November 13, 2018

The Jobs and GDP Growth Aren’t There Because Taxes Weren’t Really Cut

s and p one year triangleU.S. stock markets remain volatile and their direction uncertain, although the S&P 500 may have broken out of what technical traders would call a “bullish triangle,” which began forming after the market fell approximately 12 percent in early February from a high of 2,872 the previous month. However, traders will also tell you every technical pattern can tell at least two stories. One must look to the fundamentals for confirmation, and they have been anything but unanimous on the underlying economy.

Stagnant Growth

Corporate earnings have been strong, but that may not be a real indicator of economic growth as much of the earnings per share increases are due to stock buybacks rather than organically increasing profits. And jobs numbers continue to disappoint. Not only did April’s number come in lower than expectations, January’s number was adjusted down by a whopping 63,000 jobs.

Job growth for the first four months of 2018 is still ahead of 2017, but by a lot less than previously thought and we don’t know if March and April numbers will be adjusted downward. Consumer spending remains weak, and surging energy prices, especially gasoline, may continue to eat up what would otherwise be discretionary spending dollars for average households. While unemployment is at or near record lows, so is workforce participation, a statistic conservatives seem to have completely forgotten about since President Trump was inaugurated.

GDP growth slightly beat expectations at 2.3 percent but is far below the 5.4 percent predicted by the Atlanta Federal Reserve just two months ago. Despite missing the real number by a country mile, the same institution isnow predicting 4.0 percent growth for Q2. Why should anyone expect this “irrational exuberance” to be any more accurate than last quarter’s?

Tax Cuts?

The trump card (pun intended) is supposed to be tax cuts. Although they obviously haven’t delivered the jobs or growth promised to date, sooner or later the supposedly smaller slice the government is taking must result in more domestic investment, jobs, production, and growth.

The problem is taxes haven’t really been cut. They’ve simply been deferred. The federal government is going to spend more this year, and every year for the foreseeable future, than in any year in U.S. history. That spending is ultimately going to be paid with taxes, either now or in the future.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

You Deserve a Tax Break and Your Boss Does Too

taxbreak_mini 3Republicans during the Reagan and Bush administrations had a pretty straightforward fiscal policy: increase federal spending dramatically and cut marginal income tax rates modestly, predicting the resulting economic growth would eventually balance the budget. Both administrations increased spending roughly 80-100 percent, depending upon where you draw the start and end lines, given the government’s fiscal year running October 1 – September 30. Predictably, federal debt exploded during both administrations.

This time around, some things are the same, but some are different. The predictable (and predicted) growth of entitlements and the quasi-religious belief military spending must always increase (the military must be “rebuilt!”) has produced what should be a frightening result: federal debt doubled during a Democratic administration under which federal spending increased a mere 28-33 percent, again depending on where you draw the lines.

It’s All Class Warfare

So, the usual Republican modus operandi is not going to fly this time around. Not only have Republicans run on making government smaller, before again blowing up spending once they got in power, but they’ve railed for eight years against Obama’s debt legacy.

They can’t just ignore deficits as they have in the past and expect to win again in future elections, so they’re left with only one choice: “reform” the tax code so it collects the same or more revenue and sell it as a tax cut.

That’s not to say it’s going to work. Federal tax revenue will likely decrease overall under their plan, despite their efforts to raise taxes on some people while cutting them for others. But Republicans can ignore reality as well as Democrats when they need to. If you doubt that, ask any ten Republicans at random if the government got bigger or smaller while Reagan was president.

Republicans are also virtually identical to Democrats in their Marxist view of society.For Republicans, just like Democrats and communists, it is made up of different “classes” of people, competing with each other in a zero-sum game for pieces of a static, finite “pie.” This is explicit in their rhetoric about “tax cuts for the middle class” or the sublimely obtuse “working class” (doesn’t anyone generating an income, large or small, work?)

While it’s true the idea of classes in society predates Marx, it is his vision which dominates the tax code, most strikingly in its assumption there is some fundamental difference between employees of going concerns and owners.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

An Extended Tax Reform Debate Will Subject Us to the Usual Absurdities

liarJohn McCain’s confirmation he’d vote against the House tax reform bill as currently proposed means Republicans won’t be able to lower taxes – for some people – nearly as quickly as most of them want to. In all, three Republican senators have indicated their unwillingness to vote for the plan, meaning Republicans would need Democratic votes to get it through.

As Democratic support is unlikely, the American public will have to endure several weeks or months of grandstanding, proposed amendments, and further neutering of any real benefit to taxpayers. The worst thing about these rituals is they are always largely a debate over absurdities. Here are just a few of the perennial favorites.

Over Ten Years

Both sides of any tax and spending debate use the “over ten years” canard. Those politicians claiming their plan will “balance the budget” claim their bill will do so in ten years, always after increasing spending this year. Those opposing the same plan will pick out spending lines they don’t like, whether increases, decreases, or new spending, and use the ten-year canard to make the impact seem bigger than it is.

For example, if Republicans proposed cutting $100 billion from domestic spending (a mere 2.5% of the overall federal budget), Democrats would wail Republicans were depriving the public of $1 trillion of desperately needed services. Republicans would claim they were saving taxpayers $1 trillion. Neither side would acknowledge the $1 trillion is a rather small percentage of the ten-year federal budget.

In reality, Congress has no power to pass any bill that can’t be changed in as little as two years. Spending bills are debated every year. So, anything politicians say and the media parrot regarding a spending bill’s effects over the next ten years is largely hot air. All that really matters is what their proposals will do next year. And that news is virtually never good.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.