Pretending Economic Policy Matters

playboy_issuesThis Presidential election is absolutely not about economic policy.

To pretend that you’re choosing your presidential candidate in the 2016 election based on economic policy – after this campaign season – is as absurd as claiming you used to purchase Playboy for the articles.

Even so, let’s pretend for a moment that this election was about economic issues. Where do the two major candidates stand?

Trade

First, Trump. Trump introduced himself to the Presidential race in June 2015 by threatening to impose a 35% tax on manufacturing from Mexico. He frequently claims that he would unilaterally renegotiate better trade deals with China, Japan, Saudi Arabia, and Mexico. Although the Republican Party historically has a clearer track record than the Democratic Party of supporting increased international trade, Trump appears somewhat to the left of Bernie Sanders when it comes to trade liberalization. I have the strong impression that he not only does not support international trade, but he also does not really understand how trade agreements work. Trade wars make almost everyone poorer.

Clinton claims to support increased trade, but has chosen to oppose the already-negotiated Trans-Pacific Partnership (TPP), because it might not create jobs, at good wages, while protecting national security. See, again, that’s not how international trade treaties work. Nobody gets a guaranteed job, at a guaranteed “good wage” from a negotiated trade treaty. Some people over time, in fact, lose their jobs or get a worse wage, while other people – like consumers and many business owners – benefit from trade. I think she knows this. Trump appears uninformed, while Clinton appears the opposite of straightforward.

Wall Street

Trump’s stance vis-à-vis Wall Street remains unclear to me. I mean, he’s promised to lower top corporate tax rates from 35 percent to 15 percent, as well as top personal income tax rates to 33 percent, from the current 39.6 percent. That is presumably welcomed in the canyon-lands of lower Manhattan, or wherever executives expect a substantial payday.

trump_money

In addition, his approach to encouraging economic growth is to roll back or lower government regulations, which might also be welcomed in some parts of Wall Street.

On the other hand, can we be certain he won’t just round up top executives like Jamie Dimon from JP Morgan and Lloyd Blankfein from Goldman Sachs and have them fight – gladiator-style while wearing giant sumo suits – in the middle of Times Square? The winner gets his Wall Street firm automatically nationalized and re-branded “Trump Money,” while the losing executive is drawn-and-quartered by the Budweiser Clydesdales from the 9/11 ad, on live television. Are we sure that won’t happen? Consider the ratings potential! Other than that, I think he’d be fine for Wall Street.

Clinton’s approach, by contrast, appears more predictable. She posits that “Wall Street must work for Main Street,” risky firms must be monitored more closely, and that senior executives must be held responsible for firm losses, each of which might make Wall Street wary of her presidency.

On the other hand, you and I both know what those paid speeches were for. I personally would have no problem getting paid $1.8 million to give 8 boring speeches to Wall Street firms. In fact, I’m just checking my calendar now…Hang on, let’s see, yup, I’m wide open for the next few weeks, so Lloyd, send me a Snap.

Taxes

Speaking of taxes, Trump would repeal the Death Tax, otherwise known as the estate tax, and otherwise known as my favorite tax.

Clinton proposes increasing estate taxes by reverting back to their 2009 level, and increasing taxes on some of the largest estates. I prefer Clinton’s approach, naturally.

Both Clinton and Trump have stated support for eliminating the carried-interest tax break enjoyed by private equity and hedge fund owners, for which I applaud them both. Neither will do it because #campaigncontributions but still, it’s a great thought.

As a side note on taxes: I have zero problem with Trump’s tax return showing nearly a billion dollars in business losses in 1995, which might have relieved him of paying income taxes for the following 15 years or so. I’m sorry to say, Virginia, that the income tax game is a bit rigged in favor of the wealthy. We shouldn’t expect people to pay taxes they don’t legally owe. Trump’s tax-free status is probably entirely legal based on our current tax code, so don’t get mad at him for that.

Energy Policy

Trump proposes a grab-bag of energy-policy liberalization approaches. On his website he announces plans to “rescind all job-destroying Obama executive actions. Mr. Trump will reduce and eliminate all barriers to responsible energy production,” which includes encouraging coal production, and additional oil and gas drilling, in particular on federal lands. It seem plausible to me that this anti-regulation approach would lower the cost of energy for most people and businesses, and thereby provide economic stimulus to the economy.

Clinton has a more mixed approach, which we can intuit from the fact that her official campaign “energy policy” presentation is really expressed in terms of environmental policy, climate change, and an economic safety net for displaced coal workers. As Secretary of State she promoted the “Global Shale Gas Initiative” (read: she promoted fracking), although she has subsequently called for “smart regulations” of the industry in her book Hard Choices. We should probably expect higher energy costs as a result of her administration.

Also, maybe our coastal cities won’t be underwater in twenty years? It’s a trade-off.

Love the gridlock

We have had imperfect candidates for a long time. Often we even elect them to the highest office. So far at least, the inertia of our constitutional system has kept our electoral mistakes manageable. We’ve had a good political run surviving 228 years of imperfect leaders. I’m going to adopt the optimistic view that we’ll survive this next President, and hopefully the next 228 years as well.

