Thanks to my daughter Kathy for naming this blog.

















Bald Eagle in Anchorage, Alaska

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Tuesday, December 12, 2017

Corporate Tax Cuts in the Republican 2017 Tax Reform Bill

The Republican-controlled Congress is in the final stages of writing the most sweeping tax changes in forty years.  The Senate version of the tax bill is 487 pages, which is hardly the sweeping simplification promised by Republicans, and too long to easily summarize in this paragraph.  Business taxes are affected far more than individual taxes. Specifics of the tax bill are summarized at the end of this article.

The main focus of the tax reform is lower taxes for corporations.  The pretext is that lower taxes on corporations will result in economic growth, but the real goal is to lower taxes on unearned income.  Profits saved through lower taxes will flow through corporations to shareholders, including Republican Party donors.  The expectation of higher dividends and capital gains has driven the stock market by more than 25% since the election.

Most, if not all, serious economic reviews of the tax plan do not support the expectation of higher economic growth.  The Congressional Joint Committee on Taxation concluded that the bill would only add marginally to economic growth, while adding one trillion dollars to the US Federal debt, even after accounting for the additional tax revenue resulting from growth.  And both private and JCT analyses conclude that tax benefits will accrue to the wealthiest Americans, with poorer Americans losing money.

As my son pointed out, the simple truth is that this tax bill is a "Red versus Blue" tax bill.  What the tax bill accomplishes is just short of cutting a $500 check to every Republican, and sending a $500 tax bill to every Democrat.  My son writes, "There are some hand-wavey claims about how it is good for gullible people, but I don't know anyone serious who believes any of that."  The provisions of this bill would not survive a change in control of the Government.  But how long can the country peaceably survive, lurching from policy to policy with every change of a percentage point in national polls?
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Justification for 2017 Corporate Tax Cut
The rationale for the deep cut in corporate taxes is based on the idea that higher after-tax profits for corporations will result in a higher rate of economic growth.  Also, the argument is that a higher rate of growth will be shared by wage-earners in the form of higher take-home pay.
Let’s look at that idea.

United States Corporate Taxes Compared to the OECD
In justifying the corporate tax cut, both of Alaska's Senators have said that American corporate taxes are "among the highest in the world".  They believe those high taxes render our corporations noncompetitive in global markets. As this blog has previously noted, a quick trip to the OECD database shows that idea is simply false.  Although US nominal corporate taxes are comparatively high, the corporate tax actually paid in the United States is less than the average for the OECD.   
GDP Growth, Corporate Taxes, After-Tax Profits and Wages
The general premise that higher after-tax corporate profits lead to higher economic growth is false.
The premise that higher after-tax corporate profits lead to higher wages is also false.
First we need some context.  American economic growth has been declining since World War II.
This is especially evident when we look at non-recessionary periods.  This chart has deleted all quarters with negative GDP growth.
Wages have declined since World War II, as a share of gross domestic income, GDI (or similarly, GPD).
Let's look at Corporate After-Tax Profits.  We can see that profits have soared since the 1980s as a share of GDP.  Higher corporate profits since 2004 (excepting the recession year) have not produced higher GDP growth, or higher wages.
Corporate taxes have also fallen as a percent of GDP, coincident with a falling rate of growth.
But the rise in After-Tax Profits has not resulted in a higher rate of economic growth, or higher wages for workers.  The argument that lower taxes will result in higher economic growth appears to be void.
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Tax Cuts and the Reagan Economy
The final argument for tax cuts is that tax cuts worked in the past.  The basis for that claim is generally in the mythology surrounding tax cuts enacted in 1981 and 1987 during the Reagan administration.  Close examination proves that economic growth during the Reagan administration was not extraordinary, and the growth that did occur was largely due to other factors. The actual performance of those tax cuts is complicated by eleven tax hikes that were also passed during the Reagan years, for the purpose of restoring lost revenues.

Let’s look at the Reagan economy.
First, the “economic boom” of the Reagan years looks less spectacular when viewed in the context of the total post-war economy.  American economic growth has been falling steadily since World War II, part of a general structural problem in the U.S. economy, reflected in GDP growth, wages as a share of the economy, and the time required for recovery after recessions.  [That should be the topic of another blog post.]  There were really only two years during the Reagan administration that had economic growth above the long-term, non-recessionary trend (1983 and 1984).
Still, the Reagan administration was marked by a period of fairly persistent and strong growth.  There are three reasons for that growth. 
1)      Interest Rates
I believe that the main reason for sustained growth during the Reagan years was falling interest rates.  Interest rates reached a singular, extraordinary peak in 1981 (see chart).  The Volcker Federal reserve had largely quelled inflation by 1981, and began to let interest rates fall.  The extraordinarily high interest rates at the peak probably caused the multiple recessions of 1980 – 1982.  As interest rates fell, economic growth which had been bottled up by high rates was released.  I believe the influence of falling rates far exceeded the influence of lower taxes.
2)      Serendipity
Secondly, there is simply the matter of good timing.  The Reagan administration was faced with recessions in 1981 and 1982, but afterwards enjoyed the benefit of the typical eight-to-ten year business cycle.  There is no particular policy which can be attributed to this aspect of success, except luck.  [See previous chart, with indicated recessions.
3)      Tax Cuts
Tax cuts do provide stimulus to the economy, and the Reagan tax cuts of 1981 were appropriately given during an economic recession.  Ultimately, though, tax cuts are literally borrowing against the future, and must someday be paid back in terms of later economic growth.  I believe that it is best to run budgetary surpluses when there is strength in the economy, to allow the government the ability to incur deficits when the economy is weak, without fear of destabilizing the economy.  The Reagan administration never fully funded the government to pay for the deficits it incurred.

The 2017 Republican Tax Reform Plan
The Republican Tax Plan passed by the House and the Senate must now be reconciled into a single bill.  The bills are very similar in scope, and the process should not result in significant changes to the plans, except where major errors are discovered in the assumptions and provisions of the bill.

