The Trade Wars Are a War on Trade

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The impending trade war with China has already generated the drumbeat of preparations for a real war:  “cheating”, “usurping”, “impoverishing”, “existential threat”, …  Of course with Trump you never know what’s just posturing, given how quickly the North Korean “rocket man” became “very honorable”. So there’s hope that the Chinese trade war will somehow wind down.

But even if it does, we have to recognize there is now a real, ongoing threat to international prosperity.  Trump is attacking the system of fair trade that underlies the world’s rise in prosperity since the second world war.  His notion of sovereignty means he refuses to acknowledge any limits (international or constitutional) on his ability to use trade as a weapon.  That is new, and if it wins we all lose.

 

We start by quoting a position from the Business Roundtable of corporate CEO’s on the trade negotiations with China.

“During negotiations with China, the Administration’s objective should be to secure lasting economic reforms that will curtail China’s unfair trade practices and allow U.S. businesses to compete on a level playing field. Negotiations that focus on temporarily reducing the trade deficit would make this a wasted effort. Working in coordination with our allies, the U.S. should set deadlines on those economic reforms and outline the consequences China would face if reforms aren’t made. This approach will provide an opportunity for the Chinese to produce results and for the Administration to protect the interests of U.S. businesses and workers effectively.”

The important thing about the quote is that it sees the problems with China within the context of internationally-defined fair trade.  And it emphasizes the importance of working with our allies to make the system successful.   That’s as opposed to “reducing the trade deficit”—which seems to be at the top of the administration’s list both for China and for Mexico, Canada, and others.  (This is despite the fact that our balance of payments deficit with China has decreased greatly from peak, is not a financial problem, and is not the reason for the stresses on the American middle class.)

It is important to recognize that regulating deficits is worse than “wasted effort”; it actually subverts the real objectives of fair trade.  Not only does it make China responsible for something it doesn’t completely control (we’re the ones pumping up the federal deficit), it is a rule we would never accept for ourselves.  The whole idea of fair trade is that it should be a system of known rules by which everyone can play; here we’re just imposing whatever we think we can get away with.

The quote is of course coming from businessmen, but the issue is one for everyone.  The downsides of international trade exist, but most cases the problems are of our own doing.  Further the most effective way to impose standards for labor and environmental issues is to work through the definition of fair trade.

We have already sinned against WTO fair trade once, by invoking “national security” as a blanket excuse for unilateral tariffs.   We are going beyond that here by setting rules for others we have no intention ever to obey.

 

The second example is the administration’s other major issue in the Chinese negotiations: “Made in China 2025”.

For high-tech, China today is primarily building products for western companies.  Generally most of the intellectual content and profit goes to the parent company (e.g. Apple) as the top of the heap.  Unsurprisingly, China would like to move up the value chain to get more of the benefit.  Also, China today sources most of the IC chips in the products it builds from other countries—a fact that China views as a risk to its success.  Made in China is the plan to move up.

Made in China 2025 covers just about any technical field you can think of (except AI, with its own plan), and the government expects to spend money to make progress happen.  As an idea, this isn’t terribly different from what is going on in many other countries (see here for a summary of national spending on AI).  But the Trump administration has decided that the whole idea of Chinese government involvement in technological advancement is suspect.

While Mnuchin and others use the language of fair trade to attack the Chinese plan, those attacks have lacked much specificity.  And in fact if the administration is worried about abuse, they could take the whole affair to the WTO.  What makes the case even weirder is that, as we know, the Trump administration has proposed severe cuts in US government funding for research in essentially all fields, claiming the private sector does it better.

So one has to conclude that what is going on is trade warfare pure and simple.  The Trump people (with their zero-sum view of the world) are afraid the Chinese might catch up, and their goals is to throw as many nails on the road as possible to slow them down.  That’s what passes for economic policy.

This is arrogant foolhardiness of the sort the world hasn’t seen since the geniuses of the Iraq war.  As many have pointed out, the companies most hurt will be American.  And the message for the rest of the world is clear.  The US, with quite a lot to gain, has decided it doesn’t need free trade.

The end here, as in our last piece on trade, is constitutional.  It becomes more urgent each time.

Normally, without the seldom-used national security ploy, tariffs are a matter for Congress.  When Trump got away with it on the aluminum and steel tariffs it was a scary first step.  We’re now fighting a whole trade war with China, and no one is questioning that it can be done purely by fiat.

