The Tax Bill: aspects that no one (at all) will discuss.

It seems that the GOP, which has owned every branch of government and lever of power, since January, will at last have an "accomplishment" -  a Tax Bill they admit will add a trillion dollars to the national debt, while offering last-minute gushers for real estate developers, banks, hedge funds, the oil industry, lobbyists and aristocratic heirs…

… all of it without spending a red cent on infrastructure, which would have generated high money velocity and growth, while fixing actual bridges, actual roads we use. 

(Funny how that list describes almost every power broker or politician-owner correlated with this Congress and this White House:  Real Estate developers, Banks, hedge fund skulks, the oil industry, lobbyists and aristocratic heirs… ah, swamp drainage.)

To distract from this raid on our children, the oligarchy offers up more magical incantations of Supply Side “economics,” proclaiming that this time the oligarchs will spend their windfall on R&D and productive capacity and jobs… unlike every single other time, when they spent it all on passive asset bubbles, exactly as Adam Smith predicted, back in 1776.

Smith warned that aristocrats — like the ones our U.S. Founders rebelled-against — tend not to spend infusions of cash on risky capital formation, or research, or factories. Generally 90% of them will plow it into ‘rent-seeking’ assets like stocks or land, where they can passively collect dividends or gains.  (Note that every tax break in this bill favored passive income, not wages you actually earn through work.) 

As in King George’s time, top cronies adjust the laws to favor rent-grabbing assets over innovation, production or work. Smith would be outraged today… but not surprised.

Of course there is an end game to asset bubbles, and that end-game is the elephant in the room! One that, so far, no clever pundit has raised, amid all the yelling over this tax bill... an important aspect of the legislation that matters far more that the petty attacks on higher education and science, or the open war waged upon Blue States. I'll get to this invisible pachyderm, in a moment.

But pause first to congratulate the victors! The same folks who howled that Democrats passed the ACA (‘Obamacare’) in "just a year," holding open, public hearings for just 6 months in just five committees… those same complainers have now passed the biggest tax bill in history with ZERO days of hearings, with scribbled margin notes enacted into law, forging this trillion dollar raid for billionaires in top secret and passing it in the dead of night, amid a festival of lies.

What you fellahs do is evil. It is treason. But you do it very well.

== The real reason for the tax cut - an oligarch exit strategy ==

Critics of the Tax Bill point out that benefits to aristocrats are locked in, while much smaller cuts for working people fade quickly and turn into tax hikes, over a few years. That’s a travesty, of course.  But also a distraction, because we're left with an impression that the biggest change - slashing corporate tax rates - has little to do with the top-rich families of the country.

We're assured corporations will then invest it all in R&D, in new products, in factories and jobs. But...

1) Again, across 40 years, this Supply Side incantation never came true. Ever. Once. The eras of highest U.S. growth, rising wages and middle class health all took place under high tax rates established by the Greatest Generation, in the 1940s, 50s and 60s. Except for the JFK rate cuts, every other cut was followed by reduced growth rates.

(See: Comparing the GOP tax plan to what it was like prior to the great depression.)

2) For the 2nd half of the Obama Administration, corporations have been mostly very profitable. They already had tons of cash on-hand, in the USA, to invest in production, jobs or R&D, but those investments declined. Their bulging cash larders were spent instead on dividends and stock buybacks that helped their CEOs to meet performance criteria for their vampiric option plans.

3) Any “competitive disadvantage” from other nations’ lower corporate rates might have been dealt with by negotiating a world treaty balancing such rates. It’s happened before! Sure, negotiations might not work, this time. But there’s no mention of even trying, only a race to the bottom.

4) Those who used to lie - claiming they care about deficits and debt - are suddenly shouting “squirrel!” and pointing offstage.

5) If this Tax bill had anything to do with investment in new products etc., it would have targeted to incentivize R&D, new factories and jobs. Instead, this was left as only a vague, armwaved promise. There is a reason.

== They need an exit from the bubble they created ==

Look across the era since Adam Smith wrote The Wealth of Nations. Every generation of Americans since then has witnessed attempted political and economic putsches by would-be aristocrats gaming the rules so they can get richer without working or producing. Instead, as Smith described, they heap wealth into passive (rent or dividend or capital gains or parasitic-commission bleeding) assets. They do this because it’s far easier than putting “skin” into actually producing goods and services.

They also do this because sweetheart legislation makes it a great deal! But the smart ones know there is a price. 

That price is an ASSET BUBBLE.  We’ve seen many in our lifetimes: commodities, housing, real estate, banking and now a hyper-inflated stock market, with price to-earnings ratios that seem straight from the Twilight Zone. Those who piled their earlier tax largesse into asset bubbles know the great times always end.  

