Politics Archives - Bankers Anonymous

November 11, 2020November 11, 2020

Biden Tax Proposals

I am attempting to model good financial writer behavior by inserting some actual boring tax policy discussion into presidential politics. From what I can glean from media over the past year, the presidential race was declared an entirely policy-free zone. But we should care a lot about boring tax policies!

Now that Biden is heading to the Presidency ¹ what the heck did he promise in terms of tax policy changes?

Biden’s proposals on two headline tax rates essentially indicate a rollback of marginal tax rates to Obama-era levels.

For individual taxpayers, Biden proposes a 39.6 percent top tax rate. That’s up from the current 37 percent. This represents a return to the top income tax rate in effect through 2017.

Biden also proposes a 28 percent corporate tax rate, an increase from the current 21 percent corporate tax rate. Still, 28 percent represents a lower corporate tax rate than the United States had on the books between 1994 and 2017.

Biden’s most common campaign slogan with respect to taxes was that people making less than $400,000 per year will not pay higher taxes. Obviously, by implication, he’s warning us (promising us?) that higher income folks will see a rise in their taxes. This rise comes most clearly from targeted changes that would affect the wealthy, and/or the more highly-compensated among us.

For individuals making more than $400,000 per year, Biden proposes a 12.4 percent payroll withholding tax specifically for Social Security. I think that’s mostly where Biden’s $400,000 claim comes from since it’s a new, and clear, tax hike.

More subtly, but probably more importantly, Biden proposes taxing capital gains more highly in certain cases. Taxes on money made from selling appreciated assets – capital gains – are potentially more important to wealthy folks than taxes on earned income. Biden’s plan would charge higher capital gains taxes for households that make more than $1 million per year.

Currently, capital gains tax rates are lower than earned income tax rates. Which, if you ask me, has a lot more to do with who funds political campaigns than it has to do with the moral or economic merits of taxing wealth at a lower rate than income, or any other justification for rewarding capital over labor. Biden’s proposal doesn’t upset that apple cart – this traditional tax-code preference for capital over labor. Rather, it says that if you make more than $1 million per year, you don’t get a tax break just because you make money on your wealth rather than on your labor. I’m probably wrong to think this but I feel like if you earn over a million dollars per year, you can survive (maybe, barely) paying a regular tax rate like the people who make a living through their labor. Call me a Socialist, whatever.

Also in the category of tax proposals applying to the few, but sadly not me: Biden has proposed that people worth between $50 million or more would pay a 2 percent wealth tax, rising to a 6 percent tax rate for those with a $1 billion net worth. This seems terribly unfair. Specifically, unfair in the sense that I wouldn’t get to pay that tax. I aspire to pay that tax some day. I want to be in a position to pay that tax. And, I will promise to not complain about it, when the time comes. You can hold my feet to the fire on that one.

Vox_on_Biden_taxes — Graphic from Vox, December 2019

Another Biden proposal affects folks who inherit wealth. This proposal is captured by the phrase “eliminating stepped-up basis,” and the meaning is that inherited assets would not continue to enjoy a massive tax break. Like the capital gains tax proposal, this is a targeted tax change that has huge implications for wealthy heirs as well as the folks who do estate planning. It has very few implications for non-wealthy people who do not inherit highly appreciated assets.

Finally, Biden has not specifically made estate tax proposals, but he did sign off on some Biden/Sanders “unity” principles in July 2020, including rolling back estate taxes to 2009 levels. Those 2009 estate tax levels were set by the Socialistic Bush/Cheney administration.

There are a few other detailed tax credits and exemptions, but that covers most of Biden’s big tax proposals.

Now, the Political Reality

After January 2021, there’s a strong chance that the Senate remains in Republican hands, making most of Biden’s tax proposals backburner issues.²

Sweeping tax reform is also not something I’ve noticed is a priority for Democrats. Between COVID emergency stimulus, health care plans, and a Green New Deal, tax reform isn’t really on-brand for the 2021 Democratic Party. Still, we should at least understand where the incoming President’s head is at, with respect to tax reform.

