The Tax Reform That Isn’t

It is now tax reform season, which means that politicians are poised to unleash even more nonsense on the public than is customary. So perhaps it makes sense to frame some of the underlying issues that are involved. First and foremost: There is not a snowball’s chance in hell that taxes—properly understood—are going to be reduced. I repeat: there is no chance—none, nada, zero—that the total tax burden is going to be reduced. It is merely going to be redistributed, and to boot the total burden next year will be larger than this year, and the same condition will hold the year after that, and the year after that. Until the unavoidable default.


To see this it is imperative to define terms and do it properly because words that politicians and their sycophants use are designed to obfuscate rather than clarify. This, by the way, is not unique to arguments about the tax code. They do it all the time, pretty much about everything. So: how should we define the tax burden?


Definition: The tax burden is equal to the resources that government commands that would otherwise have remained in the private sector. That means that the real tax burden is not simply equal to the cash government collects from income taxes, sales taxes, other excise taxes, user fees, payroll taxes and various other sources. The real tax is equal to the total amount of money government spends plus the cost of regulatory compliance.   This definition differentiates between the government’s demand for economic resources and how it finances the demand.


The Income Statement: Revenues are equal to the cash taxes government collects directly plus the regulatory compliance costs it imposes on business that government would otherwise have to bear if it did the job itself. Expenses are cash disbursements. But government spends far more cash than it collects in direct taxes, so it has to make up the difference, which it does by borrowing the difference.


The Balance Sheet: Here is where it gets exceptionally tricky, because the government doesn’t publish a balance sheet. And it doesn’t do so for a very good reason. The Government is insolvent and doesn’t care to admit it.


Let’s consider: conceptually speaking what would the government’s balance sheet look like if it published one?


Assets = Implied taxing power, otherwise known as the tax base.

Liabilities = All the payments it has promised to make in the future. These include debt service and transfer payments, the largest being Social Security, Medicare and Medicaid. The present value of these unfunded liabilities (plus accumulated debt on the books) ranges from a relatively modest estimate of $100 trillion (from the optimists) to about $200 trillion from the not-so-optimistic. According to the Fed, total net worth of U.S. households is about $85 trillion. That leaves us short somewhere between $15 trillion and $115 trillion. (Corporate assets are largely included in household wealth through stock ownership.)


Since U.S. GDP is about $20 trillion, there is no possible way that the U.S. can grow its way out of this. In fact, its liabilities in the form of promised entitlement payments are growing at an increasing rate of speed, so the situation is getting worse rather than better.


The only reasonable conclusion is that the U.S. is inevitably going to default on its promises. The only question is when and to whom.



This conclusion is both inescapably correct and studiously avoided. Progressives have spent the last 100 years or so building a welfare state that is careening toward default by obfuscating the nature of the problem, which is, as Margaret Thatcher put it, Socialists eventually run out of other people’s money to spend.


Consider the current discussion over “tax reform” currently taking place. The discussion will carefully ignore the indisputable fact that total government spending and therefore the tax burden, is going to rise. The entire discussion about tax reform / tax relief is entirely distributional without so much as a nod to the underlying structural problem.


The Republicans will claim, as they always do, that reducing marginal tax rates a few percentage points will lead to an increase in economic growth sufficient to offset the loss from lower rates. They will propose taking a smaller piece of a much bigger pie. The problem is that there is scant evidence that the modest Republican reforms will have the desired effect because they are not going to address the underlying entitlements beast, which is in the process of devouring everything in its path.



For their part, the Democrats are still intent on increasing spending for entitlements and “paying” for it by taxing “the rich”. Here we note in passing that Progressives have exactly two solutions for all problems. Tax the rich, and appeal to “the international community”.


But let’s go on from here. The great project of building the welfare state, seemingly paid for by taxing the rich, has created a situation in which the financing of the welfare state is divorced from the actual cost of running the welfare state, at least in the public mind. And inevitably that means the public will insist on getting more and more “free” stuff. And because Progressives have convinced otherwise sensible people that they are victims of corporations and the rich, they will continue to demand all this apparently free stuff as a matter of right. It will not end well. They are rapidly running out of other people’s money to spend.




Tired of Winning Yet?

Well, that was fast.