The “Washington gridlock” we all claim to hate may be our best insurance against candidates we don’t like. The system, by design, stymies the Executive branch, and that’s a good thing. I’m frightened by this election, but I’m trying to take the long view. I will certainly vote.

Finally, I mentioned Playboy above because economic policy means absolutely nothing this time around.

The centerfold of this campaign has been all about sexual harassment, locker-room talk, “stamina,” testosterone levels, former President Bill Clinton’s womanizing, fat-shaming, and tiny fingers. I suspect we will all vote according to where we stand on these important issues, not the economy.

 

A version of this post ran in the San Antonio Express News and The Houston Chronicle.

Please see related posts:

Trump – Sovereign Debt Genius

Death and Taxes

Carried Interest Loophole

The Primary Candidates

 

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VIDEO: The Very Intriguing Libertarian Ticket

libertarian_PartyWith 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:

  1. Elected office experience (far more than the presumptive GOP nominee)
  2. Track record (far more, etc)
  3. 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.
  4. 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

 

 

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Hillary Clinton Tax Proposals

hillary_clinton_tax_policyLast week I described future Republican Presidential nominee Jeb Bush’s tax proposals. This week, for balance, I will review future Democratic Presidential nominee Clinton’s tax proposals.

Now, before you #FeelTheBern folks write to tell me about your favorite candidate’s chances in the Democratic primaries, I should say the following: Every letter you write me must be followed up with a $1 bill in the mail to me when Hillary seals the nomination in Summer 2016. I’ll do the same if your candidate wins. Agreed? I’m happy to receive your letters, in that case. Thanks.

Prominent on Clinton’s website – under the topic of “Economy” – are two tax breaks.

Education tax breaks

The first tax break for students is standard stuff. Every family with a student enrolled in higher education is eligible for a $2,500 credit, via the already existing American Opportunity Tax Credit, currently set to expire in 2017. Clinton’s idea there is to make it permanent. No big change there.

Profit-sharing

More interestingly, Clinton calls for private employers to receive a tax advantage for including employees in a profit-sharing plan. Meaning, if every eligible worker receives a proportion of annual profits, then the federal government would incentivize the private employer through lower corporate taxes. Clinton cites studies that link higher worker productivity to profit-sharing plans.

In my town, a large grocery chain (with an estimated 80,000 employees!) named HEB recently announced plans that sound quite similar to Clinton’s tax proposal. HEB’s stated purpose is to foster employee loyalty and enhance employee financial stability. Employees who own HEB shares would qualify for profit-sharing dividends, similar to what Clinton would like to push companies to do through this tax plan.

HEB did not wait for Clinton’s tax incentive to announce the change. It’s unclear from Clinton’s website whether profit-sharing in the form of private stock ownership is what she has in mind, or some other unstated mechanism.

A skeptical part of me thinks employers like HEB will decide to share profits – or not – based on factors much bigger than a possible one-time federal tax incentive like Clinton proposes. But I could be wrong.

clinton_logoPaying for tax breaks

Interestingly, the Clinton campaign includes estimates of the cost of these two taxes, something not obvious on the Bush campaign site.

The college credit, she estimates, would cost $350 Billion over 10 years.

The profit-sharing tax incentive, she estimates, would cost $20 Billion over ten years.[1] So, combined, we’re talking $37 Billion per year, which sounds like a big number to me, but really comes to less than 1% of the Federal Government’s annual expenditures.

How do you pay for these things?

The only answer on her website is to “close loopholes” to make up the lost revenue. This is an interesting example of closing loopholes to pay for other loopholes. But I suppose one person’s “loophole” is another person’s thoughtfully crafted tax benefit? Also, “closing loopholes” is what one always says when one needs a cop-out answer.

Estate Tax

This is the best of all taxes, just ask me. Clinton’s campaign website does not mention her views, but I can make an educated guess.

Clinton voted as a Senator to maintain taxes on estates as small as $1 million, so we can intuit that she supports maintaining or increasing estate taxes. On the other hand, since that time she’s acquired a grandchild and we’ve learned she and her husband have earned over $100 million (!) after leaving the White House, mostly through speaking fees (!). Her personal incentives at least have evolved a bit on this issue

Burden of tax compliance

The Jeb! campaign made comprehensive tax reform its central proposal, arguing that the cost of filing taxes added up to $168 Billion per year for individuals and corporations.

The Clinton campaign also mentions this problem in the section on jumpstarting small businesses. Her focus remains small, however, stating “The smallest businesses, with one to five employees, spend 150 hours and $1,100 per employee on federal tax compliance. That’s more than 20 times higher than the average for far larger firms. We’ve got to fix that.”

I’m pretty sure adding loopholes isn’t going to help, and there is not a single specific simplification proposal on her website, but I guess it’s the thought that counts?

Carried Interest

I’m a bit obsessed with carried interest taxes – as a former hedge funder – except my views would not be popular with hedge funders.

