Category: Jack Rasmus
Trump’s Tax Cuts, Budget, Deficits…Trump’s Recession 2019?
| February 16, 2018 | 9:20 am | Analysis, Donald Trump, Economy, Jack Rasmus | No comments

Trump’s Tax Cuts, Budget, Deficits…Trump’s Recession 2019?

Trump’s Tax Cuts, Budget, Deficits…Trump’s Recession 2019?

By
Jack Rasmus
Copyright 2018

“Lies and misrepresentation of facts have become the hallmark of American politics in recent years more than ever before. Not just lies of commission by Trump and his crew, but lies of omission by the mainstream media as well.

In Trump’s recent package of tax cuts for corporations, investors and millionaires, the lie is that the total cuts amount to $1.5 trillion—when the actual amount is more than $5 trillion and likely even higher. And in his most recent announcement of budget deficits the amounts admitted are barely half of the actual deficits—and consequent rise in US national debt—that will occur. Even his $1.5 trillion so-called infrastructure spending plan, that Trump promised during his 2016 election campaign, and then throughout 2017, amounts to only $200 billion. The lies and exaggerations are astounding.

The mainstream media, much of it aligned against Trump, has proven no accurate in revealing the Trump lies and misrepresentations: They echo Trumps $1.5 trillion total tax cut number and provide no real analysis of the true total of the cuts; they low-ball the true impact of Trump’s budget on US annual budget deficits and the national debt; and they fail to expose the actual corporate subsidy nature of Trump’s ‘smoke and mirrors’ infrastructure plan.

Trump’s multi-trillion dollar tax cuts for business, investors and the wealthiest 1%, plus his annual trillion dollar deficits as far as the eye can see, plus his phony real estate industry handouts that parade as infrastructure spending together will lead the US economy into recession, most likely in early 2019. Here’s the scenario:

The massive deficits will require the central bank, the Federal Reserve, to raise short term interest rates. What’s called the benchmark federal funds interest rate will rise above 2% (currently 1.5%). The longer term 10 year US Treasury bond rate will rise to 3.5% or more. Those rates have already been rising—and their rise already provoking stock and bond market corrections in recent weeks which should be viewed as ‘dress rehearsals’ of more serious financial asset market retreats and contractions yet to come.

As this writer has argued repeatedly in recent publications, both the US real economy and financial markets (stocks, junk bonds, derivatives, etc.) are ‘fragile’ and increasingly susceptible to a significant downturn. In 2007-08 central bank interest rates rose to 5% and that precipitated a crash in subprime mortgage bonds and derivatives that set off the contraction in the economy. With the US economy not fundamentally having recovered from 2008-09 still to this day, and with household and corporate debt well above levels of 2008, it will take less of a rise in interest rates to provoke another similar reaction.

The US real economy is already weak. GDP numbers don’t reflect this accurately. Important sectors like autos and housing are softening or even stalling already. Consumption will falter. Consumers have loaded up on household debt. At $13.8 trillion, levels are equal or greater than 2007. They have also been depleting their savings to finance consumption in 2017-18. And despite all the recent media hoopla, there’s been no real wage gains occurring for 80% of the workforce in the US. Moreover, renewed inflation now occurring will reduce households’ disposable income and buying power even more this year. Rising taxes for tens of millions of households in 2018-19 will also negatively impact consumption spending. Don’t expect consumption to rise in 2018 as interest rates, taxes, and prices do. Just the opposite. Consumption makes up 70% of the US economy and it is now nearly exhausted. It will stagnate at best, and even retreat steadily beginning in the second half 2018.

Like the real economy, the US financial markets are fragile as well. They are in bubble territory and investors are getting increasingly edgy and looking for excuses to sell—i.e. take their super capital gains of recent years and run to the sidelines. A rise in rates much above the 2% and 3.5% noted will provoke a significant credit contraction (or even freeze). Money capital (liquidity) will dry up for non-bank companies, investment and production will be scaled back, layoffs will rise rapidly, and consumption will collapse—together bringing the economy down. It’s a classic scenario the forces behind which have been steadily building. And it won’t take too much more to provoke the next recession—likely in early 2019. The Federal Reserve’s plans to hike rates four more times this year will almost certainly set the scenario in motion.

Trump’s $5 Trillion Business-Investor Tax Cuts

Trump & Congress—with the mainstream media in train—say the Tax Cut Act just passed amounts to $1.5 trillion. But that’s not the true total value of the business tax cuts. That’s what they claim is the deficit impact of the tax cuts. (But even that deficit impact is grossly underestimated, as will be shown shortly).

Here’s the true value of the business-investor tax cuts:

1. $1.5 trillion cut due solely to reducing the corporate nominal tax rate from 35% to 21%.

2. Another $.3 trillion for the new 20% tax deduction for non-corporate businesses (lowering their effective tax rate from 37% to 29.6%).

3. $.3 trillion more for ending the business mandate for the Affordable Care Act

4. Still another, at minimum, $.5 trillion for a combined accelerated business depreciation writeoffs (a form of tax cuts for writing off all equipment added by business in the year purchased instead of amortized over several years); plus repeal of the Alternative Minimum Tax for Corporations: and a roughly halving of the AMT for individuals. But that’s not all.

5. The wealthiest 1% households, virtually all investor class, get their nominal individual income tax rate reduced from 39.6% to 37%. Moreover, the 39.6% did not kick in until an income level of $426,000 was reached. Now the threshold for the even lower 37% does not start until $600,000 income is reached. All that amounts to at least another $.5 trillion in tax cuts.

That’s a total of $3 trillion so far in tax cuts in the Trump Plan. But the further, really big tax cuts come for US Multinational Corporations. Their ‘take’ will be another $2 trillion in tax reduction over the next decade.

The Multinationals have hoarded between $2-$2.7 trillion in cash offshore in order to avoid paying taxes on their earnings. But that $2 trillion is a gross underestimation. First of all, it’s a figure for only the 500 largest US multinationals. What about the hundreds of thousands of other US corporations that also have foreign subsidiaries in which they park their cash to avoid taxes? And what about the unreported cash and assets they’re hoarding in offshore tax havens in the Cayman Islands, Bermuda, Vanuatu and elsewhere? That too is not part of the $2.-$2.7 trillion. Another reason to doubt the $2 trillion is accurate is that they already had $2 trillion stuffed away offshore back in 2011-12. According to the business periodical, Financial Times, the largest US corporations by January 2012 “are collectively sitting on an estimated $2,000bn of cash”. Does anyone believe they stopped diverting profits and cash offshore after 2011-12 for the past five years?

If one conservatively estimates there’s $4 trillion in cash stuffed offshore to avoid taxes (accumulating since 1997 when Bill Clinton conveniently allowed them to begin doing so), the new Trump tax act allows them to pay a tax of only 10% on average if they ‘repatriate’ (bring back) that cash. If they paid the prior 35% tax rate, it would cost them $1.4 trillion in 2018-19, the first year of the Trump tax. But estimates of this provision in the Trump bill show they plan to pay only $339 billion. So they will be saving approximately $1.061 trillion in the first year alone. Thereafter for the next nine years they pay only 8% to 15.5%, instead of the 35%. That amounts to at minimum another $1 trillion in tax savings for multinational US corporations under the Trump tax.

6. In short, US multinational corporations will get a tax reduction of at least $2 trillion

The Trump tax cuts for businesses and investors thus total $5 trillion over the next decade!

So how do Trump, Congress, and the media get to only $1.5 trillion? Here’s how they do it:

They raise taxes on the middle class by $2 trillion in the Trump tax plan. That leaves the $5 trillion in business-investor cuts, minus the $2 trillion in middle class tax hikes, for a net $3 trillion in cuts. But they admit to only $1.5 trillion in net tax cuts. So where’s the difference of the other $1.5 trillion? That difference is assumed to be ‘made up’ (offset) by the US economy growing at a GDP rate of 3-3.5% (or more) for the next ten years—i.e. more than 3% for every year for ten more years without exception!

That 3-4% annual overestimated economic (GDP) growth for the US economy is based on ridiculous assumptions: that slowing long term trends in US productivity and labor force growth will someone immediately reverse and accelerate; that the US will now grow at double the annual rate it did the previous decade; and that there’ll be no recession for another decade when the historical record shows the typical growth period following recession is 7-9 years and the US economy is already in its 8th year since the last recession. (If there’s a recession, then the annual GDP growth for nine years will have to average close to 5% a year—a figure never before ever attained!).

