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    Our ‘Xanatos Gambit’ President’s Energy Export Strategy Tree

    Posted by Trent Telenko on 5th May 2019 (All posts by )

    In my last post — President Trump’s ‘Xanatos Gambit’ Trade Policy — I spoke to how President Trump has set up his political strategy on trade policy to make any outcome on the USMCA Trade agreement that he negotiated to replace the NAFTA agreement would be to his advantage over House Democrats and the “purchased by the multi-national corporation China Lobby” GOP Senators.  In this post I am going to lay out President Trump’s “Global  Energy Dominance” export policy’s “Xanatos Gambit” strategy tree vis-à-vis the 2020 presidential elections.

    To start with, I’m going to refer you back to this passage from my last post on how the Trump Administration is “gaming” economic growth measurements:

    This is where Pres. Trump’s ‘Xanatos Gambit’ strategy tree kicks in via a macroeconomic and trade policy manipulation of the very simple economic equation of gross domestic product:

    GDP = US ECONOMIC ACTIVITY + EXPORTS + FOREIGN INVESTMENT – IMPORTS – EXTERNAL INVESTMENT

    The American economy just grew 3.2% in the 1st quarter of 2019.  It would have grown another 0.3% but for the 30-odd day federal government shut down.  The “markets” were expecting 2.5% GDP growth.  The huge half-percent GDP “miss” boiled down to:

    1. The USA exported more.

    2. The USA imported less and

    3. There was more external foreign investment than expected.

    All three were the result of a combination of Trump administration policies on oil/LNG fracking, tax & regulatory cuts and trade/tariffs.

    The Trump Administration upon coming into office in January 2017 had a huge windfall of energy projects that the Obama Administration had held up approval of in the Federal Energy Regulatory Commission.   This windfall neither began nor ended with the  Keystone XL oil pipeline There was a whole cornucopia of oil and natural gas energy infrastructure projects that Democratic Party interests, only some of them environmental, that the Obama Administration was using the FERC to sit on for a whole lot of reasons that I refer to as “The Economic Cold Civil War.

    While the media was spending a great deal of time talking about things like the Congressional votes to open the Arctic Wildlife Refuge in the early days of the Trump Administration’s energy policy implementation.  President Trump spent a great deal of his early political capital on getting his earliest political appointments through the Senate to the FERC to get those projects turned loose as a part of President Trump’s “Global  Energy Dominance” export policy.  The first fruit of this export infrastructure energy policy focus started paying off with the  Louisiana Offshore Oil Port (LOOP) coming on-line in 2018.  See this Apr 16, 2019 article by Julianne Geiger at Oilprice.com:

    U.S. Doubles Oil Exports In 2018

    The United States nearly doubled its oil exports in 2018, the Energy Information Administration reporting on Monday, from 1.2 million barrels per day in 2017.

    The 2.0 million barrels of oil per day exported in 2018 was in line with increased oil production, which averaged 10.9 million barrels per day last year, and was made possible by changes to the Louisiana Offshore Oil Port (LOOP) which allowed it to load VLCCs (Trent Note: Very Large Crude Carriers) .

    The changes to LOOP and to the sheer volume of exports were not the only changes for the US crude oil industry. The destination of this oil shifted in 2018 as well, and even shifted within the year as the trade row between China and the United States took hold.

    Overall, Canada remained the largest buyer of US oil in 2018, at 19% of all oil exports, according to EIA data. During the first half of 2018, the largest buyer of US crude oil was China, averaging 376,000 barrels per day. Due to the trade row, however, US oil exports to China fell to an average of just 83,000 barrels per day in the second half, after seeing zero exports to China in the months of August, September, and October.**

    [**Please note above the nice thing about energy exports is how futile a energy user embargo is against it.  China’s economic embargo of US crude products only hurt itself.]

    The impact of the Trump Administration’s energy export policies from those early days of his administration in terms of liquefied natural gas (LNG) export facilities are now impacting the American economy. A large part of the extra 0.7% GDP growth achieved over the 2.5% Wall Street forecasts in the first quarter of 2019 came from the Corpus Christ 1 and Sabine 5 LNG export facilities coming on-line in late 2018 and making their first full export capacity quarter in Jan – Mar 2019.  The Cameroon 1 and Elba Island 1-6 LNG export facilities were also scheduled to come on-line in Late Feb-Early March 2019, and were very likely large contributors to LNG export surge.

    This is how CNBC described 2019’s 1st quarter:

    Robust demand for Texas oil and gas in the first two months of 2019 pushed the state’s export activity into high gear, strongly outpacing the national rate and contrasting with a slight decline by California.

    Texas represented nearly 20% of all U.S. exports in the January-February period while California accounted for roughly an 11% share.

    California has seen its share of total U.S. exports fall in recent years while Texas has been growing its share due mainly to the new oil boom.

    And this is only the beginning for the US economy in 2019. See the following text and LNG export facility graphic from a Dec 10, 2018 report by the US Federal government’s Energy Information Administration:

    U.S. liquefied natural gas export capacity to more than double by the end of 2019

    U.S. LNG exports continue to increase with the growing export capacity. EIA’s latest Short-Term Energy Outlook forecasts U.S. LNG exports to average 2.9 Bcf/d in 2018 and 5.2 Bcf/d in 2019 as the new liquefaction trains are gradually commissioned and ramp up LNG production to operate at full capacity. The latest information on the status of U.S. liquefaction facilities, including expected online dates and capacities, is available in EIA’s database of U.S. LNG export facilities.

    EIA projection of Liquefied Natural Gas Export Capacity from 2016 - 2021. Date of projection Dec 2018

    EIA projection of U.S. Liquefied Natural Gas Export Capacity from 2016 – 2021. Date of projection, Dec 2018.

    Given the above information, barring a war or serious election year intervention to kill the economy by the Federal Reserve, the cascade of LNG export infrastructure coming on-line in the 2nd and 4th quarters of 2019  will mean something on the order of a full percentage increase in GDP growth (in a range of 4.0% to 4.5%) in Jan – Mar 2020 over Jan – Mar 2019.  That is what going from 3.6 billion cubic feet per day (Bcf/d) of natural gas export capacity to to 8.9  Bcf/d in Dec 2019 does for you.

    This extra 1% GDP will be happening just in time for the Iowa caucuses and New Hampshire primary.

    Read the rest of this entry »

    Posted in America 3.0, Big Government, Business, Capitalism, Culture, Current Events, Economics & Finance, Energy & Power Generation, Immigration, Markets and Trading, Miscellaneous, Politics, Predictions, Taxes | 34 Comments »

    America, the Land of the Free Lunch and the Home of the Brave Easily Traumatized

    Posted by Kevin Villani on 3rd May 2019 (All posts by )

    As a Boston area baby boomer, I belted out the National Anthem in my youth with conviction at sporting events. Massachusetts educators emphasized its role as the birthplace of the American Revolution from distant unaccountable politicians (leaving out the crucial role of fake news written and published by the infamous brewer’s son Sam Adams) and the motivating principles, summed up by Virginian Patrick Henry’s immortal phrase: “give me liberty or give me death.”

    In the 1970s Boston’s U.S. Congressman Speaker of the House Tip O’Neill quipped “all politics is local.” Now the progressive daily prayer on Twitter begins “Our father, who art in Washington D.C. give us money – a guaranteed minimum income, reparations, welfare, entitlements, etc. and other free stuff – food, housing, medical care, a college education.”

    Bostonian President Kennedy’s appeal to voters’ patriotism in the 1960’s to “Ask not what your country can do for you. Ask what you can do for your country” is reversed today. Patriotism is as out of favor with many millenials (who proudly display their participatory soccer trophies) as are the Boston (now New England) Patriots for hogging the Super Bowl Trophy this century, stigmatizing other teams as “losers.”

    Competing Foreign Ideologies

    Traumatized by competing ideas, many millenials would trade U.S. competitive capitalism and individual freedom for a free lunch. “History doesn’t repeat itself but it rhymes” according to Mark Twain. The core contemporary national political issue is whether America’s popular progressive ”social democracy” ideology rhymes with its founding principles and historical values or foreign ideologies that threaten the body politic?

    The Communism Threat

    The Bolshevik Revolution ended an anachronistic Imperial dynasty in a country with no prior democratic traditions. Communist intellectual Leon Trotsky promised a utopian Marxist socialism, international brotherhood and the end of nation-state competition for resources as the state would wither away. Communist atrocities under Stalin, murders and deaths measured in the tens and hundreds of millions, predated the WW II Western Alliance in a desperate attempt to industrialize a backward agrarian society.

