Monday, May 22, 2017

The 'Good News' About All This Turmoil In The Streets?



'It has happened before. It will soon pass.'

So say the authors of a book you should read, 'The Fourth Turning' by William Strauss and Neil Howe published in 1997.

Which you should read after you read their first book, Generations, published in 1991 which set forth some provocative ideas about how to view history and its cycles which would be purely just 'provocative' and 'interesting' except for one thing:

'Most of everything in 1997 they said was going to happen by now has happened'

Before you scoff and label these guys as some sort of goofy soothsayer such as Jeanne Dixon or Nostradamus who put out so many 'predictions' of the future that when a few came true, some people started revering them as prophets of one kind or another, here's some personal testimony about them.

Neil Howe at least.

In 1991, we were working on the House Budget Committee dealing with the thorny (and still unsolved) issue of entitlements in the federal budget when we first met Neil Howe. Mr. Howe is a well-known expert on entitlements in the federal budget and what to do with them so our children and grandchildren don't drown in a a sea of debt long after the Boomers are gone from the American scene.

Back then, entitlement spending accounted for roughly 32% of the federal budget. Today it is approaching 75% when you add in interest on the national debt.

So too bad for the Millennials and Gen Xers and beyond that current and past elected officials have not listened more to experts such as Mr. Neil Howe over the past 30 years.

They should have.

Neil inscribed the following note in the book we asked him to sign for us:
'To (our three sons): Hope you Millennials will save us from ourselves! Neil Howe 1/24/92'
He knows what he is talking about.

After reading 'Generations' almost without putting it down because it was so captivating of an idea, we started to see how many of his and William Strauss' theories and concepts fit together in evaluating past generations and their attitudes towards work, war, families and government among others.

Their basic idea is that generational outlooks and characteristics have followed 4 distinctive cycles in roughly 21-year intervals that have repeated themselves now almost 4 full times in American history.

The most recent American generations are described in terms familiar to us:

  • Idealistic (Missionary Generation born 1860-1882)
  • Reactive (Lost Generation born 1883-1900)
  • Civic (GI Generation born 1901-1924)
  • Adaptive (Silent Generation born 1925-1942)
    ____________________________________________
  • Idealistic (Boomers born 1943-1960)
  • Reactive (13th Generation or 'Gen Xers' born 1961-1981)
  • Civic (Millennials born 1982-2003)
  • Adaptive (Generation Z? Yet-to-Be-Named born 2004-2025?)
Their basic premise goes like this:

An Awakening occurs after a Crisis, such as a war or massive economic depression. The Idealists lead the way intellectually first in literature or art (think 'Uncle Tom's Cabin' prior to the Civil War as part of the abolitionist movement led by Transcendentals in the North) followed by a Reactive generation that basically pulls back in after the activism of their older brothers and sisters.

The Civic generation is best exemplified by the GI Generation, 'The Greatest Generation' as coined by Tom Brokaw about our parents and grandparents who grew up and survived the Great Depression only to have to save the world for democracy from the Nazis and Japanese Imperialists in the largest and bloodiest world war ever in history, World War II.

The Adaptive generation follows in the footsteps of their highly-acclaimed and honored GI brothers and sisters and are considered relatively 'silent' by comparison in terms of their outlook on life, both personal and political, as well as their parenting skills and philosophies.

It is all very interesting and worth your time to read all books put out by Mr. Howe and Mr. Strauss (now deceased). They do a very good job of researching and outlining how history lines up according to this recurring cycle of generational characteristics.

What did they say would happen in 2005-2017 in their book 'The Fourth Turning' when published in 1997?
'Somewhere around the year 2005, perhaps a few years before or later, America will enter The Fourth Turning (or transition into a new 4-cycle series of generations)...
(The last flicker)....will catalyze a Crisis. In retrospect, the spark might seem as ominous as a financial crash (think 2008-2009, (our highlights), as ordinary as a national election (think either 2008 or 2016), or as trivial as a Tea Party (scary huh? remember this was written 11 years BEFORE Rick Santelli screamed out on CNBC that what we needed in America today was a 'New Tea Party!' during the Crash of 2008)...
(The Crisis catalyst triggers Unraveling trends which might include the following)
A global terrorist group blows up an aircraft (Think '9/11' which happened 4 years after publication of this book)..The new mood and its jarring new problems will provide a natural end point for the Unraveling-era decline in civic confidence....individuals will feel that their survival requires them to distrust more things. This behavior could cascade into a sudden downward spiral, an implosion of societal trust'.
We could quote much of the 334-page book here to prove our point that these guys are onto something but you need to read it for yourself.

The authors predict that a climax could occur by 2020 with a resolution of most of the conflict and uncertainty by 2026. We seem to be in the midst of a radical reshuffling of the tectonic plates of emotions and politics certainly starting with the election of very left-of-center President Barack Obama in 2008, the nation's first African-American president who served for 8 years only to be replaced by the wild-card-of-all-wild-card presidential candidates perhaps in American history, President Donald Trump in 2016.

In terms of prescience, Mr. Howe and Mr, Strauss certainly get an A+++ for predicting such a jumbled-up mixture of political outcomes 20 years ago now. The quixotic presidential campaign of socialist hero Senator Bernie Sanders just added a bushel of cherries to to this mixture as well.

Our best guess after reading these books and being a somewhat keen and involved observer of politics over the past 38 years now is that the extremism we have seen in the streets with violent protests and staged protests such as the Notre Dame students walking out on the commencement address of Vice President Mike Pence this past weekend will start to peter out pretty much like the violent protests and activism of 1968 died down prior to the 1972 elections.

One reason why is that people eventually 'grow up'. When they leave the cozy confines of university and college life in academia and start to work, pay taxes, get married and buy a home with a big mortgage and a car payment or two and start to have children, they start to see the world with different, less rose-colored glasses than they did before.

One thing we doubt you will see again anytime soon is a call for 'free college education for everyone!' as called for by Bernie Sanders. Simply because it is way too expensive and as far as we know, no college professor or administrator has offered to work for free yet, right?

We also know many people who worked to pay their way through college and if anything, that seemed to make them appreciate their education all the more because of the sacrifice and hard work they personally put into paying for their own education.