It’s all Trump ‘smoke and mirrors’, lies and gross misrepresentations. But no matter, for its really all about accelerating the subsidization of corporations and capital incomes for the wealthiest 1% by means of fiscal policy now that the central bank’s 9 years of subsidization of capital incomes by monetary policy (i.e. near zero rates, QE, etc.) is coming to an end.

Trillion $Dollar US Deficits for Years to Come

The US budget deficit consequences of the Trump tax cuts are therefore massive. Instead of averaging $150 billion a year on average (the $1.5 trillion) the effect will be three to four times that, or around $300 to $400 billion a year!

On top of that there’s Trump’s latest US budget, which projects another $300 billion for the next two years alone. With the majority of that total $150 billion a year caused by escalation of the Defense-War budget as the US builds up its tactical nuclear, naval and air forces in anticipation of more aggressive US moves in Asia. Last year’s budget deficit was $660 billion. The Congressional Budget Office estimates deficits of $918 billion by 2019. Independent estimates by Chase bank put it at $1.2 trillion. And that’s just the early years and assuming there’s no recession, which will balloon deficits by hundreds of billions more in reduced tax revenues due to a contracting US economy.

Independent projections are for US deficits to add $7.1 trillion over the next decade. But that’s an underestimate that assumes not only no recession, but also that defense-war spending will not rise beyond current projection increases, and that government costs for covering price gouging by the healthcare and prescription drug industries (for Medicaid, Medicare, CHIP, government employees) will somehow not also continue to accelerate. The likely true hit to US deficits—and therefore the US national debt—will well exceed $12 trillion! The US could easily see consecutive annual budget deficits of $1.5 trillion. That will mean a US debt total rising from current $20 trillion to $32 trillion (or more) over the coming decade.

From Tax Cuts, Deficits & Debt to the Next Recession

How does this potentially translate into recession? Here’s a very likely scenario:

The US central bank, the Fed, has already begun raising interest rates. That has already begun slowing key industries like auto and housing. It will soon impact consumers in general, who are near-maxed out with credit card, auto, student loan, and mortgage debt, and facing further accelerating inflation in rents, healthcare costs, transport, state and local taxation, and prices for imported goods.

The massive deficits will require the central bank to raise interest rates perhaps even faster and higher than before. Slowing foreigners’ purchases of US government bonds to pay for the accelerating debt, may require the Fed to raise rates still further. It’s 2007-08 all over again!

Rising Fed interest rates and inflation will also continue to depress bond prices. That has already begun, and to spill over to stock prices as the major contraction in stock prices in February 2018 has revealed. Both bond and stock prices are headed for further decline.

Should stock market prices correct a second time this year, this time by 20% or more, the contagion effects across markets will result in a general credit crunch for non-financial corporations and businesses. US corporate debt has risen even more than US household or government debt since 2009. The corporate junk bond markets will experience a crisis, as US Zombie companies (i.e. those in deep debt, an estimated 12% to 37% of all US corporations, depending on the source) cannot get new financing and begin to go bankrupt.

These stock and bond market effects, and emerging Zombie company defaults, will result in a general investment pullback by non-financial corporations. That will mean production cuts that result in layoffs and further wage stagnation and slowing consumption spending. The next recession will have begun.

The Central Bank (FED) Will Precipitate the Next Recession—As It Did in 2007

This scenario is all the more likely if the general argument that the US economy is both financial and non-financially weak and fragile is accurate. The weakness in the real economy and fragility in the financial markets mean that Fed interest rate hikes cannot exceed 2.0%, and longer term rates (10 year Treasury bonds) cannot exceed 3.5%, before the system ‘cracks’ once again and descends into recession. With the Fed rates at 1.5% and approaching 2% and the Treasury at 3% and approaching 3.5%, the US economy today is well on its way to approaching its limits.

Just as it was interest rates peaking in 2007 that precipitated (not caused) the crash in (subprime) mortgage bonds, that then spilled over through financial derivatives to the rest of the credit system—today the bond markets may once again be signaling the ‘beginning of the end’ of the current cycle. The new contagious derivatives may not be mortgage based bonds and CDO and CDS financial derivatives, as in 2008; the new financial contagion will be driven by the new financial derivatives—i.e. Exchange Traded Funds(ETFs), and related ETNs and ETPs—with their effects amplified by Quant hedge funds’ automated algorithm-based trading.

In summary, Trump tax cuts and Trump’s budget will exacerbate US budget deficits and debt and cause the central bank to raise interest rates even faster and higher. Those rate hikes cannot be sustained. They will lead to another credit crisis—this time even sooner than they did in 2007 given the even weaker US economy and more fragile financial markets. The next recession may be sooner than many think.

Dr. Jack Rasmus

Dr. Rasmus is author of the recently published books, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017, and ‘Systemic Fragility in the Global Economy, Clarity, 2016. His forthcoming book later in 2018 is ‘Taxes, War & Austerity: Neoliberal Policy from Reagan to Trump’, Clarity Press. He blogs at jackrasmus.com and tweets at @drjackrasmus

Trump’s State of the Union Speech: Long on Theater, Short on Policy
| February 1, 2018 | 8:04 pm | Analysis, Donald Trump, Economy, Jack Rasmus | No comments

Trump’s State of the Union Speech: Long on Theater, Short on Policy

By
Jack Rasmus
copyright 2018

“Presidents’ State of the Union speeches used to report on accomplishments of the past year and proposals for new programs and policy changes for the next. Just as the country we once knew, those days are long gone.

In the 21st century the format is mostly theatrical: The president offers a short sentence about how wonderful America is, cuts his sentence short, and waits for applause. The Congress rises and claps longer than the spoken sentence that brought them to their feet. This goes on every 15 seconds. Sometimes less. Up and down, up and down. Turn off the volume, and it’s similar to canned laughter in a TV situation comedy—with the visual effect of bouncing butts replacing the canned laughter. Except it’s all more tragic than it is comedic.

A stranger viewing for the first time must conclude that something anatomically must be wrong with their backsides. Up-down, up-down. But when the incessant pattern of ‘short phrase, rise and clap too long, sit down’ threatens to become too repetitive, a new theatrical effect is introduced. Now it’s the president introducing staged character actors in the gallery above the floor, each introduction providing an appeal to the tv audience’s emotions. In the Trump speech tonight, there were no fewer than twelve such ‘gallery scenes’ to break up the mesmerizing stop-rise-clap-sit down nonsense.

First there was ‘Ashley the helicopter lady’, then ‘Dolberg the firefighter’, Congressman Scalise, whose only claim to fame was he got himself shot (definitely not on the level of the other ‘heroes’), followed. And how about the 12 year old ‘Preston the flag boy’, with whom Trump said he had a great conversation before the speech. (I’m sure it was of comparable intellect).
But clever by far was the next gallery event, the four parents whose kids were killed by MS13 gang members in Long Island, NY. All four were black, apparently to blunt the racist appeal by Trump injected into the scene, suggesting that all immigrants were gang members who came here as a result of ‘chained migration’ family policy. I guess MS13 gangsters never killed whites.
Not surprisingly, the next gallery scene was the ICE agent, a guy named Martinez who heroically smashed the MS13 gangsters. Of course, he too was Hispanic.

Both theatrical scenes dealing with ‘immigrant gangsters arriving by chained migration’ provided Trump a nice segway into describing his ‘4 pillars’ immigration bill, the only policy proposal he actually spelled out in his nearly hour and a half speech.

For a pathway to citizenship that would take 12 years for ‘Dreamer’ kids, Trump would have his $30 billion plus border wall, a new immigration policy based on ‘merit’ (welcome Norwegians), as well as an end to family ‘chained migration policy’ (which somehow would also protect the nuclear family, according to Trump). The message: white folks’ nuclear families good; immigrant folks’ (especially Latino) extended families bad, was the suggested logic. What it all added up to? If Democrats agreed to his pillars 2-4 right now, maybe there would be citizenship for Dreamers sometime by 2030! What a deal. But who knows, maybe the Democrats will take it, given that they retreated from their prior ‘line in the sand’ of pass DACA and dreamers or they’ll shut down the government.

The next theater event was no less interesting than the immigration scenes in the Trump play that was the presidential State of the Union address last night. In typical Trumpian worship of the police and military, Trump (the draft dodger) introduced an Albuquerque policeman in the gallery who had talked a pregnant woman on drugs from committing suicide. Seems the woman was desperate about bringing a kid into the world she’d be unable to afford to raise. The solution by the policeman was to offer to adopt her baby if she didn’t kill herself. It worked. The kid and mother were saved, and the policeman adopted the child. The policeman’s wife accompanied him in the gallery—with an infant in her arms of course. Not sure whose it was but no matter. Now that was double theater, a scene within a scene. Shakespeare would have been proud.