My main objections to the plan are as follows:
1)      Debt
The plan runs large federal deficits, at a time when the total Federal debt is approaching 100% of annual GDP, and interest payments are starting to become a significant part of annual spending.
2)      Timing
The plan cuts taxes at a time of full employment, when fiscal policy should be to run surpluses.  
3)      Corporate Taxes
The plan awards long-term tax relief to corporations, at a time when corporate taxes are already low; corporate earnings are already soaring, and no gains in GDP have been observed.
4)      Lack of Middle-Class Tax Relief/Benefits for Unearned Income
Individual tax relief in the plan will accrue mostly to high income families, particularly those with unearned income.  The corporate tax reduction will flow through to investors, much more directly than to wage-earners.  The plan will not result in long-term tax relief for wage-earners, whose share of gross domestic income has been falling for 47 years.
5)      Abolishes ACA Individual Mandate
The tax plan eliminates the individual mandate aspect of the Affordable Care Act.  It is considered an important facet of the act, in encouraging younger people to participate in the insurance pool.  

Conclusion
The Republican tax plan is based on false ideas:  that American corporate taxes are higher than other countries; that higher corporate taxes produce higher economic growth and higher wages; that general tax cuts during the Reagan administration produced extraordinary growth.  All of these ideas can be demonstrated to be false, using economic data available to anyone.

The Republican tax plan will probably become law.  I expect that it is unlikely to survive the next administration and Congress.  But the debts incurred before it is overturned will last for a generation.

A copy of this post is available on my Science and Policy blog.
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Appendix
Summary of Important Changes in the Republican Tax Reform Bill
Business Tax Changes
1) Drops the nominal corporate income tax rate from 35% to 20%.  The current Senate bill, perhaps through an oversight, keeps the minimum corporate tax at 20%, eliminating exemptions by default.  It is expected that the reconciliation bill will restore those exemptions, dropping the actual corporate rate below 20%.
2) The tax rate for “pass-through” small businesses is reduced, excepting service businesses such as lawyers, accountants, and doctors.  The amount of the reduction is to be determined in reconciliation.
3)  Rules for expensing, rather than capitalizing, spending are relaxed, allowing quicker realization of tax benefits from business investment.
4)  Repatriated profits from foreign operations would be taxed at a much lower rate than US profits.  Cash assets would be taxed at 10% (Senate) or 14% (House), while non-cash assets would be taxed at 5% (Senate) or 7.5% (House). 

Individual Tax Changes
5) All classes of individual taxpayers will see a tax reduction in the near term, but those reductions will expire in ten years.  On the other hand, business tax reductions will be permanent.
6) The standard deduction is doubled, but personal exemptions are eliminated.  Child tax credits are increased, but the full value is only available to those with higher income to offset taxes.  For large families, the child tax credit may not fully offset the loss of personal exemptions.
7)  State & local tax deductions are eliminated; casualty loss deductions are eliminated.  The mortgage interest deduction is retained for all but the largest mortgages.
8) The estate tax may be eliminated, or the minimum threshold for the estate tax may be doubled.
9)  The individual mandate tax of the ACA is repealed.  Some fear that this will destabilize the insurance markets, by removing a large number of younger, healthy individuals from the insurance pool.
10) The fate of the Alternative Minimum Tax will be determined in reconciliation.
11) Waived tuition, common for graduate students, will now be taxed.  Colleges with very large endowments will have some earnings taxed.

Other
12) Drilling will be allowed in the Arctic National Wildlife Refuge Area 1002, which was originally set aside for consideration for oil development.
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Appendix 2
As this blog has previously noted, American Federal taxes are among the lowest in the world, in direct contrast to Republican claims that American taxes are among the highest in the world.  Here is data from OECD and the World Bank, showing the relative ranking of American Federal taxes compared to other countries.  
United States Federal taxes as a share of GDP, compared to 34 OECD countries.
United States Federal taxes compared to 123 other countries; data from World Bank.
Countries with lower Federal taxes than the United States are Ethiopia, Pakistan, India, Afghanistan, Bangladesh, Central African Republic, West Bank and Gaza, Lithuania, Oman, Nigeria, Bahrain, Estonia, United Arab Emirates.

--
References
Summaries of the Republican Tax Plan
Washington Post
Forbes
CNN

Economic Reviews of the Tax Plan
Tax Policy Center – the plan will ultimately raise taxes on more than half of Americans.
University of Chicago Survey – only one out of 42 economists believes that the plan will significantly grow the economy.
University of Pennsylvanian/Wharton review – the tax plan will add about $1.3 trillion to the national debt.

This article attempts to put lipstick on a pig.  The article acknowledges that economic growth from the tax plan will be small, “but significant”.  The article recognizes that slower growth has occurred in the past two decades, when progressively slower growth has actually been going on for seven decades.  The article gives no explanation for why growth is slower now than in the past, or why tax cuts at a time of full employment will help. 

A Federal tax expert says that the tax plan is stupid.

Historical Data
OECD tax on corporate profits
US corporate tax among the lowest in the OECD

Corporate Tax as share of GDP

Source of federal revenue

FRED

Wednesday, November 22, 2017

Let's Talk About the Other Issues Concerning Roy Moore

Roy Moore’s campaign  for U.S. has become enveloped in a scandal involving his sexual misconduct with teenage girls, which occurred about 35 to 40 years ago.  What is lost in this discussion is Moore’s unfitness for office on a raft of other issues, including judicial misconduct, financial corruption, opposition to the separation of Church and State, LGBT intolerance, opposition to civil rights, Islamophobia, climate-change denial, opposition to science, birtherism, support for neo-Confederates, and irrational religious views. 

It concerns me that the pedophilia issue is the only issue in front of the electorate.  It is disturbing to me that other issues are not judged to be significant, and that the pedophilia charge is the only one to arouse serious opposition among mainstream Republicans.
------------------------------------

Roy Stewart Moore is a Republican candidate for the United States Senate.  Moore will compete in a special election to be held December 12, 2017, being held to fill the seat formerly held by Jeff Sessions, who was chosen to be U.S. Attorney General.

