'North Carolina Republicans Did Not Invent Gerrymandering in 2011!'

'Man! Have to wonder if Governor Gerry knew how much trouble he was causing when he made me!'

(first published in North State Journal 10/11/17)

The Supreme Court heard arguments last week about a redistricting case in Wisconsin that some believe was 'too extreme' when it came drawing state legislative maps purely for partisan political purposes.

What is 'too extreme'?

How about a congressional district that was drawn in North Carolina that was 91% Democrat by registration in 1984? Would that today be considered 'too extreme' for partisan political purposes by everyone concerned about gerrymandering?

That was the makeup of the Second Congressional District I ran in during the 1984 campaign as a Republican. Sadly, the same masses of lawyers and advocates who are today running to the Supreme Court to declare gerrymandering as 'unconstitutional' in any way, shape or form were not as concerned about it in 1984.

The issue of drawing legislative districts is a specific constitutional duty given to state legislatures in Article I, Section 2, Clause 3 of the US Constitution to coincide with every decennial census.

Alexander Hamilton argued during the ratification process in New York that “the true principle of a republic is, that the people should choose whom they please to govern them.”

When it comes to redistricting, that means state legislatures. Not the Supreme Court. Or the President. Not even the US Congress or Senate. The elected representatives closest to the voters themselves are the elected representatives in state legislatures and general assemblies.

The Supreme Court has assiduously stayed away from issuing firm definitive rules and parameters for redistricting since 1789 mainly because the Court has consistently seen it as an issue specifically reserved for the state legislatures to handle, for better or worse.

Governor Elbridge Gerry himself started it all in 1812 during the War with England, when he signed a state legislative redistricting plan to benefit and advantage his Democratic Republican Party in Massachusetts.

The North Carolina General Assembly has a long and proud history of drawing partisan gerrymandered districts at the federal and state level long before the Republicans took over control in 2010.

All of it by Democrats since at least 1898.

What are some fair, common-sense ways to perhaps put some boundaries on gerrymandering without having the Supreme Court dictate the makeup of every legislative map going forward?

They could rule that in order to insure 'one-man, one-vote' equality of all citizens who are registered to vote, districts should be drawn in a relatively compact, contiguous manner that follows existing county or municipal lines where people have a 'community of interest' they can elect representatives to represent them on.

Rural districts have nothing in common with a big-city representative who doesn't know what ‘gee’ and ‘haw’ means to a farmer. Metropolitan areas don't need to be represented by elected officials who have no idea of what a 2-hour commute is to work since they may walk to work every day to name just one example.

If the Supreme Court unwisely sets specific percentage targets for redistricting by party, what happens if Democrats change their party to ‘Progressive’ and Republicans change their name to ‘Conservative’? Do they have to go rule again?

What happens if parties change philosophy over time as has happened many times in American history? Would the same percentages still hold if the Supreme Court rules in such specificity?

What about Unaffiliateds today? Should they be mechanically drawn into districts so they can win by an arcane formula concocted by a majority of 9 unelected Supreme Court Justices in order to mete out ‘fair representation’ for those registered voters?

If the Supreme Court issues specific dictates governing redistricting, which is clearly a state prerogative in the Constitution, they might as well retroactively disqualify every district drawn in America since 1789 and say the Founders got it all wrong and The Supreme Court should have been the legislative map-drawers from the beginning.

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If You Are Upset About The Level Of Money In Politics, You Should Support Radical Tax Reform

(first published in North State Journal 10/4/17)

Call your Senator and Congressman and demand they close most tax loopholes in the US tax code if you are upset about the level of money in political campaigns today.

Taking money out of politics is not the main reason to do tax reform.

But it would be a nice benefit, wouldn’t it?

Why would true tax reform take money out of political campaigns?

Huge sums of campaign money come from people and lobbying organizations who want to protect their specific tax exemption, deduction or loophole in the current, stale and sclerotic federal tax code.

If Congress would lower overall tax rates and eliminate as many tax loopholes as humanly possible, the amount of PAC and special interest money flowing to candidates should fall precipitously as well.

In an ideal world where personal and corporate income taxes are replaced by, for example, a single simple consumption tax on billions of transactions made each day in America, there would be next to zero reason to send campaign money to support a candidate other than to keep the consumption tax as low as possible and support a particular political philosophy on one side or the other.

Much of today’s campaign contributions go to protect someone’s ox that might be otherwise be gored one day.

If you are one of the 44 million households that itemize tax returns, ask yourself the following question: ‘Would I rather have all my income each year or the tax deduction I am afraid of losing?’

Chances are your calculus would lead you into the consumption tax camp immediately overnight. You would be taxed on what you purchase, consume or transact every day; if you are frugal, your taxes will be minimal.

If you are like many professional athletes and buy $10 million mansions, you would pay much more in taxes than the average person. Spendthrifts would become the new ‘top 1%’ when it comes to paying taxes.

There are literally thousands of examples of unfair anomalies in the current tax code due to preferential tax treatment.

In 1942, NFL owners got Congress to add the NFL and other professional sports organizations to the list of non-profit entities such as the American Medical Association, Boy Scouts of America and hospitals, colleges and universities in the country that do important charitable work in local communities.

How the NFL ever was compared to the Little Sisters of the Poor in terms of contributions to society is beyond explanation.

What if the tax reform bill now under consideration in Congress set into motion cosmic forces that one day soon led to the abolition of the income tax code in its entirety and replaced it with a simple per-transaction consumption tax?

No 'income tax' would mean 'no reason to shelter your income no matter what size it is’ from federal taxation. There would be no reason for any tax deductions, exemptions or breaks that are usually available only to the highest income earners in America anyway.

And, therefore, no reason for much of the money that goes into campaign spending each year.

A 10% per transaction consumption tax would most likely bring in the same amount of revenue as the current income tax without all of the Rubik's Cube machinations and tax avoidance schemes we have concocted since 1913.

Possibly more since the current tax code shelters enough income to prevent close to $2 trillion of taxes annually from being paid to the federal treasury.

Every time a purchase is made from buying paperclips to a new stadium, each person, entity, company or organization would pay a 10% tax to the federal government at the time of purchase at the checkout counter or closing.

Tax reform in 2017 should be the beginning of tax reform going forward. Not the end.