That impressive bit of theater, perhaps the high point of all the ‘gallery effects’ of the evening, was the intro to Trump’s solution to the Opioid crisis in America, where 60,000 a year now die from overdoses. In his speech, Trump’s solution to the opioid crisis was ‘let’s get tougher on drug dealers’. He failed to mention, of course, that the drug dealers in question most responsible for launching the opioid crisis were the prescription drug companies themselves who pushed their products like Fetanyl and Percoset on doctors a decade ago, telling them the drugs weren’t addictive.

As for the even larger prescription drug problem in American—i.e. the runaway cost of drugs that is killing unknown thousands of Americans who can’t afford them because of price gouging—Trump merely said “prices will come down substantially…just watch!” That solution echoed his press conference of several weeks ago when he publicly addressed the opioid crisis…but offered no solution specifics how. Watching Trump solve the opioid crisis will be slower than watching grass grow…in winter!

Trump’s speech was not all theater. Much of it was factual—except the facts were mostly misrepresentations and outright lies.

Like unemployment is at a record low. But not when part time, temp, contract and gig work is added to full time. More than 13 million are still officially jobless. The rate is still close to 10%. And that doesn’t count the 5-10 million workers who have dropped out of the labor force altogether since 2008, leading to record lows in labor force participate rates and employment to population ratios. That rate and ratio hasn’t changed under Trump.

Another lie was that wages are finally starting to rise. Whose wages? If you want to count average wages and salaries of the 30 million managers, supervisors, and self-employed, maybe so. But according to US Labor department data, real average hourly earnings for all non-farm workers in the US in 2017 rose by a whopping 4 cents!

Trump cited again his Treasury Secretary, Mnuchin’s, ridiculous figure that the average family income household would realize $4,000 a year in tax cuts. But no economist I know believes that absurd claim.

Perhaps the biggest facts manipulation occurred with Trump’s references to his recent tax cuts. He cited a list of so-called middle class tax cuts, leaving out wealthy individual tax cuts measures. Typical was his claim of doubling the standard deduction, worth $800 billion in tax cuts for the working poor below $24k a year in income. But he failed to mention the additional $2.1 trillion hikes on the middle class. (Or the $2 trillion in corresponding cuts for wealthiest households.) Independent studies show the middle class may get some tax cuts initially, but those end by the seventh year, and then rise rapidly thereafter by year ten. In contrast, the corporate, business, and wealthy household cuts keep going—beyond the tenth year.

What Trump conveniently left out in his speech regarding taxes also qualifies as lie by omission. He noted the corporate tax rate was reduced from 35% to 21% and the non-corporate business income deductions were increased by 20%. That was $1.5 trillion and $310 billion, respectively. Or that the Obamacare mandate repeal saved businesses another $300 billion. And multinational corporations would reap the lion’s share of $1 trillion in tax cuts, at minimum. And all that still doesn’t account for accelerated depreciation under the Act. Or abolition of the corporate Alternative Minimum Tax. Or continuation of the infamous corporate loopholes, like carried interest, corporate offshore ‘inversions’, or gimmicks that corporate tax lawyers joke about—like the ‘dutch sandwich’ and ‘double Irish’.

Then there were the Trump jokes. I don’t mean anything actually funny. Nonsense statements like “beautiful clean coal” (the oxymoron statement of the year). Or that US companies offshore are “roaring coming back to where the action is”. And car companies are bringing jobs back (while laying off in thousands). “Americans (white) are dreamers too”. Or the phony infrastructure program that’s coming, where companies will be subsidized by the federal government in ‘public-private partnership’ deals. And his unexplained reference to ‘prison reform’ (really?). Perfunctory references to trade, job training, another non-starter.

Hidden between the lines were other serious references, however. Like his ominous threat to “remove government employees” who ‘fail the American people’ or ‘undermine American trust’, which sounded like a warning from Trump to the bureaucracy not to cross him or else. Or his slap at National Football League players for not saluting the flag. Or plans to expand Guantanamo and the US nuclear arsenal. Or reaffirmation of the definition of ‘enemy combatants’ (which may include US citizens). Trump re-established the fact of his threat to civil liberties.
On the foreign policy front it was mostly threats as well, new and old: To withhold UN funding. Renewed support for new sanctions against Cuba and Venezuela. But North Korea was left for last. Here the return to theater was among the most dramatic. The last ‘gallery scene’ involved a legless defector from North Korea, Seong Ho, brought all the way from So. Korea just for the speech. This was theater with props; applause was sustained as Mr. Ho raised and shook his crutches above his head after Trump’s introduction.

Trump then rode the emotional wave to conclusion with his closing theme that the American people themselves are what’s great about America. Too bad he doesn’t mean all Americans.

So far as Trump speeches go, it was a ‘safe speech’, a teleprompter speech. But typically Trump. Lots of false facts. Emphasis on dividing the country. Long on Theater and emotional appeals to ‘enemies within and without’. And short on policy specifics. But after all, apart from tax cuts and deregulation for corporations and the rich, and a failed Obamacare repeal, not much was achieved in 2017 for him to talk about. And so far as new ideas for 2018 are concerned, there’s ‘no there there’ as well. ”

Jack Rasmus is author of the just published book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017

Breitbart Billionaire Board Bashes Bannon
| January 8, 2018 | 9:06 pm | Analysis, Jack Rasmus | No comments

Breitbart Billionaire Board Bashes Bannon (print)

Breitbart Billionaire Board Bashes Bannon (print)

Since the run-up to the election of 2016, the ruling elite in America who control the two wings of the single Corporate Party of America (CPA)—the Republican and Democratic Parties—have been battling it out with ‘right populist’ challengers over who will define US policy in the decade ahead. Thus far in 2017 the elite have been clearly winning.

The likely sacking this coming week of Breitbart News’s CEO, Steve Bannon—which follows his banishment from the White House earlier in 2017—is but the latest example of the elite’s post-election objective of bringing their right populist challengers to heel, and in the process herding Trump himself back under their policy umbrella.

The history of the traditional elite vs. right populist challengers goes back at least to the emergence of the so-called ‘Contract with America’ in 1994 followed soon thereafter by their effort to impeach then president, Bill Clinton. Clinton’s hard shift to the right after 1994 on economic, social and foreign policy deflated the challengers’ offensive, albeit temporarily. Then there was the so-called ‘Tea Party’ faction after 2001 that ran primary candidates and disrupted the elite’s Republican wing electoral strategy. With the assistance of the Business Council and US Chamber of Commerce, the Teaparty version of ‘right populist’ challengers were purged in 2014 from Republican primary races and candidacies.

The challengers were not defeated, however. With the financial and organizational aid of the power behind the so-called ‘populist right’—i.e. the Koch brothers, the Mercers, Adelsons, Paul Singers and other radical right big financial supporters backing them—they returned with a vengeance in the 2016 election backing Trump, who opportunistically welcomed their organizational, media and ideological support as the traditional elite consistently rejected him. They bet their Trump Card and gained the White House. The contest did not stop there, however.

In 2017 the contest with the Republican wing of the elite continued. The ‘right populist’ mouthpiece within Congress, the US House ‘Freedom Caucus’, was able to prevail over other Republican colleagues and launch a full frontal assault on repealing Obamacare, the Affordable Care Act. They recklessly rolled the dice on their first toss…and lost. Check one for the traditional elite right out of the box in early 2017.

Another subsequent 2017 ‘win’ by the Republican wing of the elite was to get Trump to go slow on reversing NAFTA and other free trade agreements. Another was the driving of Steve Bannon and his allies from their perch as White House advisers. Yet another elite 2017 success was to convince Trump to back off from campaign promises to reorganize NATO and reset relations with Russia, and instead to continue providing strategic weapons to east Europe and, most recently, the Ukraine. That policy shift is now in acceleration mode. Then there was the defeat of Moore for Senator in Alabama, who Trump and the right populists both endorsed. The Republican wing of the traditional elite—both in and out of Congress—abandoned Moore and joined with the Democrat wing to ensure Moore’s defeat. To have supported Moore would have signaled that the Republican elite’s strategy since 2014, a strategy denying right radicals from formal Republican (and Chamber of Commerce) support, was no longer in effect. A Moore victory would have brought even more radicals from the right demanding to run on Republican electoral tickets. The Chamber could not permit that again.

But the very latest event in the internal battle was last week’s public rift between former right populist Trump election strategist and White House adviser, Steve Bannon, and Trump himself. A rift that, this writer predicts, will almost certainly lead to Bannon’s sacking as CEO of the influential right populist media organ, Breitbart News, this coming week or soon thereafter.