We have heard not one but two recent stories about grandparents paying for their college education and grad school by raising bees and selling honey and new hives to neighbors and friends. That hard work did not hurt their careers because they went on to achieve acclaim and honors in their respective fields of study and work.

The lyrics to The Byrds' rendition of the Pete Seeger classic 'Turn, Turn, Turn' is almost totally based on the passage from Ecclesiastes 3:1-8*.

Another passage that might be applicable to these transitioning times as people grow up and mature is from 1 Corinthians 3:11:

'When I was a child, I spoke as a child, I understood as a child, I thought as a child; but when I became a man, I put away childish things'

Let's all hope and pray we will all bear witness to such grown-up talk and civil discourse in our country soon.

But you still need to read these books by Neil Howe and William Strauss.

*To everything (turn, turn, turn)
There is a season (turn, turn, turn)
And a time to every purpose, under heaven
A time to be born, a time to die
A time to plant, a time to reap
A time to kill, a time to heal
A time to laugh, a time to weep
To everything (turn, turn, turn)
There is a season (turn, turn, turn)
And a time to every purpose, under heaven
A time to build up, a time to break down
A time to dance, a time to mourn
A time to cast away stones, a time to gather stones together
To everything (turn, turn, turn)
There is a season (turn, turn, turn)
And a time to every purpose, under heaven
A time of love, a time of hate
A time of war, a time of peace
A time you may embrace, a time to refrain from embracing
To everything (turn, turn, turn)
There is a season (turn, turn, turn)
And a time to every purpose, under heaven
A time to gain, a time to lose
A time to rend, a time to sew
A time for love, a time for hate
A time for peace, I swear it's not too late

Songwriters: George Aber Adaptation And / Pete Seeger / Words From The Book Of
Turn! Turn! Turn! lyrics © T.R.O. Inc.






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Saturday, May 13, 2017

'The Russian Connection': On Fire or Spindoctoring?

'Mr. President: Do vat ve say or ve vill break you!'
Forgive us for being more than a tad bit 'skeptical' about the Democrat claims about Russian collusion with the Trump campaign. 

We have been around politics long enough to feel our antennae start to quiver whenever we see a story that might not be entirely 100% true stem-to-stern and maybe, just may be quite possibly ginned up solely for political advantage one way or another.

This is one of those times.

Now, if further investigation finds an email or a tape of a phone call that shows a Russian official bribing or cutting a deal with a Trump campaign official with these words: 'The Russian government will give you $100 million in campaign ads to help defeat Hillary Clinton in the 2016 US election in return for President Trump lifting sanctions against Russia after he is elected', all bets are off. 

That would be really bad. And subject to prosecution to the fullest extent of the law. As it should be.

No one seems to be asserting such a thing, however, other than to say they are 'worried' about the 'possibility' of 'collusion' between the Trump campaign and the Russians.

Well, join the club! We have been 'worried' about a lot of things that happened over the past 8 years. Nothing seems to have come of all of that, has it?

Remember this golden oldie from the Obama days in his re-election cycle of 2012 speaking to out-going Russian President Medvedev on March 26?

'As he was leaning toward Medvedev in Seoul, Obama was overheard asking for time - "particularly with missile defense" - until he is in a better position politically to resolve such issues.
"I understand your message about space," replied Medvedev, who will hand over the presidency to Putin in May.
"This is my last election ... After my election I have more flexibility," Obama said, expressing confidence that he would win a second term.
"I vill transmit this information to Vladimir," said Medvedev, Putin's protégé and long considered number two in Moscow's power structure' (our Russian translation inserted)
Who did the press think President Obama was dealing with then, Boris Badenov? 

Sure sounds like he was cutting a deal with the Russians back then during a presidential campaign, doesn't it?

Here's the reason why we are so 'skeptical' right now. We recently finished an excellent book you should read soon, 'Shattered: Inside Hillary Clinton's Doomed Campaign' by Jonathan Allen and Amie Parnes.

They described the agonizing last hours of the campaign and the 3 hours of election returns that can only be described as torture for Hillary Clinton and her campaign aides as they saw her chance to become the first woman President of the United States of America slip away.

The next day, right after a devastating loss and the snuffing-out of a life-long dream to be the first female President of the United States, instead of crying inconsolably or being totally hungover and incapacitated from rational thought, here is what the authors of the book said Hillary Clinton and her advisors immediately set out to do:
'In other calls with advisers and political surrogates in the days after the election, Hillary declined to take responsibility for her own loss. “She’s not being particularly self-reflective,” said one longtime ally who was on calls with her shortly after the election.
Instead, Hillary kept pointing her finger at Comey and Russia. She wants to make sure all these narratives get spun the right way,” this person said. That strategy had been set within twenty-four hours of her concession speech.
Mook and Podesta assembled her communications team at the Brooklyn headquarters to engineer the case that the election wasn’t entirely on the up-and-up. For a couple of hours, with Shake Shack containers littering the room, they went over the script they would pitch to the press and the public.
Already, Russian hacking was the centerpiece of the argument. In Brooklyn, her team coalesced around the idea that Russian hacking was the major unreported story of the campaign, overshadowed by the contents of stolen e-mails and Hillary’s own private-server imbroglio.
They also decided to hammer the media for focusing so intently on the investigation into her e-mail, which had created a cloud over her candidacy. “The press botched the e-mail story for eighteen months,” said one person who was in the room. “Comey obviously screwed us, but the press created the story.”
With all of the well-known connections between the liberal Democratic party machine and the nation's mainstream media outlets, it is not too much of a stretch to believe that the Russian hacking story got its birth from the Clinton campaign right after it was apparent she lost the Presidency and then spread its tentacles throughout the media almost immediately, is it?

That is what it looks like to us at this stage of the game. A deliberate spin game story. Apparently, the Clinton campaign and their folks are pretty good at planting stories and fanning the flames of the media. Here we are six months after the election and the frothing at the mouth and howling at the moon seem to be hitting new highs each and every day.