So we no longer need to argue about whether Trump will or won’t try to make himself a dictator.  Unless something happens, he is already in position to wreck our economy all by himself.

What the New Tax Law Means

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This note is about the effect of the new tax law on the middle class.  While much has been written on this subject, the focus has generally been too narrow to give the full picture.  It is important to get this right.

This note deals with three topics:

  1. Who really wins and loses with the tax cuts.
  2. How the tax cuts affect the economy.
  3. What about the corresponding budget cuts?

Most discussions of the tax law stop with item 1.  That is to put it mildly deceptive—as if the tax cuts were free money we just printed, and we’re only deciding how to divide up the proceeds.   That’s understandable from Republicans, but others shouldn’t let them get away with it.  Items 2 and 3 talk about consequences.  Item 2 affects everyone; item 3 needs to be analyzed to see how it hits the middle class.  However even the discussions of item 1 have understated the situation, so we start there.

  1. Who really wins and loses with the tax cuts.

Most discussions of this topic focus on the new rules for personal tax filing.  This is of course complicated because winners and losers are different in different states and with different levels of income or expenses.   For our purposes we assume that job has been done.  The NY Times has a handy calculator.  In the first year about 75% of payers get a tax cut, 25% pay more.  The median result over the entire population is a tax cut of $380.  By 2027 some cuts expire and virtually everyone pays more.

The first caveat is that this forgets that the federal tax isn’t the only tax paid. The new tax law has two conflicting effects on state taxes.   On one hand the limited deductability of state taxes has made taxation more expensive to the payers in high-tax states.  On the other hand the corresponding federal budget cuts will throw additional social welfare expenses back on the states.  States will have to choose between increased misery and tax increases.  Given the modest size of middle-class tax cuts, it takes little at the state level to negate them.

However the bigger part of the story is that we have left out two major pieces of the tax law.  One is the frequently-discussed new 25% rate on pass-through income.  We know it’s free money if your personal tax rate is higher, but it’s hard to quantify since we don’t know exactly who will use it.  With the armies of accountants hard at work on it, let’s just say that since the 32% tax rate starts at $315,000, you have to be at least borderline rich to cash in.

The remaining piece of the tax law is the huge corporate rate cut—the biggest part of the package.   The issue here is that the effects of corporate cuts have not been put in proper context.  On one hand we have Trump and Mnuchin talking about how the cuts will be worth $4000 for all workers (a number that very few regard as true).  But on the other hand the huge rise in the stock market (even after the recent retreat) is somehow taken out of scope—a benefit to everyone from the Trump presidency.  In fact the stock market rise is the primary rich-taxpayer payoff from the tax plan—and it has been a great deal!

There are several points to be made:

– The corporate tax cuts are a direct tax benefit to rich tax payers.

This is just arithmetic:  cutting corporate taxes increases profits and hence the financial value of what the investors own.   From the beginning, the expectation of tax cuts has been the primary driver of the stock market boom.  Since stock ownership increases dramatically with income (see the chart below), this means that the value of the corporate tax cut is hugely tilted toward the rich.

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It’s worth emphasizing just how skewed this is.  The chart shows 84% of stock is owned by the top 10% of taxpayers, but the top 1% own 40%.

– What about the bonuses to workers?

We’ve had a few public relationship announcements of benefits, but there’s no reason to expect this will represent a significant part of the tax cut effects.  At a qualitative level, one has to believe the stock market—which clearly thinks there will be no substantial loss of profits to wages.  In fact the recent stock decline was caused by the fear of inflation based on statistics showing a 2.9% annual increase in wages.  Shows how likely the business community is to put tax cut benefits into wages!  Even Mnuchin’s improbable $4000 was actually a long-term benefit (i.e. years out) based on estimates of productivity increases from projected new investments.

The link between the corporate tax cuts and investors benefits is immediate and direct.   The link to worker benefits is indirect and historically shaky.   The following unedited statement from a Cisco financial report is an excellent introduction to the real world:

“Because of the law’s corporate tax cut, Cisco plans to repatriate in the current quarter $67 billion parked in foreign banks. The company plans to spend the money on dividends paid to shareholders, stock buybacks and acquisitions.”  (With experience, we can now be even more explicit—thus far in 2018 corporations have spent $171B of tax savings on stock buybacks and $6B on employee bonuses.)