The Bannon sacking will clearly reveal that Bannon is not the driving force behind Breitbart. Nor is the radical ‘right populist’ movement itself an independent force. Bannon and Breitbart are but a mouthpiece. For what? For the real force behind the Breitbart media outlet, Bannon, and similar media organizations and talking heads pushing far right political alternatives and economic policies—i.e. the billionaire money interests that fund them and make the strategic decisions for them behind the scenes. It is the billionaires who sit on the Breitbart board, and other boards of similar right populist organizations who fund the Breitbarts, the Bannons, and those like them that came before and will come after.

It is those billionaires in particular who have become super-wealthy since the 1990s by speculating in commercial property and trusts and shadow banking; the billionaires over-represented from the ranks of private equity firms, real estate REITs, hedge fund capitalists, asset management companies, etc. On the level of individual capitalists, it is the Adelsons, Paul Singers, the Mercers, the Mays, and others—all billionaires—who have been bankrolling the ‘right populists’ from the very beginning, giving them a public soapbox with which to promote their views, ideology, and mobilize public opinion. More traditional economic sector billionaires, like the Kochs, are also among their ranks, of course. But they are especially over-populated with speculators and financial manipulators (much like Trump himself) who want a more deregulated, winner-take-all kind of capitalism they see as necessary to compete with challengers globally in the coming decades.

These billionaires are the election campaign financiers that all the major candidates for national office trek to every election cycle, genuflect before, hold out their hats to for donations. And with their money comes a ‘Faustian’ bargain: they are allowed to define policies once their candidates get elected. They are the silent sources that Trump regularly calls in the early morning hours from the White House to ask their advice and input.

Late last week, the billionaire Mercer family, that bankrolls and finances Breitbart News let it be known it was breaking relations with Bannon. Bannon quickly and contritely offered a public statement supporting Trump and calling him a ‘great man’, which Trump just as quickly retweeted. The Bannon retreat followed a reported statement he made to author Michael Wolf, who in his new book out last week quoted Bannon as saying Trump was psychologically unbalanced and “had lost it”. Calls for Breitbart News to fire Bannon as its CEO quickly followed, and the Mercers statement was made public in turn.

So Bannon’s days are numbered and perhaps in hours not days. He will be gone, relegated to the speech circuit for right wing demagogues, joining the Glenn Becks, Rush Limbaughs, and others that occasionally over-estimate their influence with the capitalist ruling elite and their usefulness to them. And then find themselves on the outside looking in.

What the Bannon sacking will represent is that the ‘right populist’ movement will now ebb, albeit temporarily once more. It will be resurrected when needed, with another figure(talking)head replacing Bannon. The Becks, the Limbaughs, the Hannitys and the Bannons are all expendable, and replaceable with another cookie-cutter ideologue whenever the elite consider it necessary.

The Bannon development more importantly signals that more traditional Republican elite policies and legislation will now even further supplant the right populist initiatives in Congress. The Trump tax cuts just passed benefit clearly the wealthiest 1% and their corporations, and not the middle class, the embittered blue collar workers of the Midwest and Great Lakes, or any other voting constituency in America.

The demise of Bannon also signals that Donald Trump, if he wishes to continue as president, will agree to continue his shift toward policies adopted by the Republican wing of the elite. He has been in synch totally with the recent passage of the Trump Tax Cut act—the elite’s #1 policy objective which is now achieved. Trump will now continue to back off of radical restructuring of free trade, especially NAFTA. He will fall in line with NATO and policies toward east Europe and Russia. He’ll provide more advanced weaponry to eastern Europe and the Ukraine. He will be satisfied with a token Wall and back off from disrupting immigration relations. And he will continue to soft-pedal his tweeting with regard to North Korea and support trade deals with China the elite want him to deliver.
This does not mean Trump’s troubles with the traditional elite are over, however. The events of the past year, culminating in the Bannon purge, only reflect Trump coming to terms with the Republican wing of the elite, as he tactically moves under their political protective umbrella. The Democrat wing of the elite will continue trying to build a case against him.

The Democratic wing of the elite will continue to exert pressure on Trump through its powerful media organs and its deep connections with and influence within the State bureaucracy (FBI, NSA, State and Justice departments, DEA, military intelligence arms, etc.). This second front against Trump and his former right populist allies is reflected in the on-going investigation into a Russia-Trump connection during the 2016 election cycle—which that wing of the elite hopes will lead, if not to outright collusion with the Russians, then to evidence of some form of obstruction of justice by Trump; or perhaps uncover in the process past criminal activity by the Trump business organization with regard to tax evasion or foreign bribes for contracts with Russian oligarchs and mafia. This second front has recorded some success over the past year, as former FBI director, Mueller, has been able to extract evidence from suspected principals, Michael Flynn, Paul Monafort, and Papadopoulos.

The second major development of the past week was the publication of the Michael Wolf book on Trump. With the publication a new issue has been thrown into the political hotpot: Now it is not just whether Trump has colluded with the Russians, or obstructed Justice to stop the Mueller investigation, or engaged in illegal bribes and deals with Russian oligarchs. Now the new mantra is Trump is psychologically unbalanced—as evidenced in his own Tweets and in the constant flow of leaked statements by his own administration about his basic ‘child-like character’(Senator Corker), his functioning at a level of ‘an idiot’ (Secretary of State Tillerson), or that he “has lost it” (Bannon).

In the months ahead the Republican wing—for whom Trump has nicely delivered in the form of tax cuts in the trillions of dollars and with whom Trump is now playing ball with regard to free trade—will circle the wagons on behalf of Trump. The Republican party wing of the traditional elite don’t want to drive Trump from the White House. They want him tamed and continuing to deliver their policy agenda. So they have already begun to circle the wagons on Trump’s behalf—and to launch a counteroffensive in his defense. The past week’s reopening of the investigation of Clinton’s foundation and demands to indict the author of the ‘Trump dossier’ published over a year ago are but two examples of the counteroffensive.

And watch what happens after Trump eventually fires FBI investigator, Mueller, should he provide evidence of obstruction of justice or, more likely, fraudulent Trump tax returns and/or bribes to Russian oligarchs. They’ll block the appointment of an independent prosecutor once Mueller is gone. And that means there won’t be any impeachment in 2018 regardless what Trump does. All that could change, however, should Trump’s historic low approvals slip still further and result in the Republican loss of either the House or Senate in November 2018. Then watch the two wings of the elite unite in efforts to push Trump out and replace him with their preferred man, vice-president Pence.

Jack Rasmus,
January 7, 2018

Dr. Rasmus is the author of the August 2017 book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017. He blogs at jackrasmus.com and hosts the weekly radio show, Alternative Visions, on the Progressive Radio Network. His twitter handle is @drjackrasmus.

The Real Causes of Deficits and the US Debt (Next Phases in Trump Fiscal Strategy)
| December 7, 2017 | 8:43 pm | Analysis, Donald Trump, Economy, Jack Rasmus | No comments

The Real Causes of Deficits and the US Debt (Next Phases in Trump Fiscal Strategy)

The Real Causes of Deficits and the US Debt (Next Phases in Trump Fiscal Strategy)

With the Senate and House all but assured to pass the US$4.5 trillion in tax cuts for businesses, investors, and the wealthiest 1 percent households by the end of this week, phases two and three of the Trump-Republican fiscal strategy have begun quickly to take shape.

Phase two is to maneuver the inept Democrats in Congress into passing a temporary budget deficit-debt extension in order to allow the tax cuts to be implemented quickly. That’s already a ‘done deal’.

Phase three is the drumbeat growing to attack social security, Medicare, food stamps, Medicaid, and other ‘safety net’ laws, in order to pay for the deficit created by cutting taxes on the rich. To justify the attack, a whole new set of lies are resurrected and being peddled by the media and pro-business pundits and politicians.

Deficits and Debt: Resurrecting Old Lies and Misrepresentations

Nonsense like social security and Medicare will be insolvent by 2030. When in fact social security retirement fund has created a multi-trillion dollar surplus since 1986, which the U.S. government has annually ‘borrowed’, exchanging the real money in the fund created by the payroll tax and its indexed threshold, for Treasury bonds deposited in the fund. The government then uses the social security surplus to pay for decades of tax cuts for the rich and corporations and to fund endless war in the middle east.

As for Medicare, the real culprit undermining the Medicare part A and B funds has been the decades-long escalating of prices charged by insurance companies, for-profit hospital chains (financed by Wall St.), medical devices companies, and doctor partnerships investing in real estate and other speculative markets and raising their prices to pay for it.

