Politics vs Policy... vs Reality: and the "evonomics" of those tax cuts

First off…  I tol’ you so. “After President Trump signed the Republican tax cut into law, companies put out cheery announcements that they were giving workers bonuses because of their expected windfalls from the tax reductions. 

… Now? Corporate announcements and analyst reports confirm what honest observers always said — this claim was pure fantasy. Businesses are using the tax windfall to buy back shares, which our parents in the Greatest Generation were wise enough to outlaw in most circumstances.  Buybacks create demand for the stocks, boost share prices and benefit big investors. Some of the cash is going to increase dividends. And a chunk will go to acquiring other businesses, creating ever-larger corporations that face less competition. 

Oh, but it has one purpose above all others... making it trivial for CEOs to max their stock price milestones and cash out gigantic bonuses.

I have friends who actually dare to try the switcheroo on me, wailing "the tax cut on the wealthy is only a percent or so and I'll lose more by the loss of some deductions!"

My answer: "you'd insult me by thinking me so stupid I can't see where the huge corporate tax cut is going?" 

Seriously. Had the same amount of cut gone to targeted uses -- R&D, actual capital productive capacity, infrastructure or bona fide new jobs -- this might have been stimulative. As is? It is more Supply Side voodoo. A raid on the middle class that will widen steep wealth disparities, further plummet money velocity and send us plunging into debt.

These neo-feudal would-be lords are enemies of the republic. Enemies of civilization. And yes, the worst enemies of flat-fair-competitive-creative-entrepreneurial capitalism.

== Post mortems, looking back ==

Yipe! Read this detailed post-mortem of the tenure of Reince Preibus as White House Chief of Staff. It’s not unsympathetic. The list of stunning calamities will sound familiar, and yet you wind up a little sorry for the guy. A little.

‘Who would have ever thought that the Clinton-Gingrich years would become the good old days?’ I did. I’ve repeatedly called 1995 an “anno mirabilis” - or miracle year - in which the Republican Party paused in its obstructionism and lickspittle devotion to oligarchy, to actually negotiate some things in good faith, for the good of the country. Yes, conservative wishes that nevertheless were at least sane: like Welfare Reform and the Budget Act that led to surpluses. That kind of Republican is, of course, extinct.

Here: “Former Republican revolutionaries weigh in on the Trump presidency and reflect on retaking the House in 1994 with their “Contract With America” — and on whether their era was the end of a time when “public service was a noble calling.”

Let’s be clear. The 1995 Republicans were only admirable in comparison to the depths they later sank, then plunged. On the minus side, they began 22 years and half a billion dollars (that's BILLION) in “investigations" into every file, pore or body cavity of the Clintons, ultimately uncovering nothing to justify the hysteria. Zip.  Nada.

On the other hand, Newt wanted accomplishments and hence was the last GOP leader to negotiate with Democrats in good faith, resulting -- let me repeat -- in both Welfare Reform and the Clinton-Gingrich budget agreements that sent us into shrinking(!) debt.

Moreover, let’s admit that Gingrich’s “Contract With America” was brilliant political polemic! It made the oligarchic right look reformist (like a non-lobotomized version of “drain the swamp!”) And indeed half of the items on their list were actually somewhat meritorious! Those items were, of course, the ones the GOP almost immediately rescinded, betrayed or allowed to lapse… as they also banished the congressional Office of Technology Assessment (OTA) as part of the ensuing War on Science and Fact.

The key point is that Democrats… were they to find three neurons to scrape together… might do well to study the Contract With America. Learn from the past. Shake off habits that don’t work.

Alas, this list of “suggestions” that I wrote for the incoming Obama Administration - in 2009 - never got a glance from anyone in political power.   Any one of them might have made a difference… and I have new ones!  And zero hope that anyone will listen to sapient ideas.

 == Evonomics - Economics ==

At the Evonomics site, moderate liberal economists and scholars are the ones who nowadays most discuss Adam Smith – the “first liberal” -- who is both touted by name and utterly betrayed by those on the right. Smith would have had no truck with “libertarians” who recite the catechism that “all government and regulation is evil,” nor with so-called capitalists who conspire to achieve monopoly and other suppressions of competition. Indeed, the C-Word is almost never used anymore, in either community. But at Evonomics, the discussion is all about how to recover the blessings and cornucopia of truly flat-fair-open-creative-competitive market systems.