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'How To Make Mexico Pay For The Wall'

Hub city traffic routes for illegal drug trade through Mexico to US

(first published in North State Journal 9/27/17)

Mr. President: If this is already your plan, congratulations.

When Donald Trump, the candidate, kept saying: “BUH-Leeve me! Mexico will pay for the wall,” the media and Democrats scoffed and said there was no way to get Mexico to pay for border wall.

What could President Trump possibly have had in mind?

We could suspend all military and foreign aid to Mexico totaling over $320 million per year to pay for the wall. Losing $320 million a year in foreign and military assistance from America would amount to a .03 percent reduction in total national spending in Mexico.

That is not a killer in overall economic terms for Mexico. Their GDP is $1.046 trillion in US dollars, two-thirds the size of Canada’s GDP. Mexico is the 13th largest economy in the world today. Foreign aid used to go solely to devastated nations who needed it.

It would take 62.5 years, however, to pay for the border wall by diverting appropriations from Congress this way.

What if President Trump had in mind a much higher rate of interdiction of laundered “dirty” drug money that freely flows from purchases made in the U.S. back to sources in Mexico?

Call it “Reverse Money Laundering”: intercept “clean” drug money on its way back to Mexico and convert it into American general revenue to build the wall. It would be like creating a special tax on U.S. drug users and Mexican drug lords to pay for border security.

What could be better than that?

DEA officially collected $138 million in seized money in 2009. However, estimates of laundered money from illegal drug trade between the US and Mexico ranged as high as $38 billion or 275 times the amount of officially seized money.

We are leaving $37.8 billion in ill-gotten profits on the table that could be used to pay for the wall or repave a few highways if we could get our hands on it.

Mexico could pay for its own wall to keep their citizens in Mexico if they wanted. Roughly 10 percent of their population has been exported to America over the past 25 years. But they won’t.

Why?

One reason why the Mexican government doesn’t want an effective impermeable wall might be they know how important $38 billion in cash is to the Mexican economy and banking system. Cutting off that flow of cash could sink hundreds of small Mexican banks and cause a real dent in their annual GDP.

Money laundering is a huge network of small businesses in the southwest. Local authorities have little interest in enforcing federal statutes, and the FBI doesn’t have the resources to sift through millions of local bank transactions from mostly cash businesses such as convenience stores, restaurants, funeral homes, lawn services, and car retailers.

It’s a real war out there as well with lots of bloodshed and violence in support of drug trafficking. We have to treat it as war to defeat it.

A tidal wave of dirty money spread over a large landscape is barely noticeable. The point of vulnerability is when dirty money re-enters the banking system so drug lords can buy mansions, yachts, luxury cars, and more weapons with it.

By building a 21st century “virtual wall” with every conceivable technological instrument that can be used to detect cash flows at the border, intelligence gathering with a banking firewall can be used to significantly ratchet up the capture of significant percentage amounts of this laundered money.

That is how Mexico can be made to pay for the wall. Mexican drug lords losing billions in dirty profits from American drug users. The Mexican economy and banking system losing access to billions in laundered money every year.

Mexican interests will have then officially “paid for The Wall.”

And if this isn’t your plan, Mr. President, well, then “you’re welcome!”

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The DACA For 'The Wall' Deal

Hadrian's Wall Built by The Romans to Keep Hot-Tempered Scots Out of England

(first published in North State Journal, 9/20/17)

Most deals are lost in Congress by politicians who didn’t recognize when they had ‘won’.

They let 'the perfect be the enemy of the good'.

President Trump set up a classic political deal to be made between proponents of DACA (Deferred Action for Childhood Arrivals) and proponents of 'Building The Wall' when he had dinner with Senate Democrat Leader Chuck Schumer and House Democrat Leader Nancy Pelosi. 

Neither side is going to get all they want all by themselves. But both sides stand to gain 80%+ of what they want if they cooperate on a bipartisan bill that deals with both issues at the same time. 

If they recognize they ‘won’, that is.

On one side, you have proponents of DACA who feel strongly that 1.9 million people who came to America at the average age of 6 with their parents who came here illegally should be allowed to stay in America and not be deported.

On the other, you have proponents of much stronger border security who feel strongly that we must have an impenetrable border with Mexico as a precondition for any discussion about immigration reform.

Today, we don’t have a solution to either. There's a deal to be made somewhere between the two sides if both sides realize they will not get 100% of what they want.

There are a few misconceptions about 'The Wall' that no doubt arose from the truncated nature of political campaigning. 'Build The Wall' is a 3-word metaphor for 'Maximize American Border Security' which doesn't resonate in a speech with 30,000 supporters in attendance.

What will 'The Wall' mean in 21st century America?

'The Wall' will not be a continuous 1989-mile brick-and-mortar, concrete-and-cinder block physical barrier between the US and Mexico like the Great Wall of China, the Berlin Wall or even Hadrian's Wall between England and Scotland that the Romans built in 122 A.D. to keep the hot-tempered Scots out of England for hundreds of years.

The American 'Wall' will be a system of integrated technologies that closely resembles existing military capabilities such as unmanned aerial vehicles or drones (UAVs), cluster satellites, radar and infrared imaging now deployed in Iraq, Afghanistan, Pakistan, and elsewhere.  

These security technologies provide the real-time information needed to direct ground intercept units to interdict hostile enemy forces on the battlefield. In homeland security terms, these technologies will be used to interdict people trying to illegally enter the United States without a visa or passport and return them to their home of origin.

As in military theaters, the essential feature of these technologies is their 'stealth' characteristic which is something that physical barrier walls cannot offer.  People trying to enter the United States illegally cannot easily observe the location or configuration of these stealth security technologies and will find them quite difficult to defeat.

'The Wall' will include more than the physical security technologies needed for immediate homeland security operations.  'The Stealth Wall' would have the capability to coordinate with real-time banking information; rail, port, truck and warehouse logistics and dispatching; and government intelligence agencies.

Working with the Mexican government would allow access to banking, immigration/travel and logistics security information across the border.  Technological mechanisms could be added to stop the southward flow of laundered money and high-tech weaponry along with a promise of enhanced security for maquiladoras (foreign-owned manufacturing plants in Mexico) in support of Mexican economic development.