As for Part D, prescription drugs for Medicare, the big Pharma price gouging is even more rampant, driving up the cost of the Part D fund. By the way, the prescription drug provision, Part D, passed in 2005, was intentionally never funded by Congress and George Bush. It became law without any dedicated tax, payroll or other, to fund it. Its US$50 billion plus a year costs were thus designed from the outset to be paid by means of the deficit and not funded with any tax.

Social Security Disability, SSI, has risen in costs, as a million more have joined its numbers since the 2008 crisis. That rise coincides with Congress and Obama cutting unemployment insurance benefits. A million workers today, who would otherwise be unemployed (and raising the unemployment rate by a million) went on SSI instead of risking cuts in unemployment benefits. So Congress’s reducing the cost of unemployment benefits in effect raised the cost of SSI. And now conservatives like Congressman Paul Ryan, the would be social security ‘hatchet man’ for the rich, want to slash SSI as well as social security retirement, Medicare benefits for grandma and grandpa, Medicaid for single moms and the disabled (the largest group by far on Medicaid), as well as for food stamps.

Food stamp costs have also risen sharply since 2008. But that’s because real wages have stagnated or fallen for tens of millions of workers, making them eligible under Congress’s own rules for food stamp distribution. Now Ryan and his friends want to literally take food out of the mouths of the poorest by changing eligibility rules.

They want to cut and end benefits and take an already shredded social safety net completely apart–while giving US$4.5 trillion to their rich friends (who are their election campaign contributors). The rich and their businesses are getting $4.5 trillion in tax cuts in Trump’s tax proposal—not the $1.4 trillion referenced in the corporate press. The $1.4 trillion is after they raise $3 trillion in tax hikes on the middle class.

Whatever financing issues exist for Social Security retirement, Medicare, Medicaid, disability insurance, food stamps, etc., they can be simply and easily adjusted, and without cutting any benefits and making average households pay for the tax cuts for the rich in Trump’s tax cut bill.

Social security retirement, still in surplus, can be kept in surplus by simply one measure: raise the ‘cap’ on social security to cover all earned wage income. Today the ‘cap’, at roughly US$118,000 a year, exempts almost 20 percent of the highest paid wage earners. Once their annual salary exceeds that amount, they no longer pay any payroll tax. They get a nice tax cut of 6.2 percent for the rest of the year. (Businesses also get to keep 6.2% more). Furthermore, if capital income earners (interest, rent, dividends, etc.) were to pay the same 6.2% it would permit social security retirement benefits to be paid at two thirds one’s prior earned wages, and starting with age 62. The retirement age could thus be lowered by five years, instead of raised as Ryan and others propose.

As for Medicare Parts A and B, raising the ridiculously low 1.45 percent tax just another 0.25 percent would end all financial stress in the A & B Medicare funds for decades to come.

For SSI, if Congress would restore the real value of unemployment benefits back to what it was in the 1960s, maybe millions more would return to work. (It’s also one of the reasons why the labor force participation rate in the U.S. has collapsed the past decade). But then Congress would have to admit the real unemployment rate is not 4.2 percent but several percentages higher. (Actually, it’s still over 10 percent, once other forms of ‘hidden unemployment’ and underemployment are accurately accounted for).

As for food stamps’ rising costs, if there were a decent minimum wage (at least US$15 an hour), then millions would no longer be eligible for food stamps and those on it would significantly decline.

In other words, the U.S. Congress and Republican-Democrat administrations have caused the Medicare, Part D, SSI, and food stamp cost problems. They also permitted Wall St. to get its claws into the health insurance, prescription drugs, and hospital industries–financing mergers and acquisitions activity and demanding in exchange for lending to companies in those industries that the companies raise their prices to generate excess profits to repay Wall St. for the loans for the M&A activity.

The Real Causes of Deficits and the Debt

So if social security, Medicare-Medicaid, SSI, food stamps, and other social safety net programs are not the cause of the deficits, what then are the causes?

In the year 2000, the U.S. federal government debt was about US$4 trillion. By 2008 under George Bush it had risen to nearly US$9 trillion. The rise was due to the US$3.4 trillion in Bush tax cuts, 80 percent of which went to investors and businesses, plus another US$300 billion to U.S. multinational corporations due to Bush’s offshore repatriation tax cut. Multinationals were allowed to bring US$320 billion of their US$750 billion offshore cash hoard back to the U.S. and pay only a 5.25 percent tax rate instead of the normal 35 percent. (By the way, they accumulated the US$750 billion hoard was a result of Bill Clinton in 1997 allowing them to keep profits offshore untaxed if not brought back to the U.S. Thus the Democrats originally created the problem of refusing to pay taxes on offshore profits, and then George Bush, Obama, and now Trump simply used it as an excuse to propose lower tax rates for repatriated the offshore profits cash hoard of US multinational companies. From $750 billion in 2004, it’s now $2.8 trillion).

So the Bush tax cuts whacked the U.S. deficit and debt. The Bush wars in the middle east did as well. By 2008 an additional US$2 to US$3 trillion was spent on the wars. Then Bush policies of financial deregulation precipitated the 2007-09 crash and recession. That reduced federal tax revenue collection due to collapse economic growth further. Then there was Bush’s 2008 futile $180 billion tax cut to stem the crisis, which it didn’t. And let’s not forget Bush’s 2005 prescription drug plan–a boondoggle for big pharmaceutical companies–that added US$50 billion a year more. As did a new Homeland Security $50 billion a year and rising budget costs.

There’s your additional US$5 trillion added by Bush to the budget deficit and U.S. debt–from largely wars, defense spending, tax cuts, and windfalls for various sectors of the healthcare industry.

Obama would go beyond Bush. First, there was the US$300 billion tax cuts in his 2009 so-called ‘recovery act’, mostly again to businesses and investors. (The Democrat Congress in 2009 wanted an additional US$120 billion in consumer tax cuts but Obama, on advice of Larry Summers, rejected that). What followed 2009 was the weakest recovery from recession in the post-1945 period, as Obama policies failed to implement a serious fiscal stimulus. Slow recovery meant lower federal tax revenues for years thereafter.

Studies show that at least 60 percent of the deficit and debt since 2000 is attributable to insufficient taxation, due both to tax cutting and slow economic growth below historical rates.

Obama then extended the Bush-era tax cuts another US$803 billion at year-end 2010 and then agreed to extend them another decade in January 2013, at a cost of US$5 trillion. The middle east war spending continued as well to the tune of another $3 trillion at minimum. Continuing the prescription drug subsidy to big Pharma and Homeland Security costs added another $500 billion.

In short, Bush added US$5 trillion to the US debt and Obama another US$10 trillion. That’s how we get from US$4 trillion in 2000 to US$19 trillion at the end of 2016. (US$20 trillion today, about to rise another US$10 trillion by 2027 once again with the Trump tax cuts fast-tracking through Congress today).

To sum up, the problem with chronic U.S. federal deficits and escalating Debt is not social security, Medicare, or any of the other social programs. The causes of the deficits and debt are directly the consequence of financing wars in the middle east without raising taxes to pay for them (the first time in U.S. history of war financing), rising homeland security and other non-war defense costs, massive tax cuts for businesses and investors since 2001, economic growth at two thirds of normal the past decade (generating less tax revenues), government health program costs escalation due to healthcare sector price gouging, and no real wage growth for the 80 percent of the labor force resulting in rising costs for food stamps, SSI, and other benefits.

Notwithstanding all these facts, what we’ll hear increasingly from the Paul Ryans and other paid-for politicians of the rich is that the victims (retirees, single moms, disabled, underemployed, jobless, etc.) are the cause of the deficits and debt. Therefore they must pay for it.

But what they’re really paying for will be more tax cuts for the wealthy, more war spending (in various forms), and more subsidization of price-gouging big pharmaceuticals, health insurance companies, and for-profit hospitals which now front for, and are indirectly run by, Wall St.

Jack Rasmus is the author of the recently published book, “Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression.” He blogs at jackrasmus.com and his twitter handle is @drjackrasmus.

Some Recent ‘Tweets’ Summarizing Senate-House Tax Cut Proposals
| December 7, 2017 | 8:38 pm | Analysis, Donald Trump, Jack Rasmus | No comments

Some Recent ‘Tweets’ Summarizing Senate-House Tax Cut Proposals

Some Recent ‘Tweets’ Summarizing Senate-House Tax Cut Proposals

by Dr. Jack Rasmus,

Republicans will now ‘sharpen their knives’ to go after grandma and grandpa, to cut social security and medicare–and medicaid for single moms and disabled, to pay for $2T deficit (not $1 or $1.5T) in Trump tax cuts

Senate bill means beginning of the end of ACA healthcare Act: Ending individual mandate will raise premiums for all by minimum 10% in 2018 and more thereafter. 4 million will immediately drop; 13m will drop by 2027, per independent estimates.