– What about jobs?

In 2004 the Bush administration granted a tax holiday for businesses to return overseas earnings.   Many businesses took advantage of the gift, but none of the promised increase in jobs materialized.  That was actually not surprising, because job increases go with new ventures—and the extra cash doesn’t create those opportunities.

The picture is even more tilted that way today.  The cost of capital has been so low, that it has been simply no impediment to investment.  Any reasonable project is fundable.  The corporate tax decrease, large as it is, doesn’t change that picture.  And even a little bit of inflation counteracts it entirely.

– Will the tax cuts bring international operations of businesses home to the US?

The corporate tax cuts mean that businesses will pay less tax than they used to for their operations in the US, so in that sense there is less disincentive for operations here.  However, the new tax rules mean that going forward businesses will pay NO tax on their operations overseas.  End of subject!

– What about foreign companies putting operations here?

That amounts to subsidizing their operations by our policies here.  Good for them, not so good for us.

– What about the corporate announcements of expansions in the US?

Corporate announcements are a little suspect, because it’s tempting to jump on the bandwagon for public relations reasons.  One obvious example is Apple who announced a $350 billion investment in America over a period of 5 years.  As it turns out Apple’s current annual domestic investment amounts to $275 billion over five years, so we’re down to $75 billion new.  In addition, with the new tax law Apple returned $252 billion from overseas to take advantage of the tax holiday rate of 15%.  That means 38 billion of the $350 went to taxes for a total new investment over 5 years of $37 billion.  Not such a big change and probably still somewhat inflated.

It’s also worth thinking a bit about that $252 billion in overseas saving.  That huge number for overseas assets is a tribute not just to Apple’s overseas business but also to modern accounting practices by which companies attribute profits to subsidiaries in convenient places.  The new tax law—with no tax on overseas operations—creates an even greater incentive for such creative profit shifting.  The new approach was sold as putting US taxes on the same footing as for the Europeans, who also don’t tax foreign profits.   However the Europeans have complex rules to avoid profit shifting, and those rules go far beyond anything in our new law.  So this is another really great deal for the investors!

Conclusion:  The direct financial effects of the new tax law are vastly to the benefit of the rich, and the greatest beneficiaries are the very richest.  In particular, it is incorrect to think of the huge corporate tax cuts as a general stimulus that rains benefits on everyone.  It is a tax present to investors who have shown via the markets that they expect to make out like bandits.  (Since this tax plan was pushed through by ultra-rich investors for their own benefit, the analogy is exact.)

 

  1. How the tax cuts affect the economy.

From the beginning this has been the most obvious concern with the Trump administration’s policies.  As we’ve noted before, the new tax plan is doing a massive, deficit-funded stimulation of an economy at essentially full employment while eliminating all oversight of speculation and other bad behavior.  That is a demonstrated recipe for disaster.  We’re only ten years from the crash of 2008, and we seem to have forgotten that such things really can happen.

The Trump administration is so intent on delivering its gifts to corporations and the ultra-rich that it cannot begin to think about matters of timing.  There is a confluence of evils.  For the Trump people, ignorance of economics and history makes them unaware they are playing with fire.   For the Koch-financed Republican Congress, enthusiasm for the unregulated greed of the nineteenth century makes them blind to the crashes and panics of capitalism in the wild.  From one economist recently: I think we should be very worried.  As a macroeconomic matter, I’m not aware of another example of this—of a country that’s basically at full employment embarking on massive fiscal stimulus.”  And he hasn’t even gotten to the demise of financial oversight!

It is worth thinking a little about other ways the administration’s stated goals could have been achieved.  The average effective corporate rate for the US is not the statutory 35% but more like 24%, which is not so far from the developed-country average estimated at 21%.   Real tax reform would bring the effective and nominal rates in closer line with each other–with the advantage of removing artificial lobbyist-created inequities in the tax plan.   That, with adjustments to assure parity with other countries, would not have broken the bank.

Such a plan would have been in line with the revenue-neutral tax reform achieved with bipartisan support under Reagan in 1986.  It would have allowed the country to address its real and pressing problems (see the next section), it would have minimized inflation and growth of the deficit, and it would have avoided the catastrophic risk just described.

Conclusion:  We need to stop some part of this train wreck waiting to happen.

