Friday, November 25, 2016

More deficits, debt make higher taxes a sure thing

Get ready for a tax increase.  It will be a big one.

We just don’t know when it will happen.

The problem is the federal debt.  The government owes lenders outside of the government itself, the so-called “debt owed to the public,” about $14 trillion.  If President-elect Donald Trump follows through on his proposals and gets congressional approval, that debt is expected to climb by $6 trillion.

With their own party’s president in office, congressional Republicans are expected to back off their insistence on cutting government spending.  The deficit hawks could become rare birds.

Trump claims that his proposals won’t push up the debt.  He says that, if his program is adopted, economic growth could reach three or four percent a year, producing new tax revenues to cover the added costs.

Many economists, including some in his own party, believe such growth is out of reach.  Even if the President-elect were correct, more deficit spending, pushing up the debt, would arrive ahead of the supposed boom in revenues.

But Trump’s proposals are only part of the growth in the federal debt.  The costs of Medicare and Medicaid could cause the debt to reach $45 trillion in about 20 years.  The bill for paying debt service annually would be $1.5 trillion, a huge financial burden.

The reason for the growth in federal debt boils down to a simple proposition.  The president and Congress like to adopt government programs to serve and pander to the electorate.  But they don’t like to raise the taxes necessary to pay for them, so they simply borrow the money. 

It is not difficult for the government to borrow, because it has such a good record of paying its debts.  In fact, one constitutional amendment puts debt payments beyond debate and guarantees they will be paid.

Recently, a proposal has appeared to help deal with the debt problem.  Instead of borrowing through bonds limited to 30 years, the government could replace all existing debt with bonds lasting 70 or even 100 years.  The government’s new debt would be financed at today’s low rates, which are expected to increase soon.

That’s like a person with several credit card debts at high rates rolling them all into a single loan at a lower rate.  The annual cost of debt payments goes down, though the payments are strung out over a longer period.

While that might help, it won’t help much if, like free-spending cardholders, the government simply keeps piling on more debt, because it could now afford it.  To make extending debt repayment work would depend on a kind of discipline presidents and the Congress have not shown.

By the way, this is not a state problem.  Almost all states, including Maine are required by their constitutions to have a balanced budget each year.  Of course, they may incur debt, but the annual carrying costs have to fit within the annual budget for which there must be sufficient revenues.

As a result, states usually borrow to pay for long-term projects like highways and airports.  The sound economic theory is that it makes sense to have future generations pay for facilities they will be using.  But they shouldn’t be burdened with the cost of this year’s programs.

The federal government has not adopted a so-called “two-part budget” in which current spending, including debt service, is paid out of current revenues and capital or long-term spending is financed by borrowed money.  Instead, much current expense is covered by borrowing.

Critics of federal budget deficits that increase the national debt often call for a “balanced-budget amendment.”  They expect that would duplicate the state practice.  If so, they would need to adopt the two-part budget discipline.

Why isn’t such an amendment adopted?  To balance today’s costs, including debt service, would require an immediate tax increase.  And the politicians want more programs, especially military spending, but no tax increases.

There are only two alternatives: cut spending or increasing revenues.  History shows that neither Trump nor any other president is going to propose slashing programs that have powerful constituencies.  Of course, government could operate more efficiently, but savings would not be enough. 

Meanwhile, spending will grow and people will depend increasingly on Social Security and Medicare.  As much as conservatives oppose more government, they are unlikely to eliminate such social programs.  At best, they could be made to work better.

Because the debt will keep growing, the U.S. must inevitably face a big tax increase to halt more deficits and huge interest costs.  Higher taxes cannot be avoided indefinitely.  

Friday, November 18, 2016

Trump: take him seriously or literally?

Many people, mostly on the losing side of the election, are hopelessly looking for the reasons Trump and the Republicans won.  They want to blame somebody.

The reasons why the election turned out as it did were clear well before the voting began.  Weeks ago in this space, I discussed two key elements of the election that could produce a Trump victory: the make-up of his political support and the desire to end deadlock by eliminating two-party government.

Die-hard Republicans backed him to protect their party’s brand.  They thought the party label was worth defending no matter reservations about Trump’s policies or behavior.

Then, there were voters who deeply disliked and distrusted Hillary Clinton and wanted to see her soundly rejected.  They had been convinced she was dishonest and possibly corrupt.  They were ready to believe her handling of official emails was illegal.

The third group included those who could be considered racists, though they may not have thought so.  They saw in Trump the first candidate in memory sending them sympathetic signals.  Making America great for them begins with restoring and maintaining control by white people.  Immigration was their issue.

Finally, there were voters fed up with government deadlock and inadequate leadership.  They demanded change.  President Obama had promised change, but saw that in abstract policy terms, while failing to “sell” his policies or provide a unifying, patriotic rallying point. 

