The Washington Post recently published a ridiculous article about deficit spending and entitlements from a group of former chairs of the White House Council of Economic Advisers. Unsurprisingly, these economists scoff at the idea that entitlements are a cause for alarm, and predictably attack the Jobs and Tax bill that passed last year by President Trump. Of course, it’s to be expected, as the author-contributors were hand-picked from either only the Clinton or Obama administrations. Let’s take a closer look at some of their assertions:
“It is dishonest to single out entitlements for blame. The federal budget was in surplus from 1998 through 2001, (read: Pro-Clinton), “but large tax cuts and unfunded wars have been huge contributors to our current deficit problem” (read: anti-Bush). “The primary reason the deficit in coming years will now be higher than had been expected is the reduction in tax revenue from last year’s tax cuts, not an increase in spending” (read: anti-Trump). “This year, revenue is expected to fall below 17 percent of gross domestic product — the lowest it has been in the past 50 years with the exception of the aftermath of the past two recessions” (read: anti-Trump).
What’s noticeably absent? Any mention of Obama. Where were these so-called economists when Obama went spending crazy? When the deficit doubled in the eight years of Obama’s administration? Deficit spending is an undisputed crisis and a large driver of that is, in fact, entitlements — a problem that has continued to be punted each year; in fact the latest SSA report, released June 5, plainly states that Medicare’s Trust Fund is set to run out in 8 years, and Social Security’s in 16. The Social Security program’s costs will exceed its income this year for the first time since 1982, forcing the program to dip into its nearly $3 trillion trust fund to cover benefits. But these numbers and projections are nothing new, so it is right for the Hoover Institute to continue to insist on reform in the face of years of inaction.
At a time when these very authors note that “the U.S. unemployment rate is down to 4.1 percent, and economic growth could well increase in 2018. Consumer and business confidence is high,” to then hold up Clinton as the pinnacle of economic excellence, spear Bush and Trump as reckless, and to completely ignore the profligate spending of Obama is disingenuous. The bias of the Washington Post shines through with this one.
George Will shined the light on yet another disturbing case of civil asset forfeiture a practice that denies citizens the right to due process. In this particular instance, a border agent on US soil unlawfully demanded the password a citizen’s phone; when he refused, they searched his truck and then seized possession of it after finding five .380-caliber bullets (and no weapon) in the truck’s center console. Their rationale? He was transporting “munitions of war.”
Civil asset forfeiture allows law enforcement to take money or property from a citizen who is merely suspected of criminal activity — not charged or convicted. Though original asset forfeiture laws were aimed at drug cartels to interrupt their business and money, it use has expanded rapidly in recent years. It’s not being used just for “organized crime” anymore; that’s a red herring that gives police a green light to continue to abuse citizens and take their property without due process. Citizens are guilty until proven innocent and have to prove that they were not involved in any criminal activity, which can be a long and expensive process against the government.
Outrageously, the citizen had to petition to get a judicial hearing about his truck (after paying a bond of 10% of his truck’s value) — but then the hearing actually never happened. He never got his due process and only got his truck back after two years, during which he faithfully continued making loan payments and maintained insurance. This lack of any hearing for a citizen to redress the unlawful seizure is not an anomaly, either. In fact, the citizen is now pursuing a class action lawsuit, just “to establish a right to prompt post-seizure judicial hearings,” which should already be a given anyway in such incidences — even though the practice of civil asset forfeiture should be abolished outright.
Civil asset forfeiture is really all about money. “Under the equitable sharing program, federal authorities may “adopt” state and local forfeiture cases and prosecute them at the federal level. Those local police departments get to keep up to 80 percent of the forfeiture revenue, while the rest goes into the equitable sharing pool and is distributed among partner departments around the country.” During the Obama Administration — after some highly publicized appalling asset forfeiture cases, Obama began addressing asset forfeiture and restrictions were rightly implemented as a stepping stone to reign in this abominable practice. Unfortunately last year, AG Jeff Sessions loosened those once again.
Clarence Thomas wrote a scathing dissent of asset forfeiture last year when SCOTUS chose not to hear a case on the matter. He wrote, “this system—where police can seize property with limited judicial oversight and retain it for their own use—has led to egregious and well-chronicled abuses. He further pointed out, “because the law enforcement entity responsible for seizing the property often keeps it, these entities have strong incentives to pursue forfeiture.” Clarence Thomas is entirely correct, and the policy of civil asset forfeiture should be entirely eliminated. Continuing to highlight this abhorrent practice is the only way to bring about change.
