Friday, November 24, 2017

Tax cut would bring big increase in national debt

Tax reduction is the hotly discussed issue of the day, but almost no attention is paid to its most important effect.
If any tax bill were passed, it would add about $1.5 trillion to the federal deficit. Trillion.
The added deficit would have to be financed by borrowing, and the national debt would grow beyond its current level of about $20 trillion. The instant gratification of a tax cut will bring delayed pain for future generations. Today’s grandchildren get to pay the bill.
We know this, because Congress intentionally set it up to work that way. All Senate Republicans and all but 20 House Republicans voted for a phony federal budget authorizing the new deficit spending. A deficit increase cap would allow the tax bill to pass without a single Democratic vote in the Senate.
That meant a once numerous Washington bird has almost disappeared. When Democrats proposed deficit spending, the GOP opposed and fought to prevent any more debt. They became known as “deficit hawks.” With the exception of a couple of Republican senators who won’t run again, the hawks have flown.
This deficit game has led to even worse moves. To keep the total shortfall under the cap, the Republicans would make the corporate tax cuts permanent, but the much vaunted help for middle income taxpayers would only last five years. The GOP tax cutters say the middle income tax cut could be extended later.
If they are right and Congress later makes the middle class cuts permanent, the true deficit increase will be more than $2 trillion. In the meantime, corporations get priority over people.
Candidate Donald Trump promised to eliminate “carried interest,” a complicated tax break for the wealthiest. It survives, while deductions for state and local taxes would disappear. It looks like a cosmetic change to the loophole would be made, but the give-away to hedge fund bosses would remain.
How can this preference be justified? Tax cut advocates claim that reduced taxes will leave corporations more money to invest in expansion, thus producing more business activity and jobs, which in turn would produce more tax revenues. If this theory works, the tax cuts won’t add to the deficit.
There’s no way of knowing what corporations will do with more money and if their actions will boost tax revenues. Congressional experts look at the measurable tax cost, while tax cut advocates prefer “dynamic” studies, showing the hoped-for tax growth.
Both ways of looking at the effect of tax law changes are imperfect. Experts lack the tools to forecast accurately revenue gains from tax cuts, if any. Advocates feel free to sell their proposals by relying on unproven optimistic projections. The only known fact is that on Day 1, there will be massive growth in the federal deficit.
Congressional Republicans want to pass the tax cuts quickly for two reasons. President Trump had has no major legislative victories in his first year in office, and his party wants to hand him a win.
Also, GOP congressional candidates promised to kill the Affordable Care Act and to cut taxes. After failing to do the first, they want to produce a tax cut before the 2018 elections to show they keep their promises. Interestingly, polls show that many people don’t care about tax cuts.
To find money to keep the deficit within limits, the Senate bill would end the ACA requirement to buy health insurance, whose premiums are eligible for federal subsidies. No requirement to buy means no subsidies and more money for tax cuts.
That may be an incorrect calculation. Many people buy insurance because of the federal subsidy, not because of the mandate. Eliminating the requirement might not save as much as expected, if people keep drawing on the subsidy. The ACA proposal looks unlikely to survive.
Another major impact of the tax bill that has mostly been ignored is the effect on state taxes. Many states, including Maine, base their individual tax collections on the federal form. For example, the definition of taxable income may be the same.
The Maine Legislature at its session early next year may find itself faced with making big decisions about how much to carry into Maine law of what congressional Republicans and Trump may have enacted. The state is teeming with candidates for governor, so that should make for an interesting debate.
The bottom line is tax cuts would be financed by massively adding to the federal debt. Washington has plenty of coal to put in the grandchildren’s holiday stockings this year.