Roy Moore’s campaign has been subject to nation-wide criticism over allegations that he pursued sexual encounters with a number of teenage girls while in his 30s.  The allegations are supported by multiple accusations and credible circumstantial evidence.  Moore is now 70 years old.  Polling data shows that Moore has lost about 9% of his support due to the scandal, and that the election is now a toss-up between Moore and his Democratic opponent, Doug Jones.  The pedophilia scandal has dominated national discussion. 

What is lost in the discussion about Roy Moore is the rest of story.  Yes, many believe he is clearly unqualified for office, because of his behavior 35 years ago.  But why is no one talking about the other reasons that Roy Moore is unqualified to be a U.S. Senator?

Judicial Misconduct
Moore was twice removed from office as the Chief Justice of the Supreme Court of Alabama.  The first event occurred in 2003, after Moore had placed a monument to the Ten Commandments in the state judicial building.  Moore defied a Federal court order to remove the monument, and was removed from office by a state judicial council.  The second event occurred in 2016, after Moore rejected the authority of the U.S. Supreme Court ruling legalizing same-sex marriage, and ordered probate judges and state employees to disregard the ruling.   Again, the state judicial council removed Moore from office.

Financial Corruption
Moore is the founder of a charitable foundation, The Foundation for Moral Law.  Between 2007 and 2012, Moore collected over $1,000,000 in compensation from the group, which he did not publicly disclose.  The compensation was also in excess of what the foundation revealed in its tax filings, but was documented in internal documents.  Moore also accepted a promissory note from the foundation for an additional $540,000, or an equal stake in the foundation’s most valuable real-estate asset.  The foundation further provided Moore health-care benefits, travel expenses and a personal bodyguard.  Moore’s two children and wife were also on the payroll of the foundation.  These payments appear to be in violation of IRS regulations prohibiting the use of a charity for the private benefit or enrichment of an individual, but have not been challenged in court.

Religious Intolerance
Moore is most widely known for advocating the placement of the Ten Commandments in courtrooms, which is generally regarded as violating the Constitution’s ban on the establishment of a state religion.  Consider – could a Hindu woman expect a fair trial in a courtroom which declares “You shall have no other God before me?”  Perhaps that is the point.

Moore is also on record as saying that Muslims should be banned from serving in Congress, and voiced nonsensical opposition to non-existent Sharia law in the United States.

LGBT Intolerance
Moore supports laws to make homosexuality illegal, and has issued rulings denying rights to homosexuals.  As mentioned above, Moore defied Supreme Court and Federal Court rulings legalizing same-sex marriage.  Moore holds the view that transgender people have no rights.    

Other Issues
Roy Moore has a history of extreme statements and actions.  At one time or another, Moore indicated his position on the following list of issues.
  • Opposes civil rights and the 1965 voting rights act.
  • Rejects the separation of Church and State.
  • Opposes pre-school education on the grounds that it teaches liberalism.
  • Believes that the 2001 terrorist attacks were divine punishment for accepting gays in society.
  • Denies human-caused climate change.
  • Leading figure in the “birther” controversy.
  • Denies evolution.
  • Hosted Neo-Confederate events at Moore’s foundation.
  • Spoke of the United States as an evil empire.

Conclusion
Moore is clearly unfit for office, especially for the U.S. Senate.  It seems to me that the public discussion of his candidacy should include all of the issues, as well as the charge of pedophilia.   

I believe that mainstream Republicans are deeply divided on Moore’s candidacy.  They recognize Moore’s absolute unfitness for office, and in many ways would prefer that the Democrat win this election.  On the other hand, Republicans realize that the election of the Democrat will endanger the mainstream Republican agenda.  And for that, they will put up with anything.


References





Thursday, November 9, 2017

Tax Reform

Once again, I have written to a staffer for Senator Dan Sullivan, Alaska Republican.  This month's epistle was regarding tax policy, and the ongoing Republican effort to enact tax reform.

Tax reform is deeply needed in the United States, but the direction of Republican reform seems entirely driven by the desire of wealthy political donors for lower taxes.  Representative Chris Collins of New York commented, "My donors are basically saying, 'Get it done or don’t ever call me again."

I believe that the process of reform should be an open process, subject to hearings, testimony, consideration of evidence, and compromise, but the Republican party is pursuing a closed process, without bipartisan input or debate.

And so I wrote to my Senator's staffer again with a sense of futility, despairing of receiving responsible government from Republicans.  But for the reader's consideration, here's my letter, and my priorities for tax reform.  For brevity, I placed my highest priorities in bullet points at the beginning.
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1)       Fully fund the federal government now.  Stop stealing from our children.
2)      Drastically simplify the tax system.
3)      Make everyone pay something.  Make rich people pay more.
4)      Tax unearned income higher than earned income. 
5)      Treat all capital earnings the same.  Eliminate special rules for trusts, S corporations, REITs, limited partnerships, hedge funds.   Treat personal capital earnings (short-term gains, long-term gains and dividends) the same.
6)      Tax foreign business profits in the same year that they are earned.
7)      Eliminate corporate tax loopholes.
8)      Tax unrealized capital gains on financial assets at death.  Keep the estate tax at 40% for estates larger than $10 million per couple.
9)      Place Social Security and Medicare taxes on unearned income at the same rate as wage income.  Eliminate the earning caps on Social Security and Medicare taxes.
10)  Stop lying about how American taxes are higher than other countries.  Correct lies when other people say them. 


Deficit Spending
I ask that you fully fund the Federal Government now.

During Senator Sullivan’s town hall meeting, the Senator expressed serious anxiety regarding the size of the US government debt.  I agree with the Senator on this point.  Debt held by the public is now about $14 trillion, or 76% of GDP.  Gross National Debt is about $20 trillion, or 106% of GDP.  Debt levels over 100% of GDP have been implicated in a number of foreign financial crises, such as Greece, Italy, Portugal, Argentina, and others.  Interest payments are rising as a percentage of the Federal budget, leaving less money for actual beneficial spending. 