Donny and Chucky and Nancy are now BFFs. And Donny is in a good mood because he got some good press; Chucky and Nancy said nice things about him, and he thinks he may have put one over on Mitch McConnell. In the meantime, the Resistance (remember them) is about to snuggle up to Donny because they may get to keep the spending machine cranked up for as long as the eye can see. Or the creditors ask for their money back, which may be sooner than anyone thinks. Especially the borrowers, who seem to think that there is an endless supply of free money out there.


Meanwhile Bernie Sanders (Democratic Socialist, VT) has introduced legislation for mandating a “single-payer” Medicare for all scheme. One of its truly unique features is that it is even more boneheaded than Obamacare, which is quite a feat when you think about it.   At last count 16 Democratic Senators (not yet declared Socialists) were on board as co-sponsors of the measure, largely because when they look in the mirror they see a President.


When Senator Sanders last ventured into this territory he was in the middle of his ill-fated attempt to wrest the Democratic Presidential nomination away from Lady Clinton. The Urban Institute, hardly a den of right wing extremism, did a fiscal analysis of his plan. Normally these green eyeshade affairs are fairly dreary but this one is a real thigh slapper. The Urban Institute found that, all told, Sander’s plan would increase federal spending by about $32 trillion from 2017 through 2026. That is trillion with a capital T.


Sander’s tax proposals would raise an estimated $15 – $16 trillion leaving him about $15- $16 trillion shy of “paying for” his plan. The Urban Institute estimates that state and local spending would drop by about $22 trillion, and private spending would fall about $4 trillion, still leaving a deficit of $6 trillion after making the heroic assumption that for the first time in history the plan would cost what its sponsors say it would. This also makes the patently absurd assumption that the gargantuan tax hikes needed to finance this monstrosity would not have a negative impact on economic growth.


But the economics are the least of it. The heart of the problem is that single payer means, well, single payer. There would be no competition. None. Government would essentially fix the prices it would pay for health care services by executive fiat. Health care professionals would not be able to offer services on their own, because government would be the monopoly supplier. (Technically government would be a monopsony, and would control the system by acting as the sole buyer of health care services.)


The next step is rationing care. This would take the form of the bureaucracy (not your doctor) deciding who gets what services based on cost-benefit analysis. Inevitably that means that older patients will be tossed overboard because their prospective earning power is lower and life expectancy shorter than younger patients. That’s what happens in England and Canada and other places that have single payer government systems. Those patients whose governments refuse to provide treatment often come to the U.S. for treatment if they can afford to. Otherwise they just die.


Needless to say, individual freedom is essentially non-existent if the citizens are dependent on the federal bureaucracy for health care. Just ask Lois Lerner.


The conventional political wisdom is that this latest single payer plan is going nowhere. I wouldn’t be so sure. Donald Trump is quite capable of jumping on board with his new friends if they give him a fig leaf or two. After all, up until the time he launched his hostile take-over of the Republican Party, Donald Trump was essentially an outer borough Democrat (from Queens), which is what he remains. And since he is above all a committed narcissist, he will go wherever flattery leads him.


And so the question remains for the 62,979, 879 people who voted for him: Are you tired of winning yet?





Merrily We Roll Along: A Play

Act 1, Scene 1: Candidate Donald Trump strides to the stage and stands behind a lectern. There is not a teleprompter in sight. A Greek style chorus of Trumpkins stands in the wings.

Donald Trump: We are going to build a wall and it’s gonna be beautiful.

Trumpkins (in unison): Build the Wall! Build the Wall! Build the Wall!

Donald Trump: Who’s gonna pay for it?

Trumpkin Chorus: Mexico! Mexico! Mexico!

Act 1, Scene 2: President Donald Trump wakes up early in the morning, grabs the remote and turns on Fox News. He reaches for his smart phone and logs into his Twitter account.

President Trump Tweets: The country needs a good shutdown.

Trumpkin Chorus: “Brilliant, Strategy! Build the Wall! Shut it Down! Brilliant!

Act 1, Scene 3: President Trump is standing at a lectern in Phoenix Arizona.

President Donald Trump: The obstructionist Democrats would like us not to do it. But believe me, if we have to close down our government, we’re building that wall

Trumpkin Chorus (fist pumping): Build That Wall, Build that Wall. Brilliant! Strategy. Shut it Down! Democrats are bad! Bad, Bad, Bad! Brilliant! Brilliant!

Act 1, Scene 4: Aboard Air Force One headed for Nebraska. President Trump is making a statement to reporters. Chuck Schumer and Nancy Pelosi are chatting, grinning and sipping coffee. Mitch McConnell appears comatose. Paul Ryan is strapping on a parachute.

