Thursday, December 28, 2017

Blue State Blues. The High-Income, Liberal California Professoriate Will Pay Higher Taxes Thanks To President Trump

The most wonderful sight of this Holiday Season is watching high-income residents in Blue states squirm over losing some, in many cases a lot, of their prized deduction for state and local taxes to a $10,000 cap.  These are the same people, especially the professoriate in the top 2% of the income distribution, who have been clamoring, indeed begging, for higher taxes on the rich to reduce inequality and foster social justice.  Now they will be taxed more thanks to President Trump and red-state Republicans.  (Don’t hold your breath waiting for them to thank President Trump.)

We are told that the new normal is 2% economic growth.  The reason is that 2% was the best achieved under President Obama.  The economists who worked for or advised him, along with others in the never-Trump or just plain don’t like Trump camps, will choke on 3-4% growth under President Trump.  Will they sing a different song if growth of 3-4% becomes the new, new normal over the next five years?  Will they admit that they were wrong or that their models were incomplete?  Will they cheer new job creation and higher wages?  (Don’t hold your breath waiting for them to thank President Trump.)

Presidents Bush and Obama launched three wars in the Middle East and North Africa, squandering trillions in treasure while inflicting death and destruction on both local populations and American armed forces. President Trump, in marked contrast, has virtually obliterated ISIS in Iraq and Syria with minimal expenditure and loss of life under the brilliant leadership of General James Mattis.  (Don’t hold your breath waiting for the Bush and Obama foreign policy and national security establishments to thank President Trump.)

Don’t forget the pollsters who predicted Hillary Clinton in a cakewalk victory.  These are the same people talking up a blue wave return to control of one or both houses of Congress in the mid-term 2018 elections.  (When they are wrong in 2018 as they were in 2016, don’t hold your breath waiting for them to acknowledge their failures.)

Persuading members of the academic, political, and media industrial complex (APMIC) to acknowledge the success of President Trump is akin to lecturing rats on the benefits of proper hygiene to control plague.  No matter how strong the economy and success of his foreign policy, APMIC will never acknowledge his achievements.  Were they to do so—oh, just dreaming!

Sunday, August 20, 2017

What Did Trump Do Wrong?

Trump did not launch two wars in Afghanistan and Iraq

Trump did not overthrow Libyan leader Colonel Muammar Gaddafi, who had abandoned his nuclear weapons, and thrust Libya into civil war.

Trump did not displace over a million civilians from their homes in Syria and the Middle East

Trump did not cause hundreds of thousands of civilian casualties in Afghanistan, Iraq, Syria, Libya, and other countries.

Trump did not involve the U.S. in the Saudi War in Yemen.

Trump did not sign a deal with Iran, putting it on the road to acquiring nuclear weapons.

Trump did not kick the North Korean, nuclear-armed ICBM threat down the road for the 16 years of Presidents Bush and Obama, and President Clinton before that.

As John R. MacArthur so aptly put it in his Article, “Living With Trump” (reproduced in Harper’s Magazine, August 19, 2017):

“Loathing for Trump makes people forget that, among other horrors, a coalition of Republicans and Democrats has already wasted around $3.7 trillion in Iraq and Afghanistan, sacrificed the lives of nearly 7,000 American soldiers, and wounded more than 52,000. Today, Bush is considered a practically serious portrait painter and Hillary a feminist martyr. Obama, the architect of the famous 2009 so-called surge in Afghanistan—a military intensification that accomplished nothing other than polishing up his image as commander-in-chief—is admired and missed like no other political figure.”

The Middle East is in much worst shape in 2017 than it was in 2001.

On the domestic front, Trump did not preside over the worst financial and economic crisis since the Great Depression.

Trump did not preside over the slowest economic recovery in modern American history.

Trump did not make a mess of the U.S. health care system and insurance market.

So, what did Trump Do Wrong?

Trump won the election.  He kept Hillary Clinton from assuming her “rightful place” in the White House.

Trump does not speak nicely like other politicians.

Trump is rolling back excessive regulations.

Trump wants to downsize the federal government.

Trump appointed a conservative, Neil Gorsuch, to the Supreme Court and continues to appoint conservative jurists to federal district and appeals courts.

Trump wants to cut tax rates.

Trump is presiding over large gains in the stock market.

Trump is presiding over job gains and stronger economic growth.

Trump is presiding over a rise in consumer confidence.