Building ‘The Wall’ will be expensive. Estimates range as high as $20 billion. 

We are going to spend $150 billion to clean up after Hurricanes Harvey and Irma for comparison’s sake. 

Finding a common solution for the DACA population is the price proponents of ‘The Wall’ will have to pay to ‘declare victory’ on their side and vice versa. 

Otherwise nothing will get done on any immigration issue. No DACA. No Wall.

Again.

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Should You Worry About Tax Reform?

(first published in North State Journal 9/13/17)

Not if you are one of the 103 million taxpayers who chooses the standard deduction instead of itemizing every deduction.

2/3rds of all American taxpayers are in this group. The only thing they have to worry about in tax reform is whether their tax rate is going up or down.

Chances are tax reform will not affect 103 million taxpayers very much one way or the other. Tax rates should go down for them when all is said and done based on comments from the Trump White House so far.

When they hear commentators bleating about 'tax fairness' and 'the rich paying their fair share of taxes!', they can and should watch football games, work in the yard, play with their kids or grandkids and get plenty of sleep this fall instead of worrying a whole lot about 'tax reform'.

1/3 of American taxpayers or 44 million households do itemize their deductions on their tax returns. According to the Tax Foundation, '(o)nly 6.0 percent of tax returns with under $25,000 in income chose to itemize deductions in 2013. On the flip side, 93.5 percent of tax returns with over $200,000 in income were itemizers.' *

Tax reform is very much a 'higher income' concern to between 20-25 million taxpayers then.

The question for higher-income taxpayers will be whether lower tax rates will offset the loss of some of the major tax deductions they have used to lower their tax liability over the years.

Why do we have tax deductions in the first place?

The income tax didn't become a reality until the Civil War and was then promptly declared unconstitutional. Income taxes became 'constitutional' in 1913 after ratification of the 16th Amendment. Class warfare almost immediately ensued as the highest tax rates exploded from 7% to 77% by 1918 to finance World War I to 94% during World War II.

Tax deductions became very popular almost immediately as well simply because the top rate was so high. No one in their right mind was going to work in America and give 94% of it back to the government without a fight.

The tax deduction for employer-sponsored health plans started during World War II because of the wage-and-price freezes imposed by FDR. Providing health care coverage was a way to use the corporate tax code to deduct the 'cost of doing business' which included fringe benefits such as health care coverage for workers.

The corporate tax deduction for health care accounts for the largest net loss of taxes ($235 billion) to the federal treasury of any tax deduction on the books today and also covers almost twice as many people as Medicare and Medicaid combined.

If learning about and understanding the inequities in the tax code today doesn't make you want to throw your hands in the air and start praying for a consumption tax to replace it, nothing will.

Compressing the tax code to squeeze out as many deductions, exemptions and credits as humanly possible in return for lower rates across the board makes sense for all of us.

* 'Who Itemizes Deductions?' by Scott Greenberg

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One Small Step for Social Security

'Can you BUH-LEEVE how much money these fans are going to pay us for this show???'

(first published in North State Journal 9/6/17)

Did you pay $100 to watch the Mayweather-McGregor fight?

Such a small amount could be the key to saving Social Security for future generations.

A major obstacle to transitioning to any new Social Security system with even a smidgen of private investment for each person has been how to pay for it all without blowing the budget deficits through the roof.

$100 could be the beginning.

Suppose you are 24 years old and invested the $100 you blew on the fight in a basic stock mutual fund. What would it be worth in 2067 if it appreciated at the historical average rate of return of 9.05% of the stock market for the past 150 years?

$7608.23. Inflation will account for 1/2 to 2/3rds of that amount but investing $100 for yourself for 50 years instead of giving it to 2 showboating boxers today means more money in your pocket, not theirs.

What if we had a provision in our current Social Security system that allowed for such a direct investment of $100 for every child born in America each year on the date of birth?

$100 compounded at 9.05% for 75 years will become $66,684 before adjustments for inflation.

It is just math.

One way to pay for it would be to not pay current benefits to the very wealthiest of Social Security beneficiaries. 47,500 millionaires received full Social Security benefits in 2010 at a total cost of $1.4 billion.

Set aside for the moment the question of whether a person should get everything out of Social Security they put in during their working career or whether it is a bonafide retirement plan to begin with.

It should be mighty tough for any political party or group to defend the 'constitutional right!' of billionaires such as Bill Gates and Warren Buffett to keep receiving $2700/month in SS benefits when they should not be on any federal transfer payment program in the first place.

Many very wealthy people stop paying into Social Security through payroll taxes when they start making most of their income from capital gains, dividends and interest from investments which are exempt from SS payroll taxes. Many are not paying into the system today as every wage-earner is obligated but they will receive virtually full benefits based on payroll taxes paid earlier in life.

If $1.4 billion in SS benefits was not paid to the wealthy retirees this year, 14 million children can have $100 deposited into their personal retirement accounts at birth. Roughly 4 million children are born in America each year. 3.5 years of annual births in America can be funded from one single year of suspension of benefits paid to the very wealthiest of citizens.

The budget deficits will not be increased. The national debt will not be increased. The money that would have gone to pay the benefits of very wealthy seniors who do not need federal help will have been spent to help transition a future generation from a defined benefit plan to a defined contribution plan much like the rest of corporate America has gone in the last 25 years.

Each child will have $66,684 in their own personal account at age 75 from that one single payment of $100 into a private account when they were born.

Imagine what the total would be if each person could invest substantial parts of all of their lifetime SS payroll tax payments in it as well.

The time for tired status quo talk about Social Security has expired. Budget reality and math has guaranteed as much.

Allowing small portions of Social Security payroll tax payments to be invested in personal defined contribution plans is the public policy equivalent of ‘one small step for man; one giant leap for American taxpayers’.

*chart courtesy of FaceTheFactsUSA.org http://www.facethefactsusa.org/facts/millionaires-receiving-social-security

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The Federal Government Is a Huge Insurance Company With An Army

(first published in North State Journal 8/30/17)

'Think of the federal government as a gigantic insurance company (with a sideline business in national defense and homeland security), which does its accounting on a cash basis, only counting premiums and payouts as they go in and out the door. An insurance company with cash accounting . . . is an accident waiting to happen.' -Former President George Bush 43 Treasury official, Peter Fisher, 2003

It has known in budget circles as 'The government is an insurance company with an army' statement.