Whatever else one might say about Trump, he embodied change.  He came from the business world, and he approached politics in a highly personal manner.  Without even knowing what his policies would turn out to be, voters knew Washington would be shaken up.

With change as their goal, they could ignore Trump’s drawbacks.  The righteous indignation expressed about Trump’s thinking and personal conduct resonated mainly with the already convinced opposition.  Trump’s supporters, especially those demanding change now, weren’t listening.

Were they worried?  Not really.  One Maine Trump voter was reported as saying that he took the candidate “seriously but not literally.”  The problem with Clinton supporters and much of the media was that they took him literally but not seriously.  The right answer may turn out to be both.

Most candidates claim they know how to work with the other side, but they seem fated to fail.  The solution, I suggested, was ending divided government.  While sharing power had seemed safe to many voters, it had turned out to be a recipe for deadlock.

While many would have thought the implication of the one-party proposal was solid Democratic control, it would work with either party.  The engine of change turned out to be the American voter, who chose one-party government in Washington and in many states to ensure the end of partisan-driven political deadlock.

The problem is turning out to be in knowing what Trump will do as president and which of his constituencies he will favor.  Will he bring back torture, cancel trade agreements, build a wall and deny entry to certain groups?  Or will he focus on the adoption of the conservative GOP policies blocked by Obama?

Whatever he does, he will alienate some of his supporters.  If he goes to extremes, some Republicans and some of those who so badly wanted change could have second thoughts.

If he pushes conservative policies favored by the GOP Congress, some of his supporters will be disappointed that he is not radical enough.  If “the art of the deal” means compromises with Democrats, even GOP conservatives could oppose him.

Pundits are watching his appointments to see the direction in which he will lean.  That implies he could follow the policies of his appointees.  Perhaps they are so loyal to Trump, they will follow his lead, while learning that politics is “the art of the possible.”

Meanwhile, Maine saw the bipartisan legislative balance survive.  Whether that means the almost evenly divided Legislature can work with Gov. LePage remains to be seen.

Maine has not been paralyzed by political deadlock, as in Washington.  Compromise has been possible, even though the governor has held legislators, even of his own party, at arm’s length.

Because he is usually unwilling to compromise, it is up to both parties in the Legislature to continue to find ways to agree in large enough numbers that it can set the policy agenda more than does the governor.  The budget process almost forces that result.

This is a new political world.  People may be both fascinated and uneasy about the prospects for policy and the system itself.  Protest is pointless, but participation makes sense.  The next campaign has begun.

Friday, November 11, 2016

Polls, pundits fail as voters vote for change not competence

The polls were wrong.  The pundits were wrong.

As repeatedly noted in this column, it was a mistake to rely on the polls.  The population samples they use are badly constructed and their methods depart widely from the rules of statistics.

They are overused, with polling going on every day.  And many people do not take them seriously and will readily lie to pollsters about their true intentions.

Expert analysts rely mainly on the polls.  Like the old saying about computers: “garbage in, garbage out.”  And they undoubtedly allowed their analyses to be influenced by their biases.  The election was never going to be rigged, but their reports were, perhaps unconsciously.

One pundit got the presidential election right, and he did not use polls at all.  Prof. Allan Lichtman of American University has a drawn up a list of 13 true-false statements.  If the party holding the presidency gets six “false” responses, its candidate loses.  Hillary Clinton had more than six wrong.

Lichtman uses a method based on the thoughtful review of important political facts.  Not using polling, he’s an analyst who analyzes.  He started predicting presidential elections in 1984, and he has never been wrong.

Also, he is a full-time political science professor.  Many analysts, either partisans or television pundits, are only part-timers.  They all learn from the same old, news stories rather than from experience.  They parrot conventional wisdom.

Sen. Eugene McCarthy once said something like this about the political media: “They are like birds on a power line.  When one flies off, they all fly off.”

Not only was voter understanding of the campaign distorted by polls and pundits, but the election itself was influenced by an independent outside player, similar to what happened in 2000.  That year, instead of allowing the political process run its course, the Supreme Court picked the winner.

This year, James Comey, the FBI director, played a supporting role for the Republicans in undermining Clinton.  First, while testifying before a congressional committee that her personal email use while Secretary of State was not a criminal offense, he scolded Clinton for her sloppy handling of it.  The policeman made himself into her judge.

Then, late in the campaign, he announced the FBI investigation had been reopened, only to shut it down a second time a few days later.  He again recommended no action against Clinton.  But could he possibly have believed his unusual statements would not affect the presidential campaign?

In both of these cases, Republicans (the Court majority and Comey) helped the Republican candidate.  Both the Court and the FBI are supposed to be extremely careful to stay out of politics. 

Finally, for the fourth time in American history, a candidate won a majority of the popular vote but lost the electoral vote.  The last time was the 2000 election.  In each of the four times, the Republican defeated the Democrat.

The electoral vote system was designed to have 51 separate elections (the states plus D.C.).  Each state gets a number of electors equal to the sum of the two U.S. senators and the number of its House members.  That gives extra weight to small states and reduces the power of large states.

