The Insanity of the New Tax Bill

In the GOP’s new tax bill (they wrote it; they own it) there is an attempt to diminish or eliminate the current federal tax subsidies for wind and solar power. One must ask why they are doing this as it is particularly insane.

The GOP is not against such subsidies. In 1918, the federal government created subsides for the then new petroleum extraction and refining industry. Those subsidies are still going, to the tune of 8+ billion dollars a year, to … what, help a struggling new industry develop? This is one of the most profitable industries worldwide at this point and we are still subsidizing them? Attempts to repeal them have been voting down over and over, alwasy with the help of the GOP.

The current wind and solar tax credits were introduced in 1992 and those industries are still getting their legs under them.

The GOP also wants to slash tax credits for electric vehicles. I wonder if they also want to bring back coal-fired train locomotives? Maybe coal-fired automobiles are in our future?

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Egad, Economic Uncertainty is Real!

During the recent Democratic administration, Republicans often ranted about “uncertainty” with regard to investment. You see, the economy tanked in 2008 and the recovery was feeble (still is). Banks were given huge amounts of money at zero interest with the hope they would loan that money, cheaply but profitably, to businesses looking to expand. The key word was “hope” in that the government attached no strings to those zero interest loans. Consequently the banks bought securities with the money, causing the stock market to “recover” rapidly but no one else. When upbraided about this anti-social behavior, the Republicans countered with there was “too much uncertainty” in the market for business to expand. They rather should have stated there is too much bullshit in politics; that would have been closer to the truth.

The real reason businesses did not expand with all that cheap money around, is that they possessed even cheaper money (U.S. businesses had $2+ trillion dollars in cash reserves at one point.) and they weren’t spending that either. The reason? Simple: no demand. This is shockingly self-evident for people who know nothing about economics other than “supply and demand.” If there is no demand, supply is irrelevant (even though some economists tried to claim the opposite—see Say’s law). There was no demand because those business’s customers were broke, still are.

So, when Mr. Trump was elected and the GOP captured both houses of Congress, well … “Happy days are here again, the skies …” uh, no? No. Even though gasoline is quite cheap now, no one is buying much. Retail business are offering lower and lower pricing and still no surge in buying.

People are sitting on the sidelines economically because, well, they are uncertain about the future. When a person’s future is potentially very bad, they hunker down, save their money, and prepare for the worst the best they can.

Mr. Trump’s policies have never been particularly coherent, which was by design. When Mr. Trump claimed he was going to deport 11 million “illegals” from the country, many people translated that into “I will have more job opportunities.” (Right, by picking crops and doing day labor out of the local Wal-Mart?) When Mr. Trump claimed that he was going to transform Obamacare into something better, people applied their own definitions of what “better” meant. But healthcare is a complicated subject (“Who knew?”) and Mr. Trump’s party’s first effort at it was horrifically negative. (Hunker, hunker, hunker,…) Then there was the “tax reform” promised. People thought “my taxes will go down” and “I could use the money.” What they didn’t think of was that rich people’s taxes would go down much more, thus reducing government tax receipts, causing many government programs to be terminated, government programs that ordinary citizens are dependent upon, of course, not the rich. (Hunker, hunker, hunker,…) Then the current administration launches missiles in Syria and threatens nuclear war in North Korea. (Hunker, hunker, hunker,…) and….

The economic uncertainty of businesses as a reason for why they weren’t investing in their own businesses was pure political spin. They were anything but uncertain, in fact they were absolutely sure there was no demand, so no expansions. But the economic uncertainty of individual citizens is palpably real. We are not spending much money right now because we don’t know whether we will have affordable healthcare available, whether Social Security will still exist, or Medicare … all of these have been threatened by the GOP.

All of these threats are coming home to roost. We are in line for another recession, possibly as early as this summer. The ordinary tools used to combat recessions are not available (cut interest rates … why? … how?) and the GOP is dead set against deficit spending (the tool that really works) unless it enriches the rich or the military industrial complex.

Buckle your seat belts, folks. If you think things are uncertain right now, well, winter is coming.