    Stalin promoted opaque Russian Imperialism under the banner of brotherhood. Soviet skullduggery in post War elections in Europe and around the globe – and CIA involvement to counter it (or visa-versa) – was widespread. The post WW I & II “Red Scare” of communist infiltration of state institutions in the U.S. was somewhat over-blown, but the belief that communists could be elected in a democracy based on false promises then turn dictatorial and refuse to relinquish power as has occurred most recently in Venezuela, was well founded. Fearing such a cancer on the body politic, the Communist Control Act of 1954 outlawing the Communist Party in the United States suppressing free speech passed with the full support of progressive Democrats who wanted to distance themselves from ”Uncle Joe” Stalin (and later, many others, including Mao).

    Fascism, Communism’s Cousin and Bitter Political Rival

    Hitler came to power in democratic Germany promising economic prosperity, understandably as wartime consumer deprivation far exceeded that of France and Britain (where communist sympathies were widespread), and post war reparations inhibited a consumer recovery. Although Mussolini, the founder of European fascism, once headed the Communist Party in Italy, and Hitler founded the National Socialist Party, neither implemented socialism domestically. By national, they meant a return to Germany’s pre-War greatness: consumers initially benefitted from a massive boom in defense spending before once again suffering wartime deprivations.

    The nationalist agenda was less imperial than traditional. European history since 1453 is largely related to border wars as Germany is caught in the middle between the British and French empires to the west and Russian empire to the east: only the scale of Nazi eastward border expansion represented a radical departure. In Hitler’s view this rhymed with American westward expansion and genocide of the indigenous populations. He persecuted the Jews, even ethnic Germans, based on Nazi perception of Jewish financing of German enemies on the WW I battlefield and in the labor movement fomenting unrest on the home front and their perceived outsized influence in the Bolshevik communist movement (Trotsky was Jewish).

    Hitler inherited a failing German economy. He was aware that the economic potential of the western capitalist powers were orders of magnitude greater and growing faster, causing him to knowingly take enormous risks to address what he believed was an existential threat. Even as he acquired new territories he was playing catch up. Unlike Stalin, he was not driven by an anti-capitalist economic ideology, but intervention in the German economy increased as the Wehrmacht consumed an ever increasing share of GDP – over half at the peak – relying on private enterprise and the profit and price mechanism to the extent feasible (and arguably more than FDR) relative to the size of the war effort. Dictatorial power and crony capitalist corruption – favoritism of the political elite – was an inevitable result of a rising government share of the economy.

    Racist ideology contributed to his miscalculation of the military industrial ability of the Soviet Union, where his early luck inevitably ran out, after which a war of attrition would exploit Germany’s relative economic weakness. Economic desperation determined the magnitude of Nazi atrocities, less in scope and subsequent to those of the communists in the Soviet Union, but driven by racism.

    In 1977 the U.S. Supreme Court extended freedom of speech protection to the National Socialist Party of America, a racist fringe rather than socialist party.

    European Social Democracy

    In the wake of WW II deprivation and devastation in Europe, “social democracy” – a greater role of the state in providing household necessities – was viewed as a more benign alternative to communism. Britain, particularly Scotland, experimented primarily with socialized housing and medical care until the late 1970s when, as British Prime Minister Margret Thatcher put it, they were running out of “other peoples’ money.”It was also tried in the small relatively homogeneous Nordic countries, running out of money in Sweden in the 1990s and Finland more recently. These experiments were not democratic socialism or the fascist prone democratic capitalism, as all were financed by taxing capitalist-created income and resulted in retrenchment rather than socio-political collapse when they went to far.

    American Progressivism Rhymes with Fascism and Communism, not European Social Democracy

    But for democrat skullduggery, Socialist Bernie Sanders might well have been the 2016 Democratic candidate and also won the election. Most of his younger Democrat competitors for 2020 support the Green New Deal, the latest utopian vision. Their success hinges on rhyming this vision with small-state European social democracy, but the American progressive movement has always focused on the entire nation. When a failed ideology is adopted by a large too-big-to-fail nation-state like Germany or the Soviet Union in the past or the U.S. at present, unaccountable politicians cover-up and double down on failure until it is systemic and seismic like the 2008 financial crisis.

    Progressivism’s historical nationalism and racism and current methods of intervention in a capitalist market economy rhyme with fascism: its premise that economic progress is attributable to politics and its utopian goal of social justice without regard to national borders both rhyme with communism: the inherent dictatorial lack of political or fiscal accountability rhymes with both.

    American Nationalism

    Federal power ballooned during the wars of progressive presidents TR, Wilson, FDR and LBJ. That American patriotism is excessively nationalistic has been an issue since the Monroe Doctrine and subsequent Manifest Destiny. America’s support of free trade post WW II supported by American hegemony over trade routes worked well, as it did under British hegemony leading up to WW I. But the post WW II order is once again breaking down as a consequence of increasing nation-state rivalry over resources and trade routes. President Trump’s “Make America Great Again” is daily attacked not as patriotism but Nazi racist nationalism. The future of American Hegemony should be the central issue in the next presidential election.

    Racism and Sexism

    In a competitive free market economy those who would inappropriately discriminate by race or sex always lose out, always: racism requires political protection from competition. Socialism is inherently discriminatory; the state determines who gets what and who pays. The Democratic Party was the party of slavery, Jim Crow and voter discrimination; it remains the party of restrictive working laws and regulations (with a “disparate impact” on black youth employment) e.g., with well above market “living” minimum wages, credentialing and anti-immigrant worker prohibitions, and admission quotas. Winners beget losers: progressives once again discriminate against Asians.

    The progressive party founded the eugenics movement targeted to limit the black population from which Hitler borrowed ideology. Roe versus Wade represents a eugenic success story, as abortion for the white population at the time required no more than a bus ticket to the next state. Now about half of black pregnancies are terminated.

    The Road to Serfdom

    The promise of “free stuff” to those mostly not yet paying taxes and of cancelling their debt likely explains college students’ preference for socialism over capitalism, and the myth of socialist environmentalism the Green New Deal environmental goals.

    Income inequality and Social Justice in a Democracy

    America’s social welfare system while not as generous as the Nordic countries generally provides a standard of living sufficient by international comparison and luxurious compared to the deprivations suffered when fascism and communism incubated. Competitive market capitalism produces unequal incomes, the source of its ability to raise the living standards of all through increased productivity. Progressive policies that cross the constitutional threshold of equality of opportunity to demand equality of economic outcomes by broadening the base of the politically favored are a subset of crony capitalism that favors the political elite at the expense of society generally, a failed ideology. Socialism fails every time because incentives matter.

    The Green New Deal: a Fentanyl induced Utopian High

    Concern for the environment and the human impact on it is warranted, but what to do about it is a difficult question primarily for foreign diplomats. The Green New Deal adopted by only the U.S. would provide negligible environmental benefit. But as virtually all past environmental initiatives, it would be a bonanza for the crony capitalists and their political patrons. Whether or not the Green New Deal cost $100 trillion or only $10 trillion, it is a road to serfdom for millenials, with no exit provided by the archaic modern monetary theory.

    Democrats Cross the Rubicon

    “The founders of the Roman Republic, like the American founding fathers, placed checks and balances on the power of their leaders. The Romans, however, came up with a way to sidestep these checks and balances when strong leadership was needed, such as a time of crisis.” 

    Communism, fascism, the New Deal and social democracy were all implemented in response to an existential crisis. It is no accident that progressives exploited the “environmental crisis” to push their social justice agenda: these faux crises don’t justify national socialism, an existential threat to the body politic.

    The majority of American voters – positively correlated to age – still properly associate socialism with the totalitarian communist and Nazi regimes rather than European democratic socialism as socialist Sanders’ argues, undercut by his Moscow honeymoon. The two big progressive myths are that European social democracies never run out of money and that “other peoples’ money” i.e., the other party’s voters, will somehow finance the socialist agenda. Green New Deal proponents refused to vote for it to avoid voter accountability for the costs. National socialism and the virtual one party rule necessary to achieve it provides the best explanation for the rest of the 2020 “democratic” agenda.

    Progressive Social Democracy isn’t Nordic

    The population of California is four times that of the largest Nordic country Sweden. It, like all the progressive states is over taxed and over indebted. Obamacare impregnated promiscuous states with these twin fiscal burdens with a whispered promise of a subsequent opaque federal bailout when they matured, making states subservient to D.C. like Soviet Oblasts to Moscow.