Is it true?

The US federal budget is now 50% consumed by spending for Social Security, a social insurance program; Medicare and Medicaid, two of the largest health insurance programs in the country; and various other social safety net programs which act as insurance plans as well.

Except for one thing. None of these federal insurance programs operate as licensed sanctioned insurance plans as we see in the private sector where money is collected from the individual and invested or managed in a fiduciary manner to build assets to pay for claims in the future.

Money that goes to pay for Social Security claims of current retirees today comes directly from the payroll taxes of current working Americans.

Money that goes to pay for Medicare claims of current retirees today is close to 90% paid for by payroll taxes and general fund tax revenues paid by current working Americans and active taxpayers. The only part of Medicare health insurance coverage that is paid for by the participants, aside from the deductible, is the 25% of the Part B premium that pays for doctor bills. Part A payments for hospital expenses are 100% paid by payroll taxes of working Americans today.

Money that goes to pay for Medicaid coverage for our least well-off fellow citizens is 100% paid for by taxpayers at the federal and state level, an average of 67/33 split overall.

Since tax revenues are fungible and wind up being used for any and all government expenditures in reality, roughly 12% of every dollar spent in the federal budget is borrowed which means future generations will have at least $22 trillion in national debt to deal with no matter what happens in the next 4 years.

Given the massive amount of debt that has to be serviced in interest each year which accounts for 9% of all spending in the federal budget, the federal government is the largest bond company in the world paying over $266 billion in net interest to holders of US debt worldwide in 2016 alone.

If truth is told about our federal government today, we have 'the largest insurance AND bond company in the world with an army'.

What does this mean to future generations of Americans?

Will they pay 100% of all of their income, payroll, excise, estate and corporate taxes to cover the social insurance programs plus interest in 15 years in 2032 to support their Boomer parents in retirement as currently projected?

Will they have to pay 25% more in taxes to maintain the status quo in federal social insurance programs?

What will happen to them if, and probably when, interest rates return to some sort of 'normal' range of 5% on federal bonds? That will mean they will have to pay $1 trillion per year in net interest alone to service the national debt which will further compress any and probably all discretionary domestic program from building roads to keeping our environment clean.

Our current national debate has been dominated by politically charged issues since the 2016 election. The big issue we have failed to elevate to a national discussion stage is how are we going to change our government spending so our future will be bright for our children and grandchildren.

It is a discussion we need to have.

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Don't Fall For 'Fake News' About Taxes!

(first published in North State Journal 8/23/17)
There is nothing more disturbing in all of American politics than the misunderstanding and deliberate deception when it comes to the progressive income tax code of the United States.

People vote for pocketbook issues that are important to their family. Reforming and simplifying the tax code is about as important as it gets to the average American family every day, especially when compared to all of the obsessive media coverage about Russia since the election to name one example.

President Barack Obama said this about taxes in a September, 2011 speech on the economy:

'Middle-class families shouldn’t pay higher taxes than millionaires and billionaires....Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett.' 

Conflating 'taxes paid' and 'tax rates' is inherently a dishonest political way to confuse the voting public. In a world of reason, anyone who pays millions of dollars in taxes in cold hard cash is shouldering far more of a tax burden to support our government activities than an average person who might be paying a higher 'tax rate' at any level of income.

Let's take a very simple example:

Take a look at the above chart and consider a secretary working for Mr. Buffett who makes $37,950 per year after all personal deductions are included on his or her tax form. They would owe $5226.25 in taxes for 2017.

Assume that this secretary makes $1 more somehow in a teeny, tiny bonus let's call it. Their income becomes $37,951 instead of $37,950.

That $1 will be taxed at a 25% tax rate according to current law. An additional 25 cents will be added to their taxes paid so that their total bill to the federal government will be $5226.50 instead of $5226.25.

See the difference? Very small amount in pennies paid but 10 percentage points higher than the 15% marginal tax rate paid on the amount between $9325 and $37,950 in taxable income.

Consider a very wealthy person such as Mr. Buffett coming along and filing his taxes behind the secretary at the local accountant office in Omaha, Nebraska. Many wealthy people make the vast majority of their income from appreciated long-term gains in their stock or real estate portfolios which are taxed at a 15% rate to recognize the long-term commitment it takes to make such growth happen in the first place.

Long-term asset appreciation is taxed at a lower rate since it is inherently risky to keep assets deployed in any long-term investment, many times which winds up being worthless and not taxable at all in which case the wealthy person loses all of his money AND the federal treasury gets nothing in taxes either.

Mr. Buffett makes $100 million in long-term capital gains profits from his investment and then pays 15% of that gain to the federal government and writes a check for $15 million to Uncle Sam.

'But he has paid a lower tax RATE than his secretary!' people on the left will scream.

So what? He has paid $15 MILLION in cold hard cash to the federal government whereas his secretary paid a total of 25 CENTS at the higher marginal tax rate. Which would you rather see if you want your government to continue to operate?

Hopefully as this troubled summer ends, we will see Congress start to address the whole issue of tax reform.  Don't get distracted by the 'fake news' difference between tax 'rates' and taxes actually 'paid'.

The battle cry of 'tax the rich more!' sounds good and resonates well in a speech designed to rouse the understandable human passions of fairness and equity. It fails as sound fiscal policy if it ignores basic arithmetic we all should have learned in elementary school.

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Fire and Fury

Churchill, Truman and Stalin at Potsdam, July 26, 1945

(first published in North State Journal 8/16/17)

"They will be met with fire and fury like the world has never seen.”

Has any American President before President Trump ever issued such direct and descriptive terms to a foreign adversary? Or has every other President turned the other cheek when the United States has been threatened by a madman, dictator, Emperor, King or power-mad maniac and let them do what they wanted to do?