A version of this post ran in the San Antonio Express News.

Please see related posts:

Let’s have an adult conversation around taxes

Post read (160) times.

Barring the unlikely success of Trump’s slow attempt at a coup. Which, I don’t know, might work. But I hope it doesn’t. ↩
As of this writing two Georgia Senate run-off races will happen in January. Democratic candidates would have to win both to allow for a 50-50 split in the Senate (tie-broken by Vice President Kamala Harris). It feels like something as complex as comprehensive tax reform is unlikely to pass with this kind of squeaker of a vote majority, even in the unlikely event that Democrats win both races. ↩

October 9, 2019October 11, 2019

Pinning President Trump

Like everyone, I honestly don’t know what’s going to happen with Trump. I have a grim theory, which I lay out at the end of this post.

In the spirit of a diary entry, I wanted to record my thoughts in October 2019. Impeachment has begun, but the outcome seems highly uncertain. I did this once before. In the month following the November 2016 elections I speculated on Trump’s future effect on authoritarianism, security crises, the economy, constitutional and democratic norms, and his fellow Republicans. On balance, versus those speculations, my worst fears about his authoritarian instincts have come to pass, and principled Republican opposition has been weaker than I even expected.¹ We have not had a security crisis,² nor a true economic crisis, thank goodness. In October 2019 we are, however, in the midst of the constitutional crisis I feared.

McConnell_Red_Wall — McConnell and the Senate “Red Wall” keep Trump in office, despite his obvious destructiveness to the Republic

If nothing changes from where we are now in mid-October 2019, it seems that the Republican red wall in the Senate will keep Trump in office, even after a Democratic House impeachment vote. I see the effect of that red wall as signalling a reward for Trump’s corruption, flouting of constitutional norms around the separation of powers and checks and balances, traitorous foreign policy, feckless and reckless financial and trade policy. Not to mention his general rapey approach to women and disgusting view of people living in or immigrating from Central America or Africa (or any place outside of Northern Europe.) And not just a reward, but a vindication of his style and an open invitation to do more crimes, more corruption, more subverting of our political system. Expect more rapeyness, more white nationalism, more inhumane treatment of immigrants. Why not? His party won’t abandon him.

As he famously said, he could shoot someone on 5th Avenue in broad daylight and get away with it. The puzzling challenge of Trump is that he commits the most brazen crimes in the open – profiting from his office through his hotel business, inviting corrupt authoritarian governments to destroy his domestic enemies, urging violence on the media and political opponents, siding with dictators, undermining our intelligence agents, wrecking global alliances built over generations – and we can’t quite believe our own eyes and ears. Surely he’s joking, right? Does he really mean that? Yes, he really does.

Given what we already know about Donald Trump as President, what would be required to alter Mitch McConnell and other Senate Republican’s views on impeachment? It’s hard to imagine what more in America he could fuck up.

Does the stock market have to go into free fall? Does Russia have to declare it is taking back Alaska and Trump says that’s fine, because Alaska is kind of a frozen shithole place and Fairbanks is no good for building gold-plated hotels anyway? Would that do it?

A few other thoughts.

The Nixon resignation/impeachment experience shows that Republican supporters may stay strong up until the last minute, but that when they flip, they flip quickly and all at once. What causes that – beyond what we’ve already seen from the Trump administration, like Ukraine/China/Russia foreign policy treachery – I can’t really imagine. For them not to flip on Trump already at this point, but to flip at some further traitorous action…well, I guess things have to be even darker than they are today, which isn’t something to exactly look forward to.
The Clinton non-resignation/impeachment experience shows that a President who has little personal shame and decides to just “stick it out” against his political adversaries will likely survive an impeachment vote in the Senate. All evidence suggests Trump has even less sense of personal shame than Clinton. So he’ll go the distance as long as he can. He’ll never resign if Republican Senators don’t turn on him.

