ideology is rooted in Ronald Reagan's tax plan sold to the public with the memorable slogan, "a rising tide raises all boats".

When Reagan took office individual tax rates were as high as 70% on people with very high incomes.  In 1981 he pushed Congress to cut the top rate to 50%, then in 1986 it was brought down to 28%.  Republicans claim those tax cuts both created more jobs and increased Government revenues, both of which assertions fly in the face of the actual facts.  According to a later Congressional Budget Office study the Reagan years created fewer jobs than imagined and greatly aggravated government debt.

For details link to https://www.washingtonpost.com/news/fact-checker/wp/2015/04/10/rand-pauls-claim-that-reagans-tax-cuts-produced-more-revenue-and-tens-of-millions-of-jobs/?utm_term=.2c8bc2e9ff34

During the 1990's the Clinton administration raised some taxes over the objection of Republicans in Congress, then when Republicans took control of both houses of Congress in 1995 they pushed through legislation to again cut taxes, in particular to Capital Gains taxes that benefit the wealthiest and encourage speculation.  Once George Bush arrived we had both a tax phobic Congress and President so 2003 saw major additional tax cuts, even as we were going to war (the start of the current explosion in the National Debt).

President Reagan's tax ideas have dominated Congress for the last 35 years.  Have all the tax cuts over the years paid for themselves and made everyone richer?  There is no room for any answer other than an emphatic No.

Our National debt has climbed relentlessly since the Reagan tax cuts and is approaching the levels we saw after the Great Depression and WW II.  

The wealthiest are vastly richer and the bottom 50% significantly poorer while the rest of us are stuck about where we were in 1980 (but with a much bigger per person national debt).  The rising tide raised the wealthy, mired the middle income folks in the mud and swamped working folk.
  
The Reagan tax cuts occurred in the best of all possible circumstances.  In 1981 this country was coming down off the highest interest rates in modern history, the highest inflation rates in modern history and were entering into a period where the biggest percentage of the population in history were moving into their most productive years.  Never in history had each productive worker been balanced by fewer non productive citizens (kids and retired folk).  Thus the Reagan tax cuts failed to control the National debt in the best possible circumstance, a time when pent up economic energy was ready to explode.

Contrast that with the current situation.  We are coming off the lowest interest rates in history, virtually no inflation, anyone with ambitions to borrow money could do so very cheaply for the last half decade, but new business start ups are falling each year.  The biggest chunk of our population are those moving into retirement.

We need tax increases, not tax cuts.
We need to suck it up and accept the formula that reduced our Great Depression \ WW II debt from 1950 to 1980. We need tax increases on the wealthiest Americans.  During period from 1950 to 1980 the highest tax brackets took 70 to 90% of every extra dollar of very rich folks income.  Yet that was a time of high growth and low income inequality.  Right now rich folks pull as much money as they can out of businesses and spend it on non-productive assets that increase their relative wealth.  Because of the high tax rates from 1950 to 1980 rich folks left their money in businesses and reinvested in productive activity that employed people.

That is the historical path we should be following.

The Obamacare Trap

As Republicans set about repealing Obamacare all they talk about is fixing it with “market’ based solutions. Were they awake in basic economics class? 

An efficient market requires sellers who are not acting under compulsion.  A functioning market needs buyers who can walk away when the price is too high. Being sick is the epitome of compulsion. Healthy people don’t go to doctors and who is going to walk into a Doctor’s office with a kid with a broken arm, or a lump in their breast, or pain in their liver, and then walk out because the price is too high? Health Care consumers are not in a position to put price pressure on Health care providers. 

As a country we have tried for decades to encourage Insurance companies to fill the role of pressuring Health providers to be more efficient and cost effective. But Insurers and the Health Care providers negotiate deals that are good for both of them, while the consumer foots the bill and Health care costs continue their relentless climb.

Republicans beat Democrats over the head with criticism of Obamacare for the last six years. It worked well enough to allow Republicans to grab control of both houses of Congress four years ago and maintain it in this last election, despite the fact that last time the Republicans controlled both houses of Congress (1995–2007) they blew up the middle east and then blew up the world economy.

Now as they turn from celebrating their most recent victory it is beginning to dawn on some of them they have painted themselves into a corner. Voters like the big government mandate parts of Obamacare (for example protecting those with pre-existing conditions or kids staying on the parent’s plan until age 26). What they don’t like are the “market” parts of Obamacare - for profit insurers raising rates or bailing out of a market because they can’t make a profit and have little control over health care costs.

It flies in the face of their ideological beliefs but they should consider that maybe no market based approach rooted in our existing system of for profit insurers and providers will be an improvement. History suggests the only way Health Care for profit works is by catering to the wealthier parts of society and leaving the rest to fend for themselves (or get all their health care in the most expensive place - the emergency room - at public expense). That’s what we had before Obamacare. We paid twice as much per person for health care as any other country in the world, with lousy results (measured by infant mortality and lifespan). People in dirt poor communist countries (like Cuba) where they spent less than a dollar per person compared to every $10 we spent lived longer and had lower infant mortality rates.

Ironically Republicans could turn for inspiration to the some of the big blue coastal states who realized decades ago profit and health care don’t mesh well. They created regulatory schemes that allowed non profits that focus on health maintenance to thrive. They have blossomed under Obamacare because the insurance and the health care are linked within the same non-profit entity. They can work for efficiency at both ends of the process, and don’t have to worry about investors clamoring for bigger profits. They are also motivated to help people stay healthy, instead of making their living off of curing sick people.

In 2010 Republicans, upset that they lost control of Congress, tried to undermine Obama by undermining Obamacare instead of trying to help make it work. If they had worked at making it work then they certainly would have had a better grasp of what they were getting into when they started talking repeal. But now that voters have had a taste of Universal health care, even a badly designed version, there is no going back.

There is little the Republicans can feasibly do, politically, that will affect me personally. My Health care comes from an HMO. Its pretty inexpensive and as a consumer I am very happy with what I have. I wish I could help all the folks who will be hurt by the turmoil we are about to experience but I voted and my views did not prevail.

But I am concerned politicians desperate to save face will try to distract us with misdirection - start a war or otherwise create distractions and leave us with bigger problems than just health care. I think back to 1971 when President Nixon used wage and price controls to distract the public from the fact he took the country off the gold standard so he could print money to pay Viet Nam war debt without raising taxes. That played a big part in the most ferocious bout of inflation and high interest rates in modern US history over the next decade. Luckily for the Republicans it was Democrat Jimmy Carter who got caught in the storm, not a Republican. As the storm was receding Ronald Reagan walked in the door and to this day Republicans fervently believe the growth of the 1980’s was caused by Reagan’s tax cuts rather than to the fact he happened to be the guy in the oval office when a perfect storm of positive economic factors converged (rapidly falling inflation and interest rates coupled with rising productivity from the baby boom generation moving into their productive years).

But I feel like there isn’t much I can do that will not be counterproductive. My Republican friends are pretty well inoculated against facts and history by the media outlets they rely on, talking to them just causes them to withdraw deeper into their  ideological comfort zone. Sometimes in life you need pain to break out of a comfort zone that is not working, so until enough voters in Red States suffer enough pain to move beyond slogans and ideology I don’t think there is a whole lot those of us in Blue states can do. We just have to take care of ourselves and our families and be patient.