Deficit spending is sometimes necessary to stimulate the economy.  But a balance sheet overloaded by debt allows policy makers no flexibility to deal with future crises.  Economic theory says that deficit spending is needed in an economy with high unemployment; an economy at full employment has no need for stimulus.  Deficit spending in an economy at full employment will simply result in inflation.

We’ve been systematically underfunding the Federal government for 40 years.  If this deficit spending was going to produce an economic miracle, it would have happened already.  We should raise taxes to run a surplus until our debt is under control.

Deficit spending, when it is not required for economic stimulus, is immoral.  Like all borrowing, it is taking benefits today, which must be paid for in the future.  The difference with Federal borrowing is that the people who enjoy the benefits of today’s spending will not pay those debts.  These debts will be paid by our children.  By deficit spending, we are literally stealing from our children. 

Any tax plan approved by the Senate should decrease the Federal debt.

Tax Simplification
I agree with Republicans that taxes are too complicated.  I support any reasonable effort to reduce the complexity of taxes, and to ease filing.  It is important that we improve the public perception that our taxes are fair.  I would recommend that the 40% of the population currently not paying income tax pay something, but with corresponding cuts in payroll taxes to mitigate the impact of these taxes on working families.  I would support the phased elimination of many deductions, including the home mortgage interest deduction.  In general, I support changes to reduce the use of the tax code for social engineering, and more to simply fund the government.

Trusts, S Corporations, REITS, limited partnerships and other special kinds of capital ownership should be eliminated, as far as tax law is concerned.  All capital should be treated the same for tax simplification.

I see no reason why unearned income should be exempted from the Social Security and Medicare taxes. 

Earned Income vs. Unearned Income
Work is an American virtue.  Physical productivity is the necessary foundation of our economy and earned wages support American families.  But those wages have decreased for the past two decades, in real terms and as a percentage of the economy (Federal Reserve database, https://fred.stlouisfed.org/ ).  Difficulties faced by young wage-earners are reflected in later marriage ages, later first children, more prevalent emotional difficulties, despair, drug addiction and deaths. 

I would note that any cut in the corporate business tax is implicitly a tax cut on unearned income, as profits pass through to shareholders. 

Changes in our tax law should reduce taxes on wages and increase the taxes on unearned income. 

Estate Tax
Eliminating the estate tax would leave a gaping hole in the taxation of unrealized capital gains.  All unrealized capital gains on financial assets should be taxed at the time of death, and the cost basis re-set for the heirs.  Retain the estate tax for financial assets on estates worth over $10 million per couple.  

Business Taxes
As I document below, American business taxes are already lower than 2/3 of the countries in the OECD.  I have no strong objection to lowering business taxes, but ask that those taxes be replaced by other revenue, so as not to increase the Federal debt.

Corporate tax loopholes (or incentives) should be eliminated, to bring the actual tax paid in line with the nominal tax rate.

I think that foreign business profits should be taxed in the year that they are earned, and not deferred until repatriation. 

I recommend a carbon tax scaled to volume of carbon emitted by each carbon fuel, and acknowledgement that climate change is a major hazard for the United States, and caused primarily by human CO2 emissions.  I would be happy to talk about that in person, to anyone who is not convinced of this point.  A carbon tax should provide additional revenue to allow some of the tax reductions desired by Republicans.

Social Security and Medicare
Tax unearned income at the same rate as earned income.  Remove the earnings caps on Social Security and Medicare taxes.  [Given the opportunity, I would restructure Social Security.  But that is a topic for another post.]

Truth -- American Taxes Compared to Other Countries
I would conclude by noting that the Republican justification for tax reform is based upon outright lies. 

In Donald Trump’s acceptance speech for the Republican nomination, he stated that America is among the most highly taxed countries in the world.  This is the complete opposite of truth.  Anyone with an Internet connection can look at the OECD statistical page (https://data.oecd.org/), and see that the US has almost the lowest Federal tax burden of the industrialized world, and is in the lowest third in terms of total tax burden.   Similarly, you can go to the World Bank database and see that the US Federal tax burden is lower than over 100 countries, and higher than only a handful of third-world countries (http://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS).

In Senator Sullivan’s town hall meeting, the Senator said that the US business tax was the highest in the world.  This is deceptive, and since the Senator is a knowledgeable person, I have to conclude that his statement is deliberately deceptive.  It is true that the nominal US business tax rate is higher than other nations, but it is easy enough to check the revenue collected from businesses, and compare to total domestic business profits.  The actual tax paid is far lower than the nominal rate.  Further, you can go again to the OECD database.  The countries with lower business taxes than the United States are Slovenia, Latvia, Turkey, Greece, Germany, Poland, Hungary, Italy, Estonia, France and Finland (2014 & 2015).  The remaining 21 countries – two-thirds of the OECD – have higher business taxes than the United States. https://data.oecd.org/tax/tax-on-corporate-profits.htm

I will judge the Senator’s honor by how well he speaks the truth, and how he speaks out to correct falsehoods when they are used to justify government policies. *


*  You might think me presumptuous to judge the Senator.  I write another blog with the theme that God should be judged according to the standards of reason and justice.  It is not that I have the right to judge.  It is rather that all figures of authority are subject to judgment according to truth, reason and justice.  I think that was the basis of the American Declaration of Independence.  

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The section on Estate Taxes was revised 12/2/2017, returning the proposed estate tax to something similar to current law, but reducing the tax from 55% to 40% of assets over $10 million per couple.

Monday, October 23, 2017

The Republican Dilemma

I posted this last night, 10/23/2017, around midnight Alaska time.  This morning, Senator Jeff Flake, R - Arizona, announced he "would not be complicit", and that he would not seek re-election.
Senator Bob Corker and Donald Trump

Republicans have a problem.  For two decades, Republicans have relied on inflammatory populist themes to motivate their base, to encourage donations, and to win elections.  These themes, taken together, define what it means to be a modern American conservative: ever-lower taxes; cuts to government programs for the poor; authoritarian nationalism, with support for military and police; opposition to immigrants, Latinos, Muslims and blacks; opposition to gay rights; opposition to abortion; adoption of Religious-Right Christian principles in government; aggressive foreign policy; opposition to any restrictions on guns; denial of climate change and any remedial policies; and uncompromising opposition to any program favored by Democrats.