Please Stop with the “Trump This …” and the Trump That …”

Recent articles have crowed about the GOP cave-in on the budget by talking down Mr. Trump’s vaunted “negotiation skills,” as if the President actually negotiated budget agreements (none do). These headlines are part of a long series of headlines claiming the source of this or that activity by “Trump …” when clearly they are not Mr. Trump’s ideas or initiatives.

To wit: can you name one idea that is Mr. Trump’s and Mr. Trump’s alone? The Wall? Remember John McCain’s campaign stop in Arizona at “the Wall?” Heck, it was being built before Mr. Trump even mentioned it. How about tax reform? (Please, this is as common as there are people with tax axes to grind.) Money for the military? Get tough on NATO … the Chinese (currency manipulators?) … the Russians? All pre-existing ideas.

Can you name one initiative of the GOP that Mr. Trump has tried to husband through? (Hint: There is only one.) The GOP health care initiative? (Got it in one! Good job!). Mr. Trump actually picked up the phone and called some fence-sitting legislators about this one, but clearly this was not Mr. Trump’s plan, it was a mishmash of whatever the GOP thought it could get away with and call it “health insurance reform” or rather “The Repeal of Obamacare!” Mr. Trump did blurt out that he was releasing a tax reform plan within a week, which resulted in that bizarre one page memo that was anything but. Where is the vaunted organizational skills of the GOP on display. Can’t they enroll their usual allies in the Think Tank World to crank out some of these plans, on topics they know they want to address? How could they not come up with a decent tax reform plan? (I can understand the health care miasma (It’s complicated; who knew?), but tax reform is low hanging political fruit.)

I know it is traditional to put the president’s name on all initiatives of his administration, but this is giving our president too much of what he clearly craves: attention. If he deserves it, fire away. Otherwise direct your comments where they belong, at the people leading the charge.

I can’t wait for some foreign leader, when asked to respond to one of Mr. Trump’s tweets or one page memos, to say: “Mr. Trump says many things. We will wait until he actually does something to comment.”

What he has done so far can be described as “a number of things done in the last administration have been undone.”

Cognitive Dissonance? Nope. Nothing to See Here, Move Along

The GOP insists upon a number of principles that are completely contradictory to reality for anyone to be a true believer. A the top, you must believe in the supremacy of free markets, that all government regulation of such is bad. This, of course, flies in the face of a steady stream of corporate bad/illegal/destructive/careless behavior. Think about Enron, the subprime mortgage disaster, the price of gasoline going up while demand was going down due to speculators, Monsanto, the Koch brothers trying to eliminate government support for alternative energy in Kansas, the Wall Street banks gambling with other people’s money and cheating their own customers, the fracking companies (What earthquakes? Water doesn’t burn. We don’t contaminate your water, no. All we want are laws that send people to prison for describing what we are doing.), railroad tank car fleet operators (What explosions? Our cars are perfectly safe.), General Motors (That’s not a defective ignition switch, you must have bumped the keys with your knee. Problems, there are no problems.), . . . , I forgot about the nuclear fuel company that buried its waste “out back” instead of processing it according to the law. (Okay I am done, wait, …)

So, if the free market would correct all of these things, why did they happen in the first place? Did government regulations cause all of these things? Was it too expensive to do things the right way, so they took forced shortcuts, knowing their parent corporation could “disincorporate” if things got really bad?

“The free market ideology is actually just an economic manifestation of human greed.”

Free markets are driven by greed, no matter their original attentions. Manipulation of “free” markets is the quickest path to wealth and so attracts greedy people. (Free markets are by nature based upon all parties having perfect information, free from anything manipulative, like advertising.) What aspect of free markets protects us from those greedy people? There is nothing.

Government taxes upon corporations are a way of charging those corporations for their externality costs (their use of the roads, communication networks, etc., their pollution of the air and water and land, and other things we share) but those same corporations have bribed government officials to eliminate or reduce their corporate taxes to a bare minimum, leaving their externalities to be paid for by others (us). They also make sure all of the laws benefit them and not the general citizenry. As just one example, college students cannot expunge college loan debts (to corporations) through bankruptcy, but corporations can avoid a massive toxic waste cleanup that way.

So, what is it about free markets that will “correct” for these corporate failings and manifestations of greed?

The answer is short—nothing. The free market ideology is actually just an economic manifestation of human greed. “Leave us alone to make as much money as we can and maybe you will benefit sometime down the road. Don’t interfere. Ignore that man behind the curtain.”

