Thursday, April 27, 2017

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It coulda happened you know.

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

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Tuesday, April 11, 2017

Why Not Get Rid of the Senate Filibuster Altogether?

America's Debt Ship Is Coming Ashore
Now that we have your attention with all this red ink in the above chart put together by Jon Gabriel (it looks like the bow of a mighty aircraft carrier, or worse, the Titanic, heading for shore or an iceberg, doesn't it?), let's think aloud about how we might be able to use some of the seismic cracks in Washington to address our debt and economic growth problem now that the Senate has 'nuked' the filibuster when it comes to Supreme Court nominations....

First of all, a caveat: We think the US Senate should remain as different from the US House of Representatives and virtually every other legislative body in this nation and around the globe. It was set up to be 'The World's Greatest Deliberative Body' for a reason...namely because Founders far smarter than anyone who has come after them said it would be the best way to set up our democratic republic.

We are not adverse to going back to the whole 'unanimous consent' idea plucked from the Roman Senate long ago where every single Senator had to agree on the final legislative package, not just a majority or super-majority.

Think about the rough edges that would be filed off of any bill if every single Senator had to be mollified in some way to get a bill passed. Maybe that would neuter most legislation to mere gruel where nothing much of substance gets done.

Or maybe Senators start to realize that if they stand in the way of something YOU want to get done as a Senator, YOU will stand in the way of THEM getting something done as Senator

The filibuster, in some form or fashion, has basically worked so far. We hope they come to their senses in the Senate and restore coherent rules regarding the filibuster once everything settles down some.


In the meantime, we got to wondering with some folks:
'Hey! Since the Senate has already nuked the filibuster in judicial nominations, what if they 'nuked' the rules for other Senate bills, say, such as the budget reconciliation package everyone has said we might get in 2 parts this year: the first dealing with Obamacare repeal and the second, with tax reform.'
Stay with us here if you can. Paying any attention to a budget analyst as he/she explains the rules of the US Senate AND budget reconciliation (BR) procedure is like being kind to a stray dog or cat in the neighborhood.

They appreciate any and all the attention and love they can get.

It occurred to us that one of the huge blockades to getting Obamacare repealed was Speaker Ryan trying to craft the first phase of a 3-step process as a bill that would cut $1 trillion of spending by eliminating most of what was in the guts of the ACA. He said the reason was to use BR so Republicans would only need to a simple majority vote to win and avoid the Byrd Rule (too complicated but we have explained it before in other posts) and then move on to tax reform.

What if the US Senate suspended the role of the filibuster when it came to all budget-related matters? 

It would require a majority of the Senate to agree to amend the BR rules, which would look a lot like the recent vote to 'change the rules' before confirming Justice Gorsuch to the Supreme Court.

Once the filibuster was removed from any budget-related matter or process, there would not be any reason to have to concoct a less-than-optimal repeal of Obamacare which could then be replaced by whatever the Republican majority wants to replace the ACA with. All Senate business would be under regular order, with just a 50%+1 majority required to pass anything.

Then the Republican Majority in Congress could pass a bill that:
  1. Repeals Obamacare (to the tune of over $1 trillion in savings over 10 years)
  2. Repeals many to all of the Obamacare taxes which are close to $1 trillion in total.
  3. ADDS on the tax reform many Republicans have been dying to pass for decades now.
In the absence of the threat of a filibuster, and with new amendments to the BR process in the US Senate, this Congress and President could pass a simply GIGANTIC Omnibus Budget Reconciliation Act of 2017 (GOBRA) that: 
  1. Cuts taxes by $2 trillion over 10 years ($1 trillion repeal of ACA taxes; $1 trillion tax reform tax cuts) AND 
  2. Cuts spending on ACA by $1 trillion over the next decade AND
  3. Reduces tax breaks to the tune of close to the tax equivalent of $1 trillion over the same period of time.
Current tax law produces a sheltering of taxation through so-called tax expenditures of close to $2 trillion PER YEAR! The goal of any coherent tax reform plan has to be the severe flattening of the tax code across-the-board, first in the tax rates and second, in the number of tax exemptions available in many cases to only very special few taxpayers.

