Tuesday, June 6, 2017

Don’t Let The Revenue-Neutral Mongers Block Tax Cuts

We can’t have tax cuts, cry the economic naysayers, because they will explode the deficit, raise interest rates, crowd out private investment, and increase unemployment.  (Funny that these concerns never warrant reducing spending, or even stop spending increases, on politically popular infrastructure, defense, entitlements, and most other federal government programs.)

But these same naysayers tell us that we will have low interest rates as far as the eye can see (or farther, as in the 30-year T-bond rate).

In the past 15 years, the federal government‘s public debt has quadrupled from $5 trillion to $20 trillion.  But none of the alleged adverse effects of sharply rising public debt have materialized.   Indeed, the unemployment rate has fallen from 10% in late 2009 to 4.3% in May 2017, while the 30-year Treasury bond rate has declined from 5.28% in June-July 2007 to 2.8% in early July 2017.  Hmmmm!

Maybe the naysayers’ fears will materialize sometime in the not-too-distant future, but that future does not seem to be around the corner.  The above data suggest that we can have a trillion or more dollars in cuts in marginal tax rates on business and individuals in an attempt to spark growth from a paltry 2% or less over the past 10 years to a more robust 3%.  And, we will be able to sleep at night without having to worry about inflation and unemployment rearing their ugly heads.

Monday, June 5, 2017

Revenue-Neutral Tax Reform Is A Bad Joke On The American Taxpayer

On June 2, 2017, the Bureau of Labor Statistics released the May 2017 jobs report.  Against estimates of 175,000 net new jobs, it reported only 138,000. If economic forecasters are so far off on one month, how can the Congressional Budget Office produce a ten-year (120 months) forecast of revenue and expenditure that is even remotely accurate?

Answer?  It can’t.

The ten-year rule (Byrd Rule) of revenue neutrality that follows a reduction in tax rates, which determines if tax cuts expire or continue after ten years, is arbitrary.   There is no scientific way to project that revenue and expenditure will balance over one year, much less ten.  Let’s be honest about this.

Revenue-neutrality is a game Members of Congress play to pretend they are serious about not allowing tax cuts to increase public debt.  But they are rarely serious about balancing the federal budget under any circumstances. 

Congress enabled the Bush and Obama administrations to pile up $15 trillion in public debt.  Indeed, Congress has presided over a deficit-free (actually surplus) budget only 4 times since 1970. To sacrifice tax cuts on the altar of revenue neutrality, and the possibility of pushing growth up from 2%, where it has been stuck since the Great Recession of 2008, to 3%, is a case of crocodile tears

By definition, revenue neutral means no net tax cut.  In principle, broadening the tax base would permit lower tax rates with no loss in revenue, but good luck with that.  Republicans in blue states vigorously oppose eliminating the deduction for state and local taxes ($1.3 trillion in less revenue to the Treasury over 10 years), and almost no one wants to eliminate the health insurance exclusion.

In 1993, at the age of 23, Paul Ryan began working for Jack Kemp as a speechwriter and for two years at his research organization Empower America.  Ryan first entered Congress in 1999, four years later.  As Speaker, he seems to have forgotten everything Kemp taught him about tax cuts. 

Kevin Brady, for his part, is enjoying his position of power as Chairman of the House Ways and Means Committee too much to give up his love of the Border Adjusted Tax.  He projects it would collect $1 trillion in taxes over ten years facilitating revenue-neutral tax reform.

Et tu, Greg Mankiw?   (NYT, op-ed, June 3, 2017)  For Bush, tax cuts were OK but not for Trump.

Members of Congress keep searching for the Holy Grail of revenue-neutral tax cuts/tax reform, but your friendly proprietor really doubts they want to find it.  Gary Cohn, chairman of the National Economic Council in the White House, cannot answer with a straight face if he would accept a cut in the corporate tax rate if that were the only measure Congress would approve.  No, he has to maintain the fiction of comprehensive tax reform to claim that any cut in tax rates will not increase the public debt or expire over the next ten years. 

Friday, June 2, 2017

France Adopts English As Its Official Language

Really.  No kidding.  This is not an April Fool's joke.

On June 1, 2017, French President Emmanuel Macron harshly criticized President Trump's decision to withdraw the United states from the Paris Agreement on climate change. He said it was a mistake both for the U.S. and the planet.  It was an unprecedented English-language speech at the Elysee Palance.

In his speech largely addressed to Americans, he said:

"To all the scientists, engineers, entrepreneurs, and responsible citizens who were disappointed by the decision by the president of the United States, I want to say they will find in France a second homeland,...I call on them--come and work here with us, to work together on concrete solutions for our climate."