Is it just a coincidence that anytime we get close to their ideology that the rich getting richer and the poor getting poorer accelerate? I don’t think so.

Since these zealots claim that anything that smacks of regulation of free markets is socialism, well, then I am in favor of socialism, at least in so far as it is practiced in Scandinavia. There the reins on human greed, er, free markets, are held tightly by public interests.

How Did We Get Into This Mess?

I have written extensively on the class war that was waged (and is still being waged) by the wealthy and their minions that resulted in the extreme wealth and income gaps we now have. Part of the problem has come from flat out misconceptions that fostered more greed than was strictly necessary. To help understand this I recommend to you this post from the author of “Econned” Yves Smith: The Myth of Maximizing Shareholder Value.

Just Keep Telling Them Lies

I was reading an article by Lawrence Davidson appearing at www.consortiumnews.com called “Right-Wing Ideology Run Wild” in which he says “Today’s struggle to return us to minimalist government and maximum economic “freedom” is led by a collection of fundamentalist Christian right-wingers and Tea Party mad-hatters.”

This struck a chord in me because too often liberal leaning folks have allowed the far right to establish the terminology of the debate. In this case the objectionable phrase was “return us to minimalist government.” The word “return” doesn’t belong there because this country has never (never, ever, never) advocated minimalist or small or reduced government (ever).

I date the creation of the United States to the Ratification of the Constitution. The Constitution defines us, it says who we are and why we exist as a nation. It’s adoption marks the beginning of our existance as a nation. And since we are this grand experiment in self-government (. . . of the People, by the People, and for the People, . . .) we created a Constitution that took certain rights for the federal government and left all other rights of government to the states and to the people. There is no limit to how we can govern ourselves, no limits as to how much government we can have, nor is there any endorsement of any amount of government less than all we want.

There is no “return” since we have never been there. The last time we had “minimal” federal government was under the Articles of Confederation and that was a near disaster (and before the creation of the U.S.).

Let’s see this as what it is. The plutocrats want less government because government means taxation and they don’t want taxation (except for to pay for the police (to keep the riff-raff in order), the military (to make wars to protect their economic “rights”), and the courts (to protect their contracts)). Government also means regulation and the plutocrats do not want anyone opposing their path to greater and greater wealth accumulation.

When Ronald Regan, as President, began the “government is the problem” campaign, what has happened to middle class wages and what has happen to wealth inequity? If you do not know, you are either asleep or a fool. Wake up.

The “Fairness” of Sales Tax Free Online Purchases

An editorial in my local paper had the following (and more) to say about this issue:

“A bill that would enable states to collect sales taxes due for online purchases sailed through the U.S. Senate on Monday in a 69-27 vote. But it faces a fight in the House, where anti-tax advocates have vowed to defeat the Marketplace Fairness Act. States that charge no sales tax such as Montana and New Hampshire oppose it too. So do some, but not all, online merchants, including eBay and Overstock.com.

We urge the House to approve the measure, and we think it will. We have a hard time imagining the alternative: picture members of Congress back in their districts trying to explain why their hometown brick-and-mortar retailers will have to continue operating at a competitive disadvantage. Sorry, Ms. Local Merchant, you have to collect sales tax. Your online rival doesn’t.” (their italics)

Okay, let’s take a step back. A $10 item bought locally involves some transportation costs (gotta go to the store) and sales tax (maybe 6%, so 60 cents). A $10 item bought online costs $10 plus $3.95 shipping and handling. So, buying locally is cheaper, if not more convenient.

Sales taxes go where, exactly? to pay for what exactly?

The problem is that the answers are all over the map. Here’s a 2007 example for Orange County, CA which had an 8.75% sales tax rate then:

For every dollar you spend:
The stage grabs the lion’s share of it – six cents on every dollar.
Then the Sheriff and District Attorney get a half-cent.
Cities/counties get three-quarters of a cent.
Road maintenance funds get one-quarter of a cent.
Health and welfare programs get a half-cent.
State optional funds get one-quarter of a cent.
The Orange County Transportation Authority gets a half-cent.

