Thursday, September 29, 2016

Want a REAL Topic For The Next Presidential Debate?

'At least we are talking about the critical issue of
Quemoy and Matsu instead of tax returns and
birth certificates!'
How about changing our tax system for the better?

Wouldn't that be a topic you would like to see some moderator have the decency to bring up and ask questions about at the next debate between Hillary Clinton and Donald Trump?

We don't know about you but we are about fed up with the news media that thinks this is some sort of inconsequential reality show or, worse, Jerry Springer or Maury Povich Show whenever they get the chance to host a presidential debate. It is like the moderators huddle in a kindergarten classroom to come up with the most trivial matters that will titillate the other students later in the day.

We want to know a few things about our next President, namely what are they going to do once elected to round up enough votes in the US House and Senate to get things passed on issues that we care about such as:

  • Taxes. Are you going to make us pay more or less of them?
  • Spending. Are you going to spend more or less in Washington?
  • National Defense. Are you going to wipe out ISIS and protect us or not?
  • Health Care. Are you going to repeal Obamacare & make health care more affordable or not?
  • Supreme Court. Are you going to appoint judges who want to be de facto legislators or not?
Coming up with trivial matters just to boost ratings and titillate ardent supporters on either side is really beneath contempt when it comes to moderators of these debates.

People are always bemoaning the loss of true statesmen in the political world.

How about the almost total extinction of 'true journalists' in the news media who would conduct themselves in a fair and balanced manner as in debates of the past?

In 1960, Howard K. Smith of CBS News moderated the JFK/Nixon debate along with panelists Sander Vanocur, NBC News, Charles Warren, Mutual News, Stuart Novins of CBS News and Bob Fleming of ABC News. 

Most people never even knew who the moderators were in those debates. They were like the referees of a football game; no one knows who the referee is unless they really, really, really screw up big-time, right?

Whoever the next moderator is, and we hope we don't know who it is so they won't try to steal the spotlight again from the two candidates, here's a topic we would like to see discussed in total fully:

'Will you lead an effort over the next 4 years to finally fix our sclerotic, confusing and inefficient income tax system?'

We don't think this is a question for 2 minute answers and 1 minute rebuttals. Surely both candidates would try to wiggle off the hook and start to veer into attacks on the other candidate about what they did or didn't do or said or didn't say 30 years ago.

Who cares when we have a sluggish economy, close to 20 million people who are either unemployed or underemployed and a $20 trillion national debt staring us in the face?

We think there should be at least 30 minutes dedicated to this question of true tax reform with an electric shock buzzer attached to both candidates so that if they veer off into not answering the tax reform question, they get shocked back into reality until they actually do answer this question of utmost importance.

Here's some context to get started:

Our income tax system on both the individual and corporate side is so riddled with exemptions, loopholes and exceptions that if it were a house, it would collapse on itself. There is really no overall encompassing principle that binds it all together and makes it seem 'fair' to everyone while bringing in the necessary revenues we need to fund the government.

We can argue about what is 'essentially needed' in our federal budget in the next debate. Which would take maybe 10 hours to complete.

Close to 1/2 of our federal collection is paid for by taxes on individual incomes. Over 1/2 of all taxpayers do not pay any income tax to the support the federal government. The top 1%  of all taxpayers, the highest income earners, pay close to 1/2 of all individual income taxes as it is today.

Lots of 'halfs' going on in our income tax collection nowadays, isn't it?

The corporate income tax accounts for 11% of all tax collection today. During the recession, that fell to 5%. No net income earned, no taxes paid.

Can't pay taxes when you lose money, you know. So you should be cheering for big corporations and businesses to make a profit so they can pay taxes to support your favorite federal program. Just like JFK did when he said the US government and companies were 'business partners' back in 1961.

The 50% of the taxpayers who do not pay any income taxes DO pay payroll taxes on earned income.

Just like everyone else does regardless of income earned and declared all the way up to people earning hundreds of millions of dollars in earned income such as NBA players with guaranteed contracts.*

Know what the payroll tax really is?

It is a 'flat tax' on the incomes of every working American regardless of income, race, age or gender. Everyone pays a 12.4% tax on wages up to the annual threshold for Social Security, which was $118,500 in 2015 with half (6.2%) paid by workers and the other half paid by employers.