He neglected such little details as oppressive taxes, labor regulations, and a myriad of other economic problems afflicting France.  But never mind.

Imagine.  Being able to eat French food, drink French wine, and see great Art in an English-speaking France.

Tuesday, May 30, 2017

Permanent Tax Cuts Are An Illusion

The House Ways and Means Committee is holding hearings in the course of preparing to mark up a tax cut/tax reform bill.

There are several schools of thought on how to proceed.  The biggest division is between those who want bold, pro-growth cuts in business and personal tax rates without regard for deficits and those who want smaller cuts that will achieve budgetary balance after 10 years. If the 10-year cycle is in deficit after a decade, the tax cuts will expire. The alleged benefit of the ten-year balance rule is that the tax cuts will not expire (sunset) and thus will be permanent (under Congressional rules). The second group points to the example of the expiration of the 2001 Bush tax cuts in 2011 (extended for two years until 2013 by President Obama).

This argument is a will-o'-the-wisp.  The Congress can legislate changes in tax rates any time it can muster the votes.  To be clear, THERE IS NO SUCH THING AS PERMANENT TAX CUTS. Changes in tax rates have been a regular feature since the adoption of the (16th) Income Tax Amendment in 2013.

Your friendly proprietor is wondering whether the goal of "permanence" is just a ruse to block massive tax-rate cuts in order to block President Trump's agenda?

Wednesday, March 29, 2017

More On Mark Cuban For President In 2020

The media are abuzz with stories on Mark Cuban's possible run for Democrat nominee for president. Read here, here, and here.

It's seems early to begin thinking about the 2020 presidential election, unless you are the one thinking of giving it a shot.  A prospective candidate will need to study issues, identify potential staff and policy experts, build a rolodex of financial supporters, and so forth.

So why Mark Cuban now?

Your friendly proprietor is quite sure that Cuban would like to avoid, or at least minimize, the grueling presidential campaign.  He can largely achieve that goal if he has all the big Democrat donors lined up behind him (e.g., Silicon Valley, New York bankers, etc.).  He would like to avoid a political fight with the Democrat establishments of the Clintons, the Obamas, and the Bernie Sanders-Elizabeth Warren far-left wing of the Democrat Party.

My guess is that Democrat Party, to the extent there is such a thing, would like to avoid the destruction that a far-left candidate would wring.  If Cuban signifies his availability, it seems reasonable to suppose that a consensus could build around his candidacy by late 2018.  If he can minimize the expenditure of time and money in running the gauntlet of primaries and caucuses, he would be free to amass a billion dollar-plus war chest, get his campaign in order, and travel the country to secure and expand the Democrat base.  Were that to be the case, he would be well-placed to take on Trump or any other Republican should Trump decide not to seek a second term.

Tuesday, March 21, 2017

Mark Cuban For President In 2020

Mark Cuban is already the front-runner to secure the Democrat Party's nomination for president in 2020, and then challenge Donald Trump in the battle of billionaires for the White House.  On March 20, 2017, he told reporter Nicholas Ballasy at PJ Media (reported in Breitbart):

“I think health care should be a right. If there’s a legitimate way to modify the Constitution, I literally think there should be an amendment to the Constitution for healthcare for chronic illnesses and serious injury. We all play the genetic lottery,” Cuban said according to Ballasy.

In one fell swoop, Cuban picked up supporters of Bernie Sanders and Elizabeth Warren who want single-payer, Medicare-style, national health insurance.  Cuban went much further in proposing a Constitutional Amendment to guarantee care for chronic illnesses and serious injury.

Cuban is likely to command overwhelming support among Silicon Valley Democrats against all other rivals.

Cuban has positioned himself to secure the support of two core interest groups in the Democrat Party.

He may well have the nomination locked up before he declares his candidacy.

Wednesday, March 15, 2017

If Congress Fails To Enact Big Tax Cuts This Year (2017), Mark Cuban Will Be Elected President In November 2020

President Trump has frequently reiterated his three most important goals:  Jobs, Jobs, Jobs.  To that end, he has proposed Tax Cuts, Deregulation, and Repeal and Replace Obamacare.

First, let’s examine progress on deregulation.  On January 30, 2017, Trump ordered a freeze on federal employment and required that every new regulation be accompanied by removing two existing regulations.  On February 24, 2017, Trump issued an Executive Order on Enforcing the Regulation Reform Agenda.  He instructed every executive department and agency to establish a Regulatory Reform Task Force to review existing regulations and send him a list for repeal, replacement, or modification within 90 days.  On March 13, 2017, he issued an Executive Order directing the Office of Management and Budget (OMB) to reorganize the Executive Branch.  The order requires every federal department and agency to review existing programs and recommend those that should be eliminated, pruned, or revised within 180 days; the Director of OMB must then integrate these recommendations into a master government reorganization plan for the president within 180 days.  Other presidential orders addressed construction of the Keystone and Dakota pipelines.