Oh, so the money goes for, who knows, but the intension was to provide for the infrastructure supporting the businesses making money in the community. Would those businesses rather have to pay fees for police protection and fire protection like they do for water and electricity? No? That’s why they pay property taxes and their customers pay sales taxes.

As far as legislators are concerned, they only want the money and they rarely care about how they get it.

So, the online purveyors (and I am thinking more eBay than Amazon.com, but . . . ) are paying their local utility bills and their local property taxes just like the “real” stores. They just aren’t asking their customers to pay sales taxes.

So, it comes down to do online sellers have a price advantage? Is this a fairness issue?

I don’t think it is a fairness issue. Those who want the tax revenue want the revenue and they don’t really care how they get it. The “fairness” aspect is just a way to sell their argument.

Sales taxes are regressive. Poor people pay a larger percentage of their income to these taxes than do rich people. No one benefits more from increased sales taxes than do rich people because it takes the pressure off of raising revenue progressively, that is in ways in which the rich pay more than poor people, not less.

I would do away with sales taxes if I could. What is it about a purchase that makes it a taxable event? If you argue that it is a taxable event, then you are arguing for the Robin Hood tax, a tax that would apply to the sale of each share of stock on our stock markets. But the same people arguing for this online sales tax are arguing against sales taxes on stock sales because “it would hurt the economy.”

What they are saying is that they would rather hurt poor people than hurt an abstract concept.

 

What Happened to the Neanderthals Could Happen to Us

It has been a paleontological mystery: what happened to the Neanderthals? Neanderthals were a species of human beings dominant in much of Asia and Europe. Then, as Homo sapiens (us) moved into their territories they vanished in a quite short period of time for such things. At first, paleontologists speculated that it was our superior brains, specifically allowing us to use sophisticated language to foster cooperation in groups and bands that made us superior and we out competed the Neanderthals for resources (game, etc.). That idea held up for a while but unfortunately it didn’t hold water.

Next it was suspected that we hunted them into extinction. After all, we have hunted any number of species into extinction (Dodos, North American Megafauna, etc.). They were competitors for resources, so it made sense. That didn’t seem to hold water either.

Recently scientists have gone looking through Neanderthal DNA to see if we interbred with them. At first the answer was “no.” Then the answer was “maybe.” And now the answer is “Yeah, baby!” So, apparently we fucked them into extinction. (Just from memory I remember a quote from a book “The American Father” that said most men “would willingly mount a snake if it were suitably defanged.” So, this argument sounds like it rings true.)

In any case, breeding them into extinction is much softer and gentler than killing them off one by one or massacring them. Kind of makes one proud.

But, wait, you ask: what has this to do with class carfare. This is supposed to be a class warfare blog. Well, as you know, modern war is frequently conducted economically. And many economists have been puzzled at the disconnect between worker productivity and GDP per capita (both going up quite nicely) and family earnings (not). For years and years Americans have been working harder and harder (showing consistent productivity gains) and yet falling farther and farther behind.

Some of these economists say it is globalization that is causing this, or that technology is causing it, that there are fundamental economic reasons for this. They are wrong. If there were economic, that is supply and demand, reasons for the decline in middle class wages and incomes, then you would see connections, cause and effect chains, that could link the two. You know, globalization (or technology, or whatever) was depressing profits, so wage concessions had to be made to stay competitive at that lower profitability level. But that is not what has happened.

The profits banked by corporations and the earnings of the monied interests in this country have skyrocketed, as has inequality of wealth. The suppression of middle class wages has come through an orchestrated campaign to bribe elected officials to suppress unions, suppress “government regulations,” and to legalize “entitlements” for the rich. Why else would “hedge fund managers” who make over a billion dollar a year pay income taxes at the lowest rate that poor people pay? Why else would major corporations making billions in profits pay no corporate taxes? Why else would the labor unions in this country join together to get a “card check” law passed, reinstating the common practice of the past of signing workers into a union through cards of intent, a process which is basically a secret ballot, and failing to get that law passed?

If we don’t wake up, we could end up like the Neanderthals, fucked into oblivion, albeit economically.

What is the Value of Your Safety Net Contributions?