Everyone pays a 'flat tax' on their earnings as well that goes into Medicare Part A, or the Hospital/Medical part of Medicare. You pay a 1.45% Medicare tax on your earnings to be matched by your employer at 1.45%. There is no threshold on the Medicare Part A payroll tax so the more money you make in earned income (not capital gains, etc), the more you pay in Part A Medicare taxes.

In addition, there is an additional Medicare 'flat tax' of 0.9% passed under the ACA or 'Obamacare' that you must pay if your income exceeds a certain amount, $250,000 for a married couple filing jointly. This must be matched by your employer as well.

Of course, if you are self-employed as many people are, you are just going to have to pay both sides of the tax, your side and the employer side (although you do get to deduct the employer side, so good for you)

The point of all this is to ask the simple question to Hillary Clinton and Donald Trump the next time they meet on stage:
'Wouldn't it just make sense to abolish the corporate income tax and the 'death tax' (which brings in so little income relative to the effort to collect it, approximately $20 billion in 2014 or less than 1% of all federal tax collections, that it is inconsequential almost as a line-item in the budget) and slowly expand the 'flat tax' concept of payroll taxes to replace them?
At least there would be no tax cheating on payroll taxes. Everyone pays them because they are flat taxes and there are hardly any tax exemptions or exceptions to payroll taxes when compared to the litany of gigantic tax tunnels in the corporate or individual income tax side of things.

Getting rid of the corporate tax exemptions and exposing that income to a flat tax almost is guaranteed to bring in more revenue just as a common rule. We have close to $1.4 trillion in existing tax expenditures as it is today, a lot of it from the corporate side of things.

We think the next step would be to replace the entire income AND payroll tax system with a consumption tax.

But we will save that for the 2020 Presidential election.

Which will start November 9, 2016 about 10 seconds after we know if we are going to have a 'President Hillary Clinton' or a 'President Donald Trump' for the next 4 years.

Won't that be fun?

*by the way, if you just take the total team salaries of the 30 NBA teams, $3 billion or so, and apply the payroll tax to just 500 NBA professional basketball players, that accounts for close to $100 million in just Medicare taxes alone they pay each year or about $160,000 in payroll taxes alone per player - (assist from former NBA Baltimore Bullet All-Star and Duke University All-American Jack Marin for that bit of information)

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Sunday, September 25, 2016

'The Curse of Bigness'

We have been reading a pretty interesting book lately, 'Louis Brandeis: American Prophet' and been struck by many things he wrote in his opinions while on the High Court in Washington, DC but perhaps none more than this:

'Many of his most devoted disciples apparently didn't read all of his decisions or understand the totality of his philosophy towards government' 

It is not all that unusual. John Calvin, in many respects, would not understand what many of his Calvinist followers came to proclaim later in his name nor would Martin Luther agree with many doctrines of the Lutheran Church as the centuries rolled along.

Disciples of almost any belief have an interesting human way of distorting and contorting the words of a leader over time into ways and rituals they like and seek to control for future followers to follow.

Supreme Court Justices Sotomayor and Ginsberg wrote glowing accolades of Justice Brandeis for the cover of this book and called him their 'guiding light' for their judicial philosophy and decision-making processes.

There is no doubt that Brandeis would have considered himself a 'progressive' for his time in the late 19th century and early 20th century. Some of his ideas, such as raising the rates of taxation so high on big corporations in order to force them to stay small entities (somehow) might sound like Bernie Sanders on the campaign trail in 2016.

However, the recurring theme of 'American Prophet' is this:
Justice Brandeis' disdain for and distrust of anything 'big' where a concentration of enforced power could be concentrated in a few people's hands and hurt other people with their capricious behavior.
He talks about it over and over and over again. He overturned several programs of FDR's New Deal because he felt they overstepped the constitutional boundaries of executive power in the US Constitution and violated the aversion to concentrated power, especially in government, first put forth by his hero and guiding light, Thomas Jefferson.

He opposed oligopolies in business where wealthy businessmen could manipulate markets to their own benefit first.

He regularly deferred to the states as 'laboratories of democracy' (a phrase with which Brandeis became well-known for) where state and local government leaders closer to the situation had the freedom to experiment with different alternatives to see what worked best without interference from other judges or bureaucrats outside of the state or locality, especially from far-away Washington, DC with all of their inherent federal powers to regulate, tax and direct.

If you have been concerned or disturbed by executive power over-reach of the Obama Administration over the past 8 years and expansion of federal regulatory power, are you comfortable with Hillary Clinton following the same policies and line of attack when it comes to being President?