The tax plan actually shows Trump’s dedication to fighting climate change.  Thus far the only year when carbon dioxide production actually fell was when the world economy collapsed in 2008.   Trump is out to beat that one!

 

  1. What about the corresponding budget cuts?

One way to think about this subject actually comes from Trump’s State of the Union speech.  Towards the end of the economic discussion Trump turned dreamy (“we’re all dreamers!”), stared into the air, and talked about how the new America is the place for young people to start off building their lives.

Like much of Trump’s rhetoric this was a call for people to think back to the good old days of the (idealized) 1950’s and 60’s, the days that Trump wants us to think he is recreating.  We should talk about those good old days, the reality for young people starting off in Trump’s America, and what really ought to be done about it.

First about those good old days:

Employment:  This was an era of strong unions, with corresponding good wages and working conditions.  Companies offered lifetime employment.  Employment was a clear path to a middle-class lifestyle.

Medical care:  Affordable without worrying too much about it.  Coverage built around employment.

Education:   The GI bill had sent people of all kinds to college for the first time.   The state university system in full expansion made college affordable.  Everyone’s kids get a newly-won chance to do anything.

Retirement:  Companies offer full pensions, based on years of lifetime employment.

Infrastructure:  New and enhanced through public spending.  The interstate highway system is a key new achievement.

Environment:  Getting better as we begin to pay attention to it via the newly-formed ecology movement with bipartisan support.

International:  The world had learned that war was a bad idea.  International institutions formed to diffuse it and to prevent another depression.

Overall this was a time of confidence—as long as you weren’t black!  People could feel sure that they knew how to create a life trajectory for personal success and for their children.

 

Let’s revisit those topics now in light of Republican policies in general and the tax cuts in particular.

Employment:  Unions have lost power in most industries.  Globalization and (even more) automation have changed and are continually changing the nature and number of good jobs.  Lifetime employment is rare.  The “Gig economy” has few benefits.  Compensation has a very large range with the minimum wage unchanged for 15 years.  There is a current threat of a new round of job losses from artificial intelligence.  Overall—employment is uncertain and not a guarantee of a middle-class lifestyle.  And if you lose your job you lose everything.

Republican policy>> The administration is actively hostile to unions and to regulation of working conditions.  For other issues Trump has pegged everything to his stimulus of the economy and his renegotiating of the trade agreements.  That resolves few of the problems just mentioned.  In the State of the Union speech Trump talked about retraining, but thus far has announced only cuts to existing training programs.  There’s no room in the budget for government-funded jobs programs, including especially infrastructure (discussed later).  Hostility toward government-funded research is a bad sign for the future.

Medical care:   Medical care has become a huge part of national spending and a major worry to most people.   Prior to Obamacare there were 500,000 medical bankruptcies per year in the US, most for people who thought they had insurance.   Obamacare was a first step to move beyond an expensive, dishonest, inequitable, and incomplete non-system.  Obamacare was of course financed with a surtax on higher incomes that has been a primary Republican target.   Obamacare isn’t dead, but Trump has tried to kill it through a number of measures to raise its cost and create uncertainty about its operation.

>> Republicans have tried for years to get out of the healthcare business.  Trump’s healthcare promises made them create proposals, but none were serious.   The first two killed the surtax directly, and the third pushed responsibilities to the states with diminishing federal funding.    The recent Medicaid waiver action allows states to cut medical services, since that improves the recipients’ lives by making them more self-reliant!

The tax bill removes the Obamacare healthcare mandate, which undermines the insurance pools and increases costs for those remaining.  Further Paul Ryan has announced that the tax bill deficit means going after Medicare.  Trump recently acknowledged the opioid crisis, but provided no funding to do anything about it.

Education:  State financing of education has never recovered from the 2008 recession.  One consequence is the college student debt crisis, and state funding of K-12 education is also down.

>> In a reasonable world the federal government would act to support the financially-strapped, state-based education system.  Instead, with the rising state social service burden, the tax plan puts the states under even more stress.

The Republican party has turned alarmingly anti-education—for the public system.  Trump’s State of the Union speech mentioned only “vocational education” as an issue, and there have been calls not to waste taxpayer money on anything else.  There’s nothing wrong with vocational education, but it’s not the whole picture, and there’s no indication that public officials are choosing exclusively that for their own children.  Further, Trump’s budget proposal takes money away from public schools to kick-start the DeVos voucher system—with educational quality sold to the highest bidder.

