You Get To Keep Your Stupid Red Hat Though

Josh Brown recently tweeted:

If they get this through, in its current form, will mark the complete and final takeover of America by corporations. You get to keep your stupid red hat though.

They’re getting it through. Not in its original form, but pretty close. Close enough to represent “the complete and final takeover by America by corporations.” But at least everyone gets to keep their stupid red hats.

The new tax law will result in a massive transfer of wealth to corporations and their shareholders from ordinary citizens and their progeny. If you’re fortunate enough to own financial assets, you may be one of the winners (provided you don’t live in a Blue State and you’re wealthy enough not to have earned income). If you don’t own a substantial amount of financial assets, then you and your kids are screwed. Especially your kids. And their kids. Any temporary benefits working and middle class people will realize from these cuts are likely to be offset by higher interest rates, a weaker dollar, future cuts to the Social Security and Medicare programs, and escalating health care and education expenses.

The national deficit will balloon as the result of this new law, which means your descendants will be inheriting an even larger debt burden, further eroding their standard of living. I guess people think we can simply add this to our tab and never have to pay it off. Or perhaps they’re just not thinking.

America’s tab of public and consumer debt already tops $40 trillion, including:

  • $20.5 trillion of federal government debt;
  • $14.6 trillion of residential mortgage debt;
  • $1.5 trillion of student debt;
  • $1.2 trillion of state government debt;
  • $1.1 trillion of auto loan debt;
  • $1.0 trillion of credit card debt; and
  • a staggering amount of unquantified debt represented by unfunded public pensions and entitlement programs (the present value of unfunded entitlements has been estimated to be $49 trillion).

The outgoing Fed chair, Janet Yellen recently said, “I would simply say that I am very worried about the sustainability of the U.S. debt trajectory. It’s the type of thing that should keep people awake at night.”

Up at night?! No one in this White House and none of the Republicans in Congress seems to be losing any sleep. To the contrary, they’re not troubled in the least; in fact, they’re content to make the situation worse, just so they can give more money to their wealthy donors (and themselves and their own families).

This decision to give huge tax cuts to corporations that are already highly profitable, awash in cash and valued at high multiples by the market, and to massively cut wealthy people’s taxes, convinces me more than ever that few people care about the future. Apparently, today is all that matters. Our children and grandchildren are the forgotten ones in all of this. Such parental narcissism is, quite frankly, disgusting. So much for being concerned about the seventh generation.

Former Reagan budget director David Stockman hit the nail on the head:

At the end of the day, the GOP tax bill boils down to borrowing more than $1 trillion from the American public in order to pay higher dividends to wealthy private stockholders.

Another stalwart Republican, Steve Schmidt, who managed the 2008 presidential campaign for his party, wrote:

This tax bill demonstrates, once again, the total collapse of all and any rigor around the policy making process in the GOP congress. It is built on a foundation of lies. It adds more than a trillion to the debt. No real conservative should vote for this.

A foundation of lies indeed. Pennsylvania Avenue and the streets around the Republican controlled Congress are rivers of lies these days. So much for draining the swamp. It’s worse than ever. The only thing that still surprises me is the number of people who are willing to believe the lies, including those who will be most hurt by the lies. Gullibility seem to know no bounds.

Back to Josh Brown, a Wall Street type (financial adviser and CNBC regular) whom I quoted at the outset. Brown wrote the following the morning after the Senate passed the tax cut bill. As usual, Josh gets it right.

There’s a possibility that last night’s preliminary step toward final legislation will take the number one issue facing America and balloon it into Rubenesque proportions. Economic inequality, which largely drove voters to lose their minds and cotton to candidates like Bernie Sanders and Trump, could explode over the next few years as a result of fiscal stimulus targeted almost precisely at the part of the economy that doesn’t need it. The fact that the people who do need the most help could end up paying for that is perhaps the sickest, most cruelly ironic joke that’s ever been told.

Unless you believe in magic, which I don’t. And remember, I’m speaking here against my own immediate self-interest. I’m not stupid and this isn’t virtue signaling – I genuinely believe the economy is better when participation is broader and not as concentrated as it’s been. Obama attempted to solve this but he failed. Trump is not even trying. He’d sign anything brought to his desk at this point, just to say he did it.

Indeed, this bill will exacerbate wealth inequity, further hurting the very people who have placed their hopes in Mr. Trump. It is, as Josh writes, “perhaps the sickest, most cruelly ironic joke that’s ever been told.”

And now watch: I guarantee you the Republicans will be coming for your Social Security and Medicare.

The events surrounding this new bill further convince me of the power of propaganda (as if I didn’t know). And of the dangers of slick charlatans and demagogues and people’s willingness to embrace them if conditions are right. And of the dangers of willful ignorance.