Those themes resonated strongly with conservative voters.  The message, particularly uncompromising opposition to Democrats, was reinforced by a relentless propaganda campaign by right-wing media, notably Fox News and Breitbart.  That campaign put every story through a political lens, and produced a seriously distorted world-view that was accepted as fact by conservative voters.  The range of stories lost any sense of being grounded in truth; rather, the only measure of news was how well it confirmed conservative biases.  Confirmation bias is extremely powerful at strengthening existing beliefs.  Social media played a part, too, producing an echo-chamber feedback that pushed conservatives to ever-more extreme positions.  Conservatives also became more extreme in their opposition to Democrats.

The problem is that voters elected a President who will actually do the things they promised.

The Republican Dilemma. 
Here is the Republican Dilemma in a nutshell.  The issues that Republicans used to rile and galvanize their base are largely nonsense, and thoughtful Republicans knew that these policies would be destructive, bad government.  There are a number of thoughtful and prominent Republicans – John McCain, Ben Sasse, Jeb and George W. Bush, and media commentators like Joe Scarborough and David Frum, who have disavowed major parts of the Trump administration’s program.  Moderate Republicans Pat Tiberi, Dave Reichert, Charlie Dent, and Bob Corker have all announced plans to leave Congress, citing frustration with current policies.  These thoughtful Republicans sat silent while right-wing media ballyhooed far-right issues because it brought in votes, and helped the party win elections.  But the Republican Party has now elected high officials, including the president, who actually believe the nonsense spouted daily on Fox News, and are intent on enacting these policies as the law of the land.  Thoughtful Republicans are frightened. 

During the Obama administration, Republicans could easily disparage the five-nation treaty with Iran which dismantled that country’s nuclear program.  They knew that their criticism would not endanger the deal.  The alternatives – to either allow Iran to develop a nuclear weapon within 18 months, or to start World War III – did not have to be taken seriously.  Now, with a bellicose and erratic president, they have to seriously consider the possibility that the aggressive actions they’ve recommended for years will actually result in a major war, possibly a nuclear war or World War, involving North Korea, China, Russia, as well as Iran.  I consider it likely that any first strike by the United States on North Korea or Iran will be met with aggressive actions by China and Russia, although not necessarily in the same theater.  China may invade Taiwan; Russia may invade Ukraine and the Baltic republics.  Both will almost certainly support and arm America’s enemies around the globe: Iran, North Korea, possibly Venezuela, the Taliban and terrorist organizations. 

The same thing holds for less crucial issues.  Republicans, while publicly denying Climate Change, ensured that NASA’s climate-monitoring programs were funded through the Congressional budget process.  But they are now faced with a President who is unlikely to perform those programs.  Republican fiscal conservatives are faced with a President who is demanding major tax cuts for wealthy individuals and corporations, cuts that will drastically increase the nation’s debt.  The have a President who is determined to build a wall on the border with Mexico, that is vehemently opposed by Mexicans and most Americans.  They have a President who is determined to sever international trade deals, which will cripple the international supply chains of America’s major manufacturing companies. 

We have a sitting Secretary of State who has openly called the President a “f**king moron”, and a leading Senator who says that the White House is “adult day care”, and only a handful of officials “separate the country from chaos”.   A former Republican President and a former Republican Presidential candidate have sharply repudiated the administration’s policies.  Republicans have a President and a political base that are ready for the Party to do all of the things it has promised for many years.  And I believe that serious, thoughtful Republicans in the party must be terrified.  
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References:
Trump governs by disruption.  Takes actions promised during campaign, regardless of impacts.  Acts like a tyrant, pushing criticism and pain to all who oppose him.
Promised to dismantle government, and is doing it.

Bannon declares war on establishment GOP

Trump listens to the most extreme views; whatever gives him confirmation bias to his populist preconceptions.  Tom Cotton epitomizes conservative trolls on the Internet, who cherry-pick bits and pieces of information to refute sound arguments based on deeper fundamental analyses.

Text of George W. Bush’s speech at the Spirit of Liberty event in New York.  Bush’s speech rebuked the populist “America First” theme of the Trump administration, and the inflammatory anti-immigrant rhetoric the president has used to rally his base.


Moderate Republicans Pat Tiberi, Dave Reichert, Charlie Dent, and Bob Corker have announced plans to leave Congress, in what is seen as a sign of frustration with the administration and far-right wing of the party. 

Timeline of deteriorating relationship between Bob Corker and Donald Trump.

Up to 10 million Americans saw paid Russian ads on Facebook.

Russian Twitter accounts received wide distribution and exposure through traditional media. 

Republican tax plans already face opposition.

Retiring Senator Corker is voicing doubts about Trump that are held by other Republicans, but only spoken in private. 

Wednesday, October 4, 2017

You Own the Problem

Here is a letter I wrote to one of Senator Sullivan's staffers, regarding the mass shooting in Las Vegas.  I intend to communicate this message to other Republicans, including Senator Murkowski, in the near future.

In Las Vegas a single man shot nearly 600 people, killing 59 of them. The man was white, wealthy, middle-aged, previously law-abiding and showed no interest in politics or violence.  He used slightly modified assault rifles to create a rapid rate of fire like a machine gun.  There is an eyewitness video of the first two minutes of the attack, here: https://twitter.com/IzakPratt/status/914736465673965568

Please watch it.
AR15 with carry handle BCM, available for sale from Bravo Company for $125.  
Image from Google search. 

I recommend that you read stories and look at photos about the victims.