And hence, being clever, they always plan an exit strategy, for when the bubble bursts.

The dream strategy concocted during our previous two bubbles used to be "privatize social security!"  Get every middle class bumpkin to funnel his or her SSI account into stocks during a market peak! Fill equity markets with Greater Fools to sop up bloated assets, so the current (rich) owners can cash-out at top prices. 

That scam was stopped, thank God, just before the last collapse.  Whereupon Republicans suddenly lost interest in privatizing Social Security.  Go figure!

So what's the plan now?

Send hundreds of billions of tax-bennies to already profitable corporations!  Without any requirements or incentives to actually spend any of it on R&D or factories or jobs, members of the inbred, incestuously conniving “CEO caste” of 5000 golf buddies will know what to do, with a nod and wink.

Accelerate their already absurdly massive stock buy-backs!  (There are reasons why this was illegal, during the Greatest Generation.) Break the U.S. budget subsidizing companies to squander their futures, giving money to current stockholders... buying up stock that the moguls know will soon plummet in value.

We stopped their earlier scam, but this time — by skulking in secret and at night — they will get their way.

How can you benefit from this insight?  The wise will wait till the first buy-back crest brings equities to their final peak, then sell. Get out before the middle gets crushed again.

Oh, it may work. Only they are counting on us never noticing. And that could be a mistake.

=== Coda ===

“There are two ideas of government,” William Jennings Bryan declared in his 1896 “Cross of Gold” speech. “There are those who believe that if you will only legislate to make the well-to-do prosperous their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous their prosperity will find its way up through every class which rests upon them.”

That was more than three decades before the collapse of the economy in 1929. The crash followed a decade of Republican control of the federal government during which trickle-down policies, including massive tax cuts for the rich, produced the greatest concentration of income in the accounts of the richest 0.01 percent at any time between World War I and 2007. Those disparities were brought to their minimum under FDR and Eisenhower, with tax rates and policies that were ratified over and over by the Greatest Generation.

        

 We need to study them, and how they achieved all that they did in a spirit of moderation and enterprise. Especially, how they veered away from dogmatism and craziness, just when it seemed overwhelming.

One major danger of the right's current madness is that the left might over-react, returning to its own past insanities. The Evonomics site is where calm, rational, brilliant scholars & others reveal how cheaters have betrayed not just the poor and middle class, but also enterprise, innovation, genuine market economics, common sense, national self-interest and even Adam Smith! The articles and studies get better and better, making the clear case that market enterprise works, but only when cheating is tymied. (I've published a few there.) 

If your cousin is one of that vanishing breed - a residually sane Republican - take her to Evonomics and tell her: "Only you can save enterprise capitalism from its age-old foe. Not socialism so much, but feudalism."


Which brings me to my question. You’d have to be deaf and blind not to see the signs of a growing movement of American conservatives who are fed-up... not just with Bannon and Putin and their Trump, but with Rupert Murdoch and the insanity promulgated by Clear Channel Radio. Signs are all there - especially among the Mormons - that vigorous conversations are afoot about holding a convention of Sane American Conservatives.


Here's a parallel event, showing how it happened, in the past. If the dems could do it, why not you guys? 

Hence my question. Surely some of you have been approached by now? By people desperate to save American conservatism, before it is too late?

=====

Addenda:

* In addition to stock buybacks, there are mergers and acquisitions. At one level, this helps to make up for the plummet in industrial R&D -- purchasing small, innovative startups does have its logic, reducing short term risk, passing it over to entrepreneurs. That's fine. But the other half is what three generations of our ancestors fought, tooth and nail, the trend toward monopoly, duopoly or oligarchy in an industry. Anti-Trust laws were there for hard-won reasons that the Baby Boomers may be too stupid to grok.

*  Apparently the tax bill actually makes corporate tax deductions more or less irrelevant. But don't get excited.  The omission will be fixed in conference committee. What matters is: "The biggest consequence could be the research credit, often used by manufacturers, technology firms and pharmaceutical companies."  This is just another part of the War on Science. But more-so, since it directly goes to the jugular of American strength. Putin could not have asked for more.

Calling Bluff on the Debt Ceiling "Carpocalypse"

Here in Southern California we just survived the "carpocalypse"  - when fevered pundits proclaimed that one stretch of closed LA freeway might wreak gridlock all the way to the Mexican border.  It didn't happen, because people sensibly heeded warnings. As during the so-called "Y2K Crisis," headlines blared: World Fails to End!

Nor will the United States of America collapse, if it slips into an August of No Borrowing.