Friday, November 17, 2017

World War I made U.S. world power; now it quits role

Americans now mark the 100th anniversary of the U.S. entry into World War I. As meaningless as that war was, it served notice that the U.S. had become a world power, rivaling the British Empire.
The war ran for more than four years. The massive deployment of American troops in six months in 1918 brought it to an end. Europeans were surprised by the rapid pace of U.S. involvement, but also by the dominant role it expected to play in the post-war world.
Exhibits across the country now remember American involvement. The Maine State Museum in Augusta has an informative and appealing exhibition showing that Mainers supported the Allies even before American entry into the war by sending food to the beleaguered Belgians and others.
Once the war ended, the U.S. pulled back into isolationism, reducing its ability to influence world events. Leaders believed it could act unilaterally and other countries would have to follow. But it would withdraw behind its oceanic moat.
Americans took national pride from events such as the trans-Atlantic solo flight of Charles Lindbergh. He would later see no reason for the U.S. to take on the Nazis from his position at the top of a movement called “America First.”
Of course, the rest is history. The Great Depression spread across the world. Pearl Harbor, the London Blitz, merchant ships torpedoed, and Nazi aggression led to millions dead. Whether a continued American involvement in the world would have yielded a different result is beyond knowing.
It is certain is that the U.S. backed away from global leadership as the world descended into economic crisis and war. As a result, it was less able to take care of its own economy and stay out of a new and bloodier war.
After World War II, the U.S. and other countries showed they had learned their lesson. The U.S. was now the greatest world power. Modern transport and communications meant it could no longer withdraw behind the moat.
More importantly, the U.S. had learned it was part of a world economic and political system and could achieve its objectives only by cooperating with others.
Out of the war came NATO, a mutual defense arrangement designed to discourage aggression against America and its allies. The United Nations, led by the U.S., was to develop peaceful solutions to major issues. Trade agreements were to promote national economies by boosting international efficiency.
And all of that began to work. It did not meet the highest expectations, but it produced some positive results. The world avoided major war and the biggest threat, the Soviet Union, collapsed. Health improved, and poverty and hunger were reduced, though there is still a long way to go.
But progress is uneven and does not benefit all people equally. Some costs are inevitable. Horse-drawn wagons gave way to pick-up trucks. Tough for the wagon makers. Natural gas and renewable resources push back coal. Tough for the coal miners.
Money became the standard of success. Some profited at the expense of others, resulting in the Great Recession that began a decade ago and has just ended. Many people came out of that crisis finding their jobs no longer existed as technology had moved on.
Some voters rebelled against these changes. They longed for their past. Some resented the rise of minorities, who could be falsely blamed for taking their jobs.
They chose as their president a man who promised to revive the past and the wholesale repeal of the policies of the first minority president.
President Trump, a success in the New York real estate business, convinced voters that the art of his deals would work better than the deals of the post-war world. Don’t criticize Russia for tampering with American elections, he implied, but butter up its leader in hopes that he will accommodate Trump administration policies.
Trump chose “America First” as his model, though, like Lindbergh, he meant “America Alone.” In less than a year, America has shed its role as the undisputed world leader. China has moved to the front row as a world power as Trump has focused his policies inward to promote corporate interests and his own standing.
“Recognition of the falsity of material wealth as the standard of success goes hand in hand with the abandonment of the false belief that public office and high political position are to be valued only by the standards of pride of place and personal profit,” said President Franklin D. Roosevelt in his 1933 inaugural address.
Trump needs to understand that Roosevelt’s words remain true.

Friday, November 10, 2017

Trump’s falling popularity hurts GOP; Dems search for options

There are two problems with the Trump administration’s tax reform proposal.
First, it’s not Trump’s. It comes from the Republican Congress, just as did all of his claimed health care “repeal and replace” proposals.
It’s not “reform.” The proposal’s main purposes are to cut corporate taxes and taxes paid by the wealthiest investors.
Like almost everything coming out of government – federal and state, Republican or Democratic – it lacks a consistent policy. Voters today see the GOP relentlessly pursuing a reduction in the size of government and Democrats failing to offer any alternative beyond not being Republicans.
President Trump promised an approach to health insurance reform that would be better for all. He said that the focus of tax reform would be better treatment of the middle class. He offered neither.
On health care, he had no proposal of his own, but supported with equal enthusiasm each successive fallback proposal by congressional Republicans. On tax reform, he offered great praise for a bill that had not yet been drafted.
The voters now get it. The latest Washington Post/ABC poll shows, after the same period in office as his predecessors, he is the least popular president since these polls began in 1953 and the only one with a net unfavorable rating.
Even on the economy, he gets an unfavorable response. For a while, he got credit for a rising stock market, but it is reasonably clear that investors boosted share prices in the expectation of corporate tax cuts.
Gov. LePage, a Trump ally, showed up in another poll as one of the most unpopular governors in the country. His lack of compassion and his narrow focus on cutting taxes above all is turning out not to be a substitute for sound management or the ability to work with the Legislature.
In the case of Maine, using the processes of initiative and referendum, the voters took the issue of Medicaid expansion out of the hands of state government. This week, the people, whom government supposedly serves, voted for expansion. LePage vetoed Medicaid, but the voters vetoed LePage.
Here’s what the GOP House tax bill really does. It simplifies some portions of the tax code, but much of that “reform” takes benefits away, even from the middle class. The wealthiest would keep their tax breaks and see the estate tax melt away. The proposal slashes the corporate rate.
Tax reform is supposed to collect taxes differently but with no change in the government’s total take. This “tax plan” would produce a $1.5 trillion deficit over the next six years. Don’t worry, though, its supporters claim it will stimulate the economy and produce new tax revenues to cover that new debt.
If such a bill passes, and it could, it would be a top sales promotion feat, promising much more than it produces. It could create the major campaign issue for 2018.
But there’s the problem for the Democrats. In the same survey giving Trump an unfavorable rating for his job performance, voters said the Democrats mainly criticize Trump rather than offering alternatives. The Dems’ rating was even worse than Trump’s low grade.
Neither party seems to be able to make the process work. If it passes, the tax bill may be the only major piece of legislation enacted this year, possibly without a single Democratic vote.
Admittedly, there are risks for both parties these days. But in the governor’s race in Virginia, a Democrat defeated a pro-Trump Republican and the results were not as close as forecast.
GOP members of Congress announce regularly that they will not run for reelection. Either they want to flee the toxic Washington atmosphere or they are afraid of challenges from the extreme right, supposedly loyal to Trump.
The Democrats are split between moderates and those who want to move the party to the left. If they cannot find compromises, their party could throw away its chance to have a bigger say in government.
The answer for Republicans is to stand on conservative principle, but worry less about keeping their unpopular campaign promises. They may risk losing a GOP primary, but dropping unworkable plans and opposing Trump are worth the risk.
For the Democrats, who have never had a tightly organized party, the solution would seem to be getting under the “big tent.” No Democrat should spurn another simply because they disagree on some policies. And the party needs new leaders from outside Congress.
Both Republicans and Democrats look over their shoulders too much and should face up now to the problems Trump causes nationally and internationally.

