Friday, April 28, 2017

The corrosive consequence of the politics of tax cuts.

Saul Steinberg, "View of the World from 9th Avenue"
According to the New York Times, Amtrak's Northeast Corridor needs a $28 billion overhaul, including, most significantly, the replacement tunnel under the Hudson River connecting New York and New Jersey. The significance of the tunnel project is hard to overstate, yet Republicans in Congress--now with White House backing--appear almost gleeful at the prospect of defunding the railroad and crippling the region. Perhaps it is payback for the famous Saul Steinberg's New Yorker cover and all that it represents; GOP members of Congress from the flyover states are itching to tell Amtrak to go f--k itself.

It is an odd way to say thank you. The Northeast Corridor is an essential transportation artery in one of the two most economically vital regions--along with California--that drive the nation's economy, and in terms of annual contributions to the federal government, it stands alone. Given the disproportionate amount of funding that the region contributes to the federal government, one would not think that supporting badly need capital investment required by that critical rail link was too much to ask.

Associated Press: April 17, 2017
A quick look at the Associated Press's list of per capita federal taxes paid by states tells the story. The states served by the Northeast Corridor--from north to south--Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania, Delaware and Maryland represent eight of the fourteen leading states in terms of federal taxes paid per resident. 

Year in and year out, those states--along with most of their blue state brethren--are net payers of federal taxes while most red states take out more than they pay in. It would be one thing if there was a hint of appreciation expressed by those deep red states to the productive states that provide all that money, but listening to the braying coming from the halls of Congress these days--and the hostility to funding Amtrak's Northeast Corridor is just one example--one would think that it was the red states that were supporting the rest of the country. 

With Republicans in full control, the Northeast Corridor states are taking it on the chin. It would be one thing if the GOP simply wanted to take the axe to Amtrak--it has been a favored target of budget cutters for decades--but now Republicans are determined to stick it to the blue states on the tax side as well. 

Right at the top of the GOP tax reform agenda--and reflected in the Trump tax plan as well--is eliminating the federal deductibility of state and local taxes. This is both a money grab and a political power play. As illustrated in the "tax burden" graphic shown here, the states that pay the most federal taxes per capita--the Northeast Corridor, Midwest and West Coast--tend to have higher state and local taxes than the lower-tax "taker" states as well. For decades, conservative economists such as Art Laffer, Stephen Moore and Larry Kudlow have argued that it was only a matter of time before those low tax red states became the shining stars of economic growth.

Yet, for some reason, despite low taxes--and decades of subsidies from the high tax states--the future never comes. Federal taxes paid per capita here are directly tied to income per capita of each state, and--despite the predictions of moralizing tax cutters--those Northeast Corridor states, from Taxachusetts down to Maryland, continue to produce higher real incomes across their populations and subsidize those low tax, conservative shining stars of Florida, Tennessee and North Carolina, and their brethren. For example, as illustrated in the graph here, per capita incomes in Florida, Tennessee and North Carolina remain essentially unchanged compared to New York State since 1970, a half century ago.

FRED Economic Data: Federal Reserve Bank of St. Louis
For decades now--as documented by the conservative Tax Foundation--more productive blue states have seen their money flow to less productive red states. Yet somehow those red state Republicans get away with saying--as we now hear in the tax reform discussions on Capitol Hill--that the deductibility of state and local taxes represents a subsidy by the low tax to the high tax states. While this might be true in a narrow mathematical sense, whatever benefit that deduction provides to taxpayers in high tax states is a pittance compared to the overwhelming subsidies that flow the other way.

It is not that Republican lawmakers object to some states subsidizing others--after all, Republicans are more likely to represent taker states than payor states. What those Republicans object to is subsidizing what they assert is morally bad behavior on the part of blue states: taxing citizens to pay for government. 

Yet, blue state Democrats look at the same circumstances and see a very different picture. From their vantage point, those higher taxes that Republicans find objectionable go in large part to fund investments in K-12 and higher education that directly contribute to the higher real incomes in blue states--which in turn have resulted in the higher per capita federal tax payments that are used, in part, to subsidize red states. In the view of those blue state Democrats, red state politicians who prioritize low taxes--and as a consequence suppressing education funding--are making policy choices that result in lower levels of education attainment across their communities, and contribute to lower real incomes and less financial security over time.  

In the wake of a presidential election that swung on the devastation wrecked by globalization on less educated populations, one might have imagined that elected officials from those ravaged communities would be focused on the urgency of investments in education to support community economic vitality and family financial security. But instead of pointing to the factors that produce economic success and security over the long term--for individuals, families and communities--we just hear more of the same old, same old, as red state politicians continue to hector blue states about what taxes cost, rather than what they produce.