There it is.  Maybe if Trump invades a Middle-East country or two, presides over a financial crash and appoints liberal jurists, he will become acceptable.  But he will also have to speak nicely, stop tweeting, and act presidential.  Will those measures and gestures turn the tide?

Thursday, July 27, 2017

Ten Steps To Increase Conservative Ideas On Campus

Diversity has been and remains the watchword on America’s college and university campuses for half-a-century.  In practice, diversity means affirmative action to increase the number and percentage of women and minorities among undergraduate and graduate students, faculty, and high-level administrators.

Progress has been substantial but uneven.  U.S. Department of Education data show that degrees awarded to women in 2017, at all tertiary levels from Associates to Bachelors, Masters, and Doctoral, outnumbered those awarded to men by a ratio of 141/100 (58.5% female).  Women earned 62.1% of Associates, 56.7% of Bachelors, 58.3% of Masters, and 52.2% of Doctoral degrees.  Men remain a majority in STEM (science, technology, engineering, mathematics).

Turning from gender to minorities, there has also been substantial progress in all tertiary levels.  Here are the percentages of enrolled students by race and ethnicity.

                                                               1980      2014
White:                                                     84           57
Black:                                                       5            13
Hispanic:                                                  2              8
Asian:                                                       2             7
Other (mixed, undefined):                         6           16

Black enrollment now matches the Black percentage of the U.S. population.  Chinese enrollment now slightly exceeds its U.S. percentage.   The most notable change is that Non-Hispanic White enrollment has declined by 25% among all students, putting it below Whites who constitute 62% percent of the U.S. population.

Progress has been much slower for women and minorities among faculty and high-level administrators.  One reason is that it has taken time to create a pipeline of doctoral women and minority students to move in and up the ladder of faculty and administrative ranks.  Universities are exerting great effort to recruit women and minority faculty and elevate them to high-level administrative posts.

Diversity is still largely defined in terms of gender, race, and ethnicity, with LBGTQ added to the mix.


This brings us to diversity of ideas, ideology, politics, or intellectual diversity in general.  University faculty is overwhelmingly liberal/Democrat in political orientation, as high as 90 percent in top-ranked schools.  There is growing concern among some educators, commentators, and politicians that universities no longer provide students with a diversity of ideas, as evidenced in violent student protests against conservative speakers on campus.

As noted in a previous post, Stanford’s former Provost John Etchemendy (2000-17) has described the monolithic political culture at Stanford (and other universities) as the “enemy within.”  The following excerpts [shorted for brevity] are from his remarks to the Board of Trustees in February 2017.

"But I’m actually more worried about the threat from within.  Over the years, I have watched a growing intolerance at universities in this country – not intolerance along racial or ethnic or gender lines – there we have made laudable progress. Rather, a kind of intellectual intolerance, a political one-sidedness that is the antithesis of what universities should stand for. It manifests itself in many ways: in the intellectual monocultures that have taken over certain disciplines [emphasis added]; in the demands to disinvite speakers and outlaw groups whose views we find offensive; in constant calls for the university itself to take political stands. We decry certain news outlets as echo chambers, while we fail to notice the echo chamber we’ve built around ourselves.
"This results in a kind of intellectual blindness that will, in the long run, be more damaging to universities than cuts in federal funding or ill-conceived constraints on immigration.
"It will not be easy to resist this current. As an institution, we are continually pressed by faculty and students to take political stands, and any failure to do so is perceived as a lack of courage. But at universities today, the easiest thing to do is to succumb to that pressure.  What requires real courage is to resist it
"The university is not a megaphone to amplify this or that political view, and when it does it violates a core mission. Universities must remain open forums for contentious debate, and they cannot do so while officially espousing one side of that debate.
"But we must do more. We need to encourage real diversity of thought in the professoriate, and that will be even harder to achieve [emphasis added].  It is hard for anyone to acknowledge high-quality work when that work is at odds with, perhaps opposed, to one’s own deeply held beliefs. But we all need worthy opponents to challenge us in our search for truth. It is absolutely essential to the quality of our enterprise.
"I fear that the next few years will be difficult to navigate….The first step is to remind our students and colleagues that those who hold views contrary to one’s own are rarely evil or stupid, and may know or understand things that we do not. It is only when we start with this assumption that rational discourse can begin, and that the winds of freedom can blow.  (Stanford’s motto is Die Luft der Freiheit weht (The wind of freedom blows.)"
On June 30, 2000, nearly installed President John Hennessy and Provost John Etchemendy issued a statement on diversity, which Hennessy read at a Faculty Senate meeting.