As humongous as it seems, the $2 trillion in tax cuts over 10 years represents roughly only 1% of GDP compared to the economy over that same time period. Pair $2 trillion in tax cuts with some combination of $1 trillion in ACA spending savings plus a mere shaving of many of the favored tax provisions of the US tax code today to come up with $1 trillion in elimination of tax breaks and you have a budget-neutral GOBRA to present to Congress in 1 phase, not 2 or 3.

Or, as the Debt Ship chart above suggests, come up with a package that throws off $200 billion in surplus per year to pay off the now-over $17 trillion in debt owed to the public.

That would 'only' take 85 years until the year 2102 to pay our national debt off to zero.

Think about that for a moment.

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Thursday, April 6, 2017

Want to Chart How Trump Is Doing On Job Front?

Here's everything you want to know about employment growth data over the past 100 years in America.

Whenever someone tries to manipulate the facts to his/her preferred candidate or political party, you can whip this report out and deal with the facts, not with their spin.

Always Remember This!:

'The unemployment RATE is not the same thing as finding out how many people are actually WORKING at any particular time in this country!'

The most important figure in any economic report is how many people are working full-time. Not how many are working part-time or sporadically. Not how low or how high the unemployment percentage rate is.

The absolute hard number of people working full-time. THAT should be our dipstick to measure how well an economy is doing under any elected President or Congress.

The unemployment rate can be manipulated and pitched one way or another depending on whether you are attacking or supporting a politician or position.

The hard absolute numbers of people actually working can not be as easily manipulated. They either go up in absolute numbers or down in absolute numbers. Pretty easy to see if you can understand elementary arithmetic.

Here's what the Bureau of Labor Statistics has to say about employment numbers since the Great Recession of 2008-2010:
'The depth and breadth of employment losses during the Great Recession contrast sharply with all other recessions since 1939. From its peak in January 2008 to its trough in February 2010, non-farm employment decreased by 8.7 million, a decline of 6.3 percent.
Only the job loss during WWII was greater—from November 1943 to September 1945, employment declined by 10.1 percent. Recovery was slow coming out of the Great Recession.
It took 25 months to lose the jobs, and twice as long (51 months) to recover them by May 2014. This was the longest employment recovery time following any recession since 1939. The next longest recovery, often referred to as the “jobless recovery,” followed the 1990–91 recession, in which employment took 23 months to recover'
If there was any main reason why millions of people in Michigan, Pennsylvania and Wisconsin voted for now-President Donald Trump contrary to past elections when they went for the Democrat candidate, that paragraph above from BLS pretty much encapsulates the angst and anger than millions of people felt from the lack of robust job creation coming out of the Great Recession under the final 6 years of President Obama's leadership.

The length of the recession and the lack of a profound sense of rapid job creation led many to believe that the economic policies, the tax hikes and the enormous load of new federal regulation-making under President Obama just were not working for the average American worker.

Had the recovery been anywhere near the rapid snap-back of previous recoveries and expansions under other Presidents, the economic ferment would not have been as deep as it was in 2016 when millions of people turned to businessman Donald Trump and basically said: 'He can't do any worse than that on the economy, can he?'

So the key number to focus on is the 143.261 million (or so) of people actively working in the American workforce today (see chart below).

If that number ratchets up to 155 million by the end of Trump's first term, which based on the first few months of economic data under his presidency might happen, he should be a walk-in for a second term if he wants to stay on the job regardless of what he does or says on Twitter or any other venue.

The confidence level of American business leaders right now is at a high of 93%, according to NAM President Jay Timmons (who, by the way, was communications director in former Congressman Alex McMillan's office, my boss for 10 years on Capitol Hill, so I can guess you can say we hired well)

Higher levels of confidence in the business community that, under President Trump, excessive regulations will be curtailed; taxes will be cut and government spending will be held in check will lead to more hiring in the job sector.

If there are 12 million more people working in 2020, many of whom have not been able to find a steady well-paying job for the past 8-10 years, who do you think they are going to vote for?

People vote with their pocketbook. And 401(k)s. And their children's education all in mind.

You can download the raw data from the BLS website (click here) if you want to play along at home each month.

You will wind up knowing more about the real economic growth data than many to most in the media and probably in government as well.

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