Senate tax bill means 3200 of the richest 0.1% households no longer will pay inheritance tax whatsoever; the remaining 1800 will have new threshold of $22 million before paying. Fewer than 0.1% households will now pay Inheritance tax.

Senate version off Trump Tax cuts reshuffles the House bill: Corps still get $1.5T; pass thru business $476B;Multinational corps $500B + bigger loopholes for real estate, autos, oil, depreciation=$3T business cuts paid by $3T tax hikes for middle class.

Trump’s latest ‘big lie’: the tax cuts “will cost me millions”. Trump’s 2005 tax returns show he paid only paid taxes due to AMT; doubling AMT exemption will halve his taxes. Trump’s 500 ‘business income pass through’ companies also gain from rate cut from 39.6% to 25% (or less 23% in Senate)

Multinational US corps past history with 2005 repatriation tax windfall tax cut (from 35% to 5.25%) showed 90% of windfall was used for stock buyback, dividends, and financing mergers and acquisitions.

Trump Tax cut based on faulty economic theory: give business more disposable income & they will invest it short run, leading to jobs, wages, GDP. US businesses now sit on $2 trillion cash in US +$2.8T offshore. If they aren’t investing with $4.8T, why would they with another $3t?

Senate tax bill deficit of $1 trillion based on absurd assumptions of economic growth. Past historical GDP trend for next decade will at least double the $1 to $2 trillion deficit or more. Decade from now, US debt will exceed $30 trillion

A Thanksgiving Letter to Our Wealthiest 1% Americans
| November 28, 2017 | 7:55 pm | Analysis, Jack Rasmus | No comments

A Thanksgiving Letter to Our Wealthiest 1% Americans

A Thanksgiving Letter to Our Wealthiest 1% Americans

By Jack Rasmus
Copyright 2017

As this Thanksgiving holiday comes to an end and the Xmas season approaches, let’s not forget to give thanks to our richest 1% fellow Americans and their corporations. Thanks to all 1.25 million of you from the 130 million of us 99 percenter households.

Your stewardship of the US economy has allowed us to keep 5% of all the national income created since the last recession in 2009; while you wealthiest 1% got to keep the other 95% (see UC Berkeley economist, Emmanuel Saez’s annual income inequality analyses).

But the more you get to keep, the more you can ‘trickle down’ to the rest of us, right? So say your politicians, talking media heads, economists, and other assorted hirelings. So thanks very much for at least sharing something with us.
If not sharing wages equally, we certainly got more jobs to be thankful for from you—who lose no opportunity to proclaim you are the source of all job creation.

Since 2009, you ‘gave’ us millions of part time, temp, contract, on call, and gig jobs. True, mostly low paid, without pensions or benefits jobs. Better than nothing jobs. And while it took you 8 years to re-create the level of jobs we had back in 2007, better late than never, right? Even if our pre-2008, higher paid jobs were replaced mostly by lower paid after 2008, it sure beats unemployment benefits. So thank all of you 1% self-proclaimed job creators for all the low paid, no benefit, service jobs you eventually did create for us.

As owners of the system you certainly had a difficult task managing your complex, mega-corporation called the USA economy, keeping all those foreign competitors and troublemakers in line with the US economic empire. You know, those ‘russkies’ that just won’t lay down and play dead anymore, those too clever Chinese, and all those assorted ‘rocket men’. But that’s what our 1000 offshore military bases are for, aren’t they? Our trillion dollar a year defense budget is well worth it.

And getting us out of the worst economic crisis since the great depression of the 1930s in 2008-09 was no easy task for you, we know. So all of you 1.25 million wealthiest 1% households deserve every dollar you’ve diverted to yourselves in the process of economic recovery these past 8 years, including:

• The $6 trillion in stock buybacks and dividend payouts paid out to you from your corporations since 2008 (see Yardeni Research, November 2017);
• The nearly 400% increase in the value of your stock holdings (see the DOW, S&P 500 and Nasdaq combined market gains since 2008);
• The additional $ trillions in capital gains income you earned on bond interest and capital gains since the last recession;
• Your share of half of the $1.9 trillions in ‘pass through’ non-corporate business income net gains since 2007 (see US national income accounts);
• The unknown $ trillions more you earned from investing in derivatives in offshore markets that you don’t report, which even the US government cannot discover;
• The still additional $ trillions more you stuffed in your offshore accounts to avoid paying US taxes (see recent revelations from the so-called ‘Paradise Papers’);
• The $2 trillion cash your bank and non-bank US corporations are still sitting on in the US, and another $2 trillion your multinational corporations are hoarding offshore—together earmarked at least in part for your personal future distribution (see Moody’s Analytics).

That’s easily more than $15 trillion in cash, near-cash, and easily convertible to cash sources of income accumulated over the past 8 years (and excludes the earnings from real estate and real property)—to be shared amongst the 1.25 million of you.

In total wealth and assets, not just income, American households held $58 trillion in net worth in 2009; that has since risen to $105 trillion, according to the US Federal Reserve bank’s latest 2017 report. Since median US Households’ net worth is still 30% below 2007 levels—and 90% of all US households are still below 2007 levels (per the New York Times, September 28, 2017)—the lion’s share of that $47 trillion total gain in net worth must therefore have gone to you one percenters. Congratulations. (Can’t wait to get my trickle down share. Please send by way of this blog address).

Let’s not forget to thank in particular the bankers among you. While it’s true they gave us the 2007-09 financial crash that led to 14 million home foreclosures and $4 trillion in our lost savings, your bankers did allow us to offset our stagnant wages these past 8 years with more loans and debt.

So thank you bankers, for the $1.4 trillion in student debt, the $1.2 trillion in credit card debt, and the more than $1 trillion in auto loan debt. That’s $3.6 trillion! Who needs wage increases when we can borrow our way to prosperity!
And while we’re talking about banks, let’s not forget to thank our central bankers, Ben Bernanke and Janet Yellen, for buying up all bad investments you one percenters made before the 2008 crash. I mean the subprime mortgage bonds and other securities you got stuck with and couldn’t sell, that Ben and Janet generously bought from you at above market prices. That was another $5 to $6 trillion cash subsidy to your professional investor class.

By the way, I hear Ben is now making the speech circuit rounds, speaking to your bankers and companies for a fee of $200k per pop, and is serving on your corporate boards? And Janet has just announced she’ll soon also be leaving the Fed and joining him. Reward them well, Mr. and Mrs. 1%. They’ve done yeoman work for your banks, providing loans at 0.15% for 7 years, while the US government charged students 6.8% student loan rates and grandma and grandpa retirees lost more than $1 trillion in fixed income savings as result of near zero interest rates.

And let’s not forget your great multinational corporations who’ve been offshoring our high paying jobs made possible by free trade treaties like NAFTA. You know, the tech companies, big pharmaceutical companies, auto parts and textiles, and all the rest. Now we can buy cheaper priced products at Walmart and Target from you that they make in Mexico, China, and Indonesia.

Like loading up on Loan debt, free trade is so much better than getting wage increases!

And this season let’s not forget to thank your politicians whose elections you finance. Thanks to George W. Bush for cutting taxes by $3.4 trillion. And Obama and the Democrats for cutting your taxes by another $1.1 trillion during the recession, and then extending the Bush tax cuts in 2013 for another decade by a further $5 trillion. Now their heir to the presidency, Uncle Donald, is proposing another $4.5 trillion tax cut for you one percenters, for yet another decade. I can’t wait for all the ‘trickle down’ that’s finally coming.

Your Republican party politicians (aka one wing of your Corporate Party of America) can’t take all the credit. Your Democrat wing deserves some.

So thanks to Nancy Pelosi and Chuck Shumer, for their current efforts to broker a deal with Uncle Donald to let the 800,000 ‘Dreamers’ kids stay in America—in exchange for agreeing to deport their parents and for funding the border Wall with Mexico.

I do hope that next year Nancy and Uncle Donald can revisit the repeal of the ACA-Obamacare Act. It will mean another $592 billion tax cut for you one percenters and your corporations, and maybe then even more trickle down to us 99%. All those single moms with kids, disabled persons, and mentally ill don’t really need the improvements in Medicaid they got from the ACA. They were doing just fine before. You one percenters need the tax cuts more.