The key points in the statement are reproduced below.  To show how this statement can be used to increase diversity of ideas, I have struck out the words “women and minority (ies),” replacing them with “conservative(s).”

For many years Stanford University has had a commitment to enhancing the diversity of its faculty. This commitment is based, first and foremost, on the belief that a more diverse faculty enhances the breadth, depth, and quality of our research and teaching by increasing the variety of experiences, perspectives, and scholarly interests among the faculty. A diverse faculty also provides a variety of role models and mentors for our increasingly diverse student population, which helps us to attract, retain and graduate such populations more successfully.

“The President and Provost wish to emphasize Stanford's continuing interest in and commitment to increasing the diversity of our faculty and to providing access to equal opportunities to all faculty independent of gender, race, or ethnicity political ideas. More specifically, we assert our commitment to the following steps, some of which reaffirm existing university policies, and others that extend those policies:

“1. Faculty searches are obligated to make extra efforts to seek out qualified women and minority conservative candidates and to evaluate such candidates. It is the obligation of the search committee to demonstrate that a search has made a determined effort to locate and consider women and minority conservative candidates….Department chairs and deans have the responsibility to make sure that these obligations have been fulfilled.

“2. We will make use of incentive funds and incremental faculty billets to encourage the appointment of candidates who would diversify our faculty, such as women and minorities conservatives in fields where they continue to be underrepresented….[we] hope to accelerate this process by encouraging departments and schools to take advantage of opportunities to appoint additional equally qualified candidates from underrepresented groups conservatives who are identified during searches but who (for reasons such as their area of specialization) may not be the first choice of the search committee.

“3. The Provost has established an Advisory Committee on the Status of Women Faculty Conservatives and is in the process of forming an Advisory Committee on Faculty Diversity Conservatives.  These committees will work with the Provost and his staff to explore ways in which we can foster the goals of diversity of gender, racial and ethnic ideas.

“4. We will continue to monitor and report on the representation of women and minorities conservatives on the faculty, as well as their tenure and promotion rates, on a yearly basis to the Faculty Senate.

“5. We will support and mentor all junior faculty conservatives, and we will continue to use a review process for tenure and promotion that is based on a candidate's contributions to research and teaching and that is appropriate for the candidate's area of scholarly interest.

“6. We will continue to evaluate faculty salaries, with special emphasis on women and minority conservatives faculty salaries, through an objective methodology (the so-called quintile analysis). Any inequities in salaries for women or men, minorities or non-minorities conservatives will be sought out and corrected.

“7. We will also monitor the distribution of University resources that support individual faculty research programs, including both research funds and space, to ensure that the distribution of the University's resources is not based on improper factors (such as gender, race, or ethnicity conservatives). Any such inequities discovered will be corrected.

“8. We seek to increase the representation of women and minority faculty conservatives in leadership positions in departments, schools, and the University administration.  Such criteria will also form a part of the yearly review of all faculty leaders.

“9. Attracting and retaining the best faculty members in an increasingly diverse society requires us to have a university that is supportive of faculty diversity, both in the composition of the faculty and in their scholarship. Stanford University seeks and promotes an academic environment for each faculty member that is collegial, intellectually stimulating, and respectful of his or her contributions and accomplishments. Such an environment should enable the highest quality scholarship and teaching, and provide every faculty member a voice in department decision-making.

“10. Realizing that small pool sizes and pipeline problems continue to affect the availability of talented women and minority conservative faculty candidates in many fields, Stanford will continue a strong effort to seek out and support graduate students who bring diversity to our university. As an institution, we will encourage women and minority conservative students to pursue academic careers.

We call upon all our colleagues to engage actively in this important effort.

See how easy that was.  An eleventh step would be to lunch a monthly president/provost sponsored conservative speaker program on campus.


We’ll see.  He will state that Stanford subscribes to the principle of academic freedom, the free and open exchange of ideas. Time will tell if conservatives and conservative ideas are increasingly a reality at Stanford and other colleges and universities.  I will be delighted should they come to pass.  I’m from Missouri, the “show me” state.

Monday, July 3, 2017

Make China Great Again

Every Chinese knows the outlines of Chinese history from its founding four thousand years ago as the most advanced civilization in the world, to its decline under Western imperialism in the 19th century, to its rebirth in the late 20th century.