President Trump: We had a very good meeting with Nancy Pelosi and Chuck Schumer. We agreed to a 3-month extension of the debt ceiling. We’re gonna keep the government open.

Trumpkin Chorus: Brilliant! Brilliant!

Wolf Blitzer from CNN: Is funding for the wall included?

Sarah Huckabee: Doesn’t anybody want to talk about Russia?

Wolf Blitzer: A follow up question—is funding for the wall included?

Sarah Huckabee: Sorry Wolf, we’ve run out of time

Trumpkin Chorus: Brilliant! Brilliant! 8 dimensional chess! Brilliant! Brilliant! Brilliant!


A Note to Theatre Patrons

During the Intermission the Donald J Trump Choir will be in the Lobby singing “Such a Brilliant Man” which many have compared favorably to the Lennon/McCartney Classic “Fool on the Hill”.

Alcohol will be served during the intermission. New Gingrich will be tending bar. Chris Christie will be checking IDs.









Our Core Values

Ex President Barack Obama has emerged to denounce current President Donald Trump’s decision to rescind Obama’s executive order known as DACA. The decision, according to Mr. Obama, did not constitute a “legal requirement”. It was, he opined, “…a political decision, and a moral question.”


As President, Mr. Obama crafted the DACA policy. Federal courts halted the policy’s implementation when they ruled the mirror image (DAPA) policy to be in violation of federal law. In any event, President Obama weighed in via Twitter, after having said that he would comment on Mr. Trump’s actions at “certain moments where I think our core values may be at stake.”


Since Mr. Obama is a bit of an expert at knocking down straw men, let’s look for a little clarity and ask the obvious question. Just what are those “core values” we supposedly share?


How about looking at one of the most contentious issues in American politics, which is to say abortion rights. According to Gallup, the country is divided evenly between people who describe themselves as “pro-life (46%)” and “pro-choice (49%)”. Forty three percent (43%) say abortion is morally acceptable; 49% say abortion is morally wrong.

Let’s take setting priorities in the criminal justice system. According to Gallup, 49% of the country wants to strengthen law and order; 43% want to reduce bias against minorities.


How about the media? While the percentage of people who trust the media has remained essentially unchanged for years (at only 37%), the distribution of trust has shifted dramatically. Back in 1999 (when overall trust was higher) party affiliation was not a factor; 53% of Democrats and 52% of Republicans thought the press got the facts about right. Now the comparable figures are 62% for Democrats and only 14% for Republicans.







Let’s take NAFTA. While it has had overwhelming support among economists, it has always been contentious among the public. Today 48% think it is good for the U.S., while 46% think it is bad for the U.S. But what has changed over the years is that Democratic support for NAFTA has risen substantially while Republican support has plummeted. It is almost a complete reversal of party positions from the late 1990s.


What we can see in poll after poll, on issue after issue, whether with respect to policy specifics or overarching social, moral and ethical questions, Americans are deeply, and maybe irretrievably divided. The divisions are largely based on class and level of educational achievement; there is a wide divide between the views of younger generations and older Americans, and people are clustering geographically and socially with other people like themselves.


The make-up of the political parties is also changing as blue-collar working class voters are increasingly turning Republican. This turn largely reflects a revolt against the social policies of liberal coastal elites. At the same time, upper class Republicans repulsed by Trump are looking around, but still find themselves unwilling to sign on with Elizabeth Warren et. al.


So, Mr. Obama, please stop with the pabulum; let us know what values we share as Americans beyond professional sports franchises and a recently developed penchant for Tattoos. That may prove difficult because Americans no longer share a core of common values, beliefs or culture. Americans are busily retreating to their own corners and falling away from civic engagement.


None of this should be a surprise. Charles Murray, the bête noir of modern liberalism predicted it 25 years ago.


There is a certain inevitability to all this. Consider what happens when more and more policy gets made in Washington and less in local communities. It is inevitably top down and just as inevitably it reflects the interests and sensibilities of the educated elites who staff the never-ending sea of federal bureaucracies. Needless to say, this works just fine for educated elites who live on the coasts. But it stomps out opportunity and upward mobility for the middle and lower classes, especially the ones trapped in a public school system that defines failure.