(Likewise, our Founders would have been enraged by the “Tea Party” and its cant that the American Revolution was against government or even taxes, when the biggest grievance, by far, was getting ripped off by the King and his oligarch cronies.)

Take this article by David Sloan Wilson, who denounces the standard definition of Adam Smith’s “invisible hand.” Clearly after 6000 years of recorded history, we know that human beings are human, and hence will use power to cheat. The one time we got truly flat-fair-open-creative-competitive markets is when a society first cooperated to set up rules and structures that damped down the cheating. 

For example, the American Founders seized half the land in the colonies from the lordly families that owned it and redistributed the land to the masses. They meddled in property rights by banning primogeniture and demanding that estates be broken up equally among a family's children. Both interventions were more radical than anything attempted by Franklin Roosevelt, as was a later generation’s expropriation and liberation of millions of slaves.

Wilson says we can grasp Smith’s real lesson by looking at society operating on two levels, one that’s about cooperation and deliberation and negotiated planning about what kind of rules our democracy and markets will operate under – and hence a level that is not blind.

But then, each of us becomes a consumer or producer participating in the resulting markets. And at that level, we cannot be all-knowing or even very knowing, at all! Instead, as commended by the economist-doyen of the right – who is regularly betrayed and misquoted by today’s right – Friedrich Hayek, market wisdom arises from the amalgamated interactions of millions of players, each with partial knowledge and lots of self-interest as motivation.

Wilson puts it succinctly: “As designers of large-scale social systems and as participants in the social systems that we design. As participants, we don’t need to have the welfare of the whole system in mind, but as designers we do.”

Not only can competition not thrive without macro-level cooperation, to prevent monopoly, oligarchy and cheating, but cooperation-negotiation is essential – listening to science – for society to decide which externalities – like resource and environmental protection – must be tuned into the market, for our descendants to thrive. This is not anti-market or anti-competitive. It is called sapience. It is the whole reason why we have prefrontal lobes and interest in the future and science fiction!

Read the article, if you want to understand why – if he were alive today, Adam Smith would be a Democrat… though a quirky one, critical of some standard “liberal” positions, in favor of some that are more classically “Liberal.”

And see my own earlier riff on similar matters:  "Allocation vs Markets" - an ancient struggle with strange modern implications,” from 2006.

== Vanity has a price == 

How I hate the fact that we have been dragged down to the level of physical mockery.  But this is street fighting and they started it. So...

No wonder he wages war on science.  Now it’s verified. Trump’s hand length of 7.25 inches hovers around the 25th percentile of hand length among military men. A meta-analysis of studies from the Georgia Tech Research Institute places Trump’s hands below the 50th percentile. And the 1988 Anthropomorphic Survey of U.S. Personnel, used frequently by the Ergonomic Center of North Carolina, places Trump’s hands at the 15th percentile. Trump is, medically speaking, short-fingered. Where did they get the data?  Madame Tussauds - the famed waxworks museum - had measured Trump for a life-sized sculpture, which was removed from their New York City location in 2011. But Trump’s handprint itself, which was cast in bronze, has for the entirety of the presidential election been displayed prominently in front of the Tussauds museum in Times Square.

Had he simply shrugged and laughed about this, it all would have blown over long ago, especially given his 6’2” height. Alas, vanity is his un-doing. The firing of FBI Director Comey is said to have derived in part from Comey’s towering height. Trump’s recent height inflation to 6’3 in the medical report was just enough to let his down-reported weight – 239 pounds – fall 1 lb below “obese.” Had any of this been done by any democratic politician, it would be an endless scandal… as with the news items pouring from the House of Two Scoops, almost daily.

But that’s the point! The news cycle is so rapid that – in the words of Trevor Noah – “We ain’t got time for that.” At least the 40% of Americans enslaved by Rupert Murdoch don’t.