Beginning with paramount leader Deng Xiaoping’s economic reforms in the late 1970s, continuing through the presidencies of Jiang Zemin, Hu Jintao, and now Xi Jinping, China has been transformed from an impoverished, backward nation into a modern economic, military, and political powerhouse.

President Xi does not wear a baseball cap with the words “Make China Great Again” stitched on the front.  But he has a Trumanesque wooden desk sign with the characters “Make China Great Again” carved into it.

Think about it.  President Trump’s keywords are “Make America Great Again,” to fix what ails the United States after the past two presidencies of continuous war, the worst financial crisis since the Great Depression, and subpar growth.  Opposing Trump’s agenda of tax cuts, deregulation, and reducing government intervention in private affairs are all Congressional Democrats, many House and Senate Republicans, establishment Republican politicians who lost to Trump in the primaries and their donors, government bureaucrats, the media, the professoriate, liberal and conservative think tankers, Hollywood, and many foreign leaders who want the United States to pay for their defense and climate agenda.

Now look across the Pacific.  President Xi’s keywords are “Make China Great Again,” to the restoration its dominant historical position in Asia.  Supporting him are tens of millions of Chinese Communist Party members, the People’s Liberation Army, the media, and the vast majority of hard working Chinese people who want a better life for themselves and their families.

The American commentariat is working overtime to explain away and cover up the failures of the past 16 years.  President Trump is working hard to create an environment conducive to sustained higher growth through lower tax rates on firms and individuals, reducing burdensome regulations on economic activity, and limiting the intervention of the federal government in private affairs.  He is running a high hurdle race hoping to get through the first heat in his first two years without tripping over every hurdle.

Meanwhile, President Xi wakes up every morning knowing that he has five more years left in the ten-year term of a Chinese president to “Make China Great Again.”  If all goes as planned, in October 2022 he will hand power and his desk sign to the next decade of Chinese leadership that will strive to "Make China Great Again."

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. 

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?

Monday, February 13, 2017

Tax Cuts For Trump Are Equivalent To D-Day’s Breakout At Omaha Beach

The allied invasion at Normandy on D-Day, June 6, 1944, is a model for Trump’s invasion of Washington, D.C.

D-Day consisted of America, Canadian, and British troops landing on five beaches codenamed Juno, Gold, Utah, Sword, and Omaha. The landings at the first four were relatively successful.  In marked contrast, things were going so badly at Omaha Beach that Supreme Allied Commander Eisenhower at one point considered retreat.

After large losses in men and material, U.S. forces finally broke through German defenses and seized higher ground.  However the objectives sought for D-Day required three more days for consolidation.  If Omaha Beach had not been secured, it is likely the invasion would have failed.  I leave it to historians to contemplate the counter-factual.

The Trump administration is working to change policy on a number of fronts.  The White House website lists several issues on the Trump agenda, but jobs, jobs, jobs tops them all.  The success of President Trump depends on higher economic growth and job creation.

Tax cuts and deregulation are the keys to growth.  Deregulation can be done piecemeal over time, but the effort to secure tax cuts needs an immediate, comprehensive, coordinated push on all fronts lest tax cuts get bogged down in hedgerows of interest group politics and conflicting personalities.  Each day that goes by without tax cuts, despite happy talk from Republican congressional leaders of a 200-day timetable, puts the objective of job-creating tax cuts at risk.

The White House and the House of Representatives agree on several features of tax cuts--lower rates on corporations (15-20%), small business (25%), individuals (top rate of 33%), and investment income (dividends, interest, capital gains). They agree on replacing multi-year depreciation with first-year write-off (expensing) of investment.  They agree on repealing the estate (death) tax.  They should wrap these measures up in a bill, with the tax cuts backdated to January 1, 2017, quickly move it through both houses of Congress, and send it to the president for his signature.

That would represent the equivalent of the breakthrough at Omaha Beach.  Thereafter, if it wishes, Congress can debate other aspects of taxation.  But if Congress gets bogged down with such peripheral issues as revenue neutrality and border adjustability, the overriding objective of tax cuts risks being trapped on Omaha Beach facing withering fire from artillery and machine guns.  Failure on tax cuts likely means failure on growth, jobs, and President Trump.

Thursday, January 26, 2017

The Great William E. Gladstone On Tax Cuts

"Let the money fructify in the pockets of the people."