Are Trump's Tax Cuts Just a Three Card Trick?

I trust you will be relieved to hear I do not intend to write a summary of America’s 2017 political year. First, so much has happened, often depressing, so why do a recap? Second, the political scene has been dominated by one man so he occupies the blog almost exclusively. Without question, Mr. Trump has overturned the way American leaders do politics. In this, he stands comparison with FDR, whose domination of Congress and US politics has yet to be beaten. Even LBJ could not claim such hegemony.

So, to focus. In this past year, I have been and remain confused by Trumponomics. For clarity, here is a glossary of terms:

National Debt: The amount which one nation owes to others, usually through borrowings in the bond market. Reports estimate the American debt exceeds $13 trillion.

Government Deficit: The amount of government expenditure, including interest on borrowings, less taxation earnings. It is estimated that the Trump government deficit in the current fiscal year will be $1.5 trillion.

I freely admit I am no economist and my detailed knowledge of economics would not stand much investigation. However, quite how the $1.5 trillion government deficit can be arrived at defeats me. Currently, observers can only see one side of the balance sheet. The tax cuts are known but the budget expenditure is not decided. Congress has yet to agree a budget for 2018, and the most recent Continuing Resolution, which keeps the federal government open, needs to be renewed before January 19^th, 2018 unless the Budget itself is finalised.

The howls of protest from many Congressional Democrats at the provisions of the Tax Cut and Jobs Bill matched the outrageous statement by Speaker Paul Ryan: “we are giving Americans back their money.” Really, Mr Speaker? How is money borrowed on the bond market to fund a deficit giving money back?

It is a sine qua non that people who do not pay tax will not derive a direct benefit from a tax cut. Employees who pay tax will not necessarily see a benefit from a corporation tax cut, unless they are shareholders or the corporation decides to invest the savings in increased wages. There is a small cut given to the highest income tax level earners. This will benefit the high earners disproportionately.

The key provision is the reduction in corporation tax. Will corporates invest the derived benefit in higher wages and more jobs? If so, it will prove to be a good move. If not, we are back to the failure of former President Reagan’s “trickle down” theories. There is one other oddity. The tax take from corporations may remain constant, despite the tax cut, through higher profits and a reduced tax avoidance stance.

But the bill not only re-defines tax policy. It has barbs. Oil drilling will be allowed in Alaska’s Arctic national wildlife refuge. The Affordable Care Act’s individual mandate, which requires Americans to either buy health insurance or pay a penalty, will be eliminated. American healthcare will revert to the pre-Obamacare dark ages when the poor could not afford insurance and lived their lives on a tightrope, worrying if medical treatment would result in bankruptcy. Republican ideology has overtaken common sense.

The other side of the Trump balance sheet remains uncertain. What will the federal government spend its tax take on? The anticipated deficit shows the tax take will be insufficient to meet current spending. Since a majority of federal government funding is directed to benefit the poor, it is the poor who will suffer most if there are welfare cuts.

No mention has been made of late by the executive branch about The Wall. If expenditure is to be made, which benefit programs will suffer? I consider that the proposed infrastructure program is sensible. It provides work and benefits communities with improved roads, community buildings, bridges and railways. However, I want to see strict provisions for administering the infrastructure programs. Otherwise, they could be an open invitation to corrupt people. America’s state and city governments have a long history of Bossdom and men gouging from the community trough. Trump says, “Clean the swamp”. Will he also make sure he does not create other swamps which resemble gravy trains?

I can see benefits from the tax cuts but only if those who pocket the lion’s share of benefit “play the game” and let many others enjoy more money in their pockets. America’s debt is almost unsustainable. If Trump’s plans send the debt into even higher numbers, who will pay eventually? For sure, not those who have created the economic disaster. That’s another set of questions that need answering.

On that note and before I dash for a cliff to jump off, may I wish you all a very Happy and Peaceful New Year. I would have added Prosperous but this is not in my gift…..until you elect me POTUS.

 

Dear Santa.