My prediction: This comes down to what the people in uniform decide to do, when ordered by the courts

My own grim feeling about where we are headed at this point, given the lengths Trump and his supporters are willing to go to subvert the rule of law and to obstruct justice:

At some point removing Trump from office will come down to a choice made by the people who literally wear the uniforms and carry the badges indicating they have a monopoly on the legitimate use of force in our society.³ The uniformed folks will receive a set of orders from a court to arrest him, his family, or members of his inner circle, and he will shout to countermand those orders and to instead arrest Pelosi, Schiff, Nadler, AOC, or whomever comes to mind in his addled brain at that time.

Whether or not he is removed from office at that point will come down to whether the people in those uniforms feel they owe loyalty to an abstract set of constitutional ideals, or whether they feel they owe loyalty to the Commander in Chief shouting and bullying them and resisting arrest. I wish I were kidding that that’s where I think this is headed.

I wish I felt more secure that the people in the uniforms will make the right choice.

Post read (390) times.

Paul Ryan caved. Rand Paul flipped. John McCain died. Lindsay Graham did whatever he did, with zero evidence of personal pride or consistency. Mitt Romney furrowed his brow and has expressed “concern.” If we were waiting for unified and principled Republican leadership as a check on the President, as I had hoped for in December 2016, we are officially fucked. ↩
I would say the daily & weekly mass-shootings & gun terrorism is a form of a security crisis, but not one that the Trump administration has exploited for consolidating its power, in the way it might if the daily & weekly gunmen were Islamic terrorists. Which they are not. ↩
I mean the police, the army, the secret service. ↩

November 17, 2018

Federal Reserve Independence

When it comes to Federal Reserve policy, we need to focus our worries about the correct thing. Hint: It’s not inflation. Also, it’s not recession. Also, It’s not the rate of interest rate hikes.

It’s the Fed’s independence. Even President Trump agrees with me. Although admittedly, for reasons diametrically opposed to my reasons.

In recent weeks, President Trump has ramped up his attacks on the Federal Reserve. Trump told Fox News that “my biggest threat is the Fed.” Also, that the Fed is “loco,” and he’s unhappy “because the Fed is raising rates too fast, and it’s too independent.”

After three interest rate hikes earlier in 2018, the Federal Reserve will raise short-term interest rates one more time this year. The Fed will likely rise another 1 percent over the next two years, according to their future guidance, and barring unexpected developments like war or recession.

The fact that Trump is unhappy is not particularly surprising. In fact, White House grumbling about the Federal Reserve is a common enough theme over the last eighty years. Not using Trump’s uniquely colorful language, mind you, but it’s still not wholly new.

History of Presidential Jawboning

Political leaders in power always want pro-growth policies. Low unemployment and high asset prices tend to make leaders look good. Presidents generally don’t want the Federal Reserve to – in Fed Chairman’s William McChesney Martin’s famous phrase “take away the punch bowl just as the party is getting started.” President Nixon reportedly blamed his 1960 loss to Kennedy as a result of Fed Chairman Martin’s tight monetary policy of high interest rates.

President Johnson complained as well, saying “Martin, my boys are dying in Vietnam, and you won’t print the money I need.”

President Nixon reportedly both put pressure on Martin’s successor at the Federal Reserve Arthur Burns to keep interest rates low and money flowing during his 1972 re-election, which he handily won. Paul Volcker, Fed Chairman during the 1980s, published a book in late October 2018 in which he claims President Reagan’s Chief of Staff James Baker told him in 1984: “The president is ordering you not to raise interest rates before the election.” Volcker adds to the story that the Federal Reserve at the time had no plan to raise interest rates.

George HW Bush was upset in the fall of 1992 that the Fed was raising interest rates, before he went on to lose his re-election to Bill Clinton.

