Tax cut bill shrouded in myths, pure politics

The tax bill to be finally adopted by Congress before the end of the year has produced of a series of myths, mainly the result of its rushed legislative process.

These myths result from ignorance of its content and its economic and political effects. They are separate from the purely partisan debate about who gets what and how much.

Myth 1. We know what the impact of the tax bill will be.

It is designed to give major cuts to the wealthy and corporations to make more job-creating investments. The middle class will supposedly gain. And it will the biggest tax cut in history.

We have no way of knowing what the recipients of the largest tax cuts will do. If they invest, reflecting the most favorable view of the bill, tax revenues from a booming economy might cover the cost of the cuts. If they keep the money, the tax cuts will boost the deficit.

It is impossible to measure tax cuts comparatively, and they vary by income. And we will never know if this really is the biggest reduction. As for the middle class, many will gain a little and some will pay more. Nobody now knows where he or she stands.

Our inability to understand the impact of the tax cuts is partly because we don’t know what all the tax cuts are. The bill is a Christmas tree, decorated with special tax gifts for limited groups.

Some of the tax cuts were added out of sight of the members of the Senate just before they voted on the bill. Looking at the bill, you will see handwritten notes adding and changing provisions. Senators had no way of knowing what they voted on.

Myth 2. The tax bill will simplify taxation.

Its advocates claimed it would simplify paying taxes. The tax code was only simplified by eliminating benefits for average taxpayers. For example, the code drops personal exemptions. And people in high income tax states, like Maine, will suffer from the deletion of a tax deduction for state taxes.

The bill is criticized for being over 400 pages, as if that is an indication of how bad it is. But that’s just another myth. When Congress changes any law, the language required to do something simple may take a lot of words. It’s the content that counts.

Myth 3. The tax bill was given careful consideration.

In fact, the bill was passed in the House and Senate in a hurry, though there was no need to rush. But the GOP wants at least one big legislative win in 2017 to show it was worth turning the entire federal government over to them.

If merely having a bill was more important than what it contained, they will have succeeded. That approach opened the way to all the special interest deals in the middle of the night.

The Republicans wanted to make sure they could pass the bill without any Democratic votes. They know that now they have just barely enough of a Senate majority to pull that off. They avoided the risk of achieving fewer cuts if they proceeded more carefully.

Myth 4. This tax bill makes permanent changes in the tax code.

Republicans eliminated the ability of a Senate minority to block action. When the Democrats regain a congressional majority, they can amend and repeal the Republican cuts and add some of their own.

The chances of laws swinging wildly back and forth with the change of parties should encourage cooperation and moderation. Not this time. Candidates may claim they can work with the other side, which is what voters want. But once they are in office, they follow the party line.

The last major tax bill in 1986 came during the administration of Ronald Reagan, the model of a conservative Republican president, and it had strong Democratic support. That was real, revenue-neutral tax reform. This year’s bill isn’t; it’s a revenue-losing tax cut.

Myth 5. This is a tax bill.

Not exactly. The Senate version would eliminate the Affordable Care Act mandate, which will mean millions lose their coverage and many will face higher insurance premiums. And it would allow oil drilling in the Alaska National Wildlife Refuge.

This bill is supposedly about cutting taxes for middle-income people. Whether it succeeds in cutting taxes or in creating jobs won’t be known for at least a year.

But the bill is really meant to score political points for its supporters in the 2018 elections. Watch for these myths in that political campaign.

New round in fight between government and private sector

When you hear the term “net neutrality,” do your eyes glaze over?

It may sound techie, but it is about the major issue of the day: the roles of government and private enterprise.

The Internet was a creation of the U.S. Defense Department, allowing almost instant communication between computers. It was soon made available for commercial use so that all computer users could access the Internet. To do so, they must normally use an Internet Service Provider (ISP).

Sharply different views have appeared over what kind of access people should get when they use the Internet. One view – net neutrality – is that the Internet is like a highway and should be open to all to reach any content on an equal basis. The alternative view is that ISPs can manage user access for their own profit.

Under President Obama, the U.S. adopted net neutrality. Now, under President Trump, federal regulators have decided to allow competitive use so that ISPs can control access.

The competitive approach means, for example, that ISPs provide service at differing speeds, direct searches to certain sites and products and away from others, and make it difficult to reach their competitors. The fastest service will cost more. If you don’t pay premium rates, your access will be slower.

By managing access, ISPs should be able to boost their profits. And they will create classes of users based on how much they pay.

Net neutrality is based on non-discriminatory access regulated by the government. The new system eliminates much of a government role and leaves the Internet to the private sector.

This is a classic case of the two competing economic views. Should the government regulate to ensure equality and wide public access or should the system be left to the private sector, protecting what are seen as the liberties of people and enterprises?

In short, however technical it may seem, the issue of net neutrality is new round in the fight between government and the private sector.

Much the same difference in views is the focus of the battle about the Affordable Care Act. The traditional system has been to leave health insurance coverage to competing private companies. That system produced coverage for many, but left millions of others without insurance, limiting their ability to get good care.

Because many people were uninsured under the competitive system, the federal government introduced Medicare for seniors, Medicaid for low-income people and, finally, the ACA, which is meant to subsidize coverage for most other people who had been left uninsured.