Friday, November 3, 2017

Medicaid vote may send national message on populism

A Maine referendum next week may tell a lot about where voters across the country stand on one of the central political issues of the day: whether government should be reduced or expanded to meet public needs.
It may be obvious that the vote will send a message to Washington about public support for one of the key features of the Affordable Care Act – the expansion of Medicaid to cover many uninsured.
But the referendum’s importance may also tell the country much more. Are the populists on the rise, as they maintain? Or does support remain for government action on a matter as controversial as health care coverage?
National polling shows sharp divisions between populists, who want cutbacks and seek to dominate the Republican Party, and Democrats, who send unclear messages but appear to want government to provide more assistance to the public.
The populists believe they can displace traditional Republicans in Congress next year, because their anti-government appeal responds to where the country is moving. They use allegiance to President Trump as their litmus test. Though polls show his popularity falling, they scorn polls and say the only measure is an election.
Some idea about where voters stand may come from the Maine vote on Medicaid expansion. It is the only state thus far where the question will be decided by popular vote. Most states, under control of either party, have accepted expansion.
Maine is a particularly good test case on populism versus the government. In November 2016, by a relatively small margin, it voted for Hillary Clinton, the Democratic presidential candidate. At the same time, by a similar margin, it voted against background checks in private gun sales, supporting a position identified with the GOP.
Medicaid opponents claim its expansion will raise state costs. They reject new costs, which could mean higher taxes in a state with already relatively high rates. They say that the uninsured can continue as charity cases in local hospital emergency rooms.
This view is typical of efforts on a variety of issues to shift costs that would be supported by taxes off the government budget. Charity cases raise hospital costs, recovered from insurance companies, which pass the bill on to those buying coverage. The insured, not the taxpayers, bear the burden.
The same way of looking at taxes comes from members of Congress representing low-tax states. They oppose federal tax deductions for state income taxes, claiming their states subsidize the higher tax states, like Maine. It doesn’t matter that all states pay for disaster damage in Texas, Florida and California, not just the people in those states.
Opponents also see Medicaid expansion as allowing more people to become dependent on the program, ensuring higher government costs out into the future. It’s linked to the broader question of so-called entitlement programs like Social Security and Medicare. As more people become eligible for such programs, the budget increases.
If the referendum passes, it would place compassion above money, even though 90 percent of the costs would be borne by the federal government. Expansion certainly would be better for the more than 70,000 people who would be affected. But what about the taxpayer?
The vote may answer a question and ask a question. It may reveal that, despite the calls of populists like Gov. LePage, voters want to help their neighbors. At the same time, it raises the issue of when the federal government will stop sweeping entitlement reform under the carpet, and deal with it.
If there might be a single problem with Maine as a test for the country, it will be voter turnout. Some voters say they will stay home because they don’t trust what either side says. That’s easy to understand if a voter relies on television ads about the issue. Some opposition ads are outright misinformation.
Another concern causing voters to consider skipping the referendum is that assistance programs like Medicaid produce cheaters. People resent assistance programs when they can see a neighbor ripping off the government. Yet not a word has been said about what will be done to combat cheating if Medicaid expansion passes.
Maine could overcome these concerns and serve as a good test of populism’s anti-government appeal. The state is usually first or second nationally in election turnout. With the eyes of the country and Congress on the state, Maine could provide a forecast of populism’s effect in the 2018 elections, but only if it has a good turnout.
All we have to do is vote on November 7.