The tax bill has no money to fix the student debt crisis, but it goes out of its way to provide a new tax deduction for private school tuition payments!  We are in danger of losing the legacy of the GI bill to a new notion of “good enough” for the public system. This is bad both for individuals and for the country overall.   Other countries have now long recognized what we used to know—broad-based educational success drives prosperity.  Our once-best upward mobility made us what we are.

Retirement:  Companies don’t do it anymore.  Most soon-to-be retirees have little savings.

>> The tax bill deficit means Social Security is under siege from House Republicans.

It should be noted that Social Security is not actually bankrupt—it has enough current income to pay ¾ of benefits from income.   Its big problem is that with growing inequality, less and less of income is taxed to support it.  No one is fixing that problem.

Infrastructure:  Problems have been well-documented and were acknowledged by both candidates in the election.

>> From the State of the Union speech, Trump expects the states and the private sector to foot most of the bill for infrastructure.   States have no money, as noted earlier.  Private sector financing is historically limited and only goes where there’s money. Infrastructure work has the potential to help with both employment and competitiveness, but there is nothing left in the budget to make it happen.

Environment:  Technological change and lobbyist spending means that it is always tough to be one step ahead of industry.

>> The administration views all environmental regulation as the enemy.  The withdrawal from the Paris Climate Accords is part of that picture.  The EPA is a prime target of budget cuts.

International:  This is a period of growing interdependence but with increasing sources of instability.  The US used to lead in establishing order, and it profited from that role.   We have now abandoned that and are increasingly threatening unilateral military action.

>> The tax plan budget has extreme cuts to the State Department together with a large increase in spending for traditional military hardware.  The change of emphasis is unnerving, and the military part eats up a large part of the budget after tax cuts.   One also can’t discount the real risk of conflict.

Conclusion:  The result of all this is how insecure life has become for many American families.  Employment has become riskier, government support has not evolved to help, and fundamental services such as education, healthcare, and infrastructure can no longer be counted on.  The new tax law makes all of that worse, because of specific policies (education, healthcare) and because there’s just no money left (infrastructure).   The government has been put out of the running to address the problems we actually have.

 

In final conclusion, we can sum it all up by saying this is a tax plan for a two-tiered American society, where the very rich are secure in their status and their ability to pass it on to their children—and the rest of us are performing without a net.  Middle class opportunities are there but shrinking, and it’s easy to fall out.  It’s hard not to think about the symbolism in the State of the Union address pagentry, where a crowd of overwhelmingly rich and overwhelmingly white people cheered wildly for the few others who were brought in to do the job of making them richer.

Finding Reality

pew-studyThis item grows out of a recent study noting that in the US today few people have friends on the other side of the ideological fence.

It’s easy to imagine how that happens—there are just too many subjects to avoid!   That raises the question of why all those topics are taboo.   There are many reasons, but we deal here with one specific problem:  distinguishing real issues from pretexts.

The problem is that while there are plenty of real policy issues where debate should be possible, they tend to be mixed-in with taboo topics where the policy positions are actually donor’s self-interested pretexts (“climate change is a discredited hoax”).  Public debates can be (and often are) staged to discuss issues in the taboo category, but they never get very far.  There’s not much to be discussed when the stated policy is not the point.

It’s not necessarily easy to figure out what’s real, and undoubtedly many people will disagree with the examples here.   However the idea is to focus on a few issue areas where we as a country ought to be able to make progress if we can keep track of what is real and what isn’t.

We put issues in two categories:  non-issues and real issues.  Non-issues are issues only if donors (or other political considerations) force them to be.    We owe it to the country to get past them.  Real issues are the significant questions we need to solve.

 

  1. Climate change

As just noted, climate change is a poster child for pretexts.  There is of course one primary reason this whole subject is partisan, and his name is Charles Koch.  In addition to the false hoax claim, there is a continually-morphing litany of other misrepresentations.  It used to be easier to be a skeptic.  By now more than enough is known, so that ordinary risk analysis says the time has come to get serious.

Non-issues

Climate change is real.

Burning of fossil fuels is causing it.

The people working on it are not political hacks, but dedicated scientists faced with a hard problem.

Real issues

Risk assessment and what needs to happen now.  Steps and timing.