Consider the excerpts below from the Potsdam Declaration of July 26, 1945 which was signed by
President Harry S Truman, Chiang Kai-shek, the President of China and Winston Churchill, PM of Great Britain and issued to the Emperor of Japan as the ultimate ultimatum to end the bloodiest war the world has ever known, World War II:

1. 'The full application of our military power, backed by our resolve, will mean the inevitable and complete destruction of the Japanese armed forces and just as inevitably the utter devastation of the Japanese homeland.
2. The time has come for Japan to decide whether she will continue to be controlled by those self-willed militaristic advisers whose unintelligent calculations have brought the Empire of Japan to the threshold of annihilation, or whether she will follow the path of reason.
3. We call upon the government of Japan to proclaim now the unconditional surrender of all Japanese armed forces, and to provide proper and adequate assurances of their good faith in such action. The alternative for Japan is prompt and utter destruction.'

Other US Presidents have ‘rattled the saber’ when it came to identifying the threat to American and free world interests and spoken directly about the danger at hand.

Ronald Reagan called Libyan strong man Muammar Kaddafi ‘a mad dog of the Middle East (who) has a goal of a world revolution’ (1986)

Thomas Jefferson responded to the tribute demands of the Bey of Tripoli with this short, direct answer: ‘I sent a small squadron of frigates into the Mediterranean.’ (1801)

Teddy Roosevelt didn’t say ‘Speak softly but carry a big stick’ because he was inviting foreign adversaries to a tea party at the White House.

Perhaps if President Trump had cribbed the above language from the Potsdam Declaration and had Chinese President Xi Jinping sign it along with every ally America has around the world, his threats to North Korea might have been considered less alarming to the mainstream media and his political opponents.

No one really knows what is going on inside the head of Supreme Leader of DPRK Kim Jong-Un. He and his father and grandfather have been bewildering outside observers since 1946 like evil villains in a bad James Bond movie series.

Perhaps he is jockeying for more concessions as he exacted from Presidents Bill Clinton and Barack Obama. Perhaps he is appearing to stand up to ‘evil America’ to prolong his regime amidst fears his life will end in similar fashion to Romanian dictator Nicolae Ceausescu and his wife who were overthrown and publicly executed on Christmas Day, 1989.

In 1981, Israel grew so concerned about Saddam Hussein in Iraq developing a nuclear reactor they instigated an air strike and destroyed it before it was fully operational.  If China can not or will not force North Korea back into the world of reason, what choice would the free world have left other than to destroy any nuclear missile before it left its launchpad?

The one thing the world has to agree on is that the Supreme Leader of North Korea must never be allowed to push the button that launches a nuclear-tipped missile anywhere in the world.

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Lottery Millionaires versus 'Regular' Millionaires

(article first published in North State Journal 8/9/17)

Richard Reeves has written a book, “Dream Hoarders” to explore the widening gap between the upper income class of America and everyone else.

The gap is widening, there is no doubt. But is it because upper-income people are deliberately ‘hoarding’ things and intentionally ‘denying’ others the fulfillment of their dreams and aspirations?

Do upper-income people do things that are inherently detrimental to society or do they actually contribute a lot more to society than they take out themselves?

Consider this stark example:

There have been perhaps 10,000 large to mega-large lottery and Powerball and Super-Mega-Powerball winners in America over the past 25 years that have made people millionaires to super-millionaires.

The odds of winning the most recent national Powerball was estimated to be one in 292 million. There are about 320 million people living in 126 million households in America today to give you some perspective.

Did these lottery super-winners create tons of new jobs for anyone else on their way to becoming super wealthy? Did they invest in any new plant, machinery or technology that was created by other people who employed hundreds, perhaps thousands of other people who supported their families on those jobs in order to become ‘super-wealthy’?

No. The answer is that maybe 100 or so state employees at the state lottery office had jobs because of the lottery in their states. Certainly not thousands. Or hundreds of thousands.

On the other hand, it is estimated that there are now close to 10.8 million millionaires in America according to a CNBC report on March 24, 2017. “In 2016, there were 9.4 million individuals with net worth between $1 million and $5 million, 1.3 million individuals with net worth between $5 million and $25 million, and 156,000 households with more than $25 million in net worth,” the report says.

You have a much higher chance of becoming a millionaire in any other fashion than playing the lottery. One in 12 households in any other venue versus one in 292 million for Super Powerball.

Some no doubt did it the old-fashioned way with inherited wealth from their families. However, according to some wealth managers, less than 2 percent of all the wealth created by the fantastically wealthy families in the 19th and 20th Centuries has survived beyond even the third generation of grandsons and granddaughters. Much of that wealth was squandered along the way which also finds its way into the pockets of hard-working carpenters and laborers who build their mansions or luxury yachts before they declare bankruptcy.

Many, if not most of these millionaires made their fortunes not all by themselves but by hiring and working with great people and paying them to help build the company. Once a Bill Gates or Steven Jobs or Jeff Bezos starts to build a company based on their ground-breaking ideas, ordinary folks who join their teams early on not only get paid for their services but get fringe benefits such as health care insurance coverage and retirement plans, which sometimes includes stock that appreciates in value in the growth of the underlying company they are helping build.

The tip of the spear might be the fabulously wealthy people we all read about in the news. The truth of the matter is those entrepreneurs and business leaders made a fortune for themselves while also providing income, benefits and jobs to millions of people beyond them.

It is difficult to consider the vast number of millionaires being ‘dream hoarders’ deliberately trying to prevent others from succeeding in life. After all, they need non-millionaires to help them succeed in the first place.


We all benefit from that collective success.

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This Is What A Budget Reconciliation Bill Looks Like

  

(from opinion page of North State Journal printed 8/2/17)

'Son, in the US Senate, there are no rules!'

So said former Senate parliamentarian Bob Dove at the completion of a two day seminar on Senate rules in 2003 when asked to sum it all up for new Senate staffers.

Now that health care reform has been torpedoed in the U.S. Senate in dramatic fashion by Senator John McCain’s deciding ‘no’ vote last week and by Republican Senators who are not up for re-election in 2018, where does that leave health care reform efforts?

For now, nowhere. The Affordable Care Act is still the law of the land whether you like it or not. Until Congress passes a bill that gets signed by President Trump, Obamacare remains the law of the land with all of its attendant promise and problems.

The Omnibus Budget Reconciliation Act of 1990 Act (pictured above) ushered in a decade of spending restraint, PAYGO budget discipline and led to four surplus budgets from 1998 to 2001.