    Suppression of Free Speech

    The free speech amendment is listed first as the foremost safeguard against infringement of individual freedom and equality under the law. The Communist Party remains illegal in U.S. due to its meretricious promises, now virtually indistinguishable from those of progressives. Conservative speech to expose the fallacies of progressive ideology and the threat to the Republic is suppressed by the democratic state apparatus. Free speech invites propaganda, including Russian translations, think tank and academic “research” but should be protected, even for communists and neo-Nazis.

    From Republicanism to Democratic Totalitarianism and One Party Rule

    The American experiment with a limited government republic has been undergoing constant change since the “peoples” candidate Andrew Jackson, founder of the Democratic Party and seventh President, while winning the popular vote in the post-universal male suffrage election of 1824 lost in the Electoral College, which he then proposed to abolish. Subsequent progressive constitutional amendments extended voting rights to former slaves and their decedents (15th), women (19th) and the direct election of Senators (17th).

    Even with control of the House, Senate and Presidency, this wasn’t enough to pass Obamacare, arguably the stealth stepping stone to single payer Medicare for all. Unprecedented political maneuvering and prosecutorial and administrative abuse by then FBI Director Robert Mueller was employed. Then a lone opinion of Chief Justice Roberts relied on another progressive amendment, the 16th enabling unlimited power to tax, to save it.

    Socialism in a large diverse nation like the U.S. requires permanent dictatorial powers of enforcement, as highlighted by the requirements of Obamacare and the controversy over the individual mandate. This explains the progressive platform on: voting rights; opposing voter registration, supporting immigration of dependents with voting rights rather than working rights, eliminating the Electoral College, reducing the voting age to 16 years old, registering prisoners, and drive-by voter registration: the Supreme Court; nominating liberal (i.e., anti-Constitutional) Supreme Court Justices, packing the Supreme Court (again), and: the apparent attempt by the Obama Administration to implement PRI style hereditary presidential selection. This rhymes with Mao’s “people’s democratic dictatorship” not the individual liberty of the American Lion.

    To quote America’s greatest economist Milton Friedman:  “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”

    Kevin Villani

     
     
    —-

    Kevin Villani, chief economist at Freddie Mac from 1982 to 1985, is a principal of University Financial Associates. He has held senior government positions, has been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on the political origins of the sub-prime lending bubble and aftermath.

    Posted in Big Government, Book Notes, Conservatism, Crony Capitalism, Culture, Economics & Finance, Elections, History, Leftism, Libertarianism, Obama, Political Philosophy, Politics, Public Finance, Taxes, Tea Party, Tradeoffs, Trump, USA | 6 Comments »

    Tariffs, Trade, and the British Corn Laws

    Posted by David Foster on 8th October 2018 (All posts by )

    Stuart Schneiderman linked an article by Robert Samuelson on the 1846 British repeal of the tariffs on food imports, which further linked an Economist article arguing that:

    With the repeal of the tariffs, instituted to protect British corn farmers, liberal economic policies ascended. Free trade, free enterprise, free markets and limited government became the rule. And the world has not been the same since.  (Schneiderman’s summary)

    To me, it is highly questionable how much the elimination of tariffs had to do with limited government and internal free enterprise. The view that the British 1846 action was economically a very good thing for almost everybody is, however, generally accepted.  From the Economist article:

    The case for getting rid of British tariffs on imported grain was not a dry argument about economic efficiency. It was a mass movement, one in which well-to-do liberal thinkers and progressive businessmen fought alongside the poor against the landowners who, by supporting tariffs on imports, kept up the price of grain…When liberals set up the Anti-Corn Law League to organise protests, petitions and public lectures they did so in the spirit of the Anti-Slavery League, and in the same noble name: freedom. The barriers the league sought to remove did not merely keep people from their cake—bad though such barriers were, and strongly though they were resented. They were barriers that held them back, and which set people against each other. Tearing them down would not just increase the wealth of all. It would bring to an end, James Wilson believed, the “jealousies, animosities and heartburnings between individuals and classes…and…between this country and all others.”

    Again, this is all mostly generally-accepted thinking.  But Stuart’s post and the links reminded me of something I read–oddly enough, in a 1910 book on railroad history.  The author (Angus Sinclair) describes the transition to steel rails (from cast iron) and the heavier trains they enabled, and then discusses the political-economic impact of this transition:

    The invention of cheap methods of making steel rails has exerted a tremendous effect upon railroad transportation, and has created social revolutions in certain part of the world…It threw many farms in New England and along the Atlantic seaboard out of cultivation; it caused a semi-revolution in farming business in the British Isles, and strongly affected the condition and fortunes of millions of people in other countries.  Irish peasants used to go in thousands to England and Scotland to work in the harvesting of grain crops and thereby earned enough money to pay the rent of their small holdings.  Steel rails and Consolidation locomotives stopped the cultivation of so many wheat fields in the British Isles that the help of the Irish worker was no longer needed…

    The woes of Ireland were merely the preliminary manifestations of hardships inflicted through the grim ordeal of competition worked out by our cheapened  methods of land transportation.  (The heavier locomotive enabled by steel rails) is steadily forcing more grain raising farms of Europe out of cultivation and is raising a demand for protection against cheap land, just as our politicians have so long urged the necessity for protection against the cheap labor of Europe.

    About 60 years ago Great Britain abolished all duties on grain…By curious reasoning the statesmen believed that this policy would not only make the British Isles the manufacturers of the world, but that it would increase the prosperity of the agricultural communities as well.  The first thirty years’ experience of free corn did not seriously  challenge the correctness of the free trade theory, for more of the American wheat lands were yet unbroken prairie or virgin forests, and our steel rail makers and locomotive builders were merely getting ready…In 1858 the rate per bushel of wheat from Chicago to New York was 38.61 cents.  The rate today is 11.4 cents…

    The effect of that cheapening of transportation in the United States has been very disastrous to Great Britain, for during the last thirty years there had been a shrinkage of 3,000,000 acres in wheat and another of 750,000 acres in green crops; an enormous amount of land had reverted to pasturage…and the number of cultivators of the soil  had declined 600,000 in thirty years–1,000,000 in fifty years.

    That is a high price to pay for the devotion to a theory which fails to work out as expected.

    Read the rest of this entry »

    Posted in Britain, Business, Capitalism, Economics & Finance, History, Ireland, Libertarianism, Taxes, Transportation, USA | 36 Comments »

    West Coast Real Estate Starts to Turn

    Posted by Carl from Chicago on 26th July 2018 (All posts by )

    When I moved to the West coast I noted that prices were generally high relative to incomes.  It is well documented elsewhere that San Francisco area housing prices are very high and Seattle has been skyrocketing as well.  In Portland, housing isn’t as costly as Seattle or San Francisco but is very high relative to the local job market, particularly within the city limits and in the nicer areas.  A condo in “the Pearl” in Portland (a local high rise market) is 2-3 times what I’d pay for a comparable unit in my former River North area in Chicago.

    From an economic perspective, the income tax changes passed in late 2017, particularly the virtual elimination of the State and Local Tax deduction (SALT) for high earner households, along with continuing reductions in the mortgage interest deduction, should have had an immediate, negative impact on house prices in high tax states such as Oregon and California.  I didn’t see these effects, but changes in the housing market take a long time to appear, because many transactions are already under way and sellers will hang on in the market rather than taking a perceived “hit” to the value that they expect to receive.

    It looks like the market, in Portland at least, has crested and is (likely) to proceed in a downward direction.  From an article in Bloomberg titled “The US Housing Market Looks Headed for Its Worst Slowdown in Years

    Dustin Miller, an agent with Windermere Realty Trust in Portland, said he’s trying to manage sellers’ expectations, something he hasn’t had to do since the end of the last housing boom. One customer, a baby boomer moving to a new home across the state, expected to have buyers fighting over her house. She got one bid, below her asking price.  “Buyers want to shop and take some time, as opposed to having to rush and throw offers in,” Miller said. “It’s the market correcting itself. At some point, you hit a peak of momentum, and then things level off.”

    The real estate agent refers to this as moving from a ‘peak’ to ‘leveling off’ and we will see if this moves to a prolonged rout, like we had back in 2008-9.  It will also be interesting to see if real estate in high tax states doesn’t bounce back as fast as real estate in states with lower tax rates, but we won’t be able to see the net effect of this for many years (and it is but one variable among a sea of variables).