Not only that, university, media and cultural elites have relentlessly attacked the values of Middle America and traditional civil institutions for decades. You know, the Obama bit about the people bitterly clinging to their guns and Religion. Then there is the current fashion of denying that the difference between men and women is rooted in biology; gender is really only a social construct. So it is vitally important to fundamentally transform racist, sexist, homophobic, Islamophobic and capitalist America.


Basing policy arguments on an appeal to common values, to “who we are as Americans”, is a waste of time. Those common values and cultural understandings collapsed a long time ago after years of steady assault. They are not coming back anytime soon—if at all.




In December of 2014, Texas and 25 other states sued to prevent President Obama from implementing immigration policies he announced through his Secretary of Homeland Security in a November 2014 memorandum. Those policies are known as (1) the Deferred Action for Childhood Arrivals (DACA) and (2) Deferred Action for Parents of Americans (DAPA).


The key element of the policy is an Administrative decision not to deport children brought illegally into the United States by their parents. The Obama Administration justified its actions by claiming that it was simply exercising prosecutorial discretion, an exercise in hoop jumping that might even make a Clinton blush.


A federal district court in the Southern District of Texas blocked implementation of the order. The court ruled that the government did not comply with rulemaking procedures required by federal law. The Fifth Circuit Court of appeals affirmed the lower court’s ruling that DACA violated the requirements of the Administrative Procedure Act. In addition the Fifth Circuit, in its 2-1 decision, ruled that Obama’s order exceeded his authority, finding that the Immigration and Nationality Act does not permit deferred action.


The United States Supreme Court heard the case and the result was a tied 4-4 ruling, the effect of which is to leave the lower court’s rulings in place.


So: DACA may very well be good policy—but it was unlawfully decided. Substantively the Obama Administration unlawfully grabbed Congressional law making powers, violated the Administrative Procedure Act, and in so doing ran roughshod over the separation of powers. Moreover, President Obama explicitly rejected his Constitutional obligation to “take care that the laws be faithfully executed”.


This is precisely the type of behavior that the founders feared would lead to the President becoming a King. And so they created the separation of powers pitting “faction against faction” so that one branch would not become all-powerful and a threat to liberty. So it is clear, or ought to be, that DACA is unconstitutional and an affront to the separation of powers. The policy question is one that falls under the jurisdiction of Congress, which ought to get itself out of the habit of lying prostrate before the President and begin asserting its Constitutional prerogatives. If Congress wants to change the policy and legally safeguard children brought here illegally (which it should) then Congress can and should pass the legislation necessary to do so.


In our Republic, policymaking is properly the responsibility of the legislative branch. The Executive should enforce, not make, laws. And while we are at it, Administrative Agencies should be cut down to size. Or to borrow Donald Trump’s campaign pitch to African Americans—given the mess in Washington, what do we have to lose?



We settle a dark peace this morning

Members of a mob don white robes and hoods with slits for their eyes. They arm themselves with batons and crowbars, and march by torchlight chanting, “Jews will not replace us” at which point they proceed to wreak physical violence on opponents, killing one in the process. In the meantime another mob dresses in black; they cover their faces with black masks and proceed to beat up their opponents. Thus far they haven’t actually killed anyone, although it does not appear to be for lack of trying.


For its part, having abandoned deep thinking about Melania Trump’s footwear, the punditry of the left and right is busy doing some its own bomb throwing. They are engaged in a fierce debate about which is worse: mobs of right wing thugs in white uniforms beating people or mobs of left wing thugs in black uniforms beating people.


They are simply delusional. They are delusional because, among other things, the underlying assumption is that these pitched battles are about ideology. They are nothing of the sort.


The underlying cause is better understood with reference to the psychology of ignorant, rootless and alienated young men who want to believe in something; young men driven by their hormones and typically manipulated by their cynical leaders. We have seen them throughout history. They are the foot soldiers of history, the witless sacrificial lambs. They are the Sharks and the Jets; the Crips and the Bloods; the Hatfields and McCoys; the Capulets and Montagues.


The problem we face here is that political leaders have squandered their authority, and have been doing so for years. Perhaps, just perhaps, they will come to their senses, grow up and stop encouraging nihilism for partisan ends before it leads to a crisis of legitimacy; it is a crisis that could be closer than you think. Before it is too late, let us consider the words of the Prince at the very end of Romeo and Juliet:


“We settle a dark peace this morning. The sun is too sad to show itself. Let’s go, to talk about these sad things some more. Some will be pardoned, and some will be punished. There was never a story more full of pain than the story of Romeo and Juliet”. (Act 5, Scene 3).