A pundit on Bill Maher’s show (Real Time) last Friday claimed that the problem with the U.S. economy is basically due to “entitlements” meaning Social Security, Medicare, etc. (Can you hear the echoes of “We have a spending problem. . . .” Thank you , John Boener, thank you Mitch McConnell.) She stated that people pay in $150,000 over their working lifetimes but take out $300,000.

I found this claim interesting in that it was posited as a feature of an unsustainable system, a system like your wallet; you can’t take out more than you put in without big trouble.

Let’s look at this. Consider that an average (meaning median) income in the U.S. is a bit over $50,000. We’ll use $50,000 for simplicity (and we will make all calculations based on current values which will in essence account for inflation, etc.).

Current payroll taxes are 6.21% on the first $114,000 of income, so this covers our average blokes $50,000 worth of income. If our average bloke works for 40 years, his total income comes out to be $2,000,000 and his contributions to SS and Medicare would be $125,000, close to the $150,000 figure quoted. Given that the average income is over $50,000, that probably makes up the difference. I am going to go with the $150,000 figure as I am trying to see if her figures are legitimate.

Realize that those contributions were made over a 40 year period and that Congress requires that excess contributions be invested in Treasury bills that pay interest. So, the question is, what would be the future value of such contributions at the end of a 40 year period. Zip, I am off to the Internet and a Future Value Calculator.

If roughly $300 per month ($150,000/480 months) were invested at 3% interest at the end of 40 years one would have accumulated $278,000!

If roughly $300 per month ($150,000/480 months) were invested, at 6% interest at the end of 40 years one would have accumulated $600,000!

Currently Treasury bills aren’t at 6% or even 3% but it wasn’t that long ago that they were. Over a 40 year time span, those are not unreasonable averages.

Now, Congress has chosen to use my contributions to pay other people’s benefits rather than invest it, but that doesn’t mean that I didn’t effectively contribute as much as I will take out.

A more sensible discussion of these systems would be to look at what they can provide, the various options to provide it, and then make our choices. Unfortunately, politics is the only basis upon which decisions are currently made.

For years and years, people have been crying “the Boomers are coming, the Boomers are coming!” and they (we) were going to lay waste to the economy, shred the social safety net, etc. I am part of the leading edge of the Baby Boom generation, the “Boomers” in question. I retired in 2006. The “Baby Boom” lasted from 1946 to 1964, 18 years. In other words, in 2024 (2006 + 18 years) the Boomers will have all passed into the system and the numbers of people entering will fall way off.

According to the SSA’s 2010 Annual Report, the Obamacare healthcare law has extended the exhaustion date of the Medicare trust fund from 2017 to 2029. The SS System would not be similarly depleted until 2037. This means that if nothing is done and the system and economy stay as they are projected, the SS System will have to cut benefits to roughly 75% of current amounts at that point.

In other words, there is no real problem with Social Security. Raising the amount that is taxed to higher income levels would solve all problems for the foreseeable future.

The real problem with Medicare is not in providing the services but that the costs of services keeps escalating. Interestingly enough, Medicare critics, aka Republicans, claim that Medicare isn’t holding down cost enough. Tell that to doctors who take Medicare patients. Most accept what Medicare pays as payment in full and Medicare pays a fraction of what those services are billed at (according to my small sample, between 50% and 75% of billed amounts). Medicare is the only public health service which is actually holding down costs. Private insurance companies have no interest in doing so as it would reduce their profits (which are based on the costs of services).

So, pundits sling figures around, self-serving figures which are often quite misleading. When listening to these folks, you have to ask whether they are trying to inform you with their comments or convince you. Someone trying to convince you is an activist who has a point of view they are trying to sell. Someone who is just trying to inform you is a safer source of reliable information.

A Real Must Read Blog

Paul Krugman is the exception to the rule that economists are “people who are good at math but don’t have enough personality to become accountants.”

In his latest blog post he begins with: “Aha. In his latest op-ed, John Taylor comes out as a full-fledged monetary Calvinist. No, not a disciple of John Calvin, the preacher — a disciple of Calvin of Calvin and Hobbes.”

Dr. Krugman reads the classics, that is Calvin and Hobbes.

If you are not a regular reader of Dr. Krugman’s blog (already reputed to be the most read blog created by an individual) I recommend it highly: The Conscience of a Liberal by Paul Krugman (http://krugman.blogs.nytimes.com/).