In conclusion, I’d like to give special thanks to your most famous one percenter, Don Trumpeone, a member of the wealthiest .01% (or 12,600) super richest households within your ranks, whose income gains in 2016 averaged $65 million.

Thank you, Don Trumpeone, for keeping us 99% safe in 2017. We ‘kiss your hand’. This year not one American was killed by the North Koreans, or by the Russians in the Ukraine, or by those violent Yemenis and world domination seeking Iranians—even though 60,000 Americans have died from the Opioid epidemic (started by the big Pharma companies) this past year; another 38,000 of us died from guns made in the US (291,000 since 2007); and the USA has continued to fall below its 20th ranking in infant mortality among the advanced nations while our teen suicide rate has doubled since 2007.

We 99% have so much to be thankful for this holiday season. And you 1%–and your corporations, politicians, and media pundits—are largely responsible.

So God keep blessing America. Let’s all stand for the flag. And thank you, our wealthiest 1% fellow Americans, the richest and greatest generation the world has ever seen.

Jack Rasmus is author of the just published book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017. He blogs at jackrasmus.com, twitters @drjackrasmus, and his website is http://kyklosproductions.com

The Trump-Goldman Sachs Tax Cut for the Rich-print
| October 13, 2017 | 9:28 pm | Analysis, Donald Trump, Jack Rasmus | No comments

The Trump-Goldman Sachs Tax Cut for the Rich-print

The Trump-Goldman Sachs Tax Cut for the Rich-print

The following will shortly appear in various blogs and print publications. My detailed analysis of the Trump tax plan announced this past week.
Dr. Jack Rasmus
Copyright 2017

“This past week Trump introduced his long awaited Tax Cut, estimated between $2.0 to $2.4 trillion. Like so many other distortions of the truth, Trump claimed his plan would benefit the middle class, not the rich—the latest in a long litany of lies by this president.

Contradicting Trump, the independent Tax Policy Center has estimated in just the first year half of the $2 trillion plus Trump cuts will go to the wealthiest 1% households that annually earn more than $730,000. That’s an immediate income windfall to the wealthiest 1% households of 8.5%, according to the Tax Policy Center. But that’s only in the first of ten years the cuts will be in effect. It gets worse over time.

According to the Tax Policy Center, “Taxpayers in the top one percent (incomes above $730,000), would receive about 50 percent of the total tax benefit [in 2018]”. However, “By 2027, the top one percent would get 80 percent of the plan’s tax cuts while the share for middle-income households would drop to about five percent.” By the last year of the cuts, 2027, on average the wealthiest 1% household would realize $207,000, and the even wealthier 0.1% would realize an income gain of $1,022,000.

When confronted with these facts on national TV this past Sunday, Trump’s Treasury Secretary, Steve Mnuchin, quickly backtracked and admitted he could not guarantee every middle class family would see a tax cut. Right. That’s because 15-17 million (12%) of US taxpaying households in the US will face a tax hike in the first year of the cuts. In the tenth and last year, “one in four middle class families would end up with higher taxes”.

The US Economic ‘Troika’

The Trump Plan is actually the product of the former Goldman-Sachs investment bankers who have been in charge of Trump’s economic policy since he came into office. Steve Mnuchin, the Treasury Secretary, and Gary Cohn, director of Trump’s economic council, are the two authors of the Trump tax cuts. They put it together. They are also both former top executives of the global shadow bank called Goldman Sachs. Together with the other key office determining US economic policy, the US central bank, held by yet another ex-Goldman Sachs senior exec, Bill Dudley, president of the New York Federal Reserve bank, the Goldman-Sachs trio of Mnuchin-Cohn-Dudley constitute what might be called the ‘US Troika’ for domestic economic policy.
The Trump tax proposal is therefore really a big bankers tax plan—authored by bankers, in the interest of bankers and financial investors (like Trump himself), and overwhelmingly favoring the wealthiest 1%.

Given that economic policy under Trump is being driven by bankers, it’s not surprising that the CEO of the biggest US banks, Morgan Stanley, admitted just a few months ago that a reduction of the corporate nominal income tax rate from the current 35% nominal rate to a new nominal rate of 20% will provide the bank an immediate windfall gain of 15%-20% in earnings. And that’s just the nominal corporate rate cut proposed by Trump. With loopholes, it’s no doubt more.

The Trump-Troika’s Triple Tax-Cut Trifecta for the 1%

The Trump Troika has indicated it hopes to package up and deliver the trillions of $ to their 1% friends by Christmas 2017. Their gift will consist of three major tax cuts for the rich and their businesses. A Trump-Troika Tax Cut ‘Trifecta’ of $ trillions.

1.The Corporate Tax Cuts

The first of the three main elements is a big cut in the corporate income tax nominal rate, from current 35% to 20%. In addition, there’s the elimination of what is called the ‘territorial tax’ system, which is just a fancy phrase for ending the fiction of the foreign profits tax. Currently, US multinational corporations hoard a minimum of $2.6 trillion of profits offshore and refuse to pay US taxes on those profits. In other words, Congress and presidents for decades have refused to enforce the foreign profits tax. Now that fiction will be ended by officially eliminating taxes on their profits. They’ll only pay taxes on US profits, which will create an even greater incentive for them to shift operations and profits to their offshore subsidiaries. But there’s more for the big corporations.

The Trump plan also simultaneously proposes what it calls a ‘repatriation tax cut’. If the big tech, pharma, banks, and energy companies bring back some of their reported $2.6 trillion (an official number which is actually more than that), Congress will require they pay only a 10% tax rate—not the current 35% rate or even Trump’s proposed 20%–on that repatriated profits. No doubt the repatriation will be tied to some kind of agreement to invest the money in the US economy. That’s how they’ll sell it to the American public. But that shell game was played before, in 2004-05, under George W. Bush. The same ‘repatriation’ deal was then legislated, to return the $700 billion then stuffed away in corporate offshore subsidiaries. About half the $700 billion was brought back, but US corporations did not invest it in jobs in the US as they were supposed to. They used the repatriated profits to buy up their competitors (mergers and acquisitions), to pay out dividends to stockholders, and to buy back their stock to drive equity prices and the stock market to new heights in 2005-07. The current Trump ‘territorial tax repeal/repatriation’ boondoggle will turn out just the same as it did in 2005.

2. Non-Incorporate Business Tax Cuts

The second big business class tax windfall in the Trump-Goldman Sachs tax giveaway for the rich is the proposal to reduce the top nominal tax rate for non-corporate businesses, like proprietorships and partnerships, whose business income (aka profits) is treated like personal income. This is called the ‘pass through business income’ provision.
That’s a Trump tax cut for unincorporated businesses—like doctors, law firms, real estate investment partnerships, etc. 40% of non-corporate income is currently taxed at 39.6% (the top personal income tax rate). Trump proposes to reduce that nominal rate to 25%. So non-incorporate businesses too will get an immediately 14.6% cut, nearly matching the 15% rate cut for corporate businesses.

In the case of both corporate and non-corporate companies we’re talking about ‘nominal’ tax rate cuts of 14.6% and 15%. The ‘effective’ tax rate is what they actually pay in taxes—i.e. after loopholes, after their high paid tax lawyers take a whack at their tax bill, after they cleverly divert their income to their offshore subsidiaries and refuse to pay the foreign profits tax, and after they stuff away whatever they can in offshore tax havens in the Cayman Islands, Switzerland, and a dozen other island nations worldwide.

For example, Apple Corporation alone is hoarding $260 billion in cash at present—95% of which it keeps offshore to avoid paying Uncle Sam taxes. Big multinational companies like Apple, i.e. virtually all the big tech companies, big Pharma corporations, banks and oil companies, pay no more than 12-13% effective tax rates today—not the 35% nominal rate.

Tech, big Pharma, banks and oil companies are the big violators of offshore cash hoarding/tax avoidance schemes. Microsoft’s effective global tax rate last year was only 12%. IBM’s even less, at 10%. The giant drug company, Pfizer paid 18% and the oil company, Chevron 14%. One of the largest US companies in the world, General Electric, paid only 1%. When their nominal rate is reduced to 20% under the Trump plan, they’ll pay even less, likely in the single digits, if that.

Corporations and non-corporate businesses are the institutional conduit for passing income to their capitalist owners and managers. The Trump corporate and business taxes means companies immediately get to keep at least 15% more of their income for themselves—and more in ‘effective’ rate terms. That means they get to distribute to their executives and big stockholders and partners even more than they have in recent years. And in recent years that has been no small sum. For example, just corporate dividend payouts and stock buybacks have totaled more than $1 trillion on average for six years since 2010! A total of more than $6 trillion.

