| FACT & COMMENT
Is the GOP suffering from tax-cut amnesia?
“With all thy getting, get understanding”
Lost among porno actress allegations, Syrian chemical weapons, food fights between the President and a rogue ex-FBI director, a North Korea summit and possible trade wars is the issue of tax cuts. The White House barely mentions the subject these days, and many Republicans are remarkably mum about what’s usually their signature issue. With barely concealed glee, the New York Times recently ran the headline: “Public’s Interest in Tax Law Has Slipped, and So Has Trump’s.”
This is a big mistake on the part of the GOP. It needs issues to excite and turn out its base, particularly those who voted for Trump. Right now, a good number of those folks are staying home, as evidenced by the elections in Virginia last November and a special congressional election in a Pennsylvania district that Trump had overwhelmingly carried in 2016 but was won by a Democrat in March. The antiTrumpers are angry, and they are voting.
What should greatly disturb congressional Republicans are the surveys showing that people overwhelmingly consider them to be part and parcel of the Washington swamp, not its drainers.
Instead of vaguely mumbling about perhaps another round of tax cuts, Republicans should be trumpeting specific proposals. When putting these together, they should banish the self-imposed straitjacket of the Congressional Budget Office, which purports to tell us what effects tax and spending proposals will have on the economy over the next ten years. Its projections have almost always been wrong, so ignore them.
Another must: Don’t call this exercise “tax reform.” The word “reform” tells people nothing. Instead, use the phrase “big tax cuts.”
Here’s what an exciting package should include:
• Payroll tax cuts. Millions of people don’t pay income taxes, but everyone who receives a paycheck gets dunned for Social Security and Medicare levies. These exactions make up FICA (the Federal Insurance Contributions Act). In 2011–2012 the first two percentage points of FICA tax were suspended. Propose a three-percentage-point holiday for at least five years. Lower-income earners, especially, would see a meaningful raise in take-home pay.
Would this jeopardize the Social Security system? No. Just as was done in 2011–2012, make up the shortfall from general revenues. Anyway, Social Security’s reserves, ostensibly almost $3 trillion, are illusory. There’s not a penny in there, just a bunch of nonmarketable IOUs from the Treasury Department. In other words, all of those trillions were spent as soon as they were collected.
• Sharply lower income tax rates. Last year’s tax legislation got rid of most deductions for state and local taxes. The trouble is the bill didn’t slash the federal tax rates, which would have stimulated the economy by lessening the price of productive work, risk-taking and success. Some GOPers snorted that this only hurts blue states, forgetting there are 20 or so vulnerable Republican house seats ensconced there. Speaker Pelosi, anyone?
• A reduced capital gains tax. This is a no-brainer. Cuts in this exaction always instantly boost revenues and stimulate investment, the crucial factor in a higher standard of living.
Certainly a number of less dramatic but enticing goodies could also be tossed into this tax-cut salad.
Will Republicans have the gumption and imagination to do something like this? Unfortunately, with this crowd, we all know the answer to that question.
high tech for Legacy industries
One of the amazing aspects of new technology is how it can be applied with awesome results to traditional “legacy” industries. Sam Walton, a small northwestern Arkansas retailer in the early 1960s, brilliantly employed mainframe computers and software to better manage Walmart’s inventories and supply chains in a way his vastly larger competitors didn’t. This was a critical factor in making his chain the dominant behemoth in traditional retailing.
A similar story is unfolding in agriculture, where high
sorry, Bitcoin fans: it ain’t money Yet
tech is radically transforming what we think of as a bucolic, hardly changing endeavor into a truly cutting-edge one with vast increases in productivity. Even as populations grow, food harvests are increasing at a far faster pace.
An even more dazzling transformation is taking place in oil and natural gas, the geopolitical implications of which we are barely beginning to grasp. It wasn’t so many years ago that we were inundated with stories about “peak oil”—the idea that since there were no more humongous oilfields to be discovered, the world would consume oil faster than it could be replaced until the day came when we would run out of the stuff. U.S. oil production supposedly peaked in the early 1970s. Natural gas was so expensive and scarce that regulators told utility companies not to burn it to generate electricity, because it was too precious to use for this purpose.
Behold the situation today! Thanks to such astonishing technological breakthroughs as horizontal drilling and hydraulic fracturing (popularly known as fracking), gas and oil output, especially from shale, have exploded. The U.S. is once again exporting energy.
Far more astonishing, American oil production is higher than ever before. Add up the total production of oil, gas and other petroleum liquids, and we have surpassed both Russia and Saudi Arabia, a situation absolutely inconceivable a decade ago. The reserves in the Permian Basin, located primarily in Texas, exceed those in all of Saudi Arabia. If that isn’t eye-popping enough, consider this: In the next decade or so, the U.S. will be the globe’s lowest-cost producer of both oil and gas. That’s right: We will be able to pump out these hydrocarbons cheaper than Saudi Arabia.
The demand for oil and gas is only going to grow as burgeoning middle classes in China, India and elsewhere buy and drive tens of millions more vehicles, not to mention purchase refrigerators, washing machines and other household goods that will consume more electricity.
As noted energy expert Mark Mills has said: “It’s not just that technology has unlocked the long-known abundance of shale resources that were heretofore too expensive, but that the character of that technology is now in transformation. The future is all about a digital and artificial intelligence revolution. The effect of that will be to lower the bar for break-even costs from shale.”
Imagine, China’s next generation will find itself becoming very dependent on the U.S. for its oil, and Europe will have a major gas alternative to Vladimir Putin’s Russia. The astonishing fact about the explosion in cryptocurrencies is that their creators have overlooked a fundamental fact: Money isn’t viable if it fluctuates in value, particularly with the wild swings characteristic of this sector. Most buyers are looking to make a quick buck, treating Bitcoin et al. like penny stocks of yore. They forget that the very instability of government-produced money is one of the two critical reasons cryptocurrencies were created in the first place (the other being privacy). If in 2013 you had taken out a mortgage for $250,000 in Bitcoin, you’d owe the bank roughly $18 million today.
Until one of these digital monies effectively ties itself to gold, a basket of commodities or a bundle of major currencies, it will never replace the flawed, traditional central bank currencies we’re currently stuck with. To be a true alternative, a cryptocurrency must also be easy to use for day-to-day transactions. Moreover, the supply can’t be artificially restricted. Fabricated scarcity doesn’t create value; utility and trustworthiness do. Look at the Swiss franc. Its supply is enormous. But because its long-term stability has been better by far than that of any other currency in the world over the past 100 years, people find it highly desirable.
As wise monetary gurus such as Nathan Lewis and John Tamny have pointed out, Bitcoin’s wild swings graphically underscore why monetary unreliability is so destructive. The dollar’s instability since we abandoned the gold standard in the early 1970s is a slow-motion version of what is happening to cryptocurrencies.