It seems like spending reductions, smaller government, and eliminating waste are no longer Republican ideals. When Education Secretary Betsy DeVos presented a budget that did just that, Congress turned a deaf ear. What’s more, they made it difficult for her to even make some systemic changes to the Department of Education that (like most departments) desperately needs.
As part of the massive spending bill that was passed last week, Congress “awarded the department a $2.6 billion boost when Mrs. DeVos had requested a $9 billion cut. She had sought to dismantle her agency’s central budget office, a move she said would create a leaner structure, and to cut the number of field offices in the civil-rights division to four from 12. The spending package included specific measures preventing her from doing so.”
Apparently, trying to implement change caused some problems among more seasoned politicians that Congress just put a stop to by hamstringing her efforts at education and fiscal reform: “in the spending package, lawmakers forbade Mrs. DeVos from dismantling the budget office and increased the civil-rights division’s funding by $8.5 million, specifying that the additional money couldn’t be used to reduce staff, such as through buyouts. The civil-rights division is tasked with, among other things, enforcing Title IX.”
It’s a shame that politics over policy has gotten so pervasive even among Republicans. Such ridiculous behavior shows how broken our system has become — which is why it’s getting more and more likely that a huge Democrat sweep will happen at midterms.
Part of Obama’s terrible legacy was his frequent abusive use of Executive Order, even maintaining a “We Can’t Wait” page on the White House website. From changing student loan rules to immigration reform, Obama was rightly chided for making major policy changes without going through Congress.
It is therefore egregious that President Trump should decided to enact a 25% tariff on imported steel and a 10% tariff on imported aluminum products under section 232 of the Trade Expansion Act of 1962 (the provision that allows additional tariffs when national security is affected).
When our largest importer of steel is Canada, followed by Brazil, South Korea and Mexico, it is abhorrent to invoke such a tariff under these pretenses. This particular Executive Order rivals Obama in making up lies to justify illegal executive action.
It also makes it possible for the next Democrat President to abuse presidential power by saying: “It’s not as big a whopper as Trump’s saying that tariffs on steel are needed to protect our nation’s security”. This is truly a terrible precedent.
Governor Cuomo has come out blasting the new tax law, and in particular the substantial reduction in the deduction for State and Local Taxes (“SALT”), as unconstitutional and an “attack only on blue states.”
But everybody who has any knowledge of taxation and its constitutionality knows that Cuomo’s assertion is ludicrous. The SALT deduction – and ALL deductions – are at the complete discretion of Congress. And as long as deductions apply under the same rules to every taxpayer no matter where situated, constitutionality can never be an issue All the Governor’s raving does is show that he and his entire staff are either totally clueless, or they know that their statements are total nonsense, but think so little of voters that they can be fired up with something that is utterly phony.
If Cuomo is concerned about what is devastating to New Yorkers, it is astounding that he is objecting to this law and yet he did not object to other tax issues in the past that clearly targeted his constituents. Despite acknowledging the very bad effects of high taxes on New Yorkers, Where was Cuomo’s concern when:
1) the federal government (Obama) raised taxes on capital gains by almost 60%? 2) the federal government raised the regular rate by 25%?
Furthermore:
1) Cuomo reneged on his campaign promises and kept income tax rates on New York’s high income earners outrageously high, 2) he continues to hide from his constituents that his tax law already denies New Yorkers some or all of their deduction for SALT. 3) he continues to hide that NY tax law also denies middle and high income earners significant parts of the charitable deduction as well, buried so deep that most New Yorkers are not even aware they are being fleeced. 4) as a final point, a New Yorker who dies leaving $10 million to his heirs would now pay no federal estate tax – but he would owe $1.06 million to New York State.
But now Cuomo is bothered by the elimination of the SALT deduction in New York? He was AFFIRMATIVELY IN FAVOR of all of these past provisions, which have been devastating to his constituents for some time. Cuomo’s sudden compassion is complete hypocrisy.
I am very glad the new Tax Cuts and Job Act is now law. With ongoing work reforming and reducing regulations, the tax bill will spur economic growth, and get people to understand the importance of reducing marginal rates. On the corporate side, the huge rate reduction (from 35% to 21%), move to territorial taxation, and expensing of equipment, is a home run. However, on the individual side, Congress allowed politics to get in the way of real reform, and that is inexcusable.