Fortunately Clinton says she would eliminate hedge funders’ favorite tax break. This makes me happy.

Progressive taxation

Along a similar vein, Clinton proposes enacting the ‘Buffett Rule’ to ensure that wealthy folks pay a higher proportion of their income than lower earners. Only a monster – or, you know, Steve Forbes – disagrees with the idea of progressive income taxation, so that’s not a surprise.

The real reason Buffett pays a lower tax rate than his secretary is that he earns money on his money through capital gains, rather than through a salary. If you want progressive tax rates, you have to address the favorable taxation of capital gains and dividends, rather than salaried income, because that’s where wealthy people actually make their money.

What is a bit innovative is Clinton’s proposal to incentivize long-term investing through a gradual reduction in the capital gains tax. Under Clinton’s plan, the longer you hold the investment, the less you pay in taxes.

Clinton’s capital gains tax proposal is a bit of behavior-modification meddling, but I mostly forgive that because it rewards the buy-and-hold investor behavior that everyone should adopt.

 

Next week: An analysis of third-party candidate Trump’s tax policies. Kidding! A genius like Trump knows tax policies are for Losers!

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

 

Please see related posts:

JEB! Tax policies

Death Taxes and Fairness

Shhhh…Please don’t talk about my tax loophole

Adult conversation about income tax

Real Estates Tax Rant

 

[1] Incidentally, for a wholly new tax proposal, I have no confidence that Clinton’s $20 billion is the right number. It totally depends on how many companies adopt the plan to share profits, and that seems quite unknowable at this time.

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Life After Debt Part III – Check out the “Where Are They Now?” File

After discussing in Part I the Bizarro World of government debt and the Part II Weapons of Mass Financial Destruction, in Part III we check in on the people currently residing in the “Where Are They Now” file.

One through-the-looking glass aspect of the never-published ‘Life After Debt’ Treasury Memo is the cast of Treasury department characters copied on it and expected to weigh in on the impending problem of Treasury surplus.  The key players today have really not changed since the end of the Clinton administration.  To wit:

Larry Summers – Was Secretary of the Treasury under Clinton in 2000.  Most recently served as and then stepped down from the post of White House Director of the National Economic Council under President Obama.

Doug Elmendorf – Was Deputy Assistant Secretary for Economic Policy under Clinton in 2000.  Currently head of the Congressional Budget Office during the Obama administration, the non-partisan office responsible for producing all Federal fiscal and financial projections, upon which deficit and budget planning is made.

Gary Gensler – Was Undersecretary for Domestic Finance in the Clinton administration in 2000.  Currently the Chair of the Commodities Futures Trading Commission (CFTC) the primary regulator of commodities trading.  (The same CFTC that recently slapped Barclays with $200 million worth of the total $453 million fine for Libor rigging)

Lee Sachs – Was Assistant Secretary to the Treasury for Financial Markets.  Counselor to Treasury Secretary Geithner in 2009 and 2010, now resigned from that post.

Martin N. Baily – Now is a Senior Fellow at the Brookings Institute, and author with Doug Elmendorf of an explanation of the 2008 credit crunch titled “The Great Credit Squeeze.”

What does it mean that the same team under Clinton immediately went to work for the Obama administration?

On the one hand we can take comfort in the idea of expertise and experience in wielding economic power, influence, and decision making.  Twelve years after serving under Clinton, the band is largely back together and continuing to guide the economic ship.  This is not surprising and in fact has been a hallmark of Obama’s economic and financial policy.  While he occasionally nods to his base with a reference to greedy bankers or sympathizes with the concerns of ‘Occupy Wall Street,’ Obama’s actions — caution and continuity with both the Clinton and the W. Bush administrations — speak loudest.

On the other hand, I get the awful feeling, and I’m not the only one, that keeping intact the same team from twelve years ago almost ensures that we will not get a critical review or substantive critique of what went on before.

Let’s be real here: From the surpluses predicted as far as the eye can see in 2000, to the deficits as far as the eye can see in 2011, big fiscal mistakes have been made.  Financial opportunities were blown.  Debts have ballooned for which future generations will be paying taxes.  Very few of us actually made those decisions that led to the national debts.  This happened under Clinton, W. Bush, and Obama.  Changing an administration periodically offers our system a chance to respond to mistakes, to reach new conclusions based on new data.  But if you bring substantially the same people back, you might not only make the same mistakes, you’ll likely get a high degree of ass-covering that impedes progress.

Summers gets blamed publically, probably rightly, for making too many choices to protect his legacy of economic leadership.  But it is worth noting that the ‘Where are they now” file is full of the same people now in the Obama White House with their fingerprints on this Clinton era Treasury memo.

The memo offers a pointed reminder that we almost had it made in 2000 but circumstances, and yes, people, failed to protect our national credit.  But since we’ve got the same people still in charge, can we expect better decisions and better results in the future?

 

See Next Post “Life After Debt IV: Another Bizarro World Villain

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