Let's try to boil down some of this into simple sentences and see what might be going on with all of this:
  1. President Obama should have fired James Comey about 10 seconds after his July 5, 2016 press conference where he outlined the charges against Hillary Clinton in great detail and then said he didn't recommend her being prosecuted by the DOJ, which really was not his decision to make since he was not the Attorney General.
    Anytime a FBI Director or CIA Director's first and last names are known by a lot of people in the general public, they should to be fired immediately. They are not elective public figures; they are appointed law enforcement and national security officers and they should just stick to chasing down the bad guys and keep us safe from harm.
  2. The Russia Investigation will. still. go. on. despite Director Comey being fired. President Trump didn't fire the entire FBI; he just fired James Comey. The rest of the career civil servants on the case will stay on the case until it is complete.
  3. The 'case' (sic) for Russian collusion with the Trump campaign came out of a now-discredited 'report' put together by a former British intelligence officer in July of 2016, supposedly as some sort of background opposition research to be used by opponents of Donald Trump including the media.

    Here's the actual report: Orbis.   Read it for yourself. See if you think it is plausible or not, even though it has been discredited from various sources.

    If this story was somehow proven to be true, even though it has already been discredited, we have elected either a very bad imitation of 007, James Bond, to the White House or somehow Ambassador Kissoff from 'Dr. Strangelove' has come back to life and weaseled his way into the War Room of the US President and cut deals that would make your head spin, whatever they are.
What ARE some ways the Rooskies could try to influence the outcome of any American election?
  1. Did they change ANY vote from Hillary Clinton to Donald Trump on Election Day or in early voting?
  2. Did they cancel any votes on any machine or on any paper ballot for Hillary Clinton?
  3. Did they prevent any legally registered voter in the US from voting for Hillary Clinton?
  4. Did they get illegal or unregistered voters to cast illegal votes for Donald Trump?
If the answer is 'yes' to any of these 4 questions, then we have a bigger problem than the Apollo 13 astronauts when they stirred the oxygen tanks on the way to the moon which exploded in space.

One other thing:
'If the Rooskies did influence our presidential election last year, they sure made a mess of it since Hillary Clinton WON the popular vote by 3 million votes over now-President Donald Trump.
If they had REALLY wanted to make sure she would lose, wouldn't they have at least taken the time and made the concerted effort to make sure she LOST the popular vote by 3 million votes instead???
Maybe the Russian hackers understand the US Electoral College better than most Americans do. 

Ask yourself a couple of questions to see if they make logical sense to you:
  1. Donald Trump made billions of dollars as a businessman. Do you seriously believe he would subject himself to the rigors and indignities of running for President over 18 months in order to just enrich himself even more while sitting in the Oval Office?
    He could have stayed in the private sector and done that WITHOUT RUNNING FOR PRESIDENT! It would have been much, much easier to do.
  2. Donald Trump has been accused of being a 'nationalist America First-er!' Do you really believe in your heart of hearts that he could be so duplicitous about his love of America and sell out not only himself but his country to the Russians under Vladimir Putin?
  3. President Trump ordered the bombing of Russian ally Syria in direct opposition to the wishes of the Kremlin over the issue of chemical weapons being used on Syrian children. Does that sound like a Russian stooge to you?

    Seriously.
One of the few plausible scenarios was that somehow the Russian government was behind the Wikileaks release of hacked data from the DNC and John Podesta's email accounts, among others. Julian Assange, president of Wikileaks, has denied those charges and other outlets have confirmed no such connection existed.

Here's something that might change our mind as we said at the outset: an email, transcript of a phone call between Trump operatives and the KGB or whatever runs Russian spy networks today or a plain old-fashioned letter written with invisible ink by a quill pen as they did in the old days with the following message on it:

'Ve Vill Help Defeat Hillary Clinton If You Vill Give us Crimea, Ukraine and Boardwalk Place After You Are Elected'...

Otherwise, simply because we have seen this sort of Spin Doctor work in Washington over the past 37 years, we are going to have to remain in the Jerry McGuire camp before we can pass judgement that a crime has been committed.

As in 'Show Me The Money!' (coming from Russian bank sources)






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Tuesday, May 9, 2017

'Government Benefits Only The Very Few Rich At The Top!'

'The only reason I am rich is because
the federal government made me rich!' (not!)
There is a narrative put forth by progressives out there that can be boiled down to this:

'Government exists only to help the rich people get richer and make poor people poorer!'

And it couldn't be more wrong or deceiving.

The class warfare theme was the basis for the candidacy of Senator Bernie Sanders for President in 2016. It is the basic underpinning of arguments by left-wing acolytes such as Senator Elizabeth Warren which followers use as reasons why our existing system of capitalism and representative democracy needs to be 'blown up!' and replaced with their utopian views of what socialism should be (but which in practice throughout history has had a very bad habit of morphing into totalitarian disasters).

Is it 'true'? Does government exist solely to help advance the wealth and status of rich people to the detriment of the poor and downtrodden?

Here's some facts to consider before you answer that question:
  1. There is no amount of wealth, assets or ownership of property owned by the federal government before that which is owned by the individual in each state in our country (other than that which we have allowed our government to own collectively for us such as national parks)
  2. The money you make from your own initiative, perseverance and creativity is yours to begin with. NOT the government's.
  3. Anything the government does with our collective tax revenue is (supposedly) done with our consent as participants of this democratic republic. When we are born as US citizens or become naturalized citizens through the immigration process, we accept in principle the basic tenets put forth by our Founding Fathers in our two foundational documents: The Declaration of Independence and the US Constitution.

    That includes accepting the fact that 50%+1 majorities rule in our campaigns to elect officials (with minor exceptions for primaries and 3-way general elections) and in our legislative processes at the federal, state, municipal and judicial levels of government.

    We can change those priorities at any time but they have to be done first through the campaign process (by electing new representatives) and then second, through the legislative process.

    Otherwise, we would live in a state of nature called 'chaos'. Which no one should really want. 
Once those principles are understood, making vacuous statements such as 'the government exists only to enrich the rich and disenfranchise the poor!' start to unravel pretty quickly.

Consider the example of 'tax cuts only going to the rich!'

That sounds pretty good to the lower-income average person until you start to put numbers to it.

Warren Buffett just classified the Republican health care bill, the AHCA, as 'just a huge $1 trillion tax cut for the rich!'.