Oh, the political fight in Washington, over the raising of the debt ceiling, is serious, all right. There's plenty at stake and the rare adults in that town are trying hard to negotiate solutions.  Here I plan to lay out some of the parameters - a few of which you surely haven't seen mentioned in big-media. I will also appraise some of the crazier polemical tricks.

But first, let me reiterate a key starting point: despite chicken-little proclamations pouring from all sides, America won't tumble into hell if there's no budget deal by August 2.


==Jeopardy in the Short-Term?==

The cause of "carpocalypse" level panic in D.C. is fear that the U.S. credit rating will collapse, if the debt ceiling isn't raised in time. America is said to be the only major nation that's never defaulted on its obligations, resulting in easy access to cheap bonds. And indeed, a true default on interest and principle payments could do serious harm, raising risk assessments and borrowing costs for ourselves and for our children. But that won't happen.

Even if August 2 passes without a deal, and the U.S. government abruptly stops borrowing, there will be no reason for our national credit to be damaged, more than a scintilla.

Why? Because there will still be enough money in the till, on August 3 and thereafter, to keep the armed services, FBI, FEMA and most vital services going. And after that, more than enough to pay interest due on all outstanding debts. In other words, no "default."

And if all interest is being paid, exactly what will the credit markets have to complain about? Will their calculations of self-interest really change that much, because of an official state of insolvency - clearly very brief - that won't affect their bottom line a single bit? There is a word for market participants who let symbolism trump calculated self-interest.

Chumps. Sure, speculators will send bond yields on a roller coaster for a couple of days. Then, their place will be taken by calmer, more calculating heads.  Winners.

Oh, don't get me wrong. The August 2 deadline is a serious matter!  The President will be forced to shutter half of the government. Farm subsidy payments and student loans won't go out.  Social Security checks may be cut in half, or they may not go out at all.  That's bad!  But that won't last very long, you can be sure.  No more than days - a couple of weeks, at most. And the difference will be made up, within a month.

The short term victims of this idiocy will be politician-demagogues with careers cut short by self-inflicted wounds. We won't see a collapse of the United States of America.

My real worries extend over the longer term, to the underlying problem of which this is just a hiccup symptom. The same damned curse we've suffered for 20 years. Our grinding decline into phase three of the American Civil War.


==A Primer on the Impossible Politics of Debt Reduction==

Consider the awful position the Republicans find themselves in. They cannot turn around now and simply vote to raise the debt ceiling, as they did 17 times under Ronald Reagan and seven times under George W. Bush, without a squeak, while the national debt skyrocketed under both presidents.  (The ceiling went up four times, by small amounts, under Bill Clinton.)

Never mind history. For the GOP-controlled House to do this for Obama, after all their radical rhetoric, would be political suicide.

President Obama has made it even more difficult to back out.  By seeking a Grand Deal on the deficit, he took on his own party's base to offer major cost-savings in entitlement obligations, such as Medicare and pensions. For the GOP to walk away from a table heaped with budget cuts, efficiencies and spending limits amounting to three trillion dollars over ten years - more than they ever asked for - would be public admission of hypocrisy.

(Secret factoid: the Democratic leadership sees this event as an opportunity to do some major fat-trimming that the country desperately needs, but that they could never justify to their base, under normal conditions. Each side could do this - enact some vital reforms while blaming the other side!  That is, they might, if pragmatic adults filled the room.)

Why can't the GOP accept this offer? Because Obama demands one trillion dollars in revenue to compensate and help pay for it all.  Every penny of new revenue would come from elimination of targeted pork or fatcat tax breaks - like subsidies for the corporate jets that helped the rich to escape the "TSA hell" the rest of us endure in public airports.

Polls show the public overwhelmingly supports this modest set of adjustments, especially since taxes on the rich are at their lowest rates in 50 years. But most of the radicals who recently came into the House of Representatives under the Tea Party banner have signed Grover Norquist's pledge to absolutely never, ever enhance revenue going to the federal government, under any circumstances. Even during times of war.

(How did we go from budget surpluses under Bill Clinton, rapidly paying off the debt, to arterial gushers of red ink under Bush? Could one major factor have been going to war for the first time in the nation's history without a plan for shared sacrifice, or any provision to pay for it? Norquist doesn't try to soft-pedal his aim, which is to "strangle the U.S. federal government to death"... a literal quotation.)

Such a pledge leaves no wriggle room. No space for adjusting to circumstance, to negotiate or deliberate. or to be a delegate for all of your constituents. Even the narrowest exception, one that gets three dollars in budget cuts for every dollar of loophole closing - (which old-sane conservatives like Goldwater or Buckley would deem a huge victory - is absolutely anathema to today's GOP.