If you are not concerned or disturbed by executive power over-reach of the Obama Administration over the past 8 years and expansion of federal regulatory power, are you comfortable with Donald Trump following the same policies and line of attack when it comes to being President?

Either way, Justice Brandeis would have probably stepped in to rein in the executive powers of any 3 of these people as President and admonished the US Congress to exercise its constitutional authority and prerogative by withholding funds for any such expansion of executive power as a critical check on any individual gaining too much power in our constitutional form of democratic republican self-governance.

Here's the question to ponder, especially as we head to vote in the next several weeks for President down to school board:

'What is it about our federal government in Washington, DC that many people seem to think will become more altruistic and noble the larger it gets if those same people think BIG BUSINESS, or big churches or big anything are 'bad' in many ways?'

The way Justice Brandeis puts it in many of his opinions, leaders in virtually every institution, government entity, business or private or non-profit charitable organization are subject to the same human emotions and negative traits such as envy, anger, revenge, ego, power, money, accumulation of wealth and status that can be used to hurt other people in seemingly capricious ways, either unintended or, sadly in most cases, well-intended, thought-out and premeditated.

There is no rational reason to believe that people who run for office and want to be our local, state and federal leaders are more 'saintly' than any other human being, although we hope and wish and pray for our elected leaders to be so.

The larger our federal government becomes, the more tools and powers it accumulates with which to use against people who might be in disagreement with the prevailing political party in the White House or in control of Congress.

So why give anyone the keys to an ever-expanding bureaucracy with which THEY get to control more of your life through the law of this country than absolutely necessary if there is any chance of any or all of them turning to the dark side once elected?

It seems as if the limited government concepts put forth so forcefully by Thomas Jefferson at the beginning of the Republic should be some sort of rallying point for people of all political persuasions to start with and continue some reasoned discussions on what to do about many of our nation's problems.

It really doesn't even matter what your political philosophy is. All of us should be vigilant against electing people who can wind up being just as 'bad' as many people think the barons of Wall Street were in the years that led up to Great Crash of 2008 and wiped out trillions of dollars in savings, investments and equity of millions of American families only to see their federal government bail these same barons out with their tax money and federal backstop through the Federal Reserve.

Here are just a few of Justice Brandeis' pithy observations:

  • 'Curb of bigness is indispensable to true Democracy and Liberty. It is the very foundation also of wisdom in things human....(unless Progressives at the time could see this truth), 'we are apt to get Fascist manifestations...If the Lord had intended things to be big, he would have made man bigger--in brains and character'.
  • 'Those who won our independence believed that the final end of the state was to make men free to develop their faculties, and that in its government the deliberative forces should prevail over the arbitrary.

    They valued liberty both as an ends and a means.

    They believed liberty to be the secret of happiness and courage to be the secret of liberty.

    They believed that freedom to think as you will and to speak as you think are means indispensable to the discovery and spread of political truth; that without free speech and assembly discussion would be futile; that with them, discussion affords ordinarily adequate protection against the dissemination of noxious doctrine; that the greatest menace to freedom is an inert people; that public discussion is a political duty; and that this should be a fundamental principle of American government.'
  • 'I don't want money or property most. I want to be free'.
Thomas Jefferson was always in the back of Justice Brandeis' mind as he wrote his many opinions. His words still ring true today:
'We have nothing to fear from the demoralizing reasonings of some, if others are left free to demonstrate their errors and especially when the law stands ready to punish the first criminal act produced by the false reasonings; these are safer corrections than the conscience of the judge' 1)
'If there be any among us who wish to dissolve this union or change its republican form, let them stand undisturbed as monuments of the safety with which error of opinion may be tolerated where reason is left free to combat it' 2)
'American Prophet' is a book that might well be worth your time this campaign season. Before you vote, of course.

1) Jefferson 1801 letter to Elijah Boardman
2) Jefferson First Inaugural Address

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Friday, September 16, 2016

The Tale Of Two Polls

'It All Depends On Who Shows
Up to Play on Election Day!'
Your head must be spinning 360 degrees every day as you watch the news and see the various polls from the various states go up and down and jump all around.

These polls are not 'rigged'. The great ones are not, at least. Any pollster worth his salt will tell you outright they can write a poll question to elicit the answer and result they want for their client anytime they want.

However, they won't be in business long. Mainly because pollsters in political campaigns are like U2 reconnaissance planes over Iraq or J.E.B. Stuart riding around enemy lines for Robert E. Lee to determine the strength and weaknesses and most importantly, the numbers of the opposing forces.