== Moving on ==

Pennsylvanians! Do your duty. Conor Lamb: This 33 year old retired Marine officer, federal prosecutor and devout Catholic has a chance to win a special election vs the GOP candidate ("I'm more Trump than Trump!") in a solid-red district in Pennsylvania, where the former Republican rep had to resign... caught ordering his mistress to get an abortion. Conor Lamb is everything (it seems) that I asked for, when I said we must run sane, pro-science and fact, purple ex-officers in every red district in America. Every State Assembly seat. Every State Senate, City Council and dogcatcher position.

If that means liberals in all those places will then have to negotiate with sane, decent, calm, science-respecting, rights-progressive, environmentally-responsible -- but temperamentally conservative crewcut types who sometimes go hunting -- instead of confronting the insane, fact-hating traitor-shills of Rupert Murdoch... then live with that! See my essay calling for a "Year of Colonels."

American conservatism won't die, but it can be shaken out of its current, nightmare fever or jibbering lunacy.

A broad front... a Big Tent... and the intelligence to run the right people in each district... that's how the Union will win this phase (number 8) of the American Civil War against a risen Confederacy that's absolutely (as always) treason.

Taxation, capitalism, free enterprise and fair play

A lot to cover, and yes, politics.  But first ...

== Capitalism, democracy and fair play ==

Evonomics is on a roll. The site has become the central place where serious minds ponder how to revive a mixed economy that served us so well. The miracle that communists never understood and that oligarchs seek to destroy. 

In the lead article, zillionaire entrepreneur Steve Roth writes: “Democracy. Capitalism. Socialism. Choose Any Three of the Above. If you don’t have a big bathtub of oil in the ground, you need all three to deliver widespread economic well-being.” Showing the understanding that has made almost all of the rich folks who got it via innovation democrats, he discusses how each of these three legs supports a stable society.

My own metaphor: 
 . Marx wants me to amputate my right arm of competitive, individual or group ambition. 
 . Ayn Rand demands that I cut off my left arm of great projects we decide to do together, in research, infrastructure, space and making sure all children get to reify their talents in fair competition. 
 . Both simplistic prescriptions are monstrous and spectacularly stupid.  I will not amputate.  I need both arms.

David Graeber, a Professor of Anthropology at the London School of Economics, opines on “Why Capitalism Creates Pointless Jobs. It’s as if someone were out there making up pointless jobs just for the sake of keeping us all working.”  Graeber describes how many “bullshit jobs” there are in critical terms… 

...while I take a different tack: that all the nail salons and other — less than necessary — service jobs out there have been a blessing because people like to work!  They don’t want to live in the world of Kurt Vonnegut’s PLAYER PIANO (set in the Albany area where I just spoke (at GE's Whitney Symposium), wherein the only way most people can get work is via the state’s department of reconstruction. Far better to set up an economy in which people provide each other less-than-necessary services, and feel some pride. 

Still, interesting stuff.

Bob Atkinson, a very smart Washington think-tanker I know, argues that “Complexity and Evolution Need to Play a Foundational Role in the Next Economic Paradigm.”  He suggests that “a key focus for economic policy should be to encourage adaptation, experimentation and risk taking. It means supporting policies to intentionally accelerate economic evolution, especially from technological and institutional innovation. 

This means not only rejecting neo-Ludditism in favor of techno-optimism, it means the embrace of a proactive innovation policy. And it means enabling new experiments in policy, recognizing that many will fail, but that some will succeed and become “dominant species.” Policy and program experimentation will better enable economic policy to support complex adaptive systems.”

== Okay... politics... ==

Warren Buffet demolished Donald Trump's whine that he and other Clinton supporters 'do the same thing' avoiding taxes: " Buffet says, “I have paid federal income tax every year since 1944, when I was 13. (Though, being a slow starter, I owed only $7 in tax that year,)" Buffett wrote. “I have copies of all 72 of my returns and none uses a carry forward”

Buffet, the Greatest Investor and popular for his folksy brilliance, wants success for the middle class that has so benefited him and other democratic billionaires like Bill Gates. All agree that taxes on the rich should go back to pre-Bush levels, when we had surpluses, under another Clinton.  In 2015 alone, Buffet gave away $2.9 billion -- that's more than 75% of Trump's claimed net worth.... and twice what sober analysts figure DT owns...

... and as much as a million times what Donald Trump is estimated to give to charity, most years. (See below.)