The strategy all along from the Republican side was to pass health care reform first under reconciliation rules in order to free up enough spending savings over 10 years to allow a massive tax cut—reform bill to be passed afterwards. Budget reconciliation measures cannot increase the deficit; they can rearrange the deck chairs of tax and spending policy but cannot add to the baseline debt.

Those are the rules. We didn’t make them up. Budget reconciliation was a tool passed in 1974 to allow for expedited consideration of bills relating to spending, revenue and budget matters with only a 50 percent +1 majority in the Senate instead of the 60-vote threshold to close debate and proceed to a vote.

Now that health care reform has collapsed in the Senate, what does that mean for tax reform?

It probably means a scaled-down version of tax reform, perhaps by as much as 50 percent less. Health care repeal and replace was expected to save anywhere from $1 trillion to $2 trillion in spending over the next decade, most of which would ‘pay for’ the majority of a massive tax reform package some estimated to be close to $3 trillion over 10 years. On top of that, budget savings in the rest of the federal budget amounting to close to $1 trillion over 10 years were going to be folded into this budget reconciliation package to form what might have been called “MOBRA 2017” or the Massive Omnibus Reconciliation Act of 2017.

Tax reform will now take center stage for consideration and regular order appropriations bills will be passed to incorporate the majority of budget savings.

Will we see health care reform again this year? Many conservatives now believe Obamacare exchanges will collapse under its own weight without taxpayer bailout of the insurance companies. So why try again?

States that have expanded Medicaid under the 100 percent match for five years are now beginning to feel the pinch of having to pay for 10 percent of the expansion cost since ACA called for a reduction to 90 percent match after five years. Budget pressures will start to force match rates back down to the historical average of 63 percent federal and 37 percent state-funded further weakening Medicaid expansion.

Could the Senate take up health care again under budget reconciliation rules? Yes, if both houses pass another budget resolution and sends out a second set of reconciliation instructions. They could do that 100 times if they so choose.

As Bob Dove said, though, ‘there are no rules’ in the US Senate which means we could see health care again before the end of the year. Don’t hold your breath but stranger things have happened.

This year as a matter of fact.

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Proximate Solutions to Insoluble Problems

(first published in North State Journal, 7/26/17)

The essence of politics, said 20th century Christian Realism theologian Reinhold Niebuhr, “is finding proximate solutions to basically insoluble problems.”

Niebuhr was trapped between his inherent pacifism and “turn-the-other-cheekism” of the Christian faith and witnessing the horrors of World Wars I and II and came to the conclusion that men and women of faith need to act to get things done even if it is not the “perfect,” most ideal solution.

If Senate Republican Majority Leader Mitch McConnell has read Niebuhr, perhaps he could challenge his colleagues this way:

The key to ever making health care in America a soluble problem is to set into place the incentives and structures that help people not get sick in the first place.

“The essence of our collective job in the US Senate this July, 2017, is to find the best option we can to get to 50 votes in the Senate, not to make the US health care system ‘perfect,’ but better than what we think it is today under the ACA.”

Many people today think that every time a bill passes Congress and is signed into law by the President, it has to 'solve all of our problems and set us free!'

Nothing could be further from the truth. The best we can and should expect out of any piece of legislation is that it somehow addresses a need and helps as many people possible without harming others in major ways.

Finding the “perfect” health care system is inherently insoluble. Nothing in the ACA, AHCA or BRCA is really getting at the heart of the problem which is reducing the cost of health care in the first place.

We Americans like the fact that we have modern medical technology, medicine and regimens that allows us to live relatively healthy lives despite the fact that the majority of Americans simply do not live healthy lifestyles.

Talk about diametrically opposed forces that make a “perfect” health care system impossible. The heavier we Americans get due to fast food, lack of exercise and excessive consumption of booze and beer, the more we want and need these medical breakthroughs to stay alive.

Until Americans lose about 25 percent of BMI, stop drinking and smoking too much, and start walking at least a couple of miles every day, our health care delivery system will continue to be insoluble. All we can really do is try to manage the health care of millions of unhealthy people as best as we can.

We are stuck with the same problems today that President Obama and the Democrats tried to ‘fix’ with ACA:

How do we provide the maximum amount of health care insurance coverage to the most number of people without bankrupting the national treasury, corporations and individual pocket books?

Here’s some things to think about which will get at the core of the problem:

1. Everyone in the United States should have access to some form of catastrophic health insurance coverage to protect them against the loss of everything in the case of a catastrophic health event.

2. If you want to pay for private health insurance without the benefit of any tax deductions, you can do whatever you want with your body and health.

3. If you receive health coverage from any government source such as Medicare, Medicaid, VA, or get a tax deduction through your business, you will be enrolled in a managed health care organization, that will help you learn how to take better care of yourself.


The key to ever making health care in America a soluble problem is to set into place the incentives and structures that help people not get sick in the first place. That sounds so elemental but sometimes simple solutions are the best.

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Can We Solve Health Care In America?

(Which Einstein probably never said...
but if anyone did, he should have)

Sometimes, the best thing we can do for you is to relay pertinent data from respected sources whom we trust and then ask you just to read it with some of our inserted comments as food for thought.

Health care is complicated enough as it is before thinking about amending, repealing and then replacing ACA with AHCA or BCRA I or II. Some clear thinking and explanation is always in order when you think or talk about health care insurance coverage in America.

Here's a piece by Joseph Antos and Jim Capretta, a health care policy analyst we have known for quite some time. This is a direct reprint of their July 24, 2017 article in the AEI blog so if you have any questions, perhaps I can refer them to the authors to answer.

Annotations are inserted in blue below:

'The Congressional Budget Office (CBO) produced cost estimates for two of the three versions of the Better Care Reconciliation Act (BCRA), sponsored by Senate Republican leaders. A comparison of the June 26 and July 20 estimates confirms that the two BCRA versions do not differ substantially from each other.

CBO has not estimated the impact of the much-discussed amendment to the BCRA sponsored by Senator Ted Cruz (R-TX), which is included in the July 13 draft. That provision would allow insurers to sell products to consumers that are out of compliance with the requirements of the Affordale Care Act (ACA), as long as they also offer at least one ACA-compliant product at each metal level.