For over twenty years, Democrats have advocated common-sense gun control, arguing to allow local option to prohibit the sale of Saturday-night specials, to improve background checks, and in particular, to prohibit the sale of assault rifles.  Republicans stymied those efforts.  Since the 1990s, Republicans politicized gun control, adopting a “no-compromise” strategy and used the issue to stir up millions in campaign contributions. In 2004, Republicans prevented the re-authorization of the ban on assault rifles. Republicans disrespected and denigrated Democrats who called for sensible limits on gun ownership and defeated them in elections.  Since 2004, roughly four million assault rifles have been purchased by the public, and may be owned by any lunatic on the streets.  And I guarantee that there are many, many unrecognized lunatics like the Las Vegas shooter among us.

Gun control has been a losing political issue for Democrats for over twenty years.  Democrats lost Congress over the issue of gun control in the 1990s; perhaps they lost the presidency in 2016 over the same issue.  I would not recommend that any Democrat mention gun control ever again.  Republicans won this debate; it’s a Republican problem now.

Very well.  You own this tragedy.  You own the deaths, the injuries, the lives shattered by this meaningless violence.  You own the problem of four million assault rifles sold since 2004, and you own the future mass slaughters which will be committed with those weapons.

Senator Sullivan, Senator Murkowski, Don Young and all the other Republicans who tout the Second Amendment for campaign contributions own this problem.

I have friends who are already afraid to go to concerts, sports events, or public gatherings.  They are afraid that a lunatic with an assault rifle will find that gathering an easy target, and so they curtail their lives to stay safe.  Thanks to Republicans, this is how Americans will now live, and how some of them will die.  It’s a Republican problem.  You own it.


Wednesday, August 30, 2017

Time to Remove Confederate Monuments

There can no longer be any doubt that the modern use of Confederate symbols has nothing to do with Southern heritage.  Dylan Roof used the Confederate flag freely in his racist postings on the Internet, before he walked into a black church, talked briefly with worshipers there, and killed nine of them in cold blood.  The alt-right marchers in Charleston mixed the Confederate flag freely with Nazi swastika flags and other symbols of the violent and racist right.  Confederate monuments have been used as gathering points for the alt-right, and protecting those monuments has become a mission and a rallying cry for these white-supremacist, extreme-nationalistic and racist groups. 

In truth, Confederate monuments have always been about racial injustice.  The timeline recording the erection of these monuments shows a clear peak in the early twentieth century.  That peak corresponds with other peaks in the nation’s history: the peak of membership in the Klu Klux Klan, and the peak in lynchings of blacks in the United States.  These monuments, placed in prominent places in southern cities, parks and universities, were intended to be a reminder of racial separation and white supremacy, visible to both whites and blacks.
Image credit: Southern Poverty Law Center

Now, over 150 years since the end of the Civil War, it is time for the monuments to come down.  The men honored in bronze and stone committed treason against the United States to protect the practice of slavery, one of the most heinous organized crimes against humanity, behind only human sacrifice and genocide.  Those who erected these statues belonged to organizations that promoted racial injustice, segregation, and lynching. 

Many southerners and conservatives who don’t want to “erase history” by removing the statues.  I believe that Confederate memorials should remain, wherever there is an appropriate historical context.  Confederate statues should remain on battlefields and in museums.  Confederate flags should fly freely during historical re-enactments, where history buffs have gone to great effort to re-create the uniforms, the camps, the cooking, and the life of soldiers in the Civil War. 

 But the men who directed war against the United States, who defended slavery and who caused the bloodiest battles in our history should not be given places of honor in our country!   These statues should not remain in our cities, parks and universities as a tacit validation of racial injustice for Americans of today.   

I had a Facebook conversation with a relative who compared the removal of Confederate monuments to the removal of other monuments, such as the Tomb of the Unknown Soldier.  This is a false comparison, and totally inappropriate.  Confederate monuments commemorate evil; they represent the atrocity of slavery which we fought the war to defeat.  Our own honored dead, who gave their lives to vanquish slavery and fascism, should rise from their graves to protest the symbols of those evils put in places of honor, and openly paraded in our streets.

Russians had to deal with a similar problem after the fall of the Soviet Union.  At the time, much Soviet  history came to light.  The worst of it, hidden for two generations, revealed the savagery of Josef Stalin’s purges, forced imprisonment of innocents, and the use of slave labor in labor camps, as documented in Solzhenitsyn’s “Gulag Archipelago”, long banned in Soviet times.  In addition to the purges, there was the forced redistribution of food and the curtailment of migration during the great famine, the “Golodmor” of Ukraine.  Together these atrocities cost the lives of ten to twenty-five million Soviet citizens.  In the 1990s and early 2000s, many statues of Lenin and Stalin were taken down.  A number were gathered together in a park beside the Moscow River, called “The Garden of Fallen Statues”.   Statues of Stalin, some of them truly imposing in size, were gathered together, and surrounded by two large works of art.  One display surrounding the statues on two sides, represented Stalin’s victims in the gulags as thousands of faces, trapped behind barbed wire.  The other display featured statues of starving children, and surrounded Stalin on the other two sides.  It is one of the most moving pieces of art I have ever seen.*

Perhaps something like that would be appropriate for Confederate monuments, statues, and memorials.  These things could be gathered up in a single place, and surrounded by artwork representing the cruelty of slavery, the separation of families and the sale of human beings like cattle, the hardship of work in the fields and the brutality or the overseers.  The tragedy of the Civil War should be represented, too, by statues of thousands of dying and shattered young men.  And the later tragedy of racial injustice, segregation, denial of civil and political rights, and lynching should be present, too, as a reminder of why the statues were erected, and why they must come down.

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* Unfortunately, in the current political environment in Russia, there is an effort to rehabilitate Josef Stalin and his reputation.  According to a recent article, the Garden of Fallen Statues has been redesigned, and there is no mention of the art works which formerly surrounded statues of Josef Stalin.


Monday, June 26, 2017

Recommended Goals and Policies for United States Tax Reform

I recently had a phone conversation with a staffer for Senator Murkowski, who specializes in tax issues.  Here are my talking points for the conversation.  A few graphs can be found at the end of this article, showing basic facts regarding American tax policy.