To the extent that the emphasis on low taxes has undermined educational attainment in red state America, the anti-tax Reagan Revolution has turned the GOP into a fount of public policy moralism that has undermined the economic success and security of those communities that it represents. In the modern world, where capital flows to those places that offer the greatest opportunity for an economic return, low taxes are not enough; investments in education and human capital matter. Now, more than ever, investments in primary, secondary and higher education have become critical drivers of long-term economic growth at the state level. 

On Wednesday, Treasury Secretary Steve Mnuchin and Trump economic tsar Gary Cohn introduced the key parameters of Donald Trump's tax cut plan. As in all things Trump, the proposed plan was billed as the largest ever. As if on cue, two days after the press conference introducing the plan, first quarter economic growth came it at a 0.7% annualized rate, an unexpected slowdown in economic growth that will surely lead to clamoring among Republicans in support of something approximating Trump's tax proposals.

The problem is that for the Trump base--less educated working class whites--taxes are not the problem and tax reform will not cure what ails them. Despite Trump's American Carnage rhetoric--and the urgency that Mnuchin and Cohn sought to convey--the US economy has been the envy of the advanced economies in its resiliency and rebound from the 2008 financial collapse. The major constraint facing domestic economic expansion is not availability of capital or tax treatment of corporate profits, but tight labor markets and availability of skilled labor. To the extent that proposed tax cuts accelerate US corporate investment and job creation, the primary impact is likely to be increased upward pressures on wages for existing skilled workers rather than the return of jobs to the hardest hit rural communities that have been the focal point of the Trump phenomenon.

Deloitte: Global Manu­facturing Competi­tiveness Index
Even as the Tax Foundation, Larry Kudlow, Stephen Moore and others have bemoaned the lack of competitiveness of the US corporate tax structure as they make the case for Trump's massive tax cuts, the Boston Consulting GroupDeloitte (shown here) and McKinsey have published studies showing that the United States offers one of, if not the most, attractive climate for new investment across the globe. Those studies conclude that manufacturing costs in the United States today--driven by factors including rising wages in developing countries, low domestic energy costs, and rising productivity--are only marginally higher than in China, with trends that continue to improve.

Donald Trump's populist politics have turned the discussion of US competitiveness and job creation on its head. The carnage of Trump's imagination is not a national phenomenon, but a localized one. Nationally, the unemployment rate is low and middle-class real incomes are growing, even as rural communities have been devastated by economic trends. Rather than encouraging families and communities to understand the critical importance of investment in education to real income growth and security over the long-term, Trump--like generations of Republicans before him--has chosen instead to play upon the resentments of less educated voters in exurban and rural areas toward economic elites in the relatively successful blue states and urban centers, while promoting tax cuts that offer little or no long-term value to them or their communities. 

The states along Amtrak's Northeast Corridor have done well by their residents over the years. Decade after decade, those states have contributed far more to the federal kitty than they have taken out. Yet for all their success--and the billions of dollars they pour into the pockets of red state taxpayers year after year--they continue to be subject to resentment and derision from Republicans in Congress, who take their money and then tell them to pay for their own railroad. Those same politicians, in pursuit of their own advancement, ignore the critical links between educational attainment, and family incomes and financial security, and push policies of cutting taxes rather than investments in education that might improve the welfare and financial security of their constituents over time.

Follow David Paul on Twitter @dpaul.
Artwork by Jay Duret. Check out his political cartooning at Follow him on Twitter @jayduret or Instagram at @joefaces.

Wednesday, April 26, 2017

The Trump tax plan: nothing for his base, and they love him for it.

According to Gallup this week, 57% of Americans believe that their federal income taxes are too high. That fact alone should help put the wind at the backs of members of Congress pushing for tax cuts this year. The Trump administration presented its "plan" this week, and that plan should provide further impetus for action.

On the face of it, the Trump plan is silly. By some estimates, the proposed cuts would cost upwards of $6 trillion over the ten-year scoring window. No doubt, that number will be trimmed down when "dynamic scoring" is taken into account. Trump's original plan was twice as silly--$12 trillion in tax cuts--and at the time the Tax Foundation scored the cost as just over $10 trillion, taking into account the impact of tax cuts on economic growth. By extension, Trump's new $6 trillion plan might only cost $5 trillion. But whether the number is $6 trillion or $5 trillion, it isn't budget neutral by any extent.

Six trillion might sound like a lot in terms of increasing the deficit, but it also buys a lot of friends. For deficit hawks in Congress--House Speaker Paul Ryan most notably, but also the Freedom Caucus and those with roots in the anti-debt Tea Party--this looms to be a come-to-Jesus moment. Donald Trump ran on deficit-busting tax cuts, and he was elected on deficit-busting tax cuts. If those members of Congress want to face down the President, they are going to have to stand up to a lot of high paid lobbyists and powerful industry groups--to say nothing of a lot of lies and silliness about dynamic scoring--along the way. As Bruce Bartlett--the author of the Reagan tax cuts and Bush 41 advisor--has observed, tax cuts have long since lost their supply side justification, they are all just about politics now.