    I have a semi-sad theory about this – I don’t think folks understand the impact of the changes in tax laws until they file their taxes.  Whether due to complexity (it is hard to model just a couple of variables in a tax program unless you know what you are doing) or a lack of financial acumen, I believe that after 2018 taxes are filed in the middle of 2019 you will start to see more of a “wealth effect” as home owners start to realize the potentially large impact of the changes to the SALT deduction.

    As I look out my window in Portland I hope that they complete the high rise buildings that they are working on, and don’t break ground on new ones.  We used to look at partially completed buildings for many years in Chicago after the 2008-9 crisis, until they finally completed them up to 5 years later.

    Cross posted at LITGM

    Posted in Oregonia, Real Estate, Taxes | 21 Comments »

    An Interesting and Timely IPO

    Posted by David Foster on 22nd June 2018 (All posts by )

    I’ve been aware for some time of a company called Avalara, which is in the cloud-based tax-compliance business.  In the US, Avalara keeps track of the vast array of sales tax rates, which are imposed not only at the state level but often also at municipal and county levels.  Avalara integrates with a number of electronic commerce platforms, which can pass destination address info to the system and thereby obtain the appropriate tax rate in real time and include it in the end customer’s charges at checkout.

    The company did its Initial Public Offering on June 13, and AVLR quickly jumped from its IPO price of $24 to about $45 , putting its market capitalization at about $2.9 billion.  Yesterday, the Supreme Court issued a decision that has great implications for Avalara’s business…as well as for the businesses of hundreds of thousands if not millions of on-line retailers and the consumers who buy from them–and as of this moment AVLR is trading at $52.16, with a market cap of $3.32 billion.

    What the Court apparently ruled is that states can impose sales taxes on on-line transactions (and, I would presume, classical mail-order transactions as well) even when the seller does not have a physical “nexus” (such as a warehouse, and office or a factory) in that state. (And you can be sure that most of them will take advantage of this opportunity.)   This is really “just” a cost problem for very large on-line merchants such as Amazon, but the compliance issues for smaller businesses are going to be considerable.  Avalara seems well-positioned to help with this problem, but the ruling is still going to be far more burdensome to the smaller on-line merchants than to the large ones.

    See discussion of the sales tax issue at the Instapundit post.

    Regarding Avlara, I have not analyzed this company as a potential investment and am not giving an opinion on it for that purpose either pro or con, certainly not giving investment advice here.

    Posted in Big Government, Business, Internet, Taxes, Tech | 28 Comments »

    Draining the Swamp: Progressive Politics – the Road to Crony Capitalist Perdition

    Posted by Kevin Villani on 17th June 2018 (All posts by )

    From A Libertarian Republic to Majoritarian-Totalitarian Democracy: a Summary

    The 2016 American Presidential Election

    Trust in government fell by almost 80% from the end of the Eisenhower Administration to the end of the Obama Administration. Then Americans endured one of the most divisive and longest two year election campaigns leading up to the 2016 election. Former Democrat turned Republican Donald Trump defeated a field of 17 traditional center-right Republicans to run against traditionally center–left Democratic candidate Hillary Clinton who turned left to defeat her socialist competitor Bernie Sanders in the primary. Sanders correctly argued that the U.S. political system is rigged – more than he knew at the time – but responded by promising his generally young supporters socialism without totalitarianism. The public has endured another two years of divisiveness as the losing party tries to undermine and some would impeach the winner.

    Republican nominee and arguably crony capitalist businessman Donald Trump, the son of a crony capitalist housing developer, ran on the paradoxical promise to “drain the swamp.” The faux democratic election of crony capitalist supremo Vladimir Putin in 2011 drew the public reprobation of then U.S. Secretary of State Hillary Clinton, the subsequent Democratic Party nominee. Putin responded with a campaign of not so fake news not to elect Trump – they had the same polls as everybody else – but to expose Clinton as a crony capitalist who also engaged in election-rigging. He hit pay dirt. The faux Russian collusion scandal has since been used to undermine the legitimacy of the Trump Administration.

    On the issue of trade there was no difference between the three main candidates – all opposed the new TTP trade agreement. The U.S. trade deficit has been about $500 billion a year during this century, consumption financed mostly with additional debt. Candidate Clinton, who supported China’s entry into the WTO during the Clinton Administration agreed she would if elected renegotiate NAFTA, the trade bill passed at her husband’s initiative. On the related issue of immigration, candidate Clinton voted for the bipartisan Secure Fence Act of 2006, as did then Senators Obama and Schumer.

    The Obama Administration had doubled the federal debt outstanding to over $20 trillion – and the unfunded liability is approximately ten times that. President Obama’s Chairman of the Joint Chiefs of Staff publically warned as early as 2010 that the debt was a threat to national security. Candidate Clinton promised she wouldn’t add a penny to the national debt, but her platform had an imbedded $10 trillion increase, less than Sanders to be sure. Candidate Trump promised to eliminate the debt in eight years by increasing economic growth. Clinton’s was a political lie, Trump’s an outlandish campaign promise since going unfulfilled: his appropriations bill contained a $200 billion increase in spending, a Democratic victory for domestic spending in return for Republican defense spending.

    Candidate Trump ran against the “deep state” wars and military interventions that candidate Clinton had voted for. But as President, Trump embraced it with overwhelming Democratic support to punish Russia.

    Progressivism’s Administrative State

    The Democrats’ agenda has arguably fared much better under Trump than Republicans did under Obama. Given these similarities in proposed and actual policies, the subsequent animosity might appear puzzling. But the biggest difference among the candidates relates to the relative roles of the public and private sectors. The U.S. is now governed by an unaccountable patria administrative state: judicial and legislative subsumed in the executive branch and sometimes independent even of that – judge, jury and executioner. The new religion is “science” requiring a faux consensus and leadership by the “experts” as proposed by John Kenneth Galbraith in the New Industrial State (1967) over a half century ago.

    Washington, D.C. is a place where self interested deals are made in hotel lobbies and K street offices, but the entire federal bureaucracy sits on a former swamp. Most federal politicians are political swamp people having worked their way up in local and state politics by making political deals for budget and/or tax subsidies and/or regulatory discretion – legal extortion. Candidate Clinton is a self described progressive and candidate Sanders a socialist, the former supports state control of business, the later favors more direct state ownership.

    The Berlin Wall fell in 1989, followed by the Soviet Union two years later. In 1995 U.S. President Bill Clinton declared “The era of big government is over.” Britain’s Prime Minister Tony Blair, publishing in a Fabian pamphlet in 1998 argued: “Liberals (classical, i.e., American conservatives) asserted the primacy of individual liberty in the market economy; social democrats promoted social justice with the state as its main agent. There is no necessary conflict between the two, accepting as we now do that state power is one means to achieve our goals, but not the only one and emphatically not an end in itself.” But “the values which have guided progressive politics for more than a century – democracy, liberty, justice, mutual obligation and internationalism” have lead in practice to “state control, high taxation and producer interests (crony capitalism).” By the end of the century a few years after Blair spoke, the market had reached The Commanding Heights of the economy. But a decade later the Obama Administration had put the state back on top, seeking to control not just health care but finance and energy.

    Progressivism – like fascism and communism – started with the best of intentions, in opposition to crony capitalism. Social welfare programs were implemented to spread the wealth and provide a safety net, but during the progressive Obama Administration economic growth per capita stagnated. Candidate Trump believed that rolling back the administrative state regulations and the tax on savings and investment as suggested by Blair would restore real private economic growth, the key to managing the public deficit. His Democratic opponents both favored a vast expansion of the administrative state and increases in the tax on capital.

    Progressive Internationalism and the New World Order

    Progressives supported freer trade even if not reciprocal in the post WW II era because America could still enjoy a balance of trade surplus that could be used to fund investments abroad and a “new world order” of American dominance in a bi-polar world with the Soviet Union and its satellites. The European Union evolved as a mechanism to end European – especially German – “nationalism” in favor of this plan. Two events undercut this agenda of international control through capital flows: the 1960s wars on poverty and Vietnam turned American surpluses into deficits, and the common European currency created a German economic hegemony over Europe. The U.S. today is to China what Greece, Italy, Spain, Portugal and Ireland are to Germany, and that’s not a compliment. Both China and Germany – whose exports equal China’s with only 6% of the population – are mercantilist countries pursuing low wages and consumption domestically so that future generations can live off the debt that finances their over-consuming customers.