 But then, we'd know -- (shouldn't we?) -- if those IRS returns got released. And let's be clear about that.  Those who are screeching about "emails" know that, at their very worst, HC's emails reveal nothing criminal, only a lapse in judgement. They do not compare even remotely to Trump's concealing 30 years of tax returns that (bet on it) would reveal conflicts and torts of towering magnitude.

The Trump Tax Return matter should not leave  anyone's awareness, this week.  Remind your crazy uncle.  It won't change his vote... but your aunt is listening.

== More on taxes ==

Moron taxes? Donald Trump's tax plan offers massive tax relief for the rich, which would add trillions to the national debt. In contrast, Clinton's proposal would increase taxes on the wealthy and lessen the burden on middle-class families, especially those with young children.

"A pair of new analyses published Tuesday afternoon by the nonpartisan Tax Policy Center emphasize the extreme contrasts between the two candidates when it comes to taxes. In a campaign that has been defined by conspiracy theories, racial innuendos and sex scandals from decades past, the new data is a reminder that the election puts serious money at stake for many American households," writes Max Ehrenfreund in The Washington Post.

I will only add that this also distills the difference between confederates and americans. In 1861, a million poor, white southerners marched off to die fighting for a slave-owning aristocracy that had been waging economic war against poor, white southerners for two generations. Why would they do that, then? And why now? Because symbolism and cultural grievances trump self-interest. (Don't think for a minute this is about free enterprise, which always, always does better under democrats.)

America - the blue Union - is a pragmatic place where we fight for incremental reforms that maintain a healthy middle class.

== Don’t you dare claim the ‘high road’  ==

Donald Trump spent more than a quarter-million dollars from his charitable foundation to settle lawsuits that involved the billionaire’s for-profit businesses. Laws against “self-dealing” prohibit nonprofit leaders from using charity money to benefit themselves or their businesses.

Hence the chain of cheats, mafia dealings, bribing public officials (and bragging about it), lying to Trump University students and union workers and small businessmen and leaving them in ruins, and denigrating for 5 years the birth of the twice legitimately elected president of his country… 

...none of those matter to his followers. These merely exemplify his “strength.”  The fact that he’s actually a very poor businessman, who has not meaningfully enlarged his inheritance beyond what an index fund would have done? Shruggable. Racism and sexism are plus-points, as is participation in the War on Science. 

To the fundamentalist hypocrites who – unlike Jimmy Carter’s sincere Christians –pray daily for events that would end freedom, democracy, ambition and - yes - bring to an end the United States of America, there is no limit to the faults they will forgive in this predatory, philandering, twice-divorced, flip-flopping, charity-stealing, truth-spurning gambling lord.  

One trait absolves all of that and it is not having been washed clean by the blood of the lamb. It is sharing the same despised enemies.  All the college-smartypants. Those enemies.

== Hello Breitbart ==

Let's experiment: Compare side by side the very worst (non-tinfoil) allegations against Clinton and those assertions about Trump. 

Assume the very worst about Hillary Clinton and only include the Trumpist behaviors that are open matters of public record. Include none of the anti Trump assertions that we're merely 90% sure about, with tons of supporting evidence, but not absolutely proved.

Hers add up to zero years of actual jail time! At the very most? A few fines, and that is if all of the molehills are 100% true. (They aren't.)

On the other hand, Trump's openly admitted crimes - bribing public officials, lying in sworn testimony, slandering people then shrugging off disproof, fraudulently declaring bankruptcy... amount to potential maximum sentences approaching a thousand years. Sexual assault.

Again, only two 8-year presidencies ended with zero high officials sentenced or even indicted for malfeasance of office. Despite 24 years and up towards a billion $ in relentless investigations. Those two administrations are thus proved to have been the most honest in U.S. history...

...Bill Clinton's and Barack Obama's. 

Screech and howl over that. Summon incantation spells about how they managed to hide all the "proof" that endless hearings and $100 million in Koch-offered "whistleblower rewards" never found. But after 24 years of witch hunts and half a billion in largely taxpayer funds spent 'investigating' the most scrutinized couple in history... you bear the burden of proof for your paranoid ravings.

And that'll do, for a couple a days.