Treasury Secretary Steve Mnuchin and Gary Cohn did their best to sell the plan as being about economic growth, and avoid micro-details (to use Gary Cohn's word) about who--most notably the President--would benefit. What they lacked in details, they made up for with adjectives. Massive. Enormous. Critical. Huge. This is language right in Donald Trump's wheelhouse, and if deficit hawks were troubled by size of the plan, they must also know that big plans garner lots of supporters, and to call Trump's tax plan big is an understatement. It is, in fact, huge.

Donald Trump understands as well as any politician in memory exactly who has supported him and what they are looking for in return for that support. He won the evangelical vote by promising Neil Gorsuch--metaphorically speaking--and he delivered. He built his "base" by alternately appealing to and stoking the resentments of white working class voters, and each day he looks for ways to maintain that visceral connection. And he won the large swath of economic conservatives--that cohort of voters motivated by tax cuts and less restrictive federal regulation--on the prospect of both. This week, he put his money where his mouth is. Or, more accurately, someone else's money--notably future taxpayers who someday will have to pick up the $6 trillion tab should the proposed tax cut package make it to his desk.

Those who dismiss the possibility of Trump's plan--or a reasonable facsimile--being signed into law should consider what money can buy. The Trump plan contains truly huge cuts in corporate taxes--sufficient alone to keep industry groups and K Street lobbying firms working overtime for months to come. Perhaps even more significant is the proposal to tax pass-through income--partnerships, Subchapter S corps and the like--at the new 15% corporate rate. For those who complained that Trump has benefited over the years from the panoply of tax breaks that privilege real estate investors, he is now proposing to level the playing field not by getting rid of those tax breaks, but instead by offering similar benefits to millions of small business and professional firms. This is a gift of enormous value that will not only entice many heretofore reluctant supporters to his side, but, if passed, should secure the support of those voters four years from now, should Democrats continue down the path to the left at the urging of their activist base.

From early on in his presidential campaign, Donald Trump swore that he would end the carried interest loophole that effectively allows many in the investment, venture capital and private equity worlds to have their ordinary income taxed at the lower, capital gains tax rate. Attacking the carried interest loophole was seen by some as political cover for Trump's first, $12 trillion tax cut plan. While the plan introduced this week is silent on carried interest, it appears to make the issue moot. Under the Trump plan, those investors income could prospectively be treated even better than it is now, by falling under the 15% pass-through rate rather than at the proposed 20% rate on capital gains for which it might otherwise be eligible under the old rules. Rather than producing a tax hike for those investors as he promised over the course of the campaign, Trump may be giving them an additional tax cut.

Then there is the personal income tax side of the equation. It is here, more than on the corporate side, that the marketing of the plan has a stroke of genius. During the presidential campaign Trump insisted that wealthy taxpayers would get no benefit from his tax plan, which would instead deliver massive cuts to the middle class. Mnuchin doubled down on the Trump promise shortly after the inauguration, when he stated that “Any reductions we have in upper-income taxes will be offset by less deductions, so that there will be no absolute tax cut for the upper class." 

There were always two problems inherent with that promise. First, wealthy taxpayers pay most of the taxes in this country--a fact at odds with Democrat rhetoric and beliefs, but nonetheless a fact--and if one cuts income tax rates, it is very difficult not to have those at the upper end of the spectrum who pay the lion's share of income taxes derive a benefit. And so it is in this case. Contrary to Trump and Mnuchin's promises, the Trump plan delivers massive cuts in income taxes to the wealthiest taxpayers by lowering rates on ordinary income, capital gains and dividends. But then it goes farther, and eliminates the Obamacare tax on investment earnings, the Alternative Minimum Tax and the Estate Tax. It includes, quite simply, everything wealthy Americans could ever want to find under the tree on Christmas morning.

Second, as Mitt Romney famously pointed out four years ago, approximately half of Americans--47% was the number Romney pointed to at the time--pay little or no federal income tax. In the press conference introducing the Trump plan, Mnuchin suggested that in addition to reducing the current seven tax brackets to three, with tax rates of 10%, 25% and 35%, there would effectively be a new tax rate of zero for families earning less than $24,000. The misleading aspect of Mnuchin's boast is that, according to Congressional Budget Office data, a family with $24,000--which is at the upper end of the first quintile of taxpayers--now pays a net income tax rate of negative 7.2% (net of the refundable tax credits, including the Earned Income and Child Care tax credits) . Mnuchin's statement is misleading because those taxpayers whom he says will enjoy a zero tax rate under the Trump plan are already paying no federal income tax. (And, it should be noted, neither Cohn nor Mnuchin suggested that the Trump plan would eliminate the payroll tax, a flat tax that is distinct from the income tax and dedicated to funding Social Security.)