In actuality, it is a repeal of $1 trillion of TAX HIKES the Obama Administration passed in 2010 to fund ACA and almost ALL of those tax increases were on income and investment assets of the wealthy. Simply because close to 50% of all taxpayers today do not pay ANY federal income tax and there was hardly any effort to make them pay more tax to fund the ACA.

Just because one Administration or Congress passed a tax hike doesn't bind the hands of a future Congress or White House from unraveling them. Once tax hikes are passed, they are not etched in stone like the Ten Commandments were written by the finger of God and given to Moses, you know.

You pay higher taxes from a bill; if they are repealed, you get your money back. You pay no higher taxes from a bill, you don't get anything back.

It is basic arithmetic. Addition and then subtraction. No alchemy going on here changing one dollar going out of one wealthy person's pocket into gold or silver coming in for the less-wealthy folks.

Which brings up another argument that simply is close to being infantile at best; not very well-thought out or completed second and just flat-out dumb when you really think about it:

'The rich aren't paying their fair share!'

Whaaaaaaaat? 

Let's take the instance of a gentleman such as Mr. Buffett himself. First, he is very successful and we do not begrudge his success one bit. He has made millions of shareholders either very wealthy or wealthier than they would have done on their own over the past 40 years of investing their money.

The companies he has invested in have grown exponentially with his financial assistance and acumen which further enhanced and enriched the lives of millions of employees of those companies and their families, all of whom also enjoyed the ancillary benefits of generous fringe benefit plans such as retirement plans and health insurance coverage.

Not a bad legacy for anyone to have.

Critics like to say the rich 'are not paying their fair share!' by looking solely and microscopically at the tax rate they pay as if that is the be-all, end-all of any tax payment comparison.

That is disingenuous at best and seriously misleading and delusional at worst.

For argument's sake, let's pretend Mr. Buffett above has $1 billion of clear net income to declare in any particular tax year. No one of his stature would even allow his 'net income' to be of such stratospheric heights and expose it to the full brunt of the tax rate law at any time because they know how to hire the right tax lawyers and accountants to shelter income and keep it low, like real low each year and sometime maybe even not pay any income tax due to the tax loss shelters they can use to offset other income.

However, let's presume this $1 billion is subject to the full 39.6% highest tax rate in the tax code today. (Once you get over the $450,000 tax bracket, going to $1 billion makes 39.6% almost the effective tax rate anyway)

$1 billion in net income x 39.6% in federal taxes = $396 million in taxes owed to the federal government. Anyone can do that simple calculation.

So far, so good in the eyes of the 'Class Warfare Warriors' on the left. 'It should be 100%!' a very prominent and very well-known liberal activist told me in 2010 as she got in her new Mercedes and sped off to her private jet without any sense of hypocrisy in her tone or voice.

Remember this as you read along: 1 person would be on the hook for $396 million in income taxes.

50% of the US working taxpaying-eligible population pay zero income tax. 50%. About 80 million taxpayers, or about 25% more than the number of people who voted for either Hillary Clinton or Donald Trump in the last election.

That is a big number.

Say the Republican tax reform bill calls for a 'slashing' (sic) (hyperbole) (exaggeration) (see NY Times headline: 'White House Proposes Slashing Tax Rates; Significantly Aiding Wealthy') from that high rate of 39.6 way, way down to 35%.

4.6 percentage points. 4.6%. Not 100% cut to 0%. Just 4.6 points.

Do the math again for $1 billion in net income: $1 billion x 35% = $350 million in taxes owed. By one single person.

The tax cut, again assuming the IRS could have gotten $396 million out of the one individual in the first place before the Trump tax cuts were passed, would amount to $46 million.

$46 million is still a lot of money for any one person, yes?

BUT THE FEDERAL GOVERNMENT WOULD STILL BE GETTING $350 MILLION FROM JUST 1 PERSON AT THE 35% RATE!

The federal government gets NOTHING! in income tax from 80 million other taxpayers. That is not counting the retirees who don't file taxes or the people who do not work and therefore do not file any taxes and pay any income or payroll taxes into the tax revenue of this nation.

See the ridiculous nature of this line of thinking? The uber-left progressives are trying to make the rest of the country 'hate' wealthy people as if they are not 'paying their fair share' when, in actual truth, the wealthy are paying the preponderance of our annual tax share burden for us all!

The NY Times headline and the Class Warfare Warriors would have you believe that the US tax code is set up 'solely to help wealthy people stay rich and stick it to the poor people!'

As this simple example exposes, the wealthy are the only ones paying income tax of any significant amount in the first place. Would you rather get $350 million in tax payments per year from Mr. Buffett or get apoplectic obsessing over whether his tax RATE is lower by 4.6 percentage points next year?

Focusing on the 'tax rates' paid by different taxpayers is really not a productive exercise when you press down on it. Focusing on the 'gross dollars paid on a check sent to the federal treasury' is real money to fund our government, not Monopoly money like in our cartoon above.

When you look at the federal budget, you will see that 77 million people are covered by Medicaid; and between 55-59 million other people are covered by Social Security and Medicare in any given year.  Social Security, Medicare and Medicaid accounts for over 50% of the federal budget today or just under $2 trillion annually.

Close to 135 million Americans 'benefit' from the US federal budget every year in those 3 programs.

Does that sound like the federal budget 'only helps the wealthy' to you?



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Saturday, May 6, 2017

50% of All Health Care Cost Inflation Has Been Due to Technology Breakthroughs

'OK, just open wide please and stay still for just a moment!'
We went to our dentist the other day to have a crown replaced (which is pretty amazing when you think that early in the 20th century, our grandparents probably would have just had the tooth pulled in a barber chair, much less 'fixed' with high-tech porcelain) and the dentist got all giddy about a new tool she was about to purchase.

'The next time you come in here and you need a filling, I might have a new laser drilling machine! No anesthetic necessary; no shots, no Novocaine!'

We might have a new dentist by then.

But if you ever wondered why the cost of health care is so expensive nowadays, just think about that for a moment: Our dentist is about to purchase a drilling machine powered by a laser beam!

'Will it cost more?' was the question through the cotton swabs in the mouth.