President Clinton’s budget chief Leon Panetta and later Chief of Staff twice tried to preempt the Federal Reserve, saying at his 1993 confirmation hearing “we ought to have cooperation from the Federal Reserve,” meaning lower interest rates, and then in a 1995 interview “it would be nice to get whatever kind of cooperation we can get to get this economy going,” referring again to Federal Reserve policy. Despite the instincts of leaders in power, Federal Reserve observers think we have made a lot of progress since the bullying of President’s Johnson and Nixon.

Presidents George W. Bush and Barack Obama avoided appearing to try to influence interest rate policy. Inevitably, political leaders oppose higher interest rates because they reduce business borrowing, risk increasing unemployment, and knock down asset prices of real estate and stock markets. Political leaders want lower interest rates – it’s stimulative to the economy, and therefore helpful for their political prospects.

Volcker’s legacy

Since Paul Volcker famously raised interest rates early enough in the Reagan presidency to tame inflation in the early 1980s, the Fed has built a rock-solid reputation as independent from political influence. It is believed to manage the money supply without favor or political influence, giving investors worldwide confidence in the dollar.

The key question then is whether Trump’s attacks on the Federal Reserve will have an effect. We need to hope they do not. Just as the greatest risk to Trump’s presidency is not the independence of the Fed, neither is the greatest risk to the US economy inflation or the rise in unemployment, the two typical concerns of the Federal Reserve.

Rather, the greatest risk to the US economy is that people the world over would come to believe that the US Federal Reserve is not acting independently of political pressure. A primary reason the dollar still remains the global reserve currency of choice is that global allocators of capital believe the Federal Reserve is not captive to the US political system.

In a clever take that emphasizes a silver lining in the storm clouds, the Wall Street Journal’s Spencer Jakab recently argued that Trump’s recent Fed bashing is actually a good thing, since it proves that the Fed is willing to do an unpopular thing for the right reasons. Since it continues to defy Trump’s wishes, we should be happy that the Federal Reserve is under attack. I mean, I guess? Like a Category Five hurricane slamming against the retaining wall protecting the coastal city is a good thing, because it didn’t break the wall this time, and that shows us how strong the retaining wall is right now. So, yay, hurricanes? I’m sorry, that logic is bass-ackwards.

The real risk

We can survive a recession. We would have a harder time surviving the loss of confidence that would follow if Trump could jawbone the Fed into keeping rates low, for political purposes.

We can survive a little inflation. A little inflation does not make us much closer to Venezuela. Rather, a political leader who can get what he or she wants with monetary policy does make us a lot more like Venezuela.

Please see related posts:

The Federal Reserve and Inflation

Post read (165) times.

March 8, 2017March 8, 2017

Book Review: The Making Of Donald Trump by David Cay Johnston

David Cay Johnston covered Trump as a journalist for thirty years, in the course of reporting on the Atlantic City beat. He presents in The Making of Donald Trump a greatest hits of the President’s business life. And by greatest hits, I actually mean the lowlights of his behavior with women, with business partners, with lawsuits, with his employees, and with the press.

To point out that President Donald Trump is primarily a con man with easily observed personality disorders is relatively straightforward, given what we’ve witnessed of him as a Presidential candidate, and now as President. I think the time for outrage at each new Tweet or each new attempt to subvert the best traditions of the Republic is past. We know what he is. We know he will try his best to break this country’s constitutional traditions.

But to play armchair psychiatrist for a moment, Trump is not, primarily, evil. He is a deeply insecure person unencumbered by the moral boundaries which limit the rest of us. When faced with his unrelenting narcissism, a yawning chasm of need, he chooses the fastest route to a short-term fix for that sickness. Johnston’s book is a history of this sickness, in easily digested, well-researched, chapters.

Sometimes his sickness means doing business with noted mob associates. Occasionally it means cutting family members out of their inheritance. Often it means threatening lawsuits against journalists, newspapers, and other perceived enemies who jangle the nerves of his insecurity. Often it involves an unrelenting thirst for vengeance. Sometimes it means screwing over your bondholders. Historically it has involved inventing hotel prizes, and then hiring people to award them to you, as a 4-year old child would do, if given the chance. It includes cutting corners on building costs by hiring illegal labor, working under dangerous conditions. It means running a scam University making false claims and preying on financially vulnerable people.