This year, the Republican Congress has tried to reduce or eliminate the ACA and cut back on Medicaid, permitting a return to the old, competitive model. They focused on private sector action over government programs and their cost. The model is more important, in this view, than covering the uninsured.

The current tax cut legislation reflects the same divergence of views. The GOP proposals would cut taxes more for the wealthy than for the middle-class and poor. The Republicans maintain that more money in the hands of the wealthy and corporations will lead to more investment in job-creating enterprises.

The Democrats would give biggest cuts to middle-income people who would spend more of their income. While the GOP approach relies on the private sector to promote personal income and growth, the Democrats favor more direct boosts to individual purchasing power.

These divergent views are repeated throughout the national political debate. Will the environment be protected through a competitive market or thanks to government regulation? If competition yields more jobs and profits in preference to better air quality, is that a fair trade-off?

What is the extent of government responsibility for assisting the poor? Should there be government income support programs or should the country rely on charitable aid, possibly encouraged by tax deductions?

As you have read this column, you may have answered these questions in the national debate. These issues are worth consideration. This debate is worth having.

But the main issues are often obscured by partisanship. It is more important for some that their party wins on an issue than the substance of the issue itself. Members of Congress line up on some bills even before they know their content.

Some political leaders try to obscure these basic issues by promoting “wedge” issues like abortion and guns. They expect voters to give them a blank check in return for their position on a single sensitive issue.

The American political system depends on compromise. But getting agreement on basic issues is impossible when partisanship and wedge issues dominate the debate.

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.

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

Americans now mark the 100^th 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.

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.

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.

Senate filibuster is dying; time now for majority rule

Last week, an American political institution, aged 100, was placed on its deathbed. Its expected passing was mostly overlooked and unlamented.

It was “filibuster,” the evil twin of the less well-known “cloture,” who survives. Cloture is a vote to end debate and allow a final vote on a bill in the U.S. Senate. It was born in 1917 to allow a vote on a World War I issue.

With cloture, filibuster immediately arrived to prevent final votes. At first, it required endless debate. Eventually, the filibuster would allow debate to be ended only by a supermajority of 60 senators, not the Constitution’s simple majority of 51 senators. Only 41 senators could kill a bill.

Cloture has become a political battlefield. A minority of senators can control the Senate with just enough votes to kill a bill. It’s difficult to get the 60-vote supermajority.

In recent years, the Senate has been reverting to the simple majority. The supermajority is no longer used for major laws and for approving judges, even for the Supreme Court, or top executive branch officials.

To pass the Affordable Care Act, the Democrats developed a way to avoid the filibuster by linking their proposal to a prior bill on taxes and the budget. This year, the Republicans tried to use the same method to repeal the ACA.

In effect, both parties agree the filibuster is a bad idea. At least they do when they are in the majority. When in the Senate minority, their view flips.

With the GOP controlling both Congress and the presidency, they want to prevent the Senate Democratic minority from blocking their major legislation. President Trump encouraged the end of the filibuster.

Last week was the clincher. Senate Republicans voted for what they knew was an impossible budget, just to create a future link for tax legislation, thus avoiding a filibuster. House Republicans had adopted a different budget bill, but this week accepted the Senate version temporarily, to eliminate the chance of a filibuster of the tax bill.

With the simple majority now applying to so much of Senate action, the deathwatch for the filibuster began last week. Any presidential nomination and any major bill that can be made to have something to do with the budget – almost anything works – cannot be filibustered. It will fade, while remaining on political life support, in case of emergency need.

At first look, the end of the filibuster seems to be in line with majority rule, one of the basic elements of democracy. That’s correct, as far as it goes, but it doesn’t go far enough.

Even without the 60 votes required for passing a bill or approving a nominee, the Senate will still often be controlled by a minority. The 52 GOP senators in the current majority represent less than half of the American population.

It is at least possible that a Senate majority of 51 votes could come from senators representing less than 18 per cent of the total population. That’s true minority rule, which will survive the end of the filibuster.

Perhaps those 51 senators will never unite on a vote. But the likelihood is that, even now, laws are being adopted by senators representing much less than a majority of Americans. The filibuster only made it worse, because a blocking minority could represent a tiny portion of citizens.

The bad news may be that the filibuster, a vote on allowing a final vote on the bill itself, does not violate the Constitution, which authorizes the Senate to make its own rules of procedure. The good news is that a new voting procedure could be adopted in exactly the same way under the Senate rules.

Assume the Senate sticks to the simple majority rule described in the Constitution with no special ability for a minority of senators to block the passage of legislation. How can the U.S. prevent the underlying minority rule?

The Senate could adopt a so-called “qualified” majority rule. Passing a bill or approving a nominee would require the support of not only a majority of senators, as is the case today, but also that they must represent a majority of the population. The result would be a decision made by a true majority.

Each state would retain its two senators with equal voting power. But the need for an underlying majority of the people almost certainly would force more bipartisan cooperation. Today, for example, the only path to a qualified majority would require support from both Republicans and Democrats.

The filibuster fades. It’s time for true majority rule.