Without any discussion, Congress eliminated the deduction for miscellaneous itemized deductions. This is truly the only legitimate deduction, and it is absolutely necessary to maintain the integrity of the tax code. It gives people the chance to write off expenses incurred to allow them to earn the income they are taxed on. For instance, under current tax law, a person who earns $100K in a venture but had to pay $30K for legal fees to get it, would be able to pay taxes on only the $70K net that was actually made. With the new change now removing the miscellaneous itemized deduction, the person will have to pay taxes on the full $100K!
Another deduction Congress removed summarily is the moving deduction. Similar to the miscellaneous itemized deduction, this is a real and actual expense that is incurred when moving to get a new job (in order to earn the income that will be taxed.) It was removed from the tax code without discussion, and should not have been.
The casualty loss deduction was also eliminated. This enabled you to deduct a loss that was due to a sudden, unexpected event, such as a fire, hurricane, or robbery. Now, if your house burns down, you can no longer write it off. The exception to this change is if your loss is in a federally-declared disaster area. So if your house burns down, you get no deduction. But if it burns down in a large wildfire that was declared a disaster, you can claim the deduction. This is egregious; the effect on the individual — the loss of a house — is absolutely the same. This deduction elimination is unacceptable.
Furthermore, the alimony deduction was thrown out. The alimony deduction is a mechanism that prevents an inequitable tax burden to be created when a married family unit is split into two. It is inequitable and mean-spirited to create a targeted tax burden on people who suffered a family breakup.
While eliminating these important and equitable donations, Congress left in place a number of purely political, social engineering deductions and credits. Congress left in a substantial part of the mortgage deduction, which is really nothing more than a government subsidy to the real estate industry. They left in energy credits, rehabilitation and low income housing credits, and the Alternative Minimum Tax (AMT). It’s disappointing to see Congress talk about simplicity, efficiency, and equitability, and then remove good provisions from the tax code while leaving in parts that are merely political.
Richard Rubin makes some major errors in his summation of burgeoning tax bill. He uses a scenario of five people and goes through how they would be affected by the current proposed legislation. However, he does not get his calculations correct. He’s comparing apples and oranges. He’s also not looking at the reasons for the tax law changes and if the changes make the tax law fairer. He’s only looking blindly at how the tax law changes affect the current tax burden of the people. Rubin should have run his article by a real tax accountant before he published his account. From the article, under the GOP plan: “The executive would pay $868,000 in taxes. The manufacturer pays $704,400, but might be able to argue her way into a lower bill. The passive business owner pays $576,000. The dividend-earning investor pays $476,000. The heir to the estate pays nothing. The manufacturer, the estate and the passive owner all get big tax cuts from the GOP plan. The investor and the wage earner generally don’t.”
Now, in this scenario, Rubin doesn’t explain that the the first person — the executive — would remain unchanged; His tax rate is 43.4%, which is a 39.6% rate + 3.8% medicare tax. The manufacturer’s lower tax bill has to do with how flow-through businesses do things, because they are not a corporation. The passive business owner is changed because he pays a new 25% tax rate + the 3.8% medicare tax. The dividend investor pay the $476,000 because he pays 23.8%. It’s a dividend tax. However, what Rubin does not explain is that the dividend investor already paid another tax, a corporate tax, before the dividend was issued. That part of the tax law remains unchanged, and the investor remains unchanged.
The heir to the estate doesn’t pay any taxes because it is not income. Never has an heir paid an estate tax, because it has already been paid.
Rubin is essentially trying to be provocative here by using a $2 million base figure as a means to show a great difference in numbers, when really, this random list of five people makes no sense. The comparisons don’t really compare, such as including some things that are not income items. Rubin needs to be more careful with his writing.
The Wall Street Journal has done a nice roundup of the October Jobs Report released a few days ago. U.S. employers hired at strong rate in October, reflecting a sharp bounce back from September, when payroll growth slowed in the wake of hurricanes striking the southern U.S. Meanwhile, the unemployment rate fell to a new low for this expansion. Here are some of the key figures from Friday’s Labor Department report.