Pollsters give key information to strategists and candidates as to that snapshot in time ONLY. They don't 'predict' or 'divine' who is going to win any more than a football prognosticator can tell you that one team on a particular weekend is going to win that particular football game 'for sure'.

The victor of the game in question depends solely on 'who showed up to play' that day. Most times, the team with overwhelming talent wins easily.

Sometimes, such as when the Appalachian State Mountaineers went into the Big House in Ann Arbor, Michigan on September 1, 2007 before 109,208 totally stunned Michigan fans, a team with lesser talent and resources upsets the favorite, this time defeating the Wolverines, 34-32.

App State showed up to play that day. UM did not. They lost. App State won.

The point of this is not to denigrate political polls. Most of the time they are right. Much as weathermen are 'most of the time' proven right when they say 'It won't rain today' or 'Tomorrow it will be hot'.

They are only 'wrong' if a huge tornado suddenly shows up or a massive thundercloud appears out of nowhere and proceeds to prove them 100% wrong.

It just depends on 'what happens that day'.

Which brings us to 'voter turnout'.

Pollsters are usually pretty good at predicting the presuming the past is prologue, that is. Most of the time, pollsters presume that because the voter turnout was a certain level with particular percentage breakdown of vote by age, sex, race, gender, and socio-economic factors in a previous similar election, say in the 2012 re-election of President Barack Obama,it is more than likely to happen the next time in the next similar election, such as in 2016.

That is why many polls early on seemed to overly favor Hillary Clinton. Many national polls just looked at the turnout and composition of the electorate in 2012, the last available data point for a presidential election in America, and assumed 'it will be just the same in every state in 2016'.

However, voting tendencies tend to change over time, ever so lightly every 2 years and a bit more every 4 years. If they didn't, we would still be voting for the Federalists and Anti-Federalists that erupted in Elections of 1796 and 1800, right?

What really WOULD be simply astounding would be if it was possible to accurately predict the exact percentages of who will actually show up to vote or vote absentee or by mail say 6 months to a year before any election.

It can't be done. Why? Because human beings are mercurial creatures. Sometimes they vote because of common sense and reason. Sometimes they don't.

Sometimes, they just don't like the sound or tone or tenor of a Presidential candidate's voice. Sometimes, people just don't like the way a candidate looks or acts or the way he or she dresses.

Sometimes, a candidate is so boring that millions of people just either 'forget' to show up to vote for him or her or they just plain don't have enough energy or interest to cast their one sole vote for them.

Here's two instances of where polls failed to adequately predict beforehand what the makeup and composition of the actual final voting electorate looked like:

  1. In 2002, we were working on the US Senate campaign for eventual winner, Elizabeth Dole.

    After a very long and very expensive campaign as we gathered together in Salisbury election night, our campaign manager came into a small room and said this to about 30 of us:

    'My advice to to to start drinking heavily. This is going to be a long, long night. We probably will not know the outcome of this Senate race until 4-5 am tomorrow morning. Every poll, both on our side and theirs and nationally predict this will be a race determined a a very few percentage points and maybe less than 25,000 out of over 2.3 million votes to be cast' 

    The polls closed at 8:00 pm.

    75 minutes later at 9:15 pm in the Salisbury depot that was serving as the election night headquarters for the Dole campaign, Candy Crowley or some other CNN reporter turned on her microphone, the camera lights were lit and said this to the world:

    'CNN is now declaring that Elizabeth Dole will win the US Senate seat in North Carolina 56-44%. Back to you, Wolf!' 

    She wound up winning by over 200,000 votes. In a race where EVERY SINGLE REPUTABLE POLL had the race almost exactly even just 3 hours previously.

    Had it been a presidential year, the margin of victory might have approached 500,000 since voting turnout roughly doubles when presidential races head the ticket.

    What happened? More people showed up than expected. Many more of them showed up to vote for Elizabeth Dole instead of her opponent.

    Next question.
  2. In 2014, NC House Speaker Thom Tillis was running against incumbent US Senator Kay Hagan who had knocked off Senator Elizabeth Dole 6 years earlier in 2008. (What goes around, comes around in politics)***

    Most polls, probably including his own internal polls, showed a tight race with Hagan ahead slightly...ASSUMING voter turnout in certain counties such as Wake and Mecklenburg would hit certain target levels, especially among the usually dependable African-American vote for Democrats.