Part of the “Fiscal Cliff” Solution: the Best Tax Simplification Proposal

With the 2012 elections over and a political landscape remade, the stage is set for our next U.S. drama, a tussle over how to prevent the budget and economy from tumbling over a "fiscal cliff." From the tone of preliminary discussions, it's looking hopeful that all parties (save a few Tea Party holdouts) have taken their "act-like-an-adult" pills. Investment wizard John Mauldin may turn out to be right, after all - that grownups will act in the nick of time, transforming the deficit from an all-destroying monster into a mere-worrisome beast.

That is, if President Obama can get Congress to swiftly do the very first thing, the immediate top priority: pass legislation guaranteeing tax stability at current levels for the Middle Class, so that markets won't panic on January first. All else can be thrashed out in an "outline" for the next Congress to finalize by March.

That is, if Speaker Boehner can herd enough Republicans into accepting more revenue from the rich. And if their masters on-high grumble but accept what the election's Super-Pac Collapse showed, that the oligarchic putsch is waning. With tax rates near their lowest in 70 years and with Federal revenue as a share of GDP at its lowest since the end of WWII, it's time to ignore those imbeciles maniacally preaching hatred of our own government, blaming it for all things. And time for the uber-rich to accept what the First Estate foolishly refused in 1789 France - that it's time to pay a bit for being members of a civilization.

Oh, but liberals will have to give, as well! This can all happen if the President delivers sincere counter moves on entitlements: the easiest being simply to tell Americans  the truth. "Hey, you live a lot longer than your parents did, so you can work just a tad longer... and 70 is the new 50 anyway." If he does that, in exchange for an end to Bushite supply-side voodoo largesse for aristocrats, then our children will be saved at a single stroke.

The rest of the deficit? Well, as I explained elsewhere, half of the causes of our current mess should dissipate, once the other half come under control, and now that we are safe from our house being ruined again by the same fools who bulldozed it over a cliff from 2001 to 2009.

== The Role of the Tax Code in All This ==

Now, Let's be clear; the deal that emerges may have some twists to it.  Republicans will be seeking a face-saving way to increase inflows from the rich -- an approach validated not only by the electorate but also a report from the Congressional Research Service declaring that Supply Side mythology is, was, and always will be hokum. That incantation worked far too long, hypnotizing a generation on the right, but it's over and good riddance. (Adam Smith himself said that most aristocrats do not invest any sudden largesse into innovative capital. That was a fantasy.)

While admitting the inevitable, GOP politicians are eager not to explicitly violate their "no new taxes" pledge to Grover Norquist, who still has some clout despite his star fading, at long last. Desperate for a fig leaf, Republican legislators tout a semantic distinction between "augmenting revenues" and "raising tax rates."

The leading proposal on the table right now appears to be eliminating the ability of the rich to evade taxes through deductions, a suggestion offered briefly, during the many policy gyres of GOP presidential nominee Mitt Romney.  By eliminating a wide range of deductions, or else capping all deductions at - say - $25,000 per person/year, a large flow of revenue could be tapped while allowing the actual marginal rates of income taxation to remain at Bush Cut levels. (Not enough, according to Treasury Secretary Geithner, but a good start.)

Another approach would be to raise - or even eliminate - the regressive cap on the payroll tax that feeds social security and Medicare. If that were also applied to capital gains and dividend income, so much new revenue would be generated that the rate of the payroll tax would have to be reduced, lest serious damage occur! (That mere fact shows just how skewed our values have become - that honest work is taxed harsher than what Adam Smith derided as "rent-seeking" - the lowest form of economic activity, according to Smith.)

Any of these approaches might work. I am partial to the elimination of whole deductions if only for one reason, that it would contribute to another long term project, simplifying the Tax Code.

As a matter of fact, there is a way to do that, and minimize the amount of kicking or screaming or obstruction.  It seems worth doing on its own merits! Some of you have read my proposal before and I've been encouraged to keep pushing by folks who work in this very field.  It ought to work.

== The Goal of Simplification ==

Just after being elected in 2008, President Obama said he would seek a reform of the U.S. tax code, calling the current system is a "10,000-page monstrosity." But that promise has been made by others before and every proposed change ran up against a wall. Every "simplification" would gore someone's ox. The more code-trimming you do, the more people will scream.