UNEMPLOYMENT RATE
4.1%
The jobless rate last month edged down to 4.1%, the lowest reading since December 2000. That low rate, however, reflects that fewer Americans were working or seeking work during the month. The labor-force participation rate slipped to 62.7% from 63.1% in September. The prior month’s reading was the highest in years—and the participation rate slipped in October back to a level recorded this spring.
JOBS
261,000
U.S. employers added 261,000 jobs to payrolls in September—the best pace of monthly pace of hiring in more than a year. Employment rose sharply in food services and drinking places, mostly offsetting a decline in September that largely reflected the impact of hurricanes Irma and Harvey, the Labor Department said. Hiring last month also improved in business services, manufacturing and health care.
WAGES
-1 Cent
Average hourly earnings slipped by a penny to $26.53 in October. It was disappointing showing for wages, which had appeared to break out the prior month. From a year earlier, hourly pay rose a lackluster 2.4% in October. Many economists are waiting to see wages rise at a faster pace given the historically low unemployment rate.
UPWARD REVISIONS
90,000
Payroll growth was significantly stronger than previously estimated in recent months. Upward revisions showed 90,000 more jobs were added to payrolls in August and September than previously reported. September hiring was revised to a gain of 18,000 from an initial estimate of down 33,000. That keeps intact the longest stretch of consistent job creation on Labor Department record.
UNDEREMPLOYMENT
7.9%
A broad measure of unemployment and underemployment known as the U-6, which includes people stuck in part-time jobs and others, was 7.9% in October. That was the lowest monthly reading since 2006.The rate has been declining this year in concert with the narrower unemployment rate, known to government statisticians as the U-3.
The top individual rate for high-income earners will stay at 39.6%
The corporate rate will be cut to 20%
Tax brackets will go from seven to four: the rates will be: 12, 25, 35 and 39.6%
The standard deduction will increase for single filers to $12,000 and joint filers to $24,000 , so that those filers below those thresholds will pay no income tax.
The child tax credit will increase from $1,000 to $1,600 per qualifying child. There will also be a new family credit (considered an expansion of the child tax credit) that provides a $300 credit for each parent to help with everyday expenses.
The mortgage interest deduction remains fully intact for currently existing mortgages. In contrast, those purchasing a home in the future will only be allowed to deduct interest paid on the first $500,000 of the total cost of their mortgage.
Retirement incentives for 401(k)s and IRAs remain unchanged.
The estate tax will be fully repealed but not for six years. Between now and then, In the interim, the estate tax exemption will double.
A deduction for state and local property taxes will be capped at $10,000.
Once the House Ways and Means committee begins to gather feedback , changes will inevitably be made with a hopeful time frame of Thanksgiving for a final bill and vote.
A major problem in constructing tax legislation is the “No deficit after 10 years” problem.
It takes a 60 vote majority in the Senate to pass permanent legislation. A key exception is what is known as “budget reconciliation”, whereby financial budget items, including tax changes, can pass with a simple majority vote. But this requires that any proposed legislation cannot produce a deficit after 10 years. To satisfy this requirement, legislation often contains a provision that it will terminate at the end of the tenth year.
The Bush tax cuts of 2001 (and 2003) was the poster child for that problem. Tax rates were reduced in 2001 and 2003 using budget reconciliation This required that the lower rates would automatically expire (sunset) in 2011 so as to comply with the “no deficit after 10 years” issue. Everyone ignored the cuts which then became a big headache and political battle when the time came to renew them – or let them expire. After ten years, the lower rates suddenly terminated for those most important for growing the economy, creating one of the largest tax increases and worst economic recoveries in history. This disaster has made Congress hesitant of passing badly needed tax cuts and reform in fear of the 10 year spring back. But this does not to be so. The best way to deal with sunset clauses within the tax code is to extend them annually during the budget process so that we don’t enact a tax change and then forget about it over time. This is something to consider as Congress embarks on potential major reforms to the tax code in the coming months. Trump’s tax reform proposal includes a major pro-growth change to depreciation rules. The change would allow for claiming an immediate deduction for the cost of new equipment, without having to spread the write–off over many years. This would be a boon to the economy. But due to budget constraints this change would likely be scheduled to terminate after 10 years. That should not be allowed to happen. Instead Congress should examine the policy yearly, and extend it out an additional year from that date. This way the tenth year will never come and there will be no unnecessary tax battle. This process could continue until there are the votes to make the provision permanent.