    Senator Hagan came out of Mecklenburg and Wake Counties with over 100,000 more votes than Thom Tillis. However, the vote total margin of victory coming out of Mecklenburg County was 'only' about 56,000 instead of the 70,00+ target the Hagan campaign needed to combine with other margins of victory in the most populous cities and counties in North Carolina  to win re-election.

    Thom Tillis won the rural areas by comfortable margins across the state and won the election by 45,608 votes.
By most evaluations, Elizabeth Dole 'over-performed' with many sectors of the population across the state in 2002 based on election models and Kay Hagan 'under-performed' in 2014, especially with a depressed or 'much lower than hoped for or expected' turnout of the African-American voters in Charlotte/Mecklenburg and other large cities in North Carolina.

What is going to happen in 7 weeks here in North Carolina?

If you can tell us right now how many people will show up and what percent of the vote each voting category will break down into, we could tell you right now who was going to win each election without paying anyone to do an expensive poll for you.

If you think the voter turnout in absolute numbers and percent is going to be exactly what it was in 2008 when Barack Obama was running for President the first time, we would have to say Hillary Clinton would win the state and she might sweep in Roy Cooper for Governor and Deborah Ross for the US Senate.

However, the energy and enthusiasm that was on full display in 2008 (and even in 2012 when Obama lost NC to Mitt Romney by 80,000 votes) is not evident this time around for Hillary Clinton.

If there is a less-than-optimum turnout among African-American voters in the major cities in North Carolina this fall for Hillary Clinton, it is hard to see how she can win the state and become only the second Democratic candidate for President since 1976 (Carter) to win North Carolina's 15 electoral votes.

And if there is any kind of surprising 'surge' perhaps east of I-95 for Donald Trump a la the 2002 Elizabeth Dole landslide victory, then it is hard to see how Hillary Clinton could win the state's 15 electoral votes either.

One rule of thumb that has held true for decades if not most of the last century in North Carolina electoral politics is that if the conservative candidate can somehow make it out of the big cities and counties close to even west of where I-95 cuts south today, then they will roll up big margins of victory in the eastern part of the state and win statewide elections.

No one knows for sure if there will be a less-than-enthusiastic turnout among African-American voters for Hillary Clinton in North Carolina or not yet. Nor does anyone know if a 'surge' is building for Donald Trump in the more rural, agricultural and military-friendly base of eastern North Carolina.

It all depends on who shows up to play on Election Day. Just like when App State beat Michigan.

***(Side note and little known fact: NC has had 22 US Senators in Washington since WWII whereas other states such as South Carolina and Mississippi have had close to 1/3rd as many US Senators during the same time span)

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Friday, September 9, 2016

Changing People's Minds

'You're wrong! We need to raise taxes'
'You're stupid! We just need to cut spending!'

We have spent a lot of time over the past 8 years bemoaning the lack of 'civil discourse', 'comity' and 'compromise' in our national political life together.

'The Three Big C's' you can call them.

Either we recover them with the current incumbents we have (not likely) or we find great new candidates and leaders from the private sector who finally decide to help save us from ourselves and run for public office up-and-down the line....or we don't and suffer some severe consequences for our collective pig-headedness as a nation.

Those 3 concepts are that important to our democratic republican form of government.

We had an interesting discussion last weekend with someone who said he was 'doing his very best' to politely discuss a very sensitive political issue with someone who is on the other side politically and in philosophy towards life in general but they didn't seem to be getting anywhere.

'I just don't think either one of us is changing the other person's mind!' he lamented.

It occurred to us that his experience might be helpful to us as we head into this final 60 days of the presidential election cycle (thankfully!) and as we head into 2017 with a new President in the White House and probable new numbers in the majority in the US House and Senate, if not outright change of control in the Senate.

'Forget changing his mind' was the first thing that came out. 'Just look for common ground you can agree on and go from there'

Isn't that the essence of what our Founders did at Philadelphia when they wrote the US Constitution in that hot summer of 1787 with a group of Americans who may have had a collective IQ higher than any Congress since, with just 55 delegates who attended at least 1 session and 39 delegates who signed it at the end of that grueling process?

They didn't change everyone's mind 100% about slavery. They didn't change everyone's mind 100% about the role of big states versus the small states. They didn't change everyone's minds 100% about the fundamentals of almost any large political issue at the time.