Roles of government and the private sector, e.g. supporting the power companies.

How research, particularly energy research, can best support the private sector.

What infrastructure changes will be needed and when?  Where will the jobs go?

Coordinating the whole effort.

It is worth pointing out that there are plenty of good, multi-year working-class jobs involved in dealing with climate change.

 

  1. Environmental policy and the EPA

What is frustrating about this topic is the extent to which the whole discussion of environmental regulation has gone on without specifics.   Is it really possible to believe that all environmental regulation is bad?  Even after the Flint disaster?  It is not viable to have environmental regulation whipsawed back and forth between administrations.

Non-issues

Not all environmental regulation is bad.

Not all environmental regulation is bad for business.

Real issues

Agreed-upon standards for regulation.  Work from the current list of Trump administration actions and responses.   Criteria to avoid overreach by all sides.

What is an appropriate process to assure that both the public interest and businesses have a say?

Should there be compensation for consequences of new rules?

 

  1. Healthcare

Now that all the repeal and replace nightmares are out of our system, we really ought to be able to do something good about healthcare.   This isn’t rocket science.   Every other prosperous country has come up with something that works.

Non-issues

Obamacare works well enough to be a starting point.  Sabotaging it helps no one.

The country needs a nationwide solution.  Uniform treatment for all people is good.

Single-payer systems are used by most of the world and may have a role to play.

Real issues

Availability of plans

Cost of plans

Assuring participation and coverage

Addressing needs of businesses

Getting religion out of the debate

Controlling costs of the program

 

  1. Jobs

Thus far the whole treatment of jobs has been based on campaign slogans.  The current tax cut plan is a case in point.   The millions of affected people deserve better.

Non-issues

Decline of good, low-skill working class jobs.

Decline in workforce participation.

Decline of upward mobility in the US.

No silver bullet.

Real issues

What is and isn’t cured by growth.

Workable options for tariffs, subsidies, or other government actions on trade.

Long-standing issues with wage growth and inequality.

Role of education.

Role of government as an employer (e.g. infrastructure, climate projects).

Budget impact and tax plans.

Geographic coverage.

Protecting the next generation.

 

It would be nice to believe that the country is now ready to get down to work.   On real issues some level of bipartisan cooperation could even be the norm.

No Plan

The latest Republican healthcare proposal is such a horror, it is hard to think about anything else.   There is in fact no plan—just a scheme that gives money to the states for them to figure it out.  It is underfunded (the non-participants in Medicaid expansion are now covered too but with overall less money); there is no longer any guarantee of a minimal level of coverage (including for pre-existing conditions); and in the longer term it shuts the door on Medicaid entirely.  It increases the complexity and uncertainty of the system to such a degree even the insurance companies are upset—and it’s not just their problem.   We’re talking about small, more expensive risk pools and significantly greater administrative costs.

Since this level of incompetence is just about unthinkable, one asks how anyone could come up with it.  There are three immediate answers—all bad:  Trump’s pledge to get rid of Obamacare, the proposal’s massive shift of funding from blue states to red, and the simple fact that this is the last chance to pass something before the special 50-vote rule expires September 30.

Let’s focus on the first point—what did Trump voters think they were voting for?   They were told he had a much better, cheaper plan.   After all he was a businessman and great negotiator.  Since the current proposal is no plan, we now know beyond all doubt that what Trump sold was a lie.  That fact by itself is an under-reported outrage.

We need to explore the scope of that outrage.

It’s not just Trump.  The Republicans have been repealing Obamacare for six years.   They clearly never had a plan either, just lies.

It’s not just healthcare. What do Republicans want for the country?

That actually has straightforward answer.  It is slightly different for Trump and the Congress:

– For Trump it is simple:  “What’s good for me is what’s good for the country.”

– For the Congress the target extends only a little wider:  reduce taxes for very rich people.   Based on contributions this is the Koch brothers’ Congress.   The Koch’s political organization (not just their own money) employs 1600 people and has a larger budget than the Republican party itself.  They are the dog wagging the Republican party tail.

What’s the plan for jobs—reduce on taxes on the rich (with no serious look at whether that addresses real problems)

What’s the plan for infrastructure—reduce taxes on the rich (private financing takes infrastructure off the budget and assures spending will go where the money is)

What’s the plan for healthcare—reduce taxes on the rich here too (defund medicaid & push other care to the states with declining funding)

That is the plan.  There is no plan.  Just lies.