Sometimes it means calling up gossip columnists, pretending to be a PR man, and bragging about how Madonna or Carla Bruni or some other hottie of the day is lusting after Donald Trump. Sometimes it means not actually trying to legitimately attract a woman’s attention, and just grabbing them by the pussy.

Johnston published this book in August 2016, after Trump’s nomination by the Republican Party but before the November election. He tried to do his patriotic duty of warning the country about a con man he’d observed closely for decades.

Anyway, life is going great here in the United States since the election, OTT.¹

Please see related posts:

Why I Can’t Sleep At Night (post Trump election)

Trump Part III – The Authoritarian Use of Security Crises

Trump Part IV – The Authoritarian Use of Economic Crises

Trump Part V – The Constitutional Crisis

Trump Part VI – The Need For Principled Republican Leadership Right Now

The Fall of The Roman Republic by Plutarch

Post read (265) times.

“Other Than Trump” ↩

May 24, 2016May 24, 2016

VIDEO: The Very Intriguing Libertarian Ticket

With Bill Weld (former two-term MA governor) joining the bottom of the Libertarian Party ticket alongside Gary Johnson (former two-term NM governor), I have to say I’m intrigued.

They can count on:

Elected office experience (far more than the presumptive GOP nominee)
Track record (far more, etc)
A decent runway on an issue that some portion of the electorate cares deeply about (pot legalization). They are “on the right side of history,” in terms of what will happen over the next 10 years.
Totally pissed off wings of the major parties, that dislike their respective leaders, opening the way for outsized third-party success in 2016.

I’m not saying they’ll win or anything, or even necessarily gain any electoral college votes, but they could be a significant factor in the election, especially in a number of states. They are worthy of attention and coverage in any case.

Please see related posts:

Trump – Sovereign Debt Genius

Clinton’s Tax Policy

Clinton on the Capital Gains Tax

The Presidential Candidates and Money

Post read (164) times.

March 21, 2016

Why Wealth Inequality Matters – Plus CEO Pay Again

Last week I wrote about the sharp rise in super-manager pay throughout the 1990s, and specifically a funny (to me) quirk of stock option awards and bad math by corporate boards. The good news is I have a bunch more thoughts on the rise of super-manager pay and – but wait – Wait — WAIT! Listen. You Guys! Before you turn the page. This is important.

The rise of CEO pay is part of a larger topic.

You might have read last week’s post and thought, on the one hand, who cares what top executives get paid, that’s their business. And, on the other hand, it doesn’t apply to you.

I somewhat agree. I wish the rise of CEO pay applied to you and me, obviously, but jealousy can only get us so far.

Wealth Inequality

We – I don’t mean you as readers of a blog and me – but rather we as a society, need to have a serious discussion about “wealth inequality.”

I know I can’t make you think it’s important. Personally, I see rising wealth inequality as one of the top three most important political, moral, and economic issues of our time.

Believe me, I understand, even putting those two words – wealth inequality – together feels political. It feels ‘socialist.’ Also, it bears repeating that I consider myself a pretty hard-core capitalist. But I feel like – just as democracy depends on outspoken critics to make it stronger – capitalism too needs its critics in order to make it stronger.

Wealth inequality in this country seems like such a taboo topic – somewhere on the scale between sex and the surprising likeability of songs by the band Nickelback – that I feel the need to make the case for even talking about it.

Nickelback_is_good — Shhh…nobody mention that they actually LIKE Nickelback

So I say the sharp rise in CEO pay matters, specifically, right now, because wealth inequality matters.

Political insurgencies

Do you know what these bizarrely contentious Presidential elections of 2016 are actually about? I think I do. It’s about anger from people who resent the concentration of wealth and power in the hands of elites.