    Germany understands perhaps better than any country the problem of using foreign debt to finance current consumption as it did to feed a starving population during the interwar years. The excessive debt undermined the fledgling Weimar Republic, giving rise to Hitler. Trumps trade policy appears incoherent, as is much of the criticism. Progressives still argue for globalism and internationalism while conservatives and libertarians are hung up on Ricardian theory of comparative advantage in international trade and the accounting identity of the trade and capital balance.

    The problem isn’t global trade per se, but progressive policies that repress national saving and domestic labor and capital productivity while growing the administrative state. National boundaries still matter. In the EU the single currency zone has destabilized previously relatively stable prosperous countries, threatening political and economic collapse. The relationship between the U.S. and China reflects a similar dynamic: the willingness to accept American debt has kept the dollar from falling and trade adjusting. China holds over trillion dollars of debt backed by taxpayers, and was the biggest foreign funder of Fannie Mae and Freddie Mac during the sub-prime lending bubble. Progressives argued that we would grow out of this debt, but simultaneously and inconsistently deny that the failure to grow during the Obama Administration reflected economic repression but “secular stagnation” – that capitalist innovation has run its course. If so, we are doomed when countries attempt to collect.

    Thus far the main part of the Trump agenda, the tax reform and regulatory roll back – against universal Democratic opposition and condemnation – appears to be working. Economic growth per capita has picked up, unemployment is the lowest since the turn of the century, and business investment net of depreciation is rising from historic lows. But it is way too early to declare success. China entered the WTO without meeting the minimum requirements for intellectual property protection or reciprocity, a Clinton Administration oversight. Fixing the former should be uncontroversial. Reciprocity insures that the most competitive – not the most subsidized – win. Subsidies may benefit American consumers temporarily, but the dislocations are costly and overconsumption dangerous, the debt leading to contemporary “gunboat diplomacy” to settle debts. A reciprocal tariff is a consumption tax, not irrational to consider under those circumstances.

    Progressive efforts to Impeach President Trump: the Totalitarian Administrative State Strikes Back

    Yet since the election, some progressive Democrats have been pushing for impeachment on grounds of Russian collusion and obstruction of justice, although no evidence has yet been produced of that after two years of investigation.

    One thoughtful progressive commentator dismisses these grounds, arguing that the real grounds for impeachment are the “threats Trumpism poses to democracy and rule of law.” If true, those would indeed be grounds for impeachment but he doesn’t define Trumpism or provide evidence. The many articles in the progressive media can be summarized thus: Trump is tweeting against the administrative state agents that are out to get him.

    Libertarians and Republican conservatives have argued that progressives have been undermining liberty and the rule of law for over a century to create the administrative state, obfuscating their agenda by manipulating words to mean the opposite of their historical meaning. Trump’s Court appointments are intended to reverse that trend. Statism is usually associated with one-party faux democracy to prevent state power from turning against the entrenched interests with a change of government. Trump ran against the progressive new world order, arguing to “put America first.” The Democrats didn’t think Trump had any chance to win. This seems the more compelling reason for their impeachment efforts. The anti-Trump organized hysteria bears a marked resemblance to the largely Soros funded Republican and Democratic efforts to ignite the democratic color revolutions in the former Soviet states described by F.William Engdahl in Full Spectrum Dominance: Totalitarian Democracy in the New World Order (2009).

    This isn’t about Trump tweets. It’s a battle for the commanding heights.
    Read the rest of this entry »

    Posted in Big Government, Capitalism, Civil Liberties, Civil Society, Conservatism, Crony Capitalism, Economics & Finance, History, Leftism, Libertarianism, Political Philosophy, Politics, Public Finance, Taxes, Tradeoffs, USA | 11 Comments »

    Paying Higher Taxes Can be Very Profitable

    Posted by David Foster on 17th April 2018 (All posts by )

    (originally posted in 2010)

    Chevy Chase, MD, is an affluent suburb of Washington DC. Median household income is over $200K, and a significant percentage of households have incomes that are much, much higher. Stores located in Chevy Chase include Tiffany & Co, Ralph Lauren, Christian Dior, Versace, Jimmy Choo, Nieman Marcus, Saks Fifth Avenue, and Saks-Jandel.

    PowerLine observed that during the 2008 election season, yards in Chevy Chase were thick with Obama signs–and wondered how these people were now feeling (in October 2009) about the prospect of sharp tax increases for people in their income brackets.

    The PowerLine guys are very astute, but I think they were missing a key point on this one. There are substantial groups of people who stood to benefit financially from the policies of the Obama/Pelosi/Reid triumvirate, and these benefits can greatly outweigh the costs of any additional taxes that these policies require them to pay. Many of the residents of Chevy Chase–a very high percentage of whom get their income directly or indirectly from government activities–fall into this category.

    Read the rest of this entry »

    Posted in Big Government, Politics, Taxes, USA | 4 Comments »

    Tax Reform Impact – Capital Gains and Investment Income

    Posted by Carl from Chicago on 21st January 2018 (All posts by )

    Recently I was at Powell’s bookstore In Oregon when I came across this book which attempts to be an introduction to the complexities of taxation. I thought that this was in the spirit of what I was going to try to do as I start to review the 2017 Tax Reform act and its’ myriad impacts on the economy and individual incentives.







    As an individual investor, I started with looking at capital gains and investment income. Some thoughts:


    1. The same general split applies; long term gains are taxed at favorable (lower) rates, and short term gains are taxed as ordinary income. The ordinary income tax brackets are always higher than the capital gains brackets

    2. The tax rates for capital gains are 0, 15% and 20%. These are the same as under the previous tax laws.
    Here is a brief article from the Motley Fool

    3. The rates on ordinary income have gone down a bit, so the average person would pay less on gains, all else being equal (but this gets into your state and the standard deduction, a different topic). Thus there is no significant impact on investments here, it should be slightly favorable

    4. Although there was talk of changing the way stock sales are accounted for to limit “tax loss harvesting”, these changes did not occur. I believe that you can still deduct up to $3000 in losses against ordinary income, but I haven’t been able to find that yet to confirm either

    5. The 3.8% surtax on gains if your income is above $250,000 remains the same; this does not seem to be impacted by the law

    6. While there were changes throughout the code that impacted REITS (real estate limited trusts) and MLP’s (Master Limited Partnerships), these changes didn’t fundamentally impact their value to classes of high income investors (they still have favorable tax characteristics)

    7. There was some discussion of eliminating the Federal tax free nature of municipal bonds, but that deduction remained intact

    8. There also was some discussion of changing the 401(k) deductions; this too, remained intact


    Thus for investors, the basics of investing for individual investors (not the super wealthy) and the impact of taxation did not see significant changes under the new tax law. The types of tactics you would use under the prior tax law mostly moved into the new environment intact.




    Cross Posted at LITGM

    Posted in Taxes | 10 Comments »

    Some Thoughts on Trump, Free Trade, and Horses

    Posted by Lexington Green on 28th February 2017 (All posts by )

    A friend sent a link to a leaked, recorded conversation between Trump and Wilbur Ross, his nominee for Commerce Secretary. There is nothing particularly troubling in the conversation. Trump is talking like Trump. He is the same person in public and in private, which is nice.

    I responded:

    Sounds good to me.  A tariff is a consumption tax collected at the port of entry.  The American founders expected to fund the operations of the national government with revenue from a tariff, and it worked.  He is also right that the Japanese and other countries use safety regulations as non-tariff import barriers.  There is nothing bad on here at all.  

    Read the rest of this entry »

    Posted in Culture, Economics & Finance, History, Politics, Public Finance, Taxes, Trump | 20 Comments »

    Trump and Conflicts of Interest.

    Posted by Michael Kennedy on 19th November 2016 (All posts by )

    Trump is organizing his administration but he is facing another crisis.

    The Wall Street Journal is giving him painful and unwelcome but good advice.

    He must liquidate the family business.

    One reason 60 million voters elected Donald Trump is because he promised to change Washington’s culture of self-dealing, and if he wants to succeed he’s going to have to make a sacrifice and lead by example. Mr. Trump has so far indicated that he will keep his business empire but turn over management to his children, and therein lies political danger.

    Mr. Trump has for decades run the Trump Organization and during the campaign said if he won the Presidency he’d turn over the keys to Donald Jr., Eric and Ivanka, all of whom are now serving on the Trump transition. A company spokesperson says the family business is “in the process of vetting various structures” and that the ultimate arrangement “will comply with all applicable rules and regulations.”

    Some of Mr. Trump’s lawyers have called the plan a “blind trust,” which past Presidents have used to protect their assets from the appearance of conflicts-of-interest. But that set-up typically involves liquid assets like bonds and stocks, not buildings or a branding empire. Mr. Trump will know how any given decision will affect, say, the old post office property in Washington, D.C. that he’s leasing from the federal government (another conflict). By law blind trusts are overseen by an independent manager, not family members.