'Of course it will!' the dentist chortled. 'But you won't have to get another shot ever because the oscillation of the laser beam will numb your tooth!'

Ok. We will take that under advisement.

But when you think about some of the reasons why American health care is so expensive, keep in mind that laser beam and all of the double-lung/heart transplants, arthroscopic surgery and advanced pharmaceutical wonder drugs you have heard about and start to add some of those costs up in your head.

Approximately 50% of all the estimated per capita cost growth in health care can be attributed to medical technology breakthroughs such as (you name it; the barrier has been broken through).


Demographics, usually pointed to as the culprit in all this inflation, plays a relatively small part in it, especially now that we are solidly in the retirement phase for the Boomers.

But think about it: had there been zero advances in the treatment of cancer or heart disease or kidney stones over the past 40 years, most people would just go to the doctor, be told the diagnosis...and then just lived with their condition until they passed on just like their grandparents and great-grandparents early in the 20th century and late 19th century.

No expensive machines or drugs to pay for; no cost inflation in health care.

One way to slow the growth of medical care cost inflation would be to have medical device personnel and Big Pharma just stop developing and inventing new ways to cure what ails us and make us well again.

And no one has ever said that.

Another way would be for everyone to act like they are going to basic training at Quantico and go on a rigid diet; start exercising vigorously every day; stop smoking, don't do illegal drugs and stop over-drinking soft drinks, beer, wine and whiskey and generally lose 25% of your BMI and get healthy.

One expert told us in 1989 that 35% of all medical costs would vanish into thin air if everyone in the nation did just that.

Healthy people leading healthy lifestyles generally do not need high amounts of costly health care.

By 2003, that same expert told us that 50% of all medical costs would vanish into thin air if everyone adopted a healthy lifestyle. The main culprits of heart attack, stroke, cancer and most importantly, the costs associated with diabetes would be almost cut in half simply by people taking decent care of their own selves and bodies.

So, there are two things that would massively shift the cost curve downward steeply on health care costs in America. And it doesn't look like either are going to happen in the very near future.

So what does that mean for the AHCA recently passed by the Republican Congress?

It means that basically the higher risk/higher cost folks in our country, outside of the already segregated by age seniors (Medicare); by income (Medicaid) or by military service (VA and military health plans) members are going to be taken out of the basic commercial health insurance plans of America and placed into state-run risk pools.

Which another expert told us the day the AHCA passed the House would 'make premiums go down pretty fast' simply because all of the high risk, potentially high cost people would be taken out of the commercial risk pool and placed in the state risk pool.

What does that mean exactly?
It means instead of using basic principles of insurance in the private market across wide numbers of folks to cross-subsidize, usually the older, poor unhealthy folks by the healthy younger folks, we are now going to see the higher risk, higher cost people not already in Medicare or Medicaid subsidized directly by the taxpayer of every state with federal support through the back door.
Think about this for a second: IF Medicare and Medicaid and military personnel and their families were ALL a part of the general risk pool, insurance companies would have 320 million people to create enormous insurance pools and basically use the premiums of the younger healthier people (who don't use a lot of health care dollars) to subsidize the older or poorer cohorts of folks (of whom only a relatively small number use a lot of the health care dollar...but when they do, it adds up very quickly due to the technology noted above)

But they are not. Medicare and Medicaid started segregating older and poor people outside of the general risk pools in the mid-1960s and the taxpayer has borne the brunt of those costs every since. Since they are not directly subsidized by younger healthier people in a commercial risk pool, their costs are directly paid for out of tax dollars at the federal and state level.

Insurance companies want to insure healthy people first with very limited downside risk to paying for very expensive treatment when, or if, they get really sick.

As a friend said: 'It is like the banks. They only want to loan to people who never have problems and can always pay back their loans 100%. They want to loan to you when you don't need them, not when you do need them.'

Here are some of the pre-existing conditions that insurance companies in the past have used to decline coverage for various people. This is the problem that Republicans have attempted to deal with in the AHCA by providing support for state risk pools as very eloquently written by Representative Cathy McMorris-Rodgers this week when she said she voted for this AHCA bill because of her son who has Down's Syndrome.

AIDS/HIV
Alcohol or drug abuse with recent treatment
Alzheimer’s/dementia
Anorexia
Arthritis
Bulimia
Cancer
Cerebral palsy
Congestive heart failure
Coronary artery/heart disease, bypass surgery
Crohn’s disease
Diabetes
Epilepsy
Hemophilia
Hepatitis
Kidney disease, renal failure
Lupus
Mental disorders (including Anxiety, Bipolar Disorder, Depression, Obsessive Compulsive Disorder, Schizophrenia)
Multiple sclerosis
Muscular dystrophy
Obesity
Organ transplant
Paraplegia
Paralysis
Parkinson’s disease
Pending surgery or hospitalization
Pneumocystic pneumonia
Pregnancy or expectant parent (includes men)
Sleep apnea
Stroke
Transsexualism

Acid Reflux
Acne
Asthma
C-Section
Celiac Disease
Heart burn
High cholesterol
Hysterectomy
Kidney Stones
Knee surgery
Lyme Disease
Migraines
Narcolepsy
Pacemaker
Postpartum depression
Seasonal Affective Disorder
Seizures
"Sexual deviation or disorder"
Ulcers
High blood pressure
Behavioral health disorders
High cholesterol
Asthma
Chronic lung disease,
Osteoarthritis
Joint disorders

Now, some of these are going to have to be dealt with such as 'acne'. Surely insurance companies can figure out how to pay for treatments instead of sloughing those costs off onto the taxpayer, can't they?

This passage of the AHCA in the House is just the kickoff of the first football game of the year. The Senate hopefully will down it in the endzone and bring it out to at least their 20-yard line since we all hope to God they have something already prepared to begin to deal with over there.

Then we will see if they can get it over the goal line in the Senate by this summer and then go to conference by the fall and passage before Christmas.

We think the tax bill will ultimately merge into this health care bill much like two mighty rivers and produce the largest Ginormous Omnibus Budget Reconciliation Bill (GOBRA) in American history but that is for a later post.

In the meantime, ask your dentist if he or she is going to be using a laser beam on your teeth soon. Seriously.