This was always the problem with the Trump tax cut rhetoric. A massive income tax cut for people who are not paying much to begin with is hard to deliver. But as Donald Trump knows better than any politician we have ever seen, the truth of what you say matters far less than the conviction with which you say it. This is where the stroke of genius resides in the plan as proposed. And Trump will sell it well: We are getting rid of all those special interest deductions for the wealthy. That I can tell you. And we are lowering the bottom rate to zero. It doesn't get much lower than zero. Right? Much of Trump's base lies well within the 47% of taxpayers that Romney held in such contempt, but they love Donald Trump and many actually believe what he tells them. If Trump's tax plan becomes law and he declares that he has delivered to them what he promised--a huge, massive, beautiful tax cut--they will believe him, whether or not they get anything out of it.

The problem with the Gallup suggestion that 57% of Americans believe that their federal income taxes are too high is that it is hard to come up with 57% of Americans who actually pay much in federal income taxes. According to CBO data, in addition to the first quintile rate of negative 7.2%,  the second and third quintile of households pay net tax rates of negative 1.2% and positive 2.6%, respectively. Those three quintiles represent 60% of American households. In sum, those 60% of households pay an aggregate net negative tax rate of -1.3%. That is to say that the cost of the refundable tax credits received by that 60% of taxpayers more than offsets their entire federal income tax liability. Including the payroll tax, which approximates 8% for that cohort of taxpayers, those 60% of taxpayers pay 13.6% of total federal taxes.

Since the Reagan Revolution, lower income taxpayers have provided the votes to deliver tax cuts for wealthy Americans. The power of tax cut rhetoric is powerful, and it endures. Trump's tax plan will garner support that is broader and deeper than his election majority, for the simple reason that there will be something of real value on the table this time. Millions of Americans who stand to gain from the tax cuts will likely throw caution--and deficits--to the wind, and clamor for their passage. Corporate America is already all-in. The Trump voters will be all in even if they get little out of it, because--facts be damned--they will be thrilled that their man is once more delivering what he promised. And those who will pay the cost of the $6 trillion when the bill finally comes due will have little to say on the matter, as most of them have not yet been born.

Follow David Paul on Twitter @dpaul.
Artwork by Jay Duret. Check out his political cartooning at Follow him on Twitter @jayduret or Instagram at @joefaces.

Monday, April 10, 2017

The Trump doctrine.

Bombing Syria has had such a salutary impact on the punditocracy. The beautiful images that MSNBC host Brian Williams described, of Tomahawk missiles being launched from a destroyer in the Mediterranean, brought back the halcyon days of Desert Storm and Shock and Awe. Talking on Morning Joe on Friday morning, New York Times columnist Thomas Friedman offered fulsome praise for Donald Trump standing up as the last bulwark of defense for international norms and values. 

Speaking on the same show, Washington Post foreign affairs columnist David Ignatious summed up the widespread enthusiasm for Donald Trump's Syria attack: "It sets the table. It establishes the credibility of American power. Trump's problem, in dealing with the Chinese and everyone else is, is he big talk, he is bluster but no delivery. And by taking action quickly, and in a way that's moved with surprising speed, I think he's demonstrated this isn't just talk. 'I mean it. I'm going to enforce the positions that I take.'"

The problem with this conclusion, of course, is that when Trump launched 59 Tomahawk missiles against an airbase in Syria, he wasn't actually enforcing a position that he had taken. Quite the contrary. Just a week earlier, his UN Ambassador Nikki Haley and Secretary of State Rex Tillerson had announced a shift in US policy toward Syria, accepting the "political reality" that the regime of Bashar Assad was likely to remain in place, in order shift the US focus to the defeat of ISIS.

Trump's suggestion that it was the televised images of the children mutilated by the attack that changed his view on Assad and impelled him to act was strikingly disingenuous. As horrific as the chemical weapons attack killing an estimated 70 Syrians was, it did not tell us anything we did not know already about Assad. The Bashar Assad whom Haley and Tillerson accepted as a political fact of life a week before the chemical attack last week had repeatedly used chemical weapons to kill upwards of 2,000 of his own people, and is the central figure in a civil war that has left a half a million Syrians dead, led 3 million Syrians to flee the country, and left 6.5 million internally displaced--out of a country with a pre-war population of 23 million.

Until this week, under the banner of his America First doctrine, Donald Trump had forsworn his role as 'president of the world' and the responsibilities of the United States as the protector of the global order. This week, he came full circle. In his remarks following the military action against the Assad regime, Trump declared that attacking Syria was in the vital, national security interest of the United States and its allies, and he embraced his responsibility to enforce United Nations edicts and international bans on the use of chemical weapons. Much to the chagrin of his most loyal supporters, his words mirrored the language used by George W. Bush and Barack Obama justifying United States military actions in the region on their watch. New military engagement in the Middle East--with the exception of destroying ISIS--was exactly what Trump had long railed against and had pledged to his supporters would never happen under his watch.