Thus far, President Trump has reversed only a handful of regulations.  We will have to wait until mid-May or later to see the full list that each department and agency recommends for elimination, replacement, or modification.  Three months affords special interests time to organize to lobby to retain favorable regulations.

(Your friendly proprietor had hoped that Trump would have instructed his staff to use the time between his election and inauguration to prepare a lengthy list of Obama’s Executive Orders, which he could have repealed or modified on Day One.)

President Trump and Congressional Republicans seriously erred in placing Repeal and Replace Obamacare (RRO) before Tax Cuts.  RRO has become bogged down in Republican intraparty disagreements (Ryancare vs. the Freedom Caucus).  RRO is eating up time and Trump’s political capital.  RRO has become so contentious that Treasury Secretary Steven Mnuchin, White House Domestic Policy head Gary Cohn, and Senate Majority Leader Mitch McConnell all concur that tax cuts/tax reform is not likely before the August recess.  They have stated that it can be accomplished by Christmas; if not then, in early 2018.  Meanwhile, RRO is making enemies between Republicans that could complicate developing a consensus among Republicans on tax cuts when bills are marked up in the House Ways and Means and Senate Finance committees for consideration by the membership of both houses.  By September, factions within the Republican Party are likely to have stopped talking to each other.

Tax cuts are the centerpiece of Trump’s growth strategy.  Without them, the economy will putter along, perhaps at a faster pace than 2%, but not the 3-4% required to achieve Jobs, Jobs, and Jobs.  For want of tax cuts, an administration will fail.

The bold, sweeping tax cuts and reform that Trump proposed, and on which Members of Congress campaigned, are slowly slipping away.  Reducing corporate and individual tax rates requires broadening the tax base, i.e., eliminating and/or reducing deductions, exemptions, credits, subsidies, and loopholes.  Capping mortgage interest deductions and charitable contributions at, say, $200,000 has already been replaced with maintaining the current interest deduction on a million dollar mortgage with no limit on charitable contributions.  150 Representatives have submitted a letter seeking to retain tax exemption for municipal bond interest.  Ivanka Trump wants a tax credit for child-care expenses.  Ryancare includes tax credits for purchasing health care insurance.  Unions and employers want to preserve deduction of health insurance.  And on and on it goes for dozens of other special interests.  The erosion of the tax base from these “loopholes” means that Congressional hawks will insist on higher tax rates for businesses, say, 25% instead of 15% for corporations, and 33% for small businesses instead of 25%, in order to reduce the budget deficit.  Higher rates than proposed by President Trump will reduce the incentive to expand or locate in the United States.

Even if Congress succeeds in enacting tax cuts by Christmas, the resulting legislation risks becoming a mere shadow of Trump’s bold plans.  Congressional deficit hawks are likely to insist that tax cuts not take effect until January 1, 2018, to preserve revenue collected in 2017.  In that event, the boost in growth from tax cuts will be lost for all of 2017.  Firms that promised to invest and expand in the United States are likely to rethink their plans if Trump fails to cut tax rates to 20% or less.

New stories appear almost every day about Mark Cuban becoming the Democrat nominee for president, and how he could do a better job than Trump.  This story will get louder as Trump gets bogged down in the quicksand of RRO.  He must also allow time to modify the federal budget for the rest of the current fiscal year and prepare the fiscal year 2017-18 federal budget (October 1, 2017, through September 30, 2018).

As the time rolls by, President Trump will become increasingly occupied with foreign policy and national security.  He will be holding many one-on-one meetings with foreign leaders and attend numerous multinational gatherings of global leaders (G-7, G-20, United Nations, etc.).  And there are always unexpected events or crises that consume the president’s time.

Tempus fugit.  Ryan will have the House in session only 8 days in April.  Before you can say “supercalifragilisticexpealidocious,” May, June, and July will be here and gone.

The solution is obvious to those of us who support Trump’s growth agenda.  Let Members of Congress squabble behind closed doors over RRO.  Move tax cuts/tax reform to the front burner and raise the setting to the hottest number.  Speak out to voters.  Ask them to pressure their elected representatives stay in town to work like the rest of us do.  Whoever heard of an eight-day work month?

Trump must insist that Congress enact tax cuts before the August recess, backdating them to take effect on January 1, 2017.  He must sweep away burdensome regulations (he promised to eliminate 75% of regulations).  He must prune unnecessary and wasteful programs.  Then congress can resume deliberations over RRO.

If Trump can accomplish his agenda, the economy and new jobs will boom, and Mark Cuban will be waiting until 2024.