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Tuesday, May 2, 2017

What Do You Want: Lower Tax Rates or More Tax Deductions?

Corporate America Uses Far Fewer Tax Breaks Than People Do
Raise your hand if you understand the US federal tax code.

Seriously. How can anything have gotten so complicated?

Well, if you call your congressional representative and US Senator and tell them to get rid of most of the US tax code, you may see it done this year.

Let's think out loud about some of this:

  1. The purpose of ANY tax system is to raise needed revenue to pay for necessary government programs that benefit us all.
  2. The tax code should not be used as part of a 'class warfare' arsenal to 'punish' certain people for being successful.
  3. The tax code should not be used to push a social agenda one way or the other. Pass fiscal policies to do that if you want.
  4. The tax code should not be used to 'favor' one industry over the other. That is just unfair.
  5. The federal government should not be allowed to spend more in any year than it takes in as revenue.
The tax code should be transparent, unbiased and clearly understood by the common person. 'If I buy something and I have to pay a 10% consumption tax on the transaction' would be something clearly understood by everyone if all we had was a consumption tax instead of the cornucopia of tax systems we have in America today.

Have any idea of what this tax citation for section 509(a) means?
For purposes of paragraph (3), an organization described in paragraph (2) shall be deemed to include an organization described in section 501(c)(4), (5), or (6) which would be described in paragraph (2) if it were an organization described in section 501(c)(3).
President Ronald Reagan used this quote as an example of why the tax code needed to be 'simplified' in the last substantive tax reform effort of 1986, which resulted in neither a 'simplification' of the tax code nor did it reform the tax code in much of a positive manner.

Some people are putting up a stink against the repeal of any tax provision because of the 'deleterious effect it will have on X industry!' as if that industry will completely dry up without the tax advantages it enjoys in the US tax code.

As a result of that same 1986 Tax Reform (sic) Act, interest on car loans was phased out. Car makers and distributors and dealers all descended on Capitol Hill screaming that 'car sales will drop to zero if the deduction for car loan interest is repealed!'

How ridiculous was that argument? People were all of a sudden not going to buy a new car because they couldn't deduct $1000 on their income tax?

11.4 million new cars were manufactured and sold in 1986. 17.5 million new cars were manufactured and sold in 2016.

So much for the red herring of repealing tax deductions for interest on car loans.

The same can be said for the repeal of almost all tax deductions now in the tax code. People are going to buy houses to live in whether they can deduct the interest on their mortgages or not. There might be a dip in the market as people adjust to the loss of taxpayer support of their purchase of a home, which is what the tax deduction for mortgage interest really is, whether it is a $50,000 house or a $10 million mansion financed somehow through a bank.

Repealing ALL of the tax breaks makes sense especially if the trade-off is much lower income tax rates in the absence of such tax breaks, which, truth be told, are usually only reserved to the well-off who can afford to hire the tax accountants and lawyers to find these tax breaks in the voluminous tax code and then hire the lobbyists in DC to keep them in force.

When we left Washington, DC in 2007, 35,000 lobbyists were registered to lobby Capitol Hill. An average of 65 lobbyists for every US Senator or Congressman.

We have to imagine it might be closer to 100 lobbyists per every elected representative in Washington today.

Take a look at this following list to see if you, as an average American taxpayer, use ANY of these tax-favored provisions beyond the 3 highlighted in red, all 3 of which would remain in the Trump tax plan as introduced last week:

Table 17–3. INCOME TAX EXPENDITURES (i.e. tax breaks)
Exclusion of employer contributions for medical insurance premiums and medical care 
Deductibility of mortgage interest on owner-occupied homes
Step-up basis of capital gains at death  
401(k) plans    
Exclusion of net imputed rental income    
Deductibility of nonbusiness State and local taxes other than on owner-occupied homes
  Accelerated depreciation of machinery and equipment (normal tax method)       
Capital gains (except agriculture, timber, iron ore, and coal)
Deductibility of charitable contributions, other than education and health
Employer plans
Exclusion of interest on public purpose State and local bonds
Capital gains exclusion on home sales
Deferral of income from controlled foreign corporations (normal tax method)
Deductibility of State and local property tax on owner-occupied homes
Exclusion of interest on life insurance savings
Social Security benefits for retired workers
Keogh plans
Exception from passive loss rules for $25,000 of rental loss
Deduction for US production activities
Individual Retirement Accounts
Exclusion of benefits and allowances to armed forces personnel
Deductibility of medical expenses
Child credit
Earned income tax credit
Social Security benefits for disabled workers
Exclusion of workers’ compensation benefits
Self-employed medical insurance premiums
Credit for low-income housing investments
Expensing of research and experimentation expenditures (normal tax method)
Exclusion of veterans death benefits and disability compensation
Exclusion of income earned abroad by US citizens
Lifetime Learning tax credit
Deductibility of charitable contributions (education)
HOPE tax credit
Deductibility of charitable contributions (health)
Exclusion of interest on hospital construction bonds
Credit for employee health insurance expenses of small business
Inventory property sales source rules exception
Graduated corporation income tax rate (normal tax method)
Exclusion of interest on bonds for private nonprofit educational facilities
Social Security benefits for spouses, dependents and survivors
Exclusion of reimbursed employee parking expenses
Exclusion of scholarship and fellowship income (normal tax method)
Additional deduction for the elderly
Parental personal exemption for students age 19 or over
Carryover basis of capital gains on gifts
Medical Savings Accounts / Health Savings Accounts
Premiums on group term life insurance
Credit for increasing research activities
State prepaid tuition plans
Exclusion of interest on owner-occupied mortgage subsidy bonds
New technology credit
Special ESOP rules
Employer provided child care exclusion
Exemption of credit union income
Exclusion of interest on rental housing bonds
Credit for child and dependent care expenses
Deferral of interest on US savings bonds
Exclusion of GI bill benefits
Exclusion of employee meals and lodging (other than military)
Low and moderate income savers credit
Exclusion of interest for airport, dock, and similar bonds
Deferral of income from installment sales
Exclusion of certain allowances for Federal employees abroad
Excess of percentage over cost depletion, fuels
Deductibility of student-loan interest
Energy investment credit
Tax credit for orphan drug research
Exclusion of parsonage allowances
Exclusion of interest on student-loan bonds
Exclusion of public assistance benefits (normal tax method)
Excess of percentage over cost depletion, nonfuel minerals
New markets tax credit
Exclusion of interest spread of financial institutions
Exclusion of interest on bonds for water, sewage, and hazardous waste facilities
Capital gains treatment of certain income
Special Blue Cross/Blue Shield deduction
Assistance for adopted foster children
Exclusion for employer-provided transit passes
Empowerment zones, Enterprise communities, and Renewal communities
Qualified school construction bonds
Capital gains exclusion of small corporation stock
Exclusion of interest on small issue bonds
Expensing of exploration and development costs, fuels
Credit for energy efficiency improvements to existing homes
Tax incentives for preservation of historic structures
Distributions from retirement plans for premiums for health and long-term care insurance
Exclusion of certain foster care payments
Premiums on accident and disability insurance
Deductibility of casualty losses
Credit for investment in clean coal facilities
Exclusion of veterans pensions
Tax credit and deduction for clean-fuel burning vehicles
Expensing of multiperiod timber growing costs
Exclusion of railroad retirement system benefits
Discharge of mortgage indebtedness
Work opportunity tax credit
Advanced Energy Property Credit
30% credit for residential purchases/installations of solar and fuel cells
Exclusion of utility conservation subsidies
Tax exemption of certain insurance companies owned by tax-exempt organizations
Exclusion of interest on bonds for Financing of Highway Projects/rail-truck transfer facilities
Expensing of certain multiperiod production costs
Credit for holders of zone academy bonds
Expensing of exploration and development costs, nonfuel minerals
Expensing of certain capital outlays
Exemption of certain mutuals’ and cooperatives’ income
Adoption credit and exclusion
Exclusion of military disability pensions
Income averaging for farmers
Industrial CO2 capture and sequestration tax credit
Education Individual Retirement Accounts
Natural gas distribution pipelines treated as 15-year property
Expensing of reforestation expenditures
Credit for holding clean renewable energy bonds
Capital gains treatment of royalties on coal
Capital gains treatment of certain timber income
Alcohol fuel credits
Allowance of deduction for certain energy efficient commercial building property
Ordinary income treatment of loss from small business corporation stock sale
Income of trusts to finance supplementary unemployment benefits
Alternative fuel production credit
Credit to holders of Gulf Tax Credit Bonds
Amortize all geological and geophysical expenditures over 2 years
Exceptions from imputed interest rules
Additional deduction for the blind
Deduction for endangered species recovery expenditures
Exclusion of special benefits for disabled coal miners
Special alternative tax on small property and casualty insurance companies
Exclusion of interest on energy facility bonds
Exception from passive loss limitation for working interests in oil and gas properties
Small life insurance company deduction
Qualified energy conservation bonds
Exclusion of interest on veterans housing bonds
Exclusion of interest on savings bonds redeemed to finance educational expenses
Tribal Economic Development Bonds
Treatment of loans forgiven for solvent farmers
Deferral of gain on sale of farm refiners
Deferral of tax on shipping companies
Investment credit for rehabilitation of structures (other than historic)
Discharge of student loan indebtedness
Credit for disabled access expenditures
Exclusion of gain or loss on sale or exchange of certain brownfield sites
Special rules for certain film and TV production
Tax credit for certain expenditures for maintaining railroad tracks
Tax credit for the elderly and disabled
Credit for construction of new energy efficient homes
Employee retention credit for employers affected by Hurricane Katrina, Rita, and Wilma
Deferred taxes for financial firms on certain income earned overseas
Bio-Diesel and small agri-biodiesel producer tax credits
Credit for energy efficient appliances
Treatment of qualified dividends
Recovery Zone Bonds
Lifetime Learning tax credit
Deduction for higher education expenses
Exclusion of employer-provided educational assistance
Special deduction for teacher expenses
Welfare-to-work tax credit
Employer-provided child care credit
Exclusion for benefits provided to volunteer EMS and firefighters
Making work pay tax credit
Tax credit for health insurance purchased by certain displaced and retired individuals
Exclusion of unemployment insurance benefits
Build America Bonds

If you used more than 2-3 other provisions on the above list outside of the mortgage interest, health care plan and charitable contribution deductions, you are probably in a very narrow minority of US taxpayers to do so for any particular one.

Now, imagine that all of these deductions above were repealed or eliminated by some sort of cosmic sunspot shower that destroyed all of the 10 million words now in the US tax code. Try to walk through your mental index of your last tax return and try to think about what the tax rates would have to be to make sure you did not have to pay an exorbitant amount of taxes should there be such a monumental earthquake of tax reform to roll through Washington:

Assume you had $100,000 in taxable marginal income for simplicity's sake barring any other considerations. Declaring $15,000 in mortgage interest on your taxes might save you $5000 in taxes if applied solely to that $100,000 of marginal income.

Going from 28% to 18% in income tax rates on that $100,000 of marginal income would save you $10,000, from $28,000 down to just $18,000.

Would you rather have $10,000 more money in your pocket from lower tax RATES or $5000 in less taxes paid to the government (which is still money in your pocket where it belongs) because you were able to get a deduction for $15,000 in mortgage interest?

Everyone's situation is different. However, it is widely assumed that the vast majority of people in this country who pay income taxes (about 50% do not pay any income tax today which means they can not get a tax cut on $0 paid in income taxes) would benefit much more under a lower tax rate regime with hardly any (or none) tax breaks than staying under the current high tax rate system with 164 tax sheltering provisions noted above.

You know who would probably wind up paying more in tax to the government under a low tax rate, no tax deduction tax code in the US?

Wealthy people. They are the only ones who can afford to pay people to find these tax shelters and provisions in the first place. Getting Bill Gates or Warren Buffett to pay $100 million per year in some combination of income or capital gains taxes would be far preferable to thinking they SHOULD pay $200 million in taxes but avoid them by clever use of current federal tax laws at the corporate and individual level.

Want to hear a fact that will blow your mind? The cost of the tax expenditure represented by the corporate deduction for health plans is the largest in the tax code. It accounts for the equivalent of $196 billion in lost tax revenues per year.