    The Journal is correct. I don’t know how Trump is going to do this but he has to.

    Read the rest of this entry »

    Posted in Big Government, Capitalism, Current Events, Elections, Taxes, Trump | 23 Comments »

    Paying Higher Taxes Can be Very Profitable (rerun)

    Posted by David Foster on 15th April 2016 (All posts by )

    (originally published in 2010 and now an April perennial)

    Chevy Chase, MD, is an affluent suburb of Washington DC. Median household income is over $200K, and a significant percentage of households have incomes that are much, much higher. Stores located in Chevy Chase include Tiffany & Co, Ralph Lauren, Christian Dior, Versace, Jimmy Choo, Nieman Marcus, Saks Fifth Avenue, and Saks-Jandel.

    PowerLine observed that during the 2008 election season, yards in Chevy Chase were thick with Obama signs–and wondered (in 2009) how these people were now feeling about the prospect of sharp tax increases for people in their income brackets.

    The PowerLine guys are very astute, but I think they missed a key point on this one. There are substantial groups of people who stand to benefit financially from the policies of the Obama and company, and these benefits can greatly outweigh the costs of any additional taxes that these policies require them to pay. Many of the residents of Chevy Chase–a very high percentage of whom get their income directly or indirectly from government activities–fall into this category.
    Read the rest of this entry »

    Posted in Big Government, Economics & Finance, Leftism, Taxes, USA | 3 Comments »

    Toward Financial Independence

    Posted by Nathaniel T. Lauterbach on 28th February 2016 (All posts by )

    I commented in this post about the consumerist fog that in which I was living as a middle-rank American military officer, and my desire to “fix” or improve my situation by taking command of my finances.

    How did we do it?

    It was simple, but not easy.
    Read the rest of this entry »

    Posted in Book Notes, Economics & Finance, Human Behavior, Miscellaneous, Personal Finance, Personal Narrative, Taxes | 14 Comments »

    “We Were Poised for Real Criminal Justice Reform”

    Posted by Jonathan on 27th January 2016 (All posts by )

    Indeed.

    Something similar happened in the early ’90s. It looked as though a political consensus favoring smaller government was taking shape. Republicans with a well-considered smaller-govt agenda took over the Congress and the Democrats started to cut deals with them. Then the Oklahoma City bombing happened, the Clinton Democrats outmaneuvered the Gingrich Republicans over the government shutdown, and the smaller-government impetus was weakened considerably (we did get cap-gains tax cuts, welfare and a few other reforms that did a lot of good in the subsequent decade).

    But then Sept. 11, 2001 and the Middle East war kicked much of what was left of the smaller-government movement over the far horizon, and since 2009 a hard-Left executive branch has been extending and doing its best to entrench post-Reagan government expansion.

    There are tides in the affairs of men. The problem with tides is that they can go out for a long time before they reverse and start to come in. Let’s hope that the statist tide has finally run its course and that we are near a reversal.

    Posted in America 3.0, Big Government, Current Events, History, Politics, Taxes, Tea Party, USA | 27 Comments »

    The Most Important Story No One Is Talking About – Puerto Rican Debt

    Posted by Carl from Chicago on 15th October 2015 (All posts by )

    Dan and I go back and forth on the relatively arcane topic of municipal debt. As we all know, the state of Illinois is awash in debt. The situation is so bad that:


    1. The State of Illinois is operating without a budget

    2. The city of Chicago is proposing a massive property tax increase

    3. Cook County just raised our sales tax (one of the highest rates in the country, already) and is proposing additional fees

    4. Chicago Public Schools face a major deficit and without some sort of massive state tax relief is likely going to face significant layoffs and a likely teachers strike

    5. Note that we are one of the few states and cities to be in such dire straits that we issue TAXABLE debt instead of MUNICIPAL debt which is generally exempt from Federal taxes and some state taxes. This is due to the fact that you generally cannot issue muni bonds to pay off operating expenses (like payroll and legal settlements)

    The long term most indebted players have been Detroit, Puerto Rico, and the State of Illinois / City of Chicago. We saw how the Detroit bankruptcy occurred, with bondholders generally taking it on the chin and unsecured pension holders in fact emerging in a relatively better situation.

    Now Puerto Rico is up to bat. They have massive, unpayable debts of many varieties (some secured by full faith and credit, some secured with revenues, some bank loans, etc…) and their governor basically said so out loud. All of this is inevitable as their island’s best talent has fled to the mainland USA and the remaining population is more and more reliant on government aid to survive. They also have failed to modernize their power infrastructure and / or build new industries outside of tourism which erodes their ability to compete against the mainland USA that in turn has much higher productivity.

    The real issue – long term – is whether or not the Federal government will back up the states. This is essentially the “long game” of the State of Illinois and the city of Chicago – waiting to see whether or not the Federal government is really going to stand by and let us go bankrupt or not. If the government is ultimately going to pick up our debts, it is “business as usual”, and the corruption, back-scratching, and non-competitive behavior can just continue indefinitely, with taxpayers across the nation picking up the debris rather than forcing the citizens of Illinois to clean up our act.

    Today Puerto Rico and the treasury announced that they are working to backstop the Puerto Rican debt with some sort of Federal umbrella per this article.

    Puerto Rico and U.S. officials are discussing the issuance of a “superbond” administered by the U.S. Treasury Department that would help restructure the commonwealth’s $72 billion of debt, people familiar with the plan said.

    And what a great name! A “superbond” means that all the US citizens will pick up the “super” obligations of our corrupt, crony-laden, inefficient city and state. That’s super!

    This is the path out for Illinois and the city of Chicago. Play brinksmanship with Federal government and receive a backstop. Puerto Rico leads the way!

    Cross posted at LITGM

    Posted in Big Government, Chicagoania, Economics & Finance, Politics, Public Finance, Taxes | 15 Comments »

    Paying Higher Taxes Can be Very Profitable (rerun)

    Posted by David Foster on 17th April 2015 (All posts by )

    (Originally posted in January 2010–now an April perennial)

    Chevy Chase, MD, is an affluent suburb of Washington DC. Median household income is over $200K, and a significant percentage of households have incomes that are much, much higher. Stores located in Chevy Chase include Tiffany & Co, Ralph Lauren, Christian Dior, Versace, Jimmy Choo, Nieman Marcus, Saks Fifth Avenue, and Saks-Jandel.

    PowerLine observed that during the 2008 election season, yards in Chevy Chase were thick with Obama signs–and wonders how these people are now feeling about the prospect of sharp tax increases for people in their income brackets.

    The PowerLine guys are very astute, but I think they’re missing a key point on this one. There are substantial groups of people who stand to benefit financially from the policies of the Obama/Pelosi/Reid triumvirate, and these benefits can greatly outweigh the costs of any additional taxes that these policies require them to pay. Many of the residents of Chevy Chase–a very high percentage of whom get their income directly or indirectly from government activities–fall into this category.

    Consider, for starters, direct employment by the government. Most Americans still probably think of government work as low-paid, but this is much less true than it used to be. According to this, 19% of civil servants now make $100K or more. A significant number of federal employees are now making more than $170,000. And, of course, the more the role of government is expanded, the more such jobs will be created, and the better will be the prospects for further pay increases.

    If one member of a couple is a federal employee making $100K and the other is making $150K, that would be sufficient to allow them to live in Chevy Chase and occasionally partake of the shopping and restaurants. But to make the serious money required to really enjoy the Chevy Chase lifestyle, it’s best to look beyond direct government employment and pursue careers which indirectly but closely benefit from government activity…which are part of the “extended government,” to coin a phrase.

    Read the rest of this entry »

    Posted in Big Government, Taxes | 3 Comments »

    Why Gruber has to lie

    Posted by Michael Kennedy on 10th December 2014 (All posts by )

    The left does not do economics. They do politics and elections and lying to get past the “stupid voters” but, when pressed, nothing they do qualifies as numerically or mathematically sound. Social Security worked until everyone found the queue and until Congress raided the trust fund in the 90s.

    Obama and the Democrat leaders knew that Hillary made enemies of the insurance companies in 1992. The insurance companies funded devastating TV ads with “Harry and Louise” that cost the Democrats Congress in 1994. Therefore, they had to do what was necessary to get the insurance companies “inside the tent pissing out and not outside the tent pissing in” in Lyndon Johnson’s immortal words.