Goals of tax reform, in priority order
  1. Increase Federal tax revenue; run a surplus until gross Federal debt is less than 75% of GDP.
  2. Simplify the tax code. 
  3. Reduce the burden of Social Security and Medicare on young workers and their families.
  4. Create a tax system which is generally acknowledged as fair to all.
  5. Eliminate subsidies and market-distorting tax incentives.
  6. Tax capital that replaces labor.
  7. Tax unrealized capital gains, if estate tax is repealed.
  8. A tax policy that reduces wealth inequality.

Wish List
  1. A greatly simplified tax system.
  2. Collect more Federal tax revenues; run a budget surplus.
  3. Higher tax rates on the wealthy, to raise total tax revenues.
  4. Make investment income subject to Social Security and Medicare taxes.  Eliminate the tax cap, and have a progressive tax to raise rates on the wealthy.
  5. Make minimum SS benefits standard for all elderly people. 
  6. Broaden the income tax base to include everyone, so that everybody pays some Federal tax.
  7. Eliminate the Bush investment income tax exemption, and raise taxes on dividends and capital gains.
  8. Reduce Social Security and Medicare taxes for the working poor.
  9. Compensate for any revenue lost in reduced business taxes with additional taxes on something else.
  10. Stop using rhetoric that suggests that the United States has high personal or business taxes.  It isn’t true.
  11. Implement a carbon tax.
  12. Eliminate business subsidies, especially agricultural and ethanol subsidies.
  13. Institute a tax on businesses which do not provide enough good jobs (full-time, well-paying jobs) relative to the amount of capital employed

Discussion and Talking Points
Sufficient Tax Revenue
Tax rates are too low.  We have undergone a 37-year experiment in underfunding the Federal Government.  In some ways, the experiment has been a success; the American Federal government is arguably the most efficient in the world.  But the consequence of underfunding the government is a gross Federal debt that exceeds GDP.  In a number of other nations (e.g., Greece, Italy, Ireland, Portugal) that level of debt has represented a tipping point marking a breakdown in the economy, markets, and in the ability of the government to govern. 

We now have a national debt that threatens our security and stability.  We might argue whether the reason for the debt is too much military spending or too much social spending, but the spending is now history.  The scale of the problem exceeds any solution through cost cutting, except drastic cuts to the military, which is not going to happen.  To raise more revenue, higher taxes need to be placed on the wealthy (because that's where the money is).  The wealthy have benefitted from 37 years of under-taxation; it is time to pay back some of the gains.

We also have a situation of rising wealth inequality, especially impacting young people.  We shouldn't make problems worse for the next generation -- which is what we are doing by not paying our bills.  We are stealing from our children to leave such a massive government debt.  

There are times when deficit spending is necessary.  Deficit spending is one of the best policies for pulling the economy out of recession.  (The proposed balanced budget amendment is economic stupidity.)  However, the converse to deficit spending is that budget surpluses are necessary during good times, to avoid ratcheting up debt over time.  Deficit spending without ever running surpluses leads to crippling debt, which impairs the ability to deal with future crises. 

Most Republicans argue that low taxes are necessary to stimulate the economy and create jobs, supply-side economics, Laffer Curve, yada, yada, yada.  This can be true when the economy is significantly underperforming, but is not true when the economy is at full employment.  Also, to be successful in stimulating the economy, tax cuts need to apply to the lower middle class, to increase consumption and demand.  Tax cuts for the wealthy are not effective in stimulating the economy; these only produce asset inflation, followed by a crash, as we have seen twice in the last 20 years.  If tax cuts were going to produce an economic miracle, don’t you think it would have happened by now? 

Social Security and Medicare Taxes
Social Security and Medicare taxes have more than tripled since I was a young man, placing an unreasonable burden on young working families and businesses.  Wage-earners pay significant payroll taxes on the first dollar of income; these taxes disprove Mitt Romney’s myth that 47% of Americans pay no tax. 

We should abandon the illusion that the Social Security system is an insurance program with benefits scaled to payments.  The truth is that the program will take from wage-earners whatever it takes to pay the scheduled benefits for retirees.   And those benefits have been too high.  Republican Senator Ben Sasse stated, “There are good and bad reasons to be unpopular. A good reason would be to suffer for waging an honorable fight for the long-term that has near-term political downsides – like telling seniors the sobering truth that they’ve paid in far less for their Social Security and Medicare than they are currently getting back.”

The structure of Social Security taxes is completely backwards.  The first dollar of earnings is taxed, there is a cap on taxable income, and there is no tax on investment income.  Instead, Social Security taxes should be structured so that both wages and investment income should be taxed to support the program, with no cap on taxable income.  A lower tax rate should apply to the working poor.

We should recognize that not everyone has an equal opportunity to earn income, and to pay into Social Security.  Some people are like my sister, who gave up a promising high-paying career, to spend her life caring for disabled relatives: first her severely disabled child, and after the death of her child, cared for our elderly aunt, and now my parents.  We should break the link between taxes paid and benefits.  We should provide a living income to old people, because we respect and honor old people.  Period.

Fairness
I think most people would agree that our tax system is too complex, which leads to widespread perceptions of unfairness.  High-income people think that poor people don’t pay their fair share, largely because of Mitt Romney’s myth that 47% pay no taxes.  Romney is ignoring payroll taxes, excise taxes, and sales taxes, which hit the poor harder than the rich.   Poor people think that rich people do not pay their fair share, because of the $75,000 income exclusion of the Bush tax cuts, low tax rates for investment income, and tax-avoidance strategies available only to the wealthy. 

A persistent belief in the unfairness of the system encourages widespread cheating.  It will be important in tax reform to make sure everybody pays something.  And it will be important to eliminate the low tax rates for investment income and eliminate tax loopholes and avoidance strategies.  