According to the Tax Foundation:
In addition to this lost income tax revenue (of $196 billion/year), Treasury estimates that in 2014 it will reduce payroll tax revenue by $123 billion for a combined total revenue loss of $319 billion.
This is larger than corporate tax revenue collections in a typical year.
Our US tax code now 'costs' us more in lost revenue to the Treasury than we collect every year chasing down corporate accountants and auditing them and all that.

That is the definition of insanity.

Clearing out the US tax code like Hercules cleared out the Augean Stables might be the best thing that could happen to our nation in 2017.

*Charts and data about tax expenditures obtained from Tax Foundation


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Thursday, April 27, 2017

Making Sure The Trump Tax Plan Doesn't Explode The Deficit

If you are of a certain age, think of the Trump tax plan
as engaging the clutch in your car as you mash down
on the accelerator....but we also need some braking action
on spending.
You are going to be bombarded in coming days and weeks with shrieks and cries about how the Trump tax plan won't 'be paid for' and 'will explode the deficit'.

Which would be humorous if it wasn't coming from the same media outlets who were deaf and mute about the deficits and debt under President Obama.

Just for the record, the total national debt was $5.6 trillion when President Bill Clinton left office in 2001; $10 trillion when President George W. Bush left office in 2009; and just about $20 trillion when President Barack Obama left office in January, 2017.

The national debt was 34% of GDP in 2000 when Bill Clinton left office. It is now 77% of GDP.

Based on current CBO projections, another $10 trillion in debt is expected to be added by 2027 if nothing substantive is changed in the way we manage our national finances. Debt owed to the public is expected to be $25 trillion in 2027 whether Donald Trump was elected President or not.*

It is just baked in the cake already. Mostly due to entitlement spending and compound growth.


So no one gets any sort of star on the middle of their foreheads for holding down deficits since 2000. No one. In the White House or in Congress. Either Democrat or Republican.

There are several important parts of the Trump tax plan as outlined today. Until further details are presented, there is no way to be 100% sure about what the revenue changes will be.

However, here's what seems to be going on:

  1. The proposal seeks to reduce corporate and individual income tax rates a lot.
  2. Corporate tax rates would fall from 35 percent to 15 percent. “S corporations” would also enjoy the 15% rate.
  3. Individual income tax rates would go from 7 brackets down to just 3 and the rates would be 10%, 25% and 35%.
  4. Standard deductions would roughly double from $12,600 for married couples to $24,000.
  5. All tax deductions, credits and exemptions would be eliminated, save for the deductions for mortgage interest, retirement savings and charitable giving. 
To those who are suddenly 'worried' about the national debt after 8 years of not caring about it, they need to know that the net revenue loss due to all tax provisions NOW in the tax code amounts to roughly $1.5 trillion per year. Elimination of all of them, referred to as 'tax expenditures' in budget parlance, except for the 3 mentioned above, would yield at least $1 trillion in new tax revenue annually.

In order to not add to the debt, or the $10 trillion already expected to be incurred based on past policy-decisions, tax writers are going to have to find as many tax deductions to eliminate in order to make up for the lost revenue from the tax rate cuts.

Or they are going to have to find a commensurate amount of spending reductions from the baseline (which are not real absolute cuts but rather a slowing of spending in the out-years).

Which is where the 'Repeal and Replace Bill to Eliminate Obamacare' (RRBEO) comes in.

IF you don't want to see so many tax deductions eliminated, THE ONLY place left, if you care about reducing annual deficits, the national debt and generally the size of government, is to CUT FEDERAL SPENDING SOMEWHERE! ANYWHERE!

The first draft of the Republican health care bill to replace Obamacare had close to $1 trillion in spending savings in it. That is a good place to start.

The more 'debt-neutral' this tax bill can get, the better it will be for all of us in the long-run. Eliminating hundreds of special tax provisions for this industry or that business sector is a good thing, especially since cutting the tax rates is expected to contribute to a revving up of our economy.

Tax cuts have worked in the past when coupled with federal spending cuts that have exceeded the magnitude of the tax cuts in terms of impact on the economy. Just take a look at the entire presidency of Calvin Coolidge from 1923-1929; he led the effort to cut federal spending, federal debt AND federal taxes every single year and the US economy boomed during that time.

Silent Cal seemed to have understood the concept of getting the economy off to a roaring start as many hot-rodders of the 50's and 60's knew about their cars: popping the clutch and flooring the accelerator is the Trump Tax Plan right now.

We just need to make sure someone also knows how to use the brake on spending, again, much like Silent Cal knew how to use it.

The question really comes down to this: Do you think a national debt about the size of our US GDP is ok and manageable...or do you NOT think a national debt about the size of our US GDP is manageable or not.

Based on hundreds of hours of testimony we heard from hundreds of experts on the subject of national finance and the economy over 12 years working on Capitol Hill, we have come to the conclusion that, as former Federal Reserve Chairman Alan Greenspan used to dryly intone in one form or another:
'We know at some point in time, all nations in history that have over-spent their revenue base and built up unmanageable levels of national debt have suffered rampant inflation, severe depreciation of their currencies, sky-high interest rates and a collapse of their previously-working economic system.
The problem is....once a nation realizes it is past that point, it is too late to do anything about it. Cutting spending, increasing tax revenue, preferably through a growing economy and balancing the federal budget now is far preferable to rolling the dice later'
We heard that from Chairman Greenspan and 99 other experts starting in 1985. Republicans and Southern Democrats, (of which there were 91 at their high point) banded together in the House and the Senate to push through various budget spending control measures starting in 1990 and continuing in 1993-94 and 1997 to produce only the 4 balanced budgets from 1998-2001 that the US has seen, or is likely to see for the foreseeable future, since 1952.

'4 balanced budgets out of 65 years is no way to go through life, son!' as Dean Vernon Wormer might say if he were President.

It coulda happened you know.











*'Debt owed to the public' is just what it says it is....debt owed to people or sovereign governments. Overall Debt in 2027 should be around $30 trillion when you add in the intra-governmental debt that is issued such as when money is transferred from Social Security Trust Funds to other purposes




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