Living with the Dark Side

There has been a lot of talk recently about possible Democratic cooperation with Trump.   There is of course little basis to that yet, but it is interesting how quickly we’ve gone from hoping the Republican Party would save us from Trump to the other way around!  With that as motivation it is worth thinking a little more about the players and issues in this game.

First about the choice of evils:

On one hand we have the Republican Party:

– This has become largely a Koch brothers organization.  Low taxes for the very rich is the only real objective.

– Opposed to all social programs (no accident they couldn’t do healthcare).

– Pro-business, but perhaps not completely nuts on economic issues.

– Can find individuals to work with.

On the other hand we have Trump, with two sometimes contradictory impulses:

  1.  Sees everything as though he were still managing his own businesses

– Cut taxes on businesses and rich people

– No interest in unemployed people or other “losers”

– All regulations are bad; anything of value happens in the private sector

  1.  Sold himself as a “populist” and wants to believe he is delivering on it

– Primary focus is jobs via tax cuts and tariffs.  Not much has actually happened.

– Support for coal miners, abandonment of Paris Agreement, killing DACA

– Not much else yet; AHCA would not have been a winner

The business side of Trump is only subtly different from the Koch brothers agenda, and separating Trump’s two sides is tricky.  His speech on exiting the Paris Agreements was all about the populist side, but everything behind it was driven by Koch brothers people (Pruitt, Pence).  Similarly, AHCA was nominally populist, but really an excuse to cut taxes for rich people.

Thus far Trump hasn’t done much for the populist side, but he keeps talking about it.   That’s actually what has thus far stopped healthcare.  Republicans spent six years repealing ACA with no worries about who would lose coverage–but that became an obvious issue now.  Even though Trump supports AHCA, it’s not so easy for Congress just to laugh off the coverage.

Ideally that is an opening to find Democratic proposals of obvious benefit to Trump’s core constituency that are somehow salable to Trump.  We have to accept these will only get mileage if they are presented as Trump’s initiatives.  If it all fails, that will at least point out the hypocrisy of the populism.

There are some obvious possibilities:

  1. Healthcare

Anything here is conditional on Republicans really giving up on the AHCA nightmare. If that happens Trump will need something.  That could conceivably be whatever comes out of the bipartisan work on ACA, but Trump may want something really different to put his name on.

It should be pointed that this is not just an issue for the Trump core.  Business needs it too, even more than the tax cut if you if you believe Warren Buffett.  A good solution here could incorporate elements of a single payer system into a public option based on Medicare.  For that it is important to realize that the existing Medicare infrastructure is actually administrated by the private sector.

This is a low probability, but you never know–he might bite if it really does save money for business.

  1. Infrastructure

Trump has said he wants to do this, but a pure private sector approach won’t work for poor areas.  Appalachia is not going to benefit without some kind of compromise approach.

  1. Transitional job assistance (retraining and support)

Thus far Trump has put all his eggs in the “growth = jobs” basket.  His target budget killed any assistance programs, including a successful one in Appalachia.   However, it is now clear things are going to take longer than he expected.  If this is viewed as transitional, we may actually be able to help people.

  1. Early childhood education; cost of college

All polls I’ve seen of Trump’s base say that they want something better for their children.  Paul Ryan Republicans have been disastrous for such programs.  These would be clear benefits for the working class.

  1. Tax reform

Trump likes to talk about reducing the current 35% corporate income tax.   However, the average effective rate is more like 24 %, in large part because of special provisions delivered by lobbyists for particular corporations.  A lot of Trump support is from small businesses who aren’t so lucky.   A fair system may not appeal to Paul Ryan, but there is more reason for it to appeal to Trump.   No one is supporting 15%, but 25% with real tax reform would not break the bank and would recall an achievement under Reagan.

  1. Promoting American jobs

Trump has made high tariffs the miracle solution to all problems for everyone.   That’s not true, but it doesn’t mean there is nothing sensible to do.   Trump probably doesn’t know anything else.   We may be able to help.  This is not the Republicans’ area of expertise.

  1. Climate Change

This is so crazy it’s hard to give up, even if it means fighting the Koch brothers directly. There’s both a carrot and a stick involved here, with recent developments for both:

– Harvey is the most recent example of what worsening weather can mean.  As noted in the previous post, no reasonable business faced with such a large potential risk would choose just to ignore it.