Dear Santa,

Last year, I sent you my Christmas letter earlier than usual and you came through for me. I am now the President of the United States. Well, truth be told, I deserve the lion’s share of the credit for my stunning victory because it was me who campaigned so hard and won. Most important, I have invented FAKE NEWS. What did you do? You just slithered down a few chimneys or did something or other with your reindeer for help. I never charged you for the mince pie but it’s the end result is what matters.

Anyway, I think it right you should do some things for me in 2018, as you actually did so little last year. So, here’s my Christmas list:

1.      Please make sure crooked Hillary gets hers for all sorts of things: private e-mail servers, cavorting with the Russians and basically for everything I am accused of. Not fair she should get a free ride while I have to take time out from running the country to avoid defending my actions.

2.      My good friend, Mr Putin, is a strong man, much like me though he is not so valued in my country, just like me in some of those sad states. How odd! I thought they loved me in Alabama. Anyway, please have people forget about Crimea, the Russians interfering with elections and other things like cyber-warfare in which Mr Putin allegedly indulges. Many of my Americans revere him just like they worship me.

3.      Little Rocket Man is still a pain in my butt. This applies for the rest of the free world, too, but my butt is far more valuable. The inscrute (my new word) Chinese say they are going to do one thing or another to get North Korea on side but when push gets to shove, nada, nothing. And the Chinese are my friends! I love them because they have screwed the American economy for decades, just like I have. Please use your influence to get the Chinese to do my bidding.

4.      I am without doubt the most successful President of the United States there has ever been or will be. Just look at the Stock Market. However, people seem upset along the way. For example, please have them understand that in education, Mrs de Vos is doing so well. We as a nation need only educate the top 10% of students, preferably in private schools, and there is no need to worry or care about the rest.

5.      In environment, my good friends in manufacturing and energy businesses need a supportive government to promote coal mining, Alaskan exploration and the like. This is what we must have to make America Great Again, jobs for the many – well a few - and huge profits for the elite. The Paris Accords were all wrong. What do environmental scientists know anyway about climate change and global warming? See what you can do, Santa. The wealthy are relying on us.

6.      I have to admit my record is being frustrated by blocks on meaningful legislation. The trouble is in the Senate and that damn filibuster rule. I think you could help by getting a few of those ill-informed, stupid Democrat senators like Pocohontas Liz Warren to disappear in the snow. You have no idea what damage their ignorant interference is doing. Looks like I am going to get the Tax Cut Cut Cut Bill through. My good, billionaire friends will be happy.

7.      Where I’ve done okay is in judicial appointments. I like judges who oppose single sex relations, abortions and human rights. But I am now being challenged by people supposedly on my side of the aisle. A Republican, I ask you, John Kennedy of Louisiana, challenged the qualifications of my appointee to the federal bench, Matthew Spencer Petersen. Now I am the boss. I say who gets to sit as a judge and I say where. Not sure what you can do about this but you are Santa. Your red coat says you are a Republican, thus revere me and back me up.

So, there we are, Santa. A short list. I hope you are not too busy to help this humble but most worthy President. After all, you don’t want a nuke drop on the North Pole.

Looking forward to hearing from you favourably. After all, I am the Commander-in-Chief.

The Donald.

Christmas Spirit in DC...Is Hard to Find.

 

December looks like it is going to be a tough month for both the President and Congress. Maybe their lives will become a Frank Capra-like movie, where a hero or heroine emerges, bringing peace and harmony to the chief executive and legislators, as snow falls over the final credits. The trouble is that Washington is not that kind of town. When the people who work there sing, “God rest ye, merry gentlemen,” they are vocalising about undertakers. Goodwill is regarded by working Washingtonians as a mere American charity, not a feeling of bonhomie.

The President has a major juggling act on his hands. If a spending bill is not passed by Congress by midnight on 8^th December, the federal government will theoretically run out of money. Federal employees will be laid off just before Christmas. That would not play well in Peoria or anywhere else.

Usually, the political parties would agree another Continuing Resolution to extend the date until after the Christmas Recess enjoyed by legislators and I do not dismiss this as a possibility. However, the Senate Democrats, as well as contrary Senate Republicans, have an opportunity to use the situation to seek deals from a President who is currently unwilling to agree what is wanted. The Donald tweeted earlier this week about a meeting with Democrat leaders, Chuck Shumer and Nancy Pelosi:

            “Meeting with “Chuck and Nancy” today about keeping government open and working. Problem is they want illegal immigrants flooding into our Country unchecked, are weak on Crime and want to substantially RAISE Taxes. I don’t see a deal!”