But it is what it is. At least I get to keep my Pittsburgh Pirates cap. And I don’t have to wear one of those stupid red hats.

Whistling Past the Graveyard

Real median earnings for men have gone nowhere now for over 40 years. Over the same span of time real corporate earnings have risen roughly five-fold. – Jesse Felder in “Is This How The Winner-Take-All Era Comes To An End?”

Since the early 1960s, the share of our GDP going to labor (not unions, but labor, which means anyone who works for a living and earns a wage or salary) has been declining. Indeed, it’s plummeted since the turn of the century. Labor has been the loser; corporations and their owners (i.e., capital) have been the winners. If you doubt that, consider the fact the stock market is at an all-time high and is trading at multiples not seen since the days leading up to the Crash of 1929. And consider how little of GDP growth is going to labor versus capital. (The data are easy to find if you’re interested.)

As a result of these dynamics and public policies skewed in favor of the rich and capital, economic inequality in our country has reached levels not seen since the depth of the Great Depression. The top 20 percent is leaving the bottom 80 percent in their dust. And the top 1 percent, and even more so the top 0.1 percent — well, they’ve been reaping nearly all the economic rewards our economy has been generating in recent years.

Not long ago, corporate CEOs earned about 40 times what their workers earned. Today, they earn 350 times what the workers earn. According to noted money manager Jeremy Grantham:

The system has gone to hell. Keynes, Schumpeter–and Marx, not to mention–thought, by their nature, corporations and capitalism would overreach simply because they could. Corporations would use their advantages to get more power and more money. Their share of the pie would increase, and cause society to push back. Sooner or later there will be pushback.

Yet the president and Republican-controlled Congress are now proposing a massive tax cut for corporations and, by extension, their owners (which includes, of course, many foreigners, such as the Swiss National Bank, the owner of $88 billion of U.S. stocks and, therefore, one of the prime beneficiaries of the new tax bill). Indeed, many foreigners stand to benefit greatly from this tax bill.

Congress and the president intend to pay for this tax cut in several ways:

  • by eliminating or curtailing many deductions and credits (for instance, by eliminating or drastically reducing deductions for medical expenses, home mortgage interest, state and local taxes, student-loan interest, employer-paid tuition assistance, child adoption credit, and a myriad of other deductions and credits), which will have the effect of increasing taxes on certain individuals and institutions (~ 12 percent of taxpayers) and making education, health care, child care and home ownership more expensive for some;
  • by imposing new taxes (for instance, a new tax on certain private nonprofit colleges);
  • by cutting back on health care expenditures (e.g., not appropriating funds for children who need health care but whose parents cannot afford it); and
  • by running an even larger deficit (“deficit spending”), which will be funded by more borrowing on the part of the federal government (in other words, by making our children, grandchildren and their children pay for the tax cut for corporations and the wealthy). The nation’s debt-to-GDP ratio already sits at a post-WW II high. This bill will take it higher (est. $1.75 trillion more over 10 years).

Oh, by the way, the tax bill preserves the outrageous hedge-fund tax loophole candidate Trump vowed to kill. I’m shocked. Another win for the wealthy; another successful head-fake on the part of the president.

On its face, the bill is ridiculous. Yet it’s being treated as a serious proposal. Indeed, I wouldn’t be surprised if it (or something very close to it) becomes law. And I also wouldn’t be surprised if the majority of the electorate support it. Of course, I also wouldn’t be surprised if it dies in the Senate (as it should).

A democratic society that tolerates a handful of very big winners while the vast majority of everyone else is denied their share of the wealth the economy generates is not sustainable. It will end badly. Civil strife. Social tensions unlike anything we’ve seen in at least 50 years. Violence. War. Radical populism (not the fake billionaire-led variety we’re presently experiencing). Or the whole kit and caboodle simply may unravel.

Mr. Trump and his lackeys on the Hill, as well as their corporate benefactors, may be feeling their oats these days. But they might be whistling past the graveyard. And by the time many of their supporters realize what’s happening, it may be too late.

P.S. Although the overall thrust of the tax bill is highly objectionable to me, there are some changes that I like. Such as limiting the home mortgage deduction. Stopping the practice of using tax-free municipal bonds (private purpose bonds) to build sports stadiums for billionaires. There are others. What I dislike the most is the unconscionable increase in our national debt that will result from these cuts, the huge benefits being conferred on foreign investors, the likely negative impact on individuals (higher interest rates, including mortgage rates) and the continuation of public policy favoring capital over labor (one of the sources of the gross economic inequity that grips the nation today). In short, it’s likely to make economic inequality worse, not better. Instead of addressing the deepening problem of the working class falling further and further behind, Congress and the president want to confer huge benefits on the wealthy. The wealthy are doing just fine. We need elected representatives who care about the working class. Despite their rhetoric, these jokers do not.