Donald Trump test of the day - explain how tariffs really work

Donald Trump hasn’t made a convincing argument about #TRUMP_tariffs.  Echo editorial published in The Baltimore Sun.

Instead, he’s been wholly dishonest with the public. Over and over again, he’s deliberately misrepresented how tariffs work, going so far as to suggest the Chinese government cuts a check to the U.S. Treasury. And when his chief economic adviser goes on TV, as Larry Kudlow, and explains that the latest tariff increase affecting $200 billion in Chinese goods will cause the U.S. economy to suffer in the short term? President Trump will have none of it, tweeting, instead, that U.S. GDP was boosted by “Tariffs from China” and that there is “no reason for the U.S. Consumer to pay the Tariffs.” (MaineWriter: OMG.....and we will build a wall and Mexico will pay for it....!)

There can be a case made for imposing tariffs. Those taxes paid on imports raise prices, making those goods less attractive to consumers and, theoretically, giving an advantage to domestic producers. Just as importantly, they give a country leverage on its trading partner. Raise barriers to our exports? We’ll do the same to your imports. With China, there’s an argument to be made that curbing that nation’s worst trade policies (its failure to enforce intellectual property rights and its unwillingness to fully embrace a