    Insurance companies have considered health insurance a loser for 25 years now. What they prefer is becoming “Administrative Service Organizations” which administer self funded health plans by employers.

    Corporate benefits include- organizing/ negotiating health insurance, group dental, STD, LTD, life, etc.

    The plan the Democrats came up with, with Gruber’s help, was to make the government the funding entity and pay the insurance companies to run the program. That way everybody is happy, except, of course, the taxpayer. The taxpayer does not like tax increases which would be needed to pay the bills. Therefore the taxpayer has to be fooled.

    The excise tax on high-cost health plans was among the many fees and taxes proposed as offsets to help slow the rate of growth of health costs, particularly premium growth, and finance the nationwide expansion of health coverage. When the Affordable Care Act was signed into law in March 2010, its coverage provisions were estimated to cost more than $900 billion over the next decade, from 2010 to 2019, and were to be paid for by fees and taxes on both individuals and businesses. At the time the health reform bill passed, the excise tax on high-cost plans was estimated to raise roughly $32 billion in revenue over the next decade, or by 2019.

    Without the taxes to pay the bills, the whole plan collapses. At its base, Obamacare is Medicaid for everyone. The employer mandate has been, contrary to the text of the law, postponed as the flaws in implementation appear. If it were to be enforced, there would be a revolution. Basically, Obamacare will destroy the health care plans of the 85% of the population who are satisfied with what they have to enroll everyone in a new program that approximates what Medicaid does. The reason for this is that our betters in Washington have decided that we spend too much on health care. That may even be true. One way to deal with this would be to use a market-based approach that resembles how health care was paid for 60 years ago. I have previously discussed how this worked and how it might be restored.

    Today, the vast majority of Americans get health insurance as a benefit from their employer. How this developed has been discussed at length and began during World War Two. In 2008, John McCain proposed a possible way to disconnect employment, alleged to create “Job Lock” but he lost the election. A hostile analysis of his proposal is here. The McCain campaign’s description is here.

    What became Obamacare is the work of the Democrat staff of Congress when the Democrats had filibuster proof majorities in both houses. The election of Scott Brown in a reaction to the impending passage of the health plan forced them to rush the bill through without amendments before Brown was sworn in January 2010.

    The taxes to fund Obamacare were hidden as “fines and penalties” until exposed by the Supreme Court in its 2012 decision on the constitutionality of Obamacare. All penalties are now taxes. The largest are on employer-funded plans.

    The funding from employee plans is called “The Cadillac Tax which is an excise tax on employer plans that exceed the benefits of Medicaid. The “exchange plans” are increasingly looking like Medicaid, especially in the narrow networks of providers, as doctors are now called.

    As health coverage expands to tens of millions of Americans–through Medicaid expansion in states and the new state health insurance exchanges that will soon begin selling individual health coverage–some Americans with employer-sponsored health coverage are seeing their benefits decrease.

    One of the most significant, and controversial, provisions of the Affordable Care Act is the new excise tax on high-cost health plans proposed to both slow the rate of growth of health costs and finance the expansion of health coverage. The provision is often called the “Cadillac” tax because it targets so-called Cadillac health plans that provide workers the most generous level of health benefits. These high-end health plans’ premiums are paid for mostly by employers. They also have low, if any, deductibles and little cost sharing for employees.

    If this is ever implemented, the Medicaid-for-all nature of Obamacare will become obvious. That’s why it will not happen. The fundamental premise behind Obamacare is not viable. That is why it will fail and the numbers do not add up.

    Gruber can’t say this. All he can do is obfuscate.

    Posted in Elections, Health Care, Law Enforcement, Leftism, Medicine, Taxes | 22 Comments »

    Quote of the Day

    Posted by Jonathan on 2nd December 2014 (All posts by )

    Richard Epstein, The flawed 75% tax solution from Hollande and Piketty:

    The basic question is why would anyone assume that major shifts in tax rates should have only relatively modest effects on the production of wealth. No one would say that about a cut in market wages of over 50 percent. So why assume otherwise in a tax context?

    Posted in Big Government, Economics & Finance, France, Leftism, Political Philosophy, Quotations, Taxes | 6 Comments »

    Governor Sam Brownback has a copy of America 3.0 in his Office

    Posted by Lexington Green on 14th August 2014 (All posts by )

    Governor Sam Brownback has come in for a lot of flack for his tax cuts in Kansas.

    The usual unholy alliance of Democrats and so called moderate Republicans, meaning they spend almost like Democrats but not quite, is against Brownback on this effort.

    A recent article in the Wall Street Journal entitled Why Liberals Hate Kansas: Sam Brownback’s tax cuts must be discredited before they succeed provides a more believable picture of what is happening. There is the usual nonsense about purportedly savage cuts to educational spending, that actually increased, etc. RTWT.

    As the WSJ notes:

    Mr. Brownback has led the movement for tax reform, which has been taken up by Republicans in Oklahoma, Missouri, Ohio, North Carolina and Wisconsin. Liberals are trying to stop the trend from spreading by predicting catastrophe. They’re afraid people may soon be asking what’s right with Kansas.

    Meanwhile, a reliable source tells me the picture above is from Governor Brownback’s office.

    I am pleased to see he has a copy of America 3.0: Rebooting American Prosperity in the 21st Century-Why America’s Greatest Days Are Yet to Come.

    I hope our vision of a renewed America helps to encourage him to stay the course on the tax cuts and tax simplification.

    Be strong, Governor. You are on the right track.

    Posted in America 3.0, Politics, Taxes | 1 Comment »

    What next for health reform ?

    Posted by Michael Kennedy on 26th July 2014 (All posts by )

    It looks to me that the Supreme Court will have little justification for continuing the Obamacare program as it exists. The Halbig decision should kill it off. It is clear that the IRS subsidies to federal exchange subscribers are illegal.

    The only statement anyone has found in the legislative history that addresses this point comes from the Act’s lead author, who affirmed that Congress did intend to withhold tax credits in federal Exchanges. During a September 23, 2009, mark-up of his bill, which ultimately became the PPACA, Senate Finance Committee chairman Max Baucus (D-MT) refused to consider a Republican amendment regarding medical malpractice on the grounds it fell outside the Committee’s jurisdiction. Sen. John Ensign (R-NV) protested, asking how Baucus’ bill could do other things that lie outside the Committee’s jurisdiction, like direct states to create Exchanges. Baucus responded the bill creates tax credits, which are within its jurisdiction, and makes eligibility for those tax credits conditional on states creating Exchanges. Conditional necessarily means that Baucus intended to withhold tax credits in states that did not create their own Exchanges.

    I just don’t see how the Court can ignore that history. The political left has been on a rant about Congressional intent since the decision was announced.

    Read the rest of this entry »

    Posted in Economics & Finance, Health Care, Leftism, Medicine, Politics, Taxes | 10 Comments »

    Incentives and Economics

    Posted by Carl from Chicago on 14th July 2014 (All posts by )

    A few years ago I went to Norway and had a great time. In this post I described how expensive everything was in Norway due to their highly valued currency (tied to oil riches) combined with the relentless decline of the US dollar (tied to ZIRP and other dubious economic moves). In the simplest terms, a fast food meal or a beer in Norway cost over $20 USD which is complete madness.

    Business Insider discussed the Scandinavian economic experiment, where high taxes are applied to goods and services in order to fund a vast social safety net. From the article:

    In Norway, a burger and fries at a fast food joint will set you back $23. A six-pack of warm grocery-store beer is nearly $30.
    These hefty price tags are due, in part, to high wages for low-skilled service jobs. But high taxes play a role too.
    Most products have a 25 percent value-added tax, which means that $5.50 of the cost of that burger goes to fund Norway’s generous social programs.
    As a visitor, you get little for the added price. But, as a resident, your daily spending helps to fund an expansive package of benefits, including health care, child care, high-quality education, pensions, and unemployment insurance.

    Some are now proposing this high-cost method, with large taxes embedded in everyday prices, as a solution to the inequity in incomes and wealth that is discussed widely in politics and economics today.

    From the perspective of someone who is highly interested in economics and tax policy, my two rules of thumb are:
    1) that the tax policy raise the money that it intends to raise
    2) that the tax policy not significantly distort economic activity

    Any society that implements high taxes such as Norway needs a comprehensive surveillance model in order to collect these taxes. It is difficult to avoid taxes that are broadly assessed on fast food, for instance, because each corporate location will set up cash registers and controls to remit these taxes onto the state. The same types of processes can be installed in liquor stores, formal bars and nightclubs, grocery stores, and restaurants.