But all that’s only the business tax cut side of the Trump plan. There’s a third major tax cut component of the Trump plan—i.e. major cuts in the Personal Income Tax that accrue overwhelmingly to the richest 1% households.

3. Personal Income Tax Cuts for the 1%

There are multiple measures in the Trump-Troika proposal that benefits the 1% in the form of personal income tax reductions. Corporations and businesses get to keep more income from the business tax cuts, to pass on to their shareholders, investors, and senior managers. The latter then get to keep more of what’s passed through and distributed to them as a result of the personal income tax cuts.

The first personal tax cut boondoggle for the 1% wealthiest households is the Trump proposal to reduce the ‘tax income brackets’ from seven to three. The new brackets would be 35%, 25%, and 12%.

Whenever brackets are reduced, the wealthiest always benefit. The current top bracket, affecting households with a minimum of $418,000 annual income, would be reduced from the current 39.6% to 35%. In the next bracket, those with incomes of 191,000 to 418,000 would see their tax rate (nominal again) cut from 28% to 25%. However, the 25% third bracket would apply to annual incomes as low as $38,000. That’s the middle and working class. So households with $38,000 annual incomes would pay the same rate as those with more than $400,000. Tax cuts for the middle class, did Trump say? Only tax rate reductions beginning with those with $191,000 incomes and the real cuts for those over $418,000!

But the cuts in the nominal tax rate for the top 1% to 5% households are only part of the personal income tax windfall for the rich under the Trump plan. The really big tax cuts for the 1% come in the form of the repeal of the Inheritance Tax and the Alternative Minimum Tax, as well as Trump’s allowing the ‘carried interest’ tax loophole for financial speculators like hedge fund managers and private equity CEOs to continue.

The current Inheritance Tax applies only to those with estates of $11 million or more, about 0.2 of all the taxpaying households. So its repeal is clearly a windfall for the super rich. The Alternative Minimum Tax is designed to ensure the super rich pay something, after they manipulate the tax loopholes, shelter their income offshore in tax havens, or simply engage in tax fraud by various other means. Now that’s gone as well under the Trump plan. ‘Carried interest’, a loophole, allows big finance speculators, like hedge fund managers, to avoid paying the corporate tax rate altogether, and pay a maximum of 20% on their hundreds of millions and sometimes billions of dollars of income every year.

Who Pays?

As previously noted, folks with $91,000 a year annual income get no tax rate cuts. They still will pay the 25%. And since that is what’s called ‘earned’ (wage and salary) income, they don’t get the loopholes to manipulate, like those with ‘capital incomes’ (dividends, capital gains, rents, interest, etc.). What they get is called deductions. But under the Trump plan, the deductions for state and local taxes, for state sales taxes, and apparently for excess medical costs will all disappear. The cost of that to middle and working class households is estimated at $1 trillion over the decade.

Trump claims the standard deduction will be doubled, and that will benefit the middle class. But estimates reveal that a middle class family with two kids will see their standard deduction reduced from $28,900 to $24,000. But I guess that’s just ‘Trump math’.

The general US taxpayer will also pay for the trillions of dollars that will be redistributed to the 1% and their companies. It’s estimated the federal government deficit will increase by $2.4 trillion over the decade as a result of the Trump plan. Republicans in Congress have railed over the deficits and federal debt, now at $20 trillion, for years. But they are conspicuously quiet now about adding $2.4 trillion more—so long as it the result of tax giveaways to themselves, their 1% friends, and their rich corporate election campaign contributors.

And both wings of the Corporate Party of America—aka Republicans and Democrats—never mention the economic fact that since 2001, 60% of US federal government deficits, and therefore the US debt of $20 trillion, are attributable to tax cuts by George W. Bush and Barack Obama: more than $3.5 trillion under Bush and more than $7 trillion under Obama. (The remaining $10 trillion of the US debt due to war and defense spending, price gouging by the medical industry and big pharma driving up government costs for Medicare, Medicaid, and other government insurance, bailouts of the big banks in 2008-09, and interest payments on the debt).

The 35-Year Neoliberal Tax Offensive

Tax cutting for business classes and the 1% has always been a fundamental element of Neoliberal economic policy ever since the Reagan years (and actually late Jimmy Carter period). Major tax cut legislation occurred in 1981, 1986, and 1997-98 under Clinton. George W. Bush then cut taxes by $3.4 trillion in 2001-04, 80% of which went to the wealthiest households and businesses. He cut taxes another $180 billion in 2008. Obama cut another $300 billion in his 2009 so-called recovery program. When that faltered, it was another $800 billion at year end 2010. He then extended the Bush tax cuts that were scheduled to expire in 2011 two more years. That costs $450 billion each year. And in 2013, cutting a deal with Republicans called the ‘fiscal cliff’ settlement, he extended the Bush tax cuts of the prior decade for another ten years. That cost a further $5 trillion. Now Trump wants even more. He promised $5 trillion in tax cuts during his election campaign. So the current proposal is only half of what he has in mind perhaps.

Neoliberal tax cutting in the US has also been characterized by the ‘tax cut shell game’. The shell game is played several ways.

In the course of major tax cut legislation, the elites and their lobbyists alternate their focus on cutting rates and on correcting tax loopholes. They raise rates but expand loopholes. When the public becomes aware of the outrageous loopholes, they then eliminate some loopholes but simultaneously reduce the tax rates on the rich. When the public complains of too low tax rates for the rich, they raise the rates but quietly expand the loopholes. They play this shell game so the outcome is always a net gain for corporations and the rich.

Since Reagan and the advent of neoliberal tax policy, the corporate income tax share of total US government revenues has fallen from more than 20% to single digits well below 10%. Conversely, the payroll tax has doubled from 22% to more than 40%. A similar shift within the personal income tax, steadily around 40% of government revenues, has also occurred. The wealthy pay less a share of the total and the middle class pays more. Along the way, token concessions to the very low end of working poor are introduced, to give the appearance of fairness. But the middle class, the $38 to $91,000 nearly 100 million taxpaying households foot the bill for both the 1% and the bottom. This pattern was set in motion under Reagan. His proposed $752 billion in tax cuts in 1981-82 were adjusted in 1986, but the net outcome was more for the rich and their corporations. That pattern has continued under Clinton, Bush, Obama and now proposed under Trump.

To cover the shell game, an overlay of ideology covers up what’s going on. There’s the false argument that ‘tax cuts create jobs’, for which there’s no empirical evidence. There’s the claim US multinational corporations pay a double tax compared to their competitors, when in fact they effectively pay less. There’s the lie that if corporate taxes are cut they will automatically invest the savings, when in fact what they do is invest offshore, divert the savings to stock and bond and other financial markets, boost their dividend and stock buybacks, or stuff the savings in their offshore subsidiaries to avoid paying taxes.

All these neoliberal false claims, arguments, and outright lies continue today to justify the Trump-Goldman Sachs tax plan—which is just the latest iteration of neoliberal tax policy and tax offensive in the US. The consequences of the Trump plan, if it is passed, will be the same as the previous tax giveaways to the 1% and their companies: it will redistribute income massively from the middle and working classes to the rich. Income inequality will continue to worsen dramatically. US multinational corporations will begin again to divert profits, and investment, offshore; profits brought back untaxed will result in mergers and acquisitions, dividend payouts, and financial markets investment. No real jobs will be created in the US. The wealthy will continue to pump their savings into financial asset markets, causing further bubbles in stocks, exchange traded funds, bonds, derivatives and the like. The US economy will continue to slow and become more unstable financially. And there will be another financial crash and great recession—or worse. Only this time, the vast majority of US households—i.e. the middle and working classes—will be even worse off and more unable to weather the next economic storm.

Nothing will change so long as the Corporate Party of America is allowed to continue its neoliberal tax giveaways, its tax cutting ‘shell games’, and is allowed to continue to foment its ideological cover up.”

Dr. Jack Rasmus, October 2, 2017

Dr. Rasmus is author of the just published book, ‘Central Bankers at the End of Their Ropes?: Monetary Policy and the Coming Depression’, Clarity Press, August 2017, and the previously published ‘Looting Greece: A New Financial Imperialism Emerges’, October 2016, and ‘Systemic Fragility in the Global Economy’, January 2016, also by Clarity press. More information is available at Claritypress.com/RasmusIII. For more analyses on the Trump and neoliberal taxation, listen to Dr. Rasmus’s, September 29, 2017 radio show, Alternative Visions, on the Progressive Radio Network at http://alternativevisions.podbean.com. He blogs at jackrasmus.com and his website is http://kyklosproductions.com.