The surprising insurgency successes of the Presidential campaigns of Bernie Sanders, Ted Cruz, and Donald Trump each in their own way are “anti-Establishment.” A year ago, few would have given any of those three a serious shot at making it so far into primary season.

All three – Cruz, Trump and Sanders – tap into anger at how elites (regardless of whether you label them “Washington Insiders” as Cruz does or “Wall Street Fat Cats” as Sanders does, or “Sad-Pathetic-Loser-Fraud-Establishment” as I imagine Trump might) seem to have benefitted disproportionally at the expense of ‘regular people’ over the last thirty years.

What the anti-establishment insurgencies indicate to me is that old labels of “Left” and “Right” matter less right now than whether you identify as an “Insider” or an “Outsider,” or simply part of the “Powerful” or the “Vulnerable.” We know many people in the New Hampshire primary were torn between voting for Trump or Sanders.

The collective id senses some unfair proportion of wealth and power has concentrated at the top, at the expense of the bottom.

Meanwhile, folks at the top are surprised at this resentment. Folks at the top have embraced a narrative of meritocratic success. “We earned it. We worked hard. These rewards came to us through highly moral means, such as education, savings, delayed gratification, professional advancement, and investment. What are these Cruz/Sanders/Trump supporters even complaining about?”

In that context of inequality and resentment, properly explaining executive compensation matters tremendously. Depending on your explanation, you would favor a whole series of different political choices.

Back to CEO pay

So that’s why explaining the rise of super managers in my lifetime matters, at least to me. (Also, why the heck am I not a super manager?)

The market

One logical thing to say is that in a market system, supply and demand sets compensation to the “correct” market level. Executives get paid so much because their skills are in high demand and top managerial talent is in short supply, hence the ‘price’ of executive talent rises to a market-clearing level. If that happens to be over $10 million dollars per year, so be it, that’s just the labor market for top executives.

This tautology – the market pays $10 million because that’s where supply meets demand and where the market clears – has some elegance.

sanders_anti_market — Sanders sets his jaw against the problems of the market

And if that’s the explanation, and you don’t like inequality, then you might see ‘the market’ as something worth fighting, as I think Sanders and his supporters tend to do.

Increased corporate scale

The global scale at which corporations now operate creates tremendous efficiencies. Our organizations are profitable through combining technology with the cheapest global talent, both in the country (via immigrants) and out of the country (via offshoring). But if you believe CEOs are paid the big bucks on the backs of cheap labor, and domestic workers feel their wages undercut, then Trump’s plan to build a wall against that cheap labor starts to sound less insane than it really is, right?

Interlocking board members

Anybody who watches public companies knows that while corporate boards theoretically represent shareholders, in practice they represent the insider interests of corporate management and themselves. Board members – themselves often highly paid executives typically invited to join the board by the CEO – would not be so gauche as to limit top executive pay. It’s like a private club, and when you’re on the inside, you get paid quite well.

ted_cruz_not_likeable — Why is he always left out of the club?

I see this “club” explanation as the sort of “us vs. them” mentality which seems to fuel Cruz’ fire. The guy never gets invited to the club, like, ever. As his Senate colleague Lindsey Graham noted, “If you killed Ted Cruz on the floor of the Senate, and the trial was in the Senate, nobody would convict you.”

Lower taxes

Personally I think taxes explain everything in life. So, outside of the math errors of corporate compensation committee boards I described earlier, I believe the drop in marginal income tax rates leads directly to wealth inequality.

And I request of our leaders: please don’t raise taxes until after I’ve gotten paid for a few years like a super manager.

Please see related posts:

CEO Pay and the Options Math Error

Inequality in America – Video and Graphic

Inequality in America – The WSJ Video

Inequality in America – The Interactive Map

Yahoo Executive Compensation – It’s all about the stock awards

Executive Pay with Equity Awards – It takes a Buffett to push this agenda

Post read (1233) times.