– The reality of climate change will create enormous business opportunities—wholesale migration to electric cars is just one.  With current policies we could very well cede all that to the Chinese.  This would not be the only time that a first mover like Tesla would lose out in the end.

In all these areas, in contrast to the Republican healthcare fiasco, Democrats should be able to offer real proposals.  So you never know….

Minding the Store

It has been a long time since there was someone interested in governing the United States of America.  For now we are specializing in promotional stunts (essentially all of foreign policy) or deliveries to electoral constituencies (climate change, ACA repeal, white supremacist racism).

Now that we can have no delusions about what Trump represents (pardoning Arpaio was a last straw), the country is in dire need of a way to get through the next 3 ½ years.

So it is worth remembering that there is actually a group in government trying to do something positive for the country.  That is the bipartisan group of senators working to fix problems with Obamacare (e.g. number of plans offered).  Not only is that a laudable activity for itself (whether or not the results get quashed), but it makes you think about other things a bipartisan group could do.   Here is one short list.

– Supreme Court nominees

At this point you don’t have to be a Democrat to recognize that democracy in this country is under threat.  We need to decide that a next Supreme Court justice cannot use the war powers clause or anything else to promote legal tyranny.  That applies to the role of Congress, to delaying or otherwise manipulating elections, and to Presidential pardons.

– Jobs program subsidies

During the election both candidates spoke about a government role in promoting employment in under-served areas (Appalachia, inner cities, etc.).  More recently, Republicans have promoted a deal with Foxcomm that was very heavily subsidized by the state of Wisconsin.

This needs to be a federal program because not all states can do it themselves, because it needs to be planned at a national level, and because a federal program could reduce the leverage employers have in playing off states against each other.

– Infrastructure

This is another area promoted by both candidates in the election.  There are of course significant differences in approach.  But it seems that issues such as selection of projects, rules and roles for private investment, and protection against corruption can be solved if there is a will to do it.

– Taxes

This a controversial area, and Trump’s so-called tax reform is not helpful.   But there is agreement on at least a couple of points:

  1. Real tax reform means eliminating the current maze of special gifts to create a more equitable system and a correspondingly lower basic tax rate. That kind of reform was achieved as a bipartisan effort under Reagan.   It has little to do with proposals currently on the table, but that doesn’t mean it can’t be done.
  2. As part of that effort, there is agreement that the basic corporate tax rate is too high. So that seems a good place to start–when accompanied by item #1.

– Education

Education is one of the most important services provided by government.  Even if De Vos vouchers turn out to be off-limits, there are at least two areas where bipartisan work is possible:

  1. The student loan crisis is a huge burden on a whole generation. This is not because students have suddenly become wasteful in their habits, but because costs of college have risen rapidly even in state institutions.  Government needs to help out.
  2. Government needs to help students and states to navigate the costs and benefits of educational programs. This is not just a matter of fraudulent institutions and sweetheart deals to vendors (although there is plenty of that).   Students need the information to choose for their futures.  And we as a country need to decide what equality of opportunity means for the cost of college.

– Foreign Policy

The only foreign policy we currently have is a disdain for employees of the State Department and a desire to exploit foreign issues for chest-beating electoral gestures.  It is tough to do foreign policy by committee, but we don’t really have a choice.

 

This is by no means a complete list, but we have to recognize that government is in crisis and needs a bipartisan effort even to mind the store.

A Modest Proposal on Healthcare

Seems like we’re making things too hard on healthcare.

Both sides should remember what they really care about:

Republicans have already amply proven that the only part of ACA they care about is the surtax.   They don’t have to keep proving it anymore.  They’d also like to save some money if they can.  They only make a mess when they pretend they want to do healthcare.

Democrats either want ACA to continue in its current form or they want it to evolve to a single payer system.

Further Trump has made this simpler in two ways:

  • His tax proposal greatly diminishes the need for rich people to pay for any part of the federal budget.
  • His budget goes far beyond anything Dick Cheney dreamed of when he said deficits don’t matter.

So the solution is right there before our eyes:

Keep ACA.   If you want to pay for some part of it, put it in the general budget, so rich people get a huge break in any case.

And if you want to save money, go to single payer.

All done.  Everyone can go home happy!