I know a simple way around this. The sheer bulk of the tax code -- its complexity, in numbers of rules, words or exceptions -- could be trimmed without much political pain or obstructionism! Because the method is designed to be mostly politically neutral. It does not aim at some utopian fantasy (like the Flat Taxers rave about.) It gores only a few sacred cows. It would be cheap and easy to implement. Only accountants should hate it for the effects on their lucrative business. Yet, to the best of my knowledge, this method has never been tried, alas.

(Note: an earlier version of this article ran some years ago and is still available at my web site.)

== How can I promise such a thing? ==

There is nothing on Earth like the U.S. tax code, an extremely complex system that no one understands well. But unique in that it's complexity is perfectly replicated by the MATHEMATICAL MODEL of the system. Because the mathematical model is the system.

One could put the entire US tax code into a spare computer somewhere, try a myriad inputs and tweak every parameter to see how outputs change. There are agencies who already do this, daily, in response to congressional queries. Alterations of the model must be tested under a wide range of boundary conditions (sample taxpayers). But if you are thorough, the results of the model will be the results of the system.

Now. I'm told (by people who know about such things) that it should be easy enough to create a program that will take the tax code and cybernetically experiment with zeroing-out dozens, hundreds of provisions while sliding others upward and then showing, on a spreadsheet, how these simplifications would affect, say, one-hundred representative types of taxpayers. As I've said, this is done all the time. A member of Congress has some particular tax breaks she despises and asks the CBO for figures on the effect, should those breaks be eliminated. Alas, as soon as word gets out, her proposal faces a firestorm from powerful interests fighting like hell to keep from losing millions.

Hence, although American corn-ahol subsidies propel high food prices and hunger around the world while doing little for the environment, nothing is done to end the wasteful program that costs more net energy than it delivers. There are thousands of other special interest groups that each wish the budget to be balanced... on someone else's back. How to get past this?

A key innovation: program in boundary conditions to the experiment, so there are no losers.

Let the program seek and find the simplest version of a refined tax code that leaves all 100 taxpayer clades largely unhurt. If one group loses a favorite tax dodge, the system would seek a rebalancing of others to compensate. No mere human being could accomplish this, but I have been assured by experts that a computer could do it in a snap.

Here's the key point: If such an iterative search finds a new, much simpler tax structure that leaves none of the 100 groups more than 5% worse off than they currently are, then who is going to scream?

Oh, well, I suppose a lot of people will. Cheaters will holler of course, and those who benefit from the cloud of obscurity allowed by an overly complex tax code. Even if farmers are guaranteed adjustments in other areas, they will reflexively protest over the end of Roosevelt-era subsidies. In fact, everybody will complain! But...

...but a lot of the HEAT will be taken out of their complaints, if they see that their own bottom line is completely unchanged. And that is the secret. To remove enough heat so that people can calmly re-assess, negotiate, and accept pragmatic simplification that's good for all.

== Will "no-losers" really leave everyone unaffected? ==

Nope. One hundred sample-type American taxpayers won't cover everyone, especially at the upper end. Some in the aristocracy have tax laws that were enacted specifically to benefit them! They will hit the roof. But if enough of the rich are included in "no-losers" they might tip the balance, canceling out the final obstructors, for the sake of a new simplicity. And a new patriotism.

Will this method solve all tax-related problems? Of course not! Complexity is not the only thing wrong with the Tax Code. After simplification must come some genuine tax policy shifts that do advantage some and disadvantage others. Like all of you, I have my favorite injustices I'd love to see redressed, behaviors disincentivized, business ventures stimulated... and so on.

But, by starting with "no-losers," you can use politically neutral optimization routines to find a much simpler system. Industrial concerns like auto companies already do this sort of thing, trimming and slimming machinery to use the fewest parts, while achieving similar output. We could similarly refine the machine that is the Tax Code. Then, and only then, will it make sense to argue about steering the vehicle in new directions.

Sign the #NoLosersTax petition to have the CBO perform an open, computerized, impartial mathematical model of the tax code, with 100-500 example tax payers, and zeroing out provisions, or changing credits and exemptions, and establishing boundary conditions, the most paramount being "No Losers!", to attempt to find a simplified tax code that would not impact any tax payer (below $200,000/yr earnings) more than 5%. Then make the results public.