Members of the foreign policy establishment have been bending over backwards to identify the emergence of a global geo-political doctrine in Trump's action. Some see his Syria attack as a projection of strength, announcing to the world that the United States is back from the Obama years of timidity and prepared to reassume a position of muscular global leadership. For others, it was the strategic brilliance that stood out, as the attack sent a message to Chinese President Xi Jingping--with whom Trump was meeting at the time of the attack--that Trump is not a man to be trifled with--whether with respect to the South China Sea or North Korea--and that he is willing to use force and to act swiftly.

This is one more quintessentially Trump moment, where people interpret Trump's behavior through their own eyes. As a man with no real ideology, Trump has mastered the art of letting others see what they want to see in him. To economic conservatives, he is an economic conservative; to social conservatives, he a social conservative; and to white nationalists, he is a white nationalist. Now, realpolitik, great power internationalists who had despaired of having an isolationist in the White House are viewing his action through their own lens, while their historical neoconservative adversaries watched the same missile attack and are seeing glimpses of idealistic interventionism in Trump's action. Like the morning after one of his overnight tweetstorms, the world watched the missiles fly and scurried to interpret their meaning.

In the same vein, Washington Post guru Bob Woodward praised Trump in the wake of the attack for the swiftness of his "pivot" from the isolationist rhetoric that led him to accept the Assad regime last week to the robust internationalism that led him to bomb the regime this week. But if we know anything about Trump, it is that he does not pivot; what we saw in Syria was just Donald Trump being Donald Trump.

Reporting for the New York Times, Robin Lindsay and Dave Horn suggested that the Syria attack pointed to the outlines of an emerging Trump Doctrine, but in their case it was one that resonates with the Donald Trump we have come to know: "Don’t get roped in by doctrine... Mr. Trump dispensed with his own dogma and forced other world leaders to re-examine their assumptions about how the United States will lead in this new era." That assessment mirrors what Trump described during the campaign as his belief in strategic unpredictability, which, he argued, had the benefit of not letting your adversaries know what you might do next. Call it a doctrine if you must, but Trump's strategic unpredictability can also be seen simply as a justification for acting impulsively. Looked at through the lens of the Trump doctrine of strategic unpredictability, what we saw in Syria might be our first glimpse of Donald Trump with a nuclear-armed Twitter account.

In the days since the attack, it seems to have quickly shrunk in significance. The airbase hit in the missile strike is back in operations, and the Assad regime is once again targeting the town where the chemical attack occurred. If Trump's action was supposed to be a shot across the bow of the Assad regime, it is not yet apparent that the warning had great effect. Reflecting back on events over the weekend, it is apparent that the pronouncements of a coherent Trump Doctrine might have been a bit premature. The Syrian civil war continues unabated. It is hard to imagine how anyone expected otherwise from one missile strike.

While the strike was sold to Congress and the public as a one-off event, it is hard to imagine that there will not be more to come. Trump stood before the world and embraced his role as nothing less than the defender of the suffering children of Syria--"No child of God should ever suffer such horror"--and their anguish is nowhere near an end. And then there is the media coverage. It may have been fake news, but over the past few days, Donald Trump has had the best press he has seen in the short life of his presidency. Having gotten a whiff of the plaudits that come to a wartime president--in the early days at least--it is hard to imagine him letting go for a better grip.

Follow David Paul on Twitter @dpaul.
Artwork by Jay Duret. Follow him on Twitter @jayduret or Instagram at @joefaces.

Wednesday, April 05, 2017

Screwed again, Trump voters stand by their man.

As Passover approaches, a parable is in order: Moses never entered the Promised Land, only his followers did. If Donald Trump were Moses, however, things would have been different. Moses F. Trump would have said to his followers standing by the bank of the Jordan River, "You guys wait here, I will be right back." Then he would have crossed the river into the Promised Land. He would have claimed that land of milk and honey as his own, leaving his followers stranded on the side of Mount Nebo.
*  *  *  *  *

A month short of his first hundred days, and Donald Trump's job approval/disapproval rating according to the Quinnipiac University Poll dropped to a new low. His 35% approve vs. 57% disapprove rating. Subtract one from the other and you get minus 22, which can be a shorthand way of referring to it. As in Trump's approval is at minus 22. This marked a decline from 41% approve vs. 52% disapprove (-11) in the same poll four weeks earlier, and beat out Barack Obama’s worst approve/disapprove rating of his presidency, 38% approve vs. 57% disapprove (-19) reached on December 10, 2013.