The July 20 version of the BCRA incorporates several major policy changes from the June version, including:

1. The new taxes on high-income families imposed by the Affordable Care Act (ACA) would be retained. Those taxes, the Medicare payroll tax of 0.9 percent on the wages of high earners and the 3.8 percent tax on the non-wage incomes of the same households, would have been repealed by the earlier version of the BCRA. (As a matter of tax policy, this should be repealed for the simple reason that this is the first time in American tax history that a 'payroll tax' of any kind has been assessed against 'non-wage incomes'. Payroll taxes are either taxes on payroll wages or they are not. This is a bad precedent the Obama Administration and 2009-2010 Congress tried to set)
2. An additional $70 billion would be added to the State Stability and Innovation Fund.
3. Funds from Health Savings Accounts (HSAs) could be used to pay the premiums of high-deductible health insurance plans purchased on the non-group market.
4. A new $45 billion fund would be established to support state efforts in combating the opioid epidemic. This fund does not figure prominently in CBO’s estimates of the coverage and premium effects of the legislation. (Not sure if this is the right vehicle to deal with our opioid crisis. This appears to be adding financial incentives for senators with high opioid addictions and traffic to vote for the underlying reform bill but it appears to us that dealing with the opioid crisis in a separate bill with more discussion and input might have a higher chance of solving the problem)

CBO’s assessment of the most recent BCRA draft includes the following key findings:

• The legislation would reduce federal spending by $903 billion over ten years and reduce federal revenues by $483 billion over the same period. The net deficit reduction over the coming decade would be $420 billion. CBO estimated that the June version of the BCRA would have reduced federal revenue by $701 billion over ten years, or $218 billion more than the tax cuts in the current version of the legislation. (When we have a $20 trillion national debt that is still growing, deficit-reduction would seem to be a welcome outcome of health care reform if it can be done)
• CBO estimates that the revised BCRA would increase the number of people going without health insurance by 15 million in 2018 and 22 million in 2026. These estimates are essentially unchanged from CBO’s previous estimate. (This is mainly due to the dropping of the individual mandate. (see Avik Roy's explanation) If there is no penalty for not having health insurance, it stands to reason that more people, mainly young healthy people not covered by a large corporate or educational network, would just drop paying for coverage. They think they are 'immortal' at that age anyway..until something happens and they realize they are not)
• The largest spending reduction in the revised BCRA is in the Medicaid program. CBO estimates the bill would reduce Medicaid spending by $756 billion over ten years, of which $575 billion comes from pulling back on the enhanced federal matching rate for the ACA’s expansion of the program. (This may be one of the most under-reported stories about the ACA, which also stands to reason given the media's preoccupation with Russia and collusion, etc. The ACA paid 100% of the costs of states expanding their Medicaid population for the first 5 years of expansion and then 90% thereafter...except the Obama Administration and the Democrats in 2010 never expected that a future Republican President in concert with a Republican Congress might just bring the traditional federal-state matches back into line on the expanded population one day.
  
  Historical federal/state matches average 63%/37%. If you live in a state with a 100% match for the expanded Medicaid population, which are not the women with dependent children or disabled already covered by Medicaid prior to 2010, you can expect to see enormous cost hikes at the state level to start paying for that 'fair share' of the 37% match by the states for this expanded population.
  
  Or enormous tax hikes to pay for it. Or a severe reduction in funds appropriated for teacher salaries, new road construction or any other state government function. 
• The proposal to impose per-person limits on future federal expenditures for the program accounts for most of the remaining savings. CBO expects Medicaid enrollment to decline by 10 million people in 2021 and 15 million in 2026.
• CBO expects that terminating the penalties associated with the individual mandate would lead to large-scale withdrawals from coverage and additional adverse selection in the individual insurance market. Those changes would not be so severe as to lead to a breakdown in the market. As with current law, the subsidies provided in the BCRA would be sufficient to ensure enough participation to keep the market stable, although at lower enrollment levels.
• The revised BCRA would increase average premiums in the individual market before 2020, and then reduce them in the ensuing years. (Gonna be a hard sell for people who have already seen a doubling or tripling of their health insurance premiums since the advent of ACA. They want to see at least a freeze of premiums starting tomorrow and then a reduction over time. 
• The increase would occur primarily because of the elimination of the penalties associated with the individual mandate, which would lead some healthier insurance enrollees to exit the market. CBO expects average premiums in the individual insurance market to increase by 10 percent in 2019. Beginning in 2020, the BCRA would tie the restructured premium tax credits to plans with an actuarial value of 58 percent, compared to 70 percent under current law. As a result, average premiums in 2026 would be about 25 percent below the average under current law.
• The BCRA makes income-based tax credits available to everyone with incomes up to 350 percent of the federal poverty level. Households below the poverty level would pay no more than 2 percent of their incomes in premiums to get coverage in the individual insurance market.
• However, CBO estimates that many of these low-income households would not sign up for coverage because of increased deductibles as a result of moving to a lower actuarial value for approved plans.
• In 2026, a single policyholder purchasing a benchmark plan with an actuarial value of 58 percent would face a $13,000 annual deductible. (Most deductibles hovered below $5000 before ACA) That deductible would exceed the annual income of a person at 75 percent of the federal poverty line ($11,400). For a person at 175 percent of the federal poverty line ($26,500 in 2026), the average deductible would represent about one-half of his annual income.
• CBO’s estimates of the revised BCRA make it clear that the new version of the legislation is unlikely to improve how the legislation is perceived by the public. (Maybe if the press would get off of its fixation on shiny objects such as 'The Russian Connection' and try to help explain how these health care proposals will affect every person that would help some)
• Republicans in Congress would like to roll back the penalties associated with the ACA’s individual mandate, but CBO’s methodology for assessing health reform legislation puts great weight on these penalties for inducing enrollment into coverage. The Republican effort to reduce federal spending associated with the ACA also makes it difficult to provide what many would view as reasonable health coverage for low-income households.
• Senate Republicans have been struggling to come up with a formulation that would allow them to move away from the structure of the ACA while still providing reasonable security to people who need support to get insurance. It is clear from CBO’s estimate that they have not yet succeeded — but there is still some maneuvering room, at least in fiscal terms.
• The American Health Care Act, passed by the House of Representatives on May 4, would provide $119 billion in deficit reduction over the next decade. According to congressional rules, the Senate version must provide deficit reduction at least equal to that amount. Given CBO’s latest score, Senate Republicans could spend as much as $300 billion more to create better opportunities for affordable coverage in the private market while transitioning to more prudent financing for the Medicaid program.' (Most individual purchasers of health care insurance would just settle for a freeze in their premiums and then a reduction over time)

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When A Rising 'Unemployment Rate' Would Be 'Great News!'