In other words, it is a rule in the U.S. Constitution that specifically prescribes a system other than one-person, one-vote.  Amazingly, the NBC election night crew didn’t understand this.

The obvious alternative, suggested after the 2000 election, is to have the president elected by a national, popular vote.  That would require a constitutional amendment.  It’s hard to believe that either the Republicans or the small states would agree, effectively killing that idea.

In the final analysis, the election was not about Trump and Clinton.  It was about us.
Some thought voters could not choose a morally deficient man over a competent, if uninspiring, woman.  Boldly asserting non-truths, maligning minorities and engaging in sexist behavior, he could not be elected, once people learned about him. 

But these skeptics, undoubtedly stunned by the outcome, failed to understand that Trump voters simply didn’t care about his drawbacks, mainly because he so obviously would bring change, exactly what they wanted above all.  A former First Lady, her husband hovering, hardly represented change.

In that sense, Trump is the successor of President Obama, whose 2008 campaign slogan was simply “Change.”  Many voters probably came to feel they got less of it from Obama than they had hoped for, so this time they picked a sure thing.

The all-GOP election result may have ended political deadlock.  That’s change.  Now let’s see if it helps.

Friday, November 4, 2016

Minds made up, polls unreliable, it's time to vote

The presidential election is over.  All that’s left is the voting.

So many voters have made up their minds that no new revelation about Clinton’s emails or Trump’s harassment of women will make any difference.

Many, possibly most, voters believe, “I’m not voting for the person, I’m voting for the policy.”

That thought may explain why the national election boils down to a choice between two unpopular candidates.  It became evident a few weeks ago that their differing views matter more than they do.

Voters often make their choice based on the personality and character of candidates.  While some wedge issues matter, the election is a vote of confidence in the person.

Oddly, in a campaign dominated by the candidates’ foibles and failings, issues are the driving force.  Admittedly, some are voting against one of the candidates, though that may be at least somewhat based on the issues.

Supreme Court appointments, gun control, social issues, immigration and the state of the economy divide the candidates.  Is America great?  Or must it recapture lost greatness?  Almost all voters have made up their minds on these issues, and the candidates are vehicles for the desired outcomes.  

That explains why Speaker Paul Ryan, the GOP House leader, condemns what he considers Donald Trump’s racism, but has already voted for him.  More than 20 million people have also voted.

Many Democrats have doubts about Clinton, though they view her faults as less grievous than Trump’s.  They support her because of her promise of a renewed government role on many fronts.   
Some remain unenthusiastic and distrusting, but see her as an essential alternative to Trump.

The myriad differences between the two candidates and their well-publicized defects have been widely known since the national conventions in July.  Voters have been bombarded heavily with campaign news.  Almost certainly, most have made up their minds and no new revelations can change them.

The number of voters who are truly undecided in the week before the election seems to be quite small.  It is likely that those who still can truly be swayed between the two candidates are not numerous enough to tip the balance of the election.

Wait.  The polls suggest that conclusion may be wrong.  The margin between Clinton and Trump varies from day to day, even hour by hour.  After each new bit of negative news about either of them, the polls swing. 

Can it be true, that, every day, millions of people are changing their choice between the candidates?
Perhaps the problem is not that many voters are undecided and still open to persuasion, but rather that many polls are just plain wrong.  News reports relay them as if they are reliable, but both their methodology and the refusal of many to participate indicate they are not.

Compounding the uncertain poll results are the political forecasters, most of who rely heavily on polls as the raw material for their predictions.  As a result, the forecasts may be no better than the faulty data on which they are based.

We may never know how bad they are.  If the election results differ significantly from the polls, the pundits will claim there was “a last-minute shift” in opinion.

The biggest election unknown may be how many voters each party gets to vote.  The Republicans have a weak get-out-the-vote operation, trying instead to block likely Democratic voters.  Clinton and the Democrats are better able to get people to the polls.

Get-out-the-vote aside, the election has already been determined.  People say they are tired of the campaign, probably because their minds are made up. 

Congressional and state races are different.  In these contests, local factors count.  In many cases, people may vote the party or the personality.

Senate races are particularly important.  Clinton-Trump has some impact, depending on who you think will win and whether you want them to be counterbalanced or supported by Congress.  The Senate could swing to the Democrats, influencing Court nominations.

In the House, the Democrats look like they can gain seats.  The result, if hard-line conservatives lose even some influence, could indicate how much room for compromise with Clinton there might be, if she’s elected.

Maine’s Second District race between incumbent Bruce Poliquin, a Republican loyalist, and newcomer Democrat Emily Cain is a prime case of an election that could have national impact.

Contrary to the view that policies matters more than persons, in the Maine legislative races, the campaign is heavily about one person – the always controversial Gov. Paul LePage.

Bottom line: on Tuesday, your vote matters.