Trump's job approval level slipped across nearly every party identity, age and sex sub-group identified in the poll compared to four weeks earlier. Among Republicans, his job approval slipped 12 points from a stratospheric 91% to 79%, while among non-college educated whites he declined nine points from 60% to 51% approval. Only among Democrats did Trump's approval edge up, from 5% approve vs. 91% disapprove to 6% approve vs. 89% disapprove. Just by way of comparison, in early April 2001, after the contentious 2000 presidential election, George W. Bush approval rating among Democrats was 37%.

For those puzzled by Trump's still-strong support among Republicans, the answer is simple: he has delivered. Roughly speaking, the coalition that elected Donald Trump can be divided into three groups: economic conservatives, social conservatives and Trump's base--largely comprised of disaffected, less educated, white working class voters.

The first group, economic conservatives, were probably the most skeptical of Trump as a candidate, but they turned out for Trump hoping that he would deliver on his promises of lower taxes and reduced regulation. Now, two month into the administration, that group is probably more positive than they were on election day, as both tax reform and deregulation have been a central focus of the Trump agenda and the prospects for tax cuts remain strong.

The second group, social conservatives, supported Trump in the hope, first and foremost, of a conservative nominee to replace Antonin Scalia on the Supreme Court. For that group, Trump delivered in his first week, with an executive order reinstituting the global gag rule, cutting of federal funds to international organizations that provide family planning services. And this week, Neil Gorsuch, conservative jurist, is on his way to the Supreme Court.

The third group--the @realDonaldTrump voters--turned out for love, pure and simple. Since the early days of his presidency, Donald Trump and Steve Bannon have maintained a sharp focus on Trump's campaign promises to his base and sought to address them one at a time, through both real and symbolic actions. Trump promised to kill the TransPacific Partnership, and he did so immediately upon being sworn into office. He promised a crackdown on immigration, and within days of his inauguration, teams of ICE agents began cracking down on undocumented immigrants in communities across the country. He promised he would institute a Muslim ban, and wasted no time in rolling out his first version of the Muslim ban. Indeed, his fights that ensued with the judges that blocked his executive orders may have burnished support among his core supporters even more than the ban alone would have. And Trump's most outrageous early morning tweets rekindle, week after week, the love of his most loyal supporters.

The debate within the GOP that killed the American Health Care Reform Act provided a wake-up call that things might not be so easy going forward. The first flurry of executive orders, and even the Gorsuch nomination, were low hanging fruit; they were all actions that Trump could take unilaterally, or, in the case of the Gorsuch nomination, that would face no opposition within the GOP on Capitol Hill. The real work began with healthcare legislation.

The negotiations around the repeal of Obamacare laid bare the cruel underbelly of Donald Trump's politics. He never actually had a plan for delivering on his campaign promise of better healthcare, for more people at a lower cost; it was just a great applause line at his rallies. He knows the depth of trust that his supporters have invested in him, but showed no compunction about turning his back on their interests in pursuit of his own, when the time came. As the legislation moved forward, it became apparent that if the price of winning--which for Trump was defined as destroying Barack Obama's signature creation--was selling his core supporters down the river and saddling them with higher costs, reduced benefits and less access to healthcare, Trump was fully prepared to accept that deal.

Most Americans were not fooled about the impacts of the deal that was in the works. By the time the healthcare bill came up for a vote, the public had soured on the entire exercise. According to the Quinnipiac poll, only 17% of those polled supported the bill. Yet buried within the Quinnipiac numbers was that continuing enigma of American politics--the Trump voter. Alone among the demographic sub-groups polled, a majority of non-college educated whites supported the Republican healthcare plan, notwithstanding the analyses by the Congressional Budget Office and the Kaiser Family Foundation that suggested that those families stood to lose the most in terms of increased health insurance cost, reduced benefits or lost coverage compared to the Affordable Care Act status quo.

The healthcare bill was the metaphorical equivalent of Donald Trump shooting someone on Fifth Avenue during broad daylight, but in this case Trump shot point blank at those who supported him, and, as he predicted, they did not flinch. Trump has now assured his supporters that a second effort at healthcare reform is underway, but there is no evidence that he intends to protect the economic interests of those he considers his base any better during this next go-round.

Healthcare reform has much in common with tax reform, which is next up on the GOP agenda. Both are issues with clearly identifiable winners and losers, as well as well-heeled political and policy advocates prepared to do battle as legislation moves forward. As was the case with respect to replacing Obamacare, Donald Trump made promises to his core supporters, promising "massive middle-class tax cuts" while making sure that no net benefit would accrue to the top 1%. But, as with the drafting of the healthcare legislation, that is not the way things are headed.