Republicans need at least eight Democrats in the Senate to meet the 60-vote threshold to bring cloture (closure) to a filibuster and pass a bill, so serious compromises by the President and the Congress majorities may well be the price to pay for a spending bill. However, going back to Clinton’s incumbency, the ‘shutdown samba’ is a known process, with last minute deals being done. The card Mr Trump could play is to recall Congress for a special session before Christmas. It’s fine if you have a seat in Maryland; not so good if you are from the far west. The President can tell the voters, “I’ve recalled Congress to do the business required and demanded by the people they serve.”

The Democrats have a lot of political leverage despite the fact they are in the minority. Their Christmas wish list from the Republicans and the Administration is already long. Here are some of the terms they are likely to demand:

·         First and foremost, “clean” passage of the DREAM Act, permitting undocumented, illegal immigrants the right to remain in USA if the latter comply with stated conditions. Democrats are on record that they would agree to additional border security enforcement but nothing approaching the current, stringent White House proposals on the topic.

·       A health care deal to stabilize the Affordable Care Act’s exchanges, funding key subsidies to give  the states more flexibility on Obamacare’s regulations. The proposal already has overwhelming bipartisan support, but Speaker Ryan has taken a hard line against it. Democrats may well use the spending deadline to force Republicans to vote for the bill, thus maintaining Obamacare.

·         Extension of the Children's Health Insurance Program, from which nine million children benefit, which has expired. This program has widespread bipartisan support in the House but a group of House Republicans want CHIP’s cost be offset by reducing funding for Medicare and the Affordable Care Act.

Trump is keenly aware that Congressional Republicans have not delivered a single major legislative victory during his time in the White House. With Republicans in control of both chambers as well as the White House, it will look weak and ineffectual if they are unable to keep the federal government open at Christmas.

With his right of veto, Mr Trump has the final say on the spending bill. He appears less than concerned with the prospect of a government shutdown. Instead, he has raised the stakes by throwing policy deadlines to Congress on immigration and health care. If the federal government closes, who will be blamed? That’s hypothetical and for another day.

What may well be the ultimate sticking point for all parties is tax cuts and tax reform. In the good old days of Reagan and Bush W, a big tax cut for the rich was packaged with a modest tax cut for the middle class. President Trump and Congressional Republicans suggest they are following precedent. Their proposals deliver an average tax cut of $700,000 to the nation’s 175,000 richest families and they say there are benefits for the middle classes. However, concerned, expert observers say Trump’s plan does not cut taxes for many middle-class families. It raises them. Unsurprisingly, recent polls give the plan a 30% approval rating.

I do not propose to go into detail on the budget and tax cut proposals. Undoubtedly they will change over time before agreement is reached. It’s the politics that interests me. The 2018 mid-term elections are fast approaching. How will voters respond if mammoth tax cuts are awarded to the rich whilst benefits and services for the poor and middle classes are reduced and eroded?

There are so many variables in this situation. It needs the touch of FDR, the negotiating skills of LBJ, the charm of Reagan and the political charisma of Clinton to get these deals done. It is an enormous test of Trump and his self-vaunted negotiating skills, especially when he has another problem with ‘Rocket Man’ and the inability of the Chinese to curb their acolyte’s ambitions. The President may surprise all and be up to the job but I would not bet much. By New Year, things may well be a lot clearer but the beauty of politics means you can never be certain.

 

My Outlook Inbox and Messenger App have been flooded with complaints about the President for tweeting and giving oxygen to Jayda Franzen and Britain First, an unspeakable group devoted to hatred of Muslims. Perhaps we Brits should start re-tweeting about white American policemen shooting innocent black people and tell the President to stop racial discrimination and murder. If Congress chooses to take Mr Trump to task, I hope the Bills of Impeachment include a charge of inciting racial and religious hatred, using the re-tweets as evidence.

 

I am taking a break for a week or so.