    In a less-homogeneous society such as the USA, we already have major problems with tax evasion on cigarettes and likely liquor, and these are in responses to our sales taxes. The problems would be compounded if we placed value added taxes on all goods at a higher level and on services such as restaurants, hair care, etc… Smuggling would become rampant and informal or barter methodologies would increase in size and scope. These sorts of costs would have to be applied across the USA or some areas would become uncompetitive and see an out-migration of economic activity, starting with incremental additions (no one has opened a new manufacturing plant in Illinois in years, for instance) and eventually leading to the lock, stock and barrel out migration of existing industries (such as the exodus of car manufacturing out of the Midwest and California to the American South).

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    Posted in Big Government, Economics & Finance, Public Finance, Taxes | 33 Comments »

    Picketty’s Introduction

    Posted by TM Lutas on 9th June 2014 (All posts by )

    Thomas Piketty has written a monster of a book, Capital in the Twenty-First Century. I find myself in strange agreement with Brad DeLong, that the collective conservative response is weak. I had a patch of time that left me twiddling my thumbs waiting for some pretty long database operations to finish over the past four days. So I went and decided to fisk the book. I just finished the introduction. It took four posts, Part I, Part II, Part III, Part IV and overran the spare time I had available from a database import and indexing task by about 12 hours.

    Now I know why the criticism is so weak. Piketty is a target rich environment and doing a line by line analysis is simply exhausting. But it’s the only way to be sure.

    Posted in Book Notes, Business, Economics & Finance, Public Finance, Society, Taxes, USA | 18 Comments »

    Income inequality: Social justice or crony capitalism?

    Posted by Kevin Villani on 26th April 2014 (All posts by )

    The political movement Occupy Wall Street has shaped the tax and spending proposals of the Obama administration’s budget and political debate on the premise that our capitalist economic system is rigged to favor the top-earning “one percenters.” But income inequality can result either from capitalism or politics, each for better or worse.

    Historically, political elites focused on enriching themselves at the expense of the general public: In 1773 patriots threw the tea into Boston Harbor of the East India Tea Company, granted a “royal charter” in 1600. The U.S. system was founded not just on the principles of democracy but on limited government complementing private market capitalism that encouraged individuals to “pursue happiness” — accumulate wealth — on merit rather than political connections. Support for the less fortunate was provided by family members, religious and other charitable organizations.

    Believing (wrongly) that class envy against the new economic elites — innovative entrepreneurs — would cause revolution, Karl Marx offered the socialist alternative “from each according to his ability, to each according to his need” with politics supplanting merit. Despite totalitarian methods universally employed by governments seriously pursuing the socialist model leading to the murder of tens of millions, one historian recently concluded that communism reduced workers “to shiftless, work-shy alcoholics.”

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    Posted in Big Government, Crony Capitalism, Economics & Finance, History, Political Philosophy, Public Finance, Taxes | 15 Comments »

    Paying Higher Taxes Can be Very Profitable (rerun)

    Posted by David Foster on 11th April 2014 (All posts by )

    (Originally posted in January 2010–now an April perennial)

    Chevy Chase, MD, is an affluent suburb of Washington DC. Median household income is over $200K, and a significant percentage of households have incomes that are much, much higher. Stores located in Chevy Chase include Tiffany & Co, Ralph Lauren, Christian Dior, Versace, Jimmy Choo, Nieman Marcus, Saks Fifth Avenue, and Saks-Jandel.

    PowerLine observed that during the 2008 election season, yards in Chevy Chase were thick with Obama signs–and wonders how these people are now feeling about the prospect of sharp tax increases for people in their income brackets.

    The PowerLine guys are very astute, but I think they’re missing a key point on this one. There are substantial groups of people who stand to benefit financially from the policies of the Obama/Pelosi/Reid triumvirate, and these benefits can greatly outweigh the costs of any additional taxes that these policies require them to pay. Many of the residents of Chevy Chase–a very high percentage of whom get their income directly or indirectly from government activities–fall into this category.

    Consider, for starters, direct employment by the government. Most Americans still probably think of government work as low-paid, but this is much less true than it used to be. According to this, 19% of civil servants now make $100K or more. A significant number of federal employees are now making more than $170,000. And, of course, the more the role of government is expanded, the more such jobs will be created, and the better will be the prospects for further pay increases.

    If one member of a couple is a federal employee making $100K and the other is making $150K, that would be sufficient to allow them to live in Chevy Chase and occasionally partake of the shopping and restaurants. But to make the serious money required to really enjoy the Chevy Chase lifestyle, it’s best to look beyond direct government employment and pursue careers which indirectly but closely benefit from government activity…which are part of the “extended government,” to coin a phrase.

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    Posted in Big Government, Taxes | 2 Comments »

    The Depression may be here.

    Posted by Michael Kennedy on 4th February 2014 (All posts by )

    I have believed for some time that we were entering another Depression. I have previously posted about it.

    The Great Depression did not really get going until the Roosevelt Administration got its anti-business agenda enacted after 1932. The 1929 crash was a single event, much like the 2008 panic. It took major errors in economic policy to make matters worse. Some were made by Hoover, who was a “progressive” but they continued under Roosevelt.

    I posted that statement earlier and it got a rather vigorous rebuttal. I still believe it, however. I think a depression is coming soon. What is more, I am not the only one. Or even only one of two.

    The second article preceded the election of 2012 but is still valid.

    When employment hit an air pocket in December, most analysts brushed off the dreadful jobs number as an anomaly, or a function of the weather. They chose to believe Ben Bernanke rather than their lying eyes. It’s hard to ignore a second signal that the U.S. economy is dead in the water, though: on Monday the Institute for Supply Management reported the steepest drop in manufacturing orders since December 1980:

    fredgraph

    In January, only 51% of manufacturers reported a rise in new orders, vs. 64% in December. Not only did the U.S. economy stop hiring in December, with just 74,000 workers added to payrolls; it stopped ordering new equipment. The drop in orders is something that only has occurred during recessions (denoted by the shaded blue portions of the chart). The Commerce Department earlier reported a sharp drop in December orders for durable goods. In current dollars, durable goods orders are unchanged from a year ago, which is to say they are lower after inflation.

    So, the economy stopped hiring, even at the poor pace the past five years have seen, but business also stopped buying.

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    Posted in Big Government, Britain, Business, Health Care, Obama, Politics, Taxes, Tea Party, Urban Issues | 33 Comments »

    The Minimum Wage Debate and Tax Incentives

    Posted by Carl from Chicago on 30th November 2013 (All posts by )

    Originally when I started over at Chicago Boyz I used to write regularly about tax policy. I haven’t written as much lately on that topic because the news has been completely dispiriting… at every turn it seems that the Federal, State and Local governments have taken positions to make the system more complex, confusing, and dysfunctional.

    The goal of a tax policy should be to:
    1. Achieve the revenue goals that they set out to meet
    2. Do so in a way that has causes the least amount of distortions to the economy

    Recently the idea of “fixing” our tax policies and incentives, for me at least, is aligned with recent discussions on the idea of raising the minimum wage. The minimum wage is $7.25 / hour, although this varies with state and local laws as summarized here. A suburb in Seattle, near the Seattle-Tacoma airport (Sea-Tac), recently passed an ordinance to raise the minimum wage to $15 / hour. This ordinance is a bit more clever than most, since the airport is unlikely to close or take significant actions due to the immense capital costs and constraints associated with doing so, and has a strong public element (politicians can just try to pass the costs on to air travelers).

    These same discussions come up in Chicago, as fast food workers also have had some (small) demonstrations to try to raise the minimum wage to $15 / hour. While their campaign has sputtered out, it will likely re-surface and be championed by our governor.

    The obvious difficulty with raising the minimum wage is that employers are not sitting ducks. There are many low wage workers in River North, for instance, working in bars, restaurants, cleaning services, and in various security related occupations (virtually every building has a set of doormen). If you doubled the minimum wage, for instance, all of these businesses and institutions would immediately embark on a host of labor saving initiatives and automation efforts. I am not an expert in these sorts of automation experts but can imagine people being replaced by computers, call centers handling service, and moving to self-service for customers in other instances. It is highly unlikely that they would just attempt to pass on the price increases and keep the same level of staffing; that would be economic suicide, especially with their competitors scrambling to reduce their labor expenses. Efforts that could not be automated would rise in price, which would likewise discourage consumption, until an equilibrium was reached.
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    Posted in Big Government, Taxes | 9 Comments »