Business Taxes
The nominal tax rate for business taxes is 35%, but actual tax paid is much less. Using the President’s Report on the Economy and data from the Federal Reserve database, I calculated that the actual tax paid in business income tax is only 17.8%.   Looking at the OECD database, the United States has the 10th lowest business tax rate of the 35 member industrialized countries, as a percentage of GDP (2015).  OECD countries with higher corporate taxes include Greece, Spain, Canada, Austria, Italy, France, Ireland, United Kingdom, Mexico, Netherlands, Portugal, Denmark, Sweden, Japan, Korea, Israel, Belgium, Luxembourg, Slovak Republic, Iceland, Czech Republic, Chile, New Zealand, Australia, and Norway. 

I agree with Republicans that businesses might do better with lower business income taxes.  American companies could be more competitive in international markets, and successful companies could put more of their profits into business growth.  But the loss of these tax revenues must be compensated by raising other taxes.  The Bush tax cuts were justified on the basis of double taxation of business income.  If business income taxes are cut, will personal taxes on investment income be restored?

Carbon Tax
Certain businesses produce externalized costs which are borne by all of society.  It is appropriate to levy specific taxes on those businesses to compensate for the damages and costs they incur for others.  An example of such a tax is a carbon tax.  It is appropriate and timely to implement a carbon tax on fossil fuels and cement manufacturing, directly scaled to the amount of carbon emissions caused by the business.  A carbon tax allows the market to reduce the damaging emissions in the most efficient way, through fuel substitution.  The carbon tax would be much easier to implement than other schemes, such as “cap and trade”, and importantly, easier to repeal or adjust, depending upon results.

Subsidies
Certain subsidies, such as ethanol fuel requirements, make no sense whatsoever.  Congress should work to eliminate market-distorting subsidies as part of any tax reform.

Tax reform should eliminate much of the use of the tax code for social engineering.  The main purpose of the tax system is to raise enough money to fund the government.

Unrealized Capital Gains and Retirement Plan Tax Deferrals
Unrealized capital gains are one of the simplest ways to avoid taxes; compounding of unrealized capital gains contributes to wealth inequality.  If the estate tax is eliminated, how will unrealized gains every be taxed?

Retirement plans, such as 401K plans and IRAs, allow workers to save for retirement.  But these plans discriminate against lower wage workers, who do not have enough discretionary income to save into those plans.  Also, fewer and fewer businesses are offering or supporting such plans.  Given the popularity of the plans, and entrenchment in terms of established value, it would seem impossible to modify or eliminate these plans.  But these plans complicate the tax code, and offer tax advantages that only the wealthy can take advantage of, leaving the rest of the workforce to make up the difference.

Taxing Capital
A few months ago, I undertook an effort to calculate the total Federal tax paid by Capital and Wages.   Capital pays tax through business income taxes; capital gains, dividends and interest, personal income taxes; business’ contribution to payroll taxes; and other (mineral royalties and rents). 

Wages pay taxes through payroll taxes, personal income taxes on wages, and most excise taxes.
Using figures from the Tax Policy Center and the President’s Report on the Economy, I calculated that wages pay about 25% of gross income in Federal tax, and capital pays about 28% in Federal tax.  I expected that capital would be higher. 

In a 27-year career with a major oil company, I saw that capital does not create jobs – capital and technology destroy jobs.  A workstation allows a geologist to do the work of 4 geologists working without the computer, so the number of geologists employed at my company was reduced by two-thirds during my career.  Desktop PCs made secretaries irrelevant and PCs made the entire drafting department obsolete.  Enterprise-wide accounting software allowed us to lay-off hundreds of accountants.  In my department, over five years, the number of accountants was reduced from 27 to 1.  Looking forward, in the transportation industry, self-driving trucks will soon make 1.5 million long-haul truck drivers unemployed, and 2 million other professional drivers soon afterwards. 

Robots have considerable advantages over human workers.  Companies can avoid paying payroll tax, and avoid providing health and retirement benefits.  And yet – people in society still need work, healthcare, and funding for retirement.  After all, the importance of business to society is not to make as much money as possible, but to provide what society needs, not only in terms of products for purchase, but also employment for workers.  Bill Gates proposed taxing robots, just enough to put humans on an even playing field with the robots.  But in a broader sense, the problem is not robots, but capital.  Business Capital should be taxed if it doesn’t provide an appropriate number of good jobs in relation to the amount of working capital.  

Basic Facts
Gross Federal Debt is now about 20 trillion dollars, or 112% of GDP.    Debt held by the public is $14.3 trillion, or 76% of GDP.  The difference ($5.7 trillion) is essentially debt that the government owes to itself, through arrangements between government agencies.  Much of the government-held debt is the trust fund for Social Security.  It might be possible to say that Social Security is in great shape, thanks to the set of IOUs from the Treasury, but then you would have to say that the country is in deep trouble because of the debt load.  Or you might say that the country’s debt load is not so bad, but you would have to say that Social Security is going broke.  You can’t have it both ways.

 Here is a graph of gross Federal debt and GDP.

Federal Deficits have been large and persistent since 1980, in Reagan’s first term.


Federal Tax Comparison to Other Countries
United Stats Federal Taxes are among the lowest in the world.  The government accomplishes a great deal with less revenue than other nations.  The US government is also burdened by the highest rate of military spending in the world, further cutting into other government programs.

The OECD database places the US consistently 34th out of 35 industrialized countries.  The only countries with occasional lower Federal taxes (Japan, Switzerland) have no significant military obligations.  Japan also has a massive debt problem.  US Federal taxes (from all sources) are among the lowest in the OECD.


US total tax burden is among the lowest of the OECD.


US Federal Taxes are among the lowest in the world.
For the year 2011 (the recent year with the most complete reporting), the United States had the fourteenth-lowest Federal tax rate of 123 countries in the World Bank database.  Countries with lower taxes than the United States are as follows (2011):
Ethiopia, Pakistan, India, Afghanistan, Bangladesh, Central African Republic, West Bank and Gaza, Lithuania, Oman, Nigeria, Bahrain, Estonia, United Arab Emirates.  These countries are the peers of the United States in terms of Federal taxation.