Whatever you think of the doctrinal details - wherever you stand along the dismal, lobotomizing "left-right axis" - you've got to admit they are impressive. Reciting exactly the same talking points within hours, sometimes even minutes. The most ideologically pure and stunningly well-disciplined party machine America has seen in two hundred years.


==The McConnell Two-Step==

Now, there are smart people on both sides of the current debt-ceiling mess... even some of those who are out of their freakin' minds... who know they've painted themselves into a corner. As we speak, they are desperately seeking a way out. And some of the imaginative escape plans are downright stunning.

Take the proposal of Senate GOP leader Mitch McConnell to evade the political mine field by deliberately surrendering to the President the power to raise the national debt ceiling.

Say what? Your party disapproves of red-ink spending, right? (It never bothered you under GOP presidents, when the mantra was "deficits don't matter.) So... your solution is to throw away your Congressional power of say-so over borrowing and hand it over permanently to the wastrels in the Executive Branch?

How does the mind even wrap itself around that one?

Actually, the political legerdemain is pretty clever! Try to follow along.

First, you pass a bill that tosses all power to raise the debt ceiling over to your enemy President Obama. In the long term, this abrogates forever one of Congress's chief powers , to force the nation's focus on the budget (like right now!) But it gets you out of being responsible for a default.

You know Obama will raise the limit, for the sake of the country. And so, Social Security checks will flow. You won't be blamed for stopping them. Phew.

Next, you express outrage that Obama has done exactly what you tossed him the power to do! Great. And then, according to the new law, you pass a resolution through the House blocking the debt-ceiling increase!

But... won't that stop the Social Security checks?

Nope, because you feel safely certain it will fail in the Democratic-controlled Senate, or under the president's veto pen. Thus GOP Congressfolk get to have a win-win! They escape from the debt-limit crisis they triggered. No Grand Deal means the government keeps spending like mad, but without any tax adjustments on the rich. And, above all, you can tell your back-home radicals:

"I voted against any debt-limit raise!  Our fingerprints aren't on it! HE did it!"

It's a fabulous tale, worthy of science fiction. But, um, here's a question for House majority leader Eric Cantor And Senate GOP leader Mitch McConnell: Sirs, do you actually think that will work?

Sure, 'he' (Obama) will have raised the debt ceiling. But only because you voted to give him that power... forever! Will your constituents really be too stupid to notice that? Sure, past history suggests you may be right about that. But can you count on stupidity saving you... forever?"

The President should reject this idiotic ploy, in savagely contemptuous terms, even if it means that the debt-raise deadline passes by on August 2. As I said (above) our credit rating will be fine. There will be no permanently credit-damaging "default." And the nation might do well to go without federal checks for one or two weeks. It'll make us think.

He won't do that, of course.  By nature Mr. Obama is a consensus dealer and bridge-builder who tries endlessly to "reason together." He seems congenitally incapable of recognizing that we live in unreasonable times, with our bridges already set aflame by a foreign-owned propaganda machine.  Abraham Lincoln also spent six months trying to find someone in southern states to reason with, to negotiate with. It took multiple, hard shocks before Lincoln realized the harsh, exceptional realities of civil war.

==What's The Worst That Can Happen?==

In fact, we've seen all this before. Back in the 1990s, Republicans in Congress shut down the government... and paid for it politically. But they felt a grand gesture was necessary for ironic reasons. Because, for a brief time, House Speaker Newt Gingrich and President Bill Clinton actually worked together!

Upon first taking over Congress, in 1995, Gingrich made a lot of bellicose statements. But he also wanted a track record of accomplishment. And so, he sat down with Clinton to negotiate Welfare Reform, a bill that took on many complaints about a system that both right and left found unworkable and destructive.  The result was legislation that simply worked. So well that "welfare" has dropped from the lexicon of top political issues, even among polemical extremists.

And that brief interlude of sane-discussion and compromise had other products. Gingrich and Clinton worked out budget control measures that resulted, soon thereafter, in the first balanced books and black ink in the federal treasury since Eisenhower. Black ink that Clinton diligently applied to debt reduction, even later when they GOP demanded that it all be given to their top 1% sponsors. Even when he was being sprayed by the opening salvoes of Culture War.

It was a remarkably productive year or so. And Republican radicals looked upon what had been wrought by Gingrich and Clinton. And they saw that it had been achieved by pragmatic negotiation and good old American, non-dogmatic problem solving. And they saw that citizens and the nation benefited and the public thought it good.

And they swore that nothing like it would ever happen again.