Trump's point person on tax reform, Treasury Secretary Steve Mnuchin, has suggested repeatedly that "there is very, very strong support" for a tax bill. Of course there is. Tax reform is a Christmas tree, and every industry sees it as an opportunity to advance their economic interests. In the name of growth, corporate and individual tax cuts are handed out. In the name of corporate tax repatriation, a tax holiday is granted on repatriated corporate profits. It all translates into higher after tax incomes for wealthy taxpayers, executive compensation, and dividends. What's not to like?

The problem, of course, is that old deficit thing. Republicans had been counting on hundreds of billions of dollars in savings from repealing Obamacare that have yet to materialize to offset the budget impact of their corporate and personal income tax cuts. They need the budget offsets if they are going to be able to comply with the "Byrd Rule" that allows legislation deemed to be budget neutral to be approved with a simple majority rather than 60 votes. If tax reform has to be structured as revenue neutral on a stand-alone basis--meaning that for everyone who gets a tax cut, someone else has to pay more--the prospects become much more problematic.

While Mnuchin has repeatedly stressed Donald Trump's commitment to massive middle-class tax cuts, that is not so simple to accomplish. Much of the middle class--as Mitt Romney famously pointed out four years ago to a group of hedge fund managers in Palm Beach--pays little or no federal income tax. As it turns out, Romney was telling the truth, and if he had been as willing to defend his facts as Donald Trump has been willing to defend his lies, Mitt Romney might have won the Presidency in 2012, Donald Trump would still be the host of Celebrity Apprentice, and we all would have been spared the mayhem that has infected our politics over the past year and a half.

The problem with Trump's tax cut promises to his supporters is inherent in Romney's observation. If people pay little or no federal income tax beyond the social security payroll tax, it is hard to promise them a massive income tax cut. According to the most recent Congressional Budget Office data, the second quintile of households--those whose incomes are in the 21-40% range of all households--paid an average income tax rate, net of refundable tax credits, of negative 1.2%, while the third and fourth quintile of households paid average income tax rates of 2.6% and 6.1%, respectively. If the average tax rate for the middle quintile is 2.6% and the average household income for that group is $70,000--implying a tax bill in the range of $1,800--there are limits to what a massive middle-class tax cut might look like, and those data suggests that health insurance costs are of far greater consequence than federal income tax rates for middle-class families. Cutting the social security payroll tax rate, which adds an additional 8-9% tax burden, may be what Trump has in mind, though that would undercut the stability of the social security system, which Trump has pledged not to touch.

More likely, Trump has nothing particular in mind beyond campaign rhetoric. Just as he proved himself willing to walk away from his pledge to reduce the cost of health insurance paid by his core supporters, he will most likely walk away from his pledge to massively cut their tax bill as well. Trump is committed to passing major tax reform legislation this year and he is not going to walk away from whatever Republican negotiators are finally able to put together just because it fails to deliver middle class families a tax cut that, one observer commented, will barely buy them more that a hamburger or two.

Donald Trump will not the first Republican to have seduced white working class voters, only to turn his back on their economic interests. Richard Nixon and Ronald Reagan built their electoral coalitions around white southern and working class voters who had long been part of the base of the Democratic Party. The difference is that while Nixon and Reagan drew those voters into the modern Republican Party coalition on the basis of social issues and grievances, Trump built on the Patrick Buchanan platform of economic nationalism as he suggested making the Republican Party into the "workers' party." Trump's new Republican Party was not just going to be about Pro-Life judges and protecting guns, but about trade, walls and Muslims, as well as reducing the cost of and expanding access to health insurance, and those massive, massive tax cuts.

This week's poll numbers provide the first hint that Trump's core supporters are beginning to realize that they have fallen for the same old con yet again: they delivered their votes and once again their economic interests are being ignored. In the Obamacare overhaul and tax reform negotiations, Donald Trump's commitment to them has proven to be nothing but words. But their blind loyalty to him remains, as support for Trump among among Republicans and non-college educated whites (without regard to political party) continues to be strong--with approve/disapprove ratings at 79%/14% and 51%/39%, respectively. But not so Republicans in Congress, whose approve/disapprove ratings among non-college educated whites came in this week at 29%/60%, or negative 31. When those Trump voters finally wake up, Republicans in Congress are the ones who will likely feel their wrath.

Follow David Paul on Twitter @dpaul.
Artwork by Jay Duret. Follow him on Twitter @jayduret or Instagram at @joefaces.

Monday, April 03, 2017

Be careful what you wish for.

As Senate Democrats move ahead with their plans to filibuster the nomination of Neil Gorsuch, I can't help but wonder what Merrick Garland thinks about the showdown in the Senate. A filibuster might feel good in the moment--a salve for the simmering rage that continues over Republican treatment of Garland's nomination last year--but it will not affect the ultimate course of events. Mitch McConnell won. He might have thrown his reputation as a Senate institutionalist under the bus when he led the Republican boycott of Garland's nomination last year, but at the end of the day, a Republican nominee will sit on the Supreme Court. That was what McConnell cared about, and that will be the result.