We have been so conditioned to think about the 'unemployment rate' as being the sole indicator of strength in the labor market that using it as the only beacon sometimes might lead us off course.

We have long been writing about the inherent fallacies of the 'official' unemployment rate put out by the Bureau of Labor Statistics each month which are: A) The formula has changed so much over the years as to make comparisons with past data like comparing apples to oranges and B) It can be used to mask what is really going on in the economy for purely political purposes.

Imagine that. Politicians and spinmeisters using government data for purely political purposes.

First of all, here is the official BLS data put out today.

No one in the press or on the mainstream or cable news is going to read it out loud to you verbatim, since they have their own individual agendas to pursue and political axe to grind so let us give you the 'highlights' without the hype and the fanfare and trumpets sounding or worry beads rolling in their hands:

• The unemployment rate, at 4.4 percent, and the number of unemployed persons, at 7.0 million, were little changed. (although the rate did inch up from 4.3% to 4.4% since May)

• Total non-farm payroll employment increased by 222,000 (yea!) in June, and the unemployment rate was little changed (how come?) at 4.4%
• The number of long-term unemployed (those jobless for 27 weeks or more) was unchanged (boo!) at 1.7 million in June and accounted for 24.3 percent of the unemployed.
• Over the year, the number of long term unemployed was down by 322,000 (yay!)
• The labor force participation rate, at 62.8% changed little (boo!) in June and has shown no clear trend over the past year. The employment-population ratio (60.1%) was also little changed in June and has held fairly steady thus far this year.
• In June, 1.6 million persons were marginally attached to the labor force, down by 197,000 from a year earlier. (yay!) (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey (yay!) 

Sort of boring if you don't really dig into the numbers a little bit more deeply.

There ya have it! One side will say 'this is all great! and the other will say 'this is all terrible!'

However, we see the latest data as 'moving in the right direction' for the following reasons:

1. Even though the unemployment rate did not change much, it did change some going from 4.3% to 4.4%.
   
   If that trend holds for most of the rest of 2017, and the 'official' unemployment rate keeps inching up each month ever so slightly, then that means more and more people are feeling more confident about their job prospects and future and will enter or re-enter the labor force and look for a job.
   
   They are NOT counted as being in the work force unless and until they are actively interviewing and looking for employment. Technically, more people 'actively' looking for work expands the total official 'labor force' so if they can't find a job immediately, the unemployment rate goes up to account for this new influx of people.
   
   Consider a situation where 5 million people are unemployed out of a work force of 100 million people. The unemployment rate would then be 5%, 5 divided by 100=5.
   
   If 1 million new active job applicants show up to look for work tomorrow, however, 6 million people will be technically 'unemployed' until they can find a job. The 'official' labor force would then be 101 million Americans either in the work force or 'actively looking' (key operative words) for work.
   
   The new, hopefully temporary 'official' unemployment rate would then be 5.94% tomorrow, up dramatically from just 5% today. 6 million people looking for work divided by 101 million people in the active labor force, 6/101 or 5.94%.
   
   See how tricky the unemployment data game is? No wonder people can play games with the data politically, yes?
   
   However, no one would dispute that having this hopefully temporary, higher unemployment rate would be a great thing for the economy since it meant a million new people were optimistic about finding a job now and they were taking active steps to find a job.
   
   That would be 'great news' in anyone's book, right?
2. The absolute number of people who are employed now in full-time jobs is 2,078,000 more than one year ago in June 2016. 153,168 million people.
   
   153,168 million people working today > 151,090 million people working in June 2016 which is a good thing by anyone's standards.
3. The employment-to-population ratio is now 60.1, up from 59.6 in June 2016, a 0.5 difference.
   
   That might not sound like a lot until you consider that the employment-to-population ratio has not been over 60 since (drum roll) April of 2009 when we were flying right into the maw of the economic hurricane now known as the Great Recession.
   
   
   
   Some people tried to explain this all away by the aging of the massive Boomer population as they retired as if all of them were leaving the workforce at the same time due to some common innate biological signal like turtles returning to nest in the same place or salmon dying after spawning.
   
   We can only find evidence that supports about 30% of this exodus from the workforce as being attributable to planned retirements by Boomers.
   
   The other 70% of the people leaving the workforce had more to do with the severe economic contraction; the wiping out of savings; the plummeting of home and land values and the crash of the stock market so that many just retired on some form of combination of a pension, a smaller version of IRA or some sort of government assistance through disability or Social Security.
   
   The mere sign of the employment-to-population ratio poking its head above 60 has got to be as encouraging of a sign as crocuses poke their heads through the melting snow after a harsh and terrible winter.
4. In a similar manner, the participation rate at 62.8%, even though the BLS calls it 'little changed', is good news as well since it is going up, not down as it has done so essentially for the past 17 years.
   
   It is too early to see if this is a sustainable upwards trend but if it is, it is very good news because it means more people, from Millennials to aging Boomers are actually 'confident' enough about the direction of the economy and the job market to actively go out and interview and try to find a job whereas for much of the past 8 years for sure, they have chosen to do the opposite.
   
   But we do know this, just because of sheer human nature: People don't look for work unless they think they can actually find some gainful employment and that confidence level in the American economy has been rising ever since the elections last November, 2016.

So. There you have it. The unvarnished truth about today's employment data. You can spin it however you want.

Just make sure you have the facts first and share them with your friends, families, colleagues and your political adversaries.

They will be glad you did.

**definition of terms from BLS:

• The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.
• The national unemployment rate. Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force.
• The labor force participation rate. This measure is the number of people in the labor force as a percentage of the civilian noninstitutional population 16 years old and over. In other words, it is the percentage of the population that is either working or actively seeking work.
• The employment-population ratio. This measure is the number of employed as a percentage of the civilian noninstitutional population 16 years old and over. In other words, it is the percentage of the population that is currently working.

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