Whereupon the Great Federal Government Shut-down Crisis commenced, accomplishing nothing but noise and smoke and posturing and harm to conservatism. (Read-up about the eerie parallels to today's big posturing festival over the debt ceiling.)

When that venture flubbed, the GOP decided to try something even more radical, while expecting different results. They crossed another traditional barrier by impeaching a President over matters that had nothing to do with his performance of the job we hired him for... indeed, for doing far less than eight out of the fifteen "House Managers" (prosecutors) had done to earn their own messy divorces.  Only one other president had ever been impeached, in the direct aftermath of Lincoln's assassination. But the turning of trivialities into mega drama seems to be a trait that we must live with, during this phase of our ongoing civil war.

What does this history lesson have to do with the current crisis? It shows what we could have, right now, if adults chose negotiation, yes, even across an ideological divide. And it shows the ultimate futility of partisan rage, when pragmatism is replaced by fevered dogmatism. It shows that Mr. Obama needs to study Clinton and learn to be tough.

He must call... their... bluff.


==Punishing Job Creators==

I want to conclude by getting specific. Some of the polemical nonsense being hurled about seems to come straight out of the corrupt ad agency in "Mad Men." Much of the claptrap is being answered well. But I wrote to a cousin of mine who works in the Executive Office to point out some major Murdochisms that are going unrefuted.  Here is a big 'un.

Deficit-cutting helps the economy. But any revenue increase hurts "job creators."

Here are two points that someone ought to say in reply:

a)  CUTS ALSO COST JOBS: "Every million dollars of spending that we cut means 20 or 30 real-live middle class Americans will lose a job. Obviously.

"Now, in spite of that fact, we're willing to do lots of cutting! Because we have to.  We've spent a decade plunged into land wars of attrition in Asia without doing what all our ancestors did, in time of war - making sacrifices to pay for it.  Well, the bill is due.

"But if several dozen middle class Americans must go jobless to save a million dollars... exactly how is it sacred 'job-creation' to give the same million dollars in special interest tax breaks to some billionaire corporate jet owner?  Do you really believe he'll use that million to hire 30 people?

"Sure, it's happened, now and then. But if the Bush tax cuts had translated into 30 jobs per million given to the rich, we'd have almost no unemployment right now!

"So, why should we swallow that line, this time?"

b)  MONEY VELOCITY:   "When you pay a worker to help fix a decaying bridge or weatherize an apartment building, what does that worker do with his or her weekly check?  These days, it has to go right back out again, paying a grocer, who pays a trucker, who pays a farmer, and so on. It's called Money Velocity and money that goes to the middle class has lots of velocity.

"Now Republicans say we should be stingy to the working class, but generous to the rich, so they can make jobs. But if economists know one thing, it's that the rich don't spend the way middle class folks do. They don't have to!

"Sure a few of them build factories. We'll extend tax breaks for useful capitalist enterprise, for research and investment in job-making capital equipment.

"But this is no time to go into debt preserving huge tax gifts for those who simply hold onto it all, hardly spending.  That's not velocity. It sure isn't job-creation. It's using your friends in Congress to just get richer while the middle class pays."

Okay. Yeah, I know that those concepts - like money velocity - may be dismissed by political operatives as hard for Joe Six Pack to grasp. Well, I don't agree. I think they'll nod, understand, and feel flattered at being explained stuff, like adults.

==What It Boils Down To==

I consider the "Tea Party Movement" to be one of the most brilliant sociological ploys. Perhaps unmatched since a million poor white southern farmers were talked into eagerly and courageously fighting to the death, in order to protect the feudal privileges of a tiny, slave-holding aristocracy. Yes, it is that impressive.  Get them to think they are fighting for one thing, while dying for something else.

Likewise, by holding up and waving an obsolete and irrelevant old "left-right'political-axis," today's feudal lords  have managed to stir Red America into a frenzy of unparalleled rancor toward every single group or profession that has both knowledge and professional skill -- from scientists to teachers, civil servants, academics, medical doctors, attorneys, diplomats, skilled labor... amounting to a "war on smartypants."

Why stir hatred for all of the folks in society who know a lot? Calling them "intellectual elites?"  This program clearly has one aim.

To protect one set of elites from being counterbalanced by other elites.  Pretty simple, actually.

Distract and prevent us from returning to what made the country great... pragmatic negotiation. Calm discussion. A mix of state and enterprise and individual solutions that somehow never tipped into any ideological excess...

...that is, until it was stirred by foreign-owned propaganda machines, with that one goal. To sic us at each others' throats.

==See more articles on The Economy: Past, Present and Future