The looming Democrat filibuster is payback for McConnell's boycott--what they see as the theft of a seat on the Supreme Court--and many have come to see it as a matter of principle. But the filibuster is an action that is fraught with potential unintended--though easily foreseeable--consequences. If Democrats are lucky, McConnell and the Republicans will--as promised--get rid of the filibuster rule and confirm Gorsuch. If through some fluke event--or last minute loss of nerve by McConnell--Gorsuch is not confirmed, one can only imagine who a petulant and brooding Donald Trump will nominate next. But whomever it might be--Jeff Sessions' best friend Judge William Prior, perhaps--there is no way that Republicans will let two nominees fall to Democrat petulance over Garland.

The outcome of the Gorsuch nomination is in Mitch McConnell's hands. If Democrats do filibuster the nomination--as now seems all but assured--McConnell will most likely make good on his threat to proceed to the nuclear option, and Gorsuch will be approved by a simple majority vote. Should eight or more Democrats ultimately back off and oppose the pending filibuster--whether to keep their powder dry for the next Supreme Court vacancy or out of concern for the damage that eliminating the filibuster will do to an increasingly fragile institution--there is no reason to believe that Republicans would not use the same threat next time around.

Either way the Supreme Court filibuster has already effectively gone by the boards: either the GOP goes ahead and eliminates it this time around, or the filibuster will be effectively neutered as a tool of the minority going forward, undermined by the permanent threat of the nuclear option down the road. This is not Mitch McConnell's doing--or Harry Reid's for that matter--we live in an era of rank partisanship, where residual notions of reverence for the Senate as an institution have long since been rendered quaint. With the demise of the judicial filibuster, it is only a matter of time before other Senate rules come under attack. After all, once the filibuster is eliminated as an inconvenient artifact impeding majority rule on judges, why should other vestiges of earlier eras of Senate comity such as the Byrd Rule--which requires a 60-vote majority for approval of legislation with significant deficit consequences--continue to act as impediments to true majority rule?

Each year that goes by, we tell ourselves that the partisanship in our politics cannot get worse, yet somehow it does. But don't blame members of Congress, they are merely a mirror of the electorate at whose behest they serve. Democrats should keep that in mind, lest they read too much into Donald Trump's approval ratings dipping below 40%. While Donald Trump may have historically low approval ratings for a president in his first months in office--with negative ratings hovering around 55%--those numbers are not simply about Trump. They are a reflection of how deeply rooted our partisan divisions have become. The fact that George W. Bush's approval rating hovered near 60% in his first months in office--after the most bruising election drama in memory--tells you how much the world has changed. There is no honeymoon anymore. Trump won 46% of the popular vote in the general election, and few of those who voted for Clinton are likely to be inclined to think better about Donald Trump simply because he is now President Trump. As such, an approval rating for Trump below 50% is baked into the cake.

The devolution of political debate was evident in the recently completed Senate hearings on the Gorsuch nomination. Perhaps--to use a Trumpian metaphor--if Neil Gorsuch were to shoot someone on Pearl Street in Boulder in broad daylight, a Republican or two on the Senate Judiciary Committee might reconsider voting to confirm his nomination, but perhaps not. More likely, reports of the shooting would be deemed fake news, and the vote would go forward as planned.

Senate Democrats should allow the Gorsuch nomination to go forward. I do not say that with some notion that returning to comity requires that someone take the first step--that the partisan genie can be put back into the bottle--but rather as a pure strategic assessment of the realities of the situation. Eight years ago, at a time when Democrats controlled both the House and the Senate, incoming President Barack Obama admonished Republicans that elections have consequences. His words are more true today than they were then, but this time it is the Republicans who hold the whip hand. When I read about Senate Democrats demanding that Trump withdraw Gorsuch in favor of a new nominee, I wonder what evidence they have gleaned from Donald Trump's brief tenure as President that suggests to them that his next nominee would be more to their liking. I understand that many of those Senators are responding to the demands of Democrat activists who have let their anger over the treatment of Merrick Garland blind them to the realities at hand.

To those who yearn for the succor that a filibuster fight might offer, I can only say, be careful what you wish for. Given what we have seen from this administration to date, there remains the not-insignificant possibility that Donald Trump and Steve Bannon and Jeff Sessions will look at a Democrat filibuster and use it as an opportunity to turn things up a notch. Screw 'em, Bannon might say, to Sessions' inevitable glee, let's pull the Gorsuch nomination and put William Pryor on the Court instead.

Follow David Paul on Twitter @dpaul.
Artwork by Jay Duret. Follow him on Twitter @jayduret or Instagram at @joefaces.