They didn't have to. You never have to change someone's mind 100% to cut some political deal that might not be 100% perfect, but since 'perfection is the enemy of the good', less than perfect is better than no deal at all as we have seen for the past 16 years now.

Somehow, someway the Founders in Philadelphia managed to find a way to come to some common agreement and language that has become the model for constitutions for free nations the world over for the past 229 years without changing anyone's mind 100% at all.

It might make our task far easier if we just accept the cold-hearted fact that we do not have to 'change anyone's mind 100%'  about anything really if we want to get this country and our government back on track to do the things we want Congress and the next President to do for all of us in the public trust.

First of all, it is just too hard to completely change anyone's mind about anything quickly. Over a long period of time, maybe. But in this day of instantaneous news via social media and sideline commentators and activists jumping on every word like it is a fumble in the Super Bowl, it is very, very hard to have even an open and honest debate in public about the issues in a civil adult manner.

We desperately need 'deal-makers' and elected people who are smart enough to recognize 'victory' when they achieve some part of it in any session of Congress; vote to pass it, get it signed by the new President..and then come back the next year to try to get more of their political objectives then.

It could be progress towards balancing the budget. It could be progress towards having and paying for a smaller and more cost-efficient and effective government. It could be progress towards having a solid energy policy in America.

Any time you are making progress towards your stated political goals while in political office, and not retreating away from them, it is a success in any political science playbook.

Know who embodied that enlightened philosophy towards governing?

Republican President Ronald Reagan.

He allowed his team to cut more deals than you can imagine with a US Congress that was overwhelmingly controlled all 8 years of his term by Democrats, first led by Speaker Tip O'Neill of Massachusetts and then by Jim Wright of Texas.

So how would this work in a concrete example?

On the federal budget, something big has got to get done in 2017 or else we are really taking a huge gamble on our future prosperity. Far more than we have done over the past 16 years which has been a truly dismal time for any responsible budget observer or participant.

Republicans do not want to raise taxes. Democrats want to raise taxes. Mostly on the rich, as they say.

Neither side is going to change the other side's minds 100% on that right now. Or all the thousands of lobbyists with vested interests in protecting the status quo right now just as it is. Mainly because changing it in any way will gore their client or their own ox, as in their contractual employment.

We think whether we raise or lower taxes, it will have about as much effect on solving our future budget deficit problems as pouring a thimbleful of water on a gigantic wildfire out west. As we have shown many, many times by now, regardless of who is in the White House or who controls Congress or whether 'The Moon is in the Seventh House and Jupiter Aligns with Mars', revenues to the federal treasury will be about 18.7% of GDP when all is said and done.

Little more, little less over time depending on the economy at the time.

But what if mature adult leadership spontaneously erupts at both ends of Pennsylvania Avenue in Washington somehow starting January 20, 2017 and both sides see the gaping deficits that are due to go back up dramatically in each of the next 4 years absent any strong action by Congress to control spending and they say this:
'Look, Republicans, we know you don't want to raise taxes. Democrats, you want to raise taxes, that is just who you are.

Why don't we just forget spending all that time and energy over raising marginal tax rates on the wealthy when we know it just won't get done and won't raise all that much money anyway? They'll just find ways to hide their money in other tax shelters we don't even know about probably.

Let's focus on closing tax loopholes that mainly benefit very narrow sectors of the economy and are only there because some smart lobbyists got paid a lot of money to insert those tax provisions in tax bills in the past that no one understood then and probably don't understand now'
The chart below shows the impact of just the TOP TEN (10) tax breaks on the US federal budget each and every year. In the year 2014, these 10 tax breaks accounted for over $709 Billion or 50% of ALL of the $1.4 trillion in so-called 'tax expenditures' lost to the federal treasury because they are deductions, exemptions or outright tax credits in the tax code.

$709 billion in non-collected revenue receipts due to these 10 tax breaks is an annual number, not a 10-year estimate. Per. Year.

Assume that all of these 10 most-popular and wide-ranging tax breaks noted above are kept in force in the law and untouched. No need to stir up a hornet's nest and tick off all the businesses who provide health care, homeowners and churches and philanthropists by going anywhere near these top 10 tax breaks.

$709 billion in the rest of the tax expenditures could be freed-up as potential revenue each year which could be the basis for making some pretty important spending reduction deals.

Any spending reduction will be resisted by Democrats in every budget function outside of defense just as much as Republicans will resist cuts inside of defense outside of other budget functions, except in entitlements in both cases which really does make this a very difficult compromise to make given that.

Mainly because the growth of federal health care programs, Medicaid and Medicaid, plus Social Security and Net Interest are going to be the prime components of all the expected increase in federal spending between now and 2024.

One side would not have to convince the other side to change their mind 100% about 'raising taxes'. Both could agree on the need for 'simplifying the tax code' and 'reducing the number of special tax breaks' that are available only to a relatively select few number of taxpayers each year. Not available to all taxpayers.

The task would be then to come up with enough spending reductions, reforms and eliminations to make the relative 'pain' for the Republicans to support these elimination of tax breaks worth the effort and political risk back in their home district because they may be primaried by someone who would call the elimination of these hundreds of lesser known tax breaks as a 'tax hike'.

If we go many more years without some compromise such as this one on tax breaks, we won't have any additional revenue from higher tax rates coming into the Federal Treasury, that is for sure. But it will be 100% GUARANTEED that we will have a budget deficit that is totally out of control; a national debt approaching $30 trillion and financial and market forces starting to make the hard decisions for us in terms of currency valuation, higher interest rates and the vagaries of inflationary pressures to keep paying the national bills.

History should teach any civilized society that it is far better to keep control of the decisions regarding our financial and fiscal arrangements than to let market forces start to determine them for us. Just look at how Greece and other nations have frittered away their financial independence through irresponsible fiscal management on the part of government leaders.

In the past, Republicans typically used a 3-to-1 spending/revenue increase ratio to determine whether a 'Grand Bargain!' was worth voting for or not.

If 100% of the eliminated tax breaks above were paired 3-to-1 with spending restraint in the out-years, that would be a potential maximum of $2.86 trillion in deficit-reduction annually ($709Bx3=$2.127 + $709B+ $2.86T). The 10-year budget impact would be over $25 trillion in net budget deficit reduction/surplus accumulation when compounded and inflated spending is taken into effect.

Talk about reducing the growth in the size of government spending! At that magnitude of budget restraint, federal spending as a percentage of GDP would soon drop to the 18.7% of GDP level tax revenues have been historically and below which would produce surpluses once again.

Those are enormous numbers when you consider that past budget deals have 'only' reduced federal deficits on the order of $50-$100 billion per year. Not $2.86 trillion per year.

But consider this: Reducing our budget deficits by 'only' $100 billion per year would be only 0.5% of our overall GDP. We have budget deficits approaching 3% of GDP today as is today while we are doing absolutely nothing about it.

We need to find budget compromises of about $250 billion per year in the first couple of years and $500 billion+ from years 5-10 just to balance our budget and not even start to pay of what will soon be a $21 or $22 trillion national debt.

The probable outcome of all this?

The businesses and individuals who lose their tax exemptions and special tax breaks will most likely be wealthy enough to pay expensive tax lawyers and accountants a lot of money to find other ways to shelter their income and minimize their tax liability going forward.

Some marginal increase in revenues will be realized, mostly from 'the rich' so the Democrats can declare victory. If the spending reductions are real, we could actually put a bend point in the projections for our deficit and spending and head back into the world of financial and fiscal sanity once again. Hopefully.

The main thing to remember though is that no one's basic assumptions about political philosophy will have been changed 100% by the other side and they would be allowed to continue their political debates forever as they had done before. Republicans can keep hating higher taxes and Democrats can keep crowing about 'the need for the rich to pay more in taxes!' til kingdom come for all we care.

Perhaps the exercise will convince a majority of Congress and Senate that our current tax system is decrepit and sclerotic and needs to be replaced by a national consumption tax but that is another discussion for later.

If the next Congress and President could come together on such a compromise, and do it very early in the next Administration, they will have done something very, very important for the nation as a whole. Big deals such as this seem to happen about once every 20 years or so in American politics.

We are due.

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Saturday, September 3, 2016

Political Promises Are Like Drugs

Most Political Promises Come
From This Train
Over the course of this presidential campaign, we have all been hit with various proposals and promises about how this or that candidate is going to make our lives better.

Most are untrue. Most are physically and fiscally impossible to do.

But they sure sound great, don't they?

Political promises are like the mind-numbing effects of any stimulant drug usually taken illegally: they cause a 'loss of contact with reality, an intense feeling of happiness'....until they wear off, that is, and reality sets back in.

Let's take a look at some of the promises you may have heard and seen over the past year and see if we can't bring you back to reality before you get too giddy:

  1. 'We are going to make the rich pay their fair share!'

    This one sounds so good that almost everyone says it in one form or the other.

    What hardly anyone will tell the public is that the 'rich 1%' already pay 50% of all income taxes collected by the federal treasury. 50% of all Americans who are working do not pay any federal income taxes anymore.

    What is going to happen when the top 1% pay ALL of the federal income taxes each and every year? The battle cry to 'Make The Rich Pay Their Fair Share!' will look more than a little ridiculous, won't it?
  2. 'All We Gotta Do Is Raise More Tax Revenue To Balance The Budget!'

    This sounds so simple and easy to do, doesn't it?

    It will never happen.

    Take a look at this chart showing the historic level of spending and revenues in the federal budget for the past half-century:

    We have raised taxes multiple times over the past 50 years. We have cut taxes multiple times over the past 50 years.

    Any kind of statistical analysis will show you the percentage of GDP the federal government can expect in revenues to collect over time is about 18.7%. And that is just about it.

    Not 20%. Not the average 21.5% of GDP we would need to raise in taxes to cover the expected annual shortfall between spending and revenues currently.

    There is just something in the American taxpayer psyche that is willing to pay about 18.7% of GDP in overall federal tax collection over time. Wealthy taxpayers can avoid paying ANY higher marginal tax rates ANY Congress might want to pass on them simply because they can afford to hire the very best tax lawyers and accountants to find ways to avoid paying those higher levels of taxes.

    Lower-income wage-earners will find ways to avoid paying excessive taxes if passed on them by resorting to cash payments for labor rendered or barter arrangements for transaction purposes.

    Depending on economic conditions, if we experience an economic boom, and we experience an inordinate amount of capital gains being paid such as during the internet boom years of 1995-2000, we may from time-to-time see revenues approach 20% of GDP.

    However, such surges of income should be viewed as one-time events to be used to pay down national debt and NOT to raise the level of federal spending just because it looks like we are entering a new phase of increased federal tax collection levels relative to GDP.

    Like it or not, our national break-even level for budget and deficit-reduction purposes is 18.7% of GDP. Prudent budget-making would demand that our elected representatives, senators and President reduce spending levels to get at or under that 18.7% of GDP level and at least start us on a road to fiscal sanity in Washington.
  3. Massive Economic Growth Will NOT Solve All of Our Budget Problems!

    We had lunch recently with some budget experts from Washington, DC who have long been fighting for fiscal policies that would curb excessive spending and get us on the rational, if somewhat 'boring' path to financial freedom for everyone going forward.

    We say 'financial freedom' simply because the worst thing we can do as a nation is to keep doubling-down on dumb budget and economic policies and expect different results. The past 8 years have produced 1.7% annual GDP growth for the US economy and added on another $10 trillion in national debt that has to be paid off one way or the other.

    We don't need another 8 years of the same result.

    One of the budget experts mentioned a report put out several years ago that we are trying to find and dig out which we will post at a later time once we find it.

    In that report, some economic expert asked the simple question:

    'How long would it take to pay off the federal debt if we had 10% annual economic growth in America?' 

    Remember, mind you, that the average economic growth we had under President Obama was 1.7%. We only experienced average economic growth under President George W. Bush 43 of 2.3% per annum.

    If we had 10% growth for even one year, we should have fireworks and celebrations for the whole month of the following January.

    Anyway, the speculation put forth by this budget expert was that just to pay off the existing $20 trillion national debt, assuming we could freeze it at that point right now, we would need to experience close to 10% annual economic growth for the NEXT 100 YEARS! to meet the higher demands of providing for an aging retiring population and produce enough surplus revenue to pay down the national debt to zero.

    We are not going to experience 10% annual economic growth under any President or any new Congress.

    We are not going to produce any surplus to pay down any debt any time soon. In fact, we are on-schedule to INCREASE federal deficits back up to $1 trillion in the next 5 years absent any radical change in federal budget spending starting January, 2017.

    And if interest rates return to any sort of normalcy and return to 4-5% in the next couple of years, we will be spending $1 trillion per year on existing federal debt pretty soon which will further squeeze any spending priority on any part of the federal budget other than Social Security, Medicare and Medicaid.

    Which means national defense, homeland security, welfare, environmental protection or any other of the hundreds of federal programs you might think is important to maintain.

    So have a Happy Labor Day this year and get ready to elect a President and a US Congress and Senate who fully understands the gravity of the economic, financial and fiscal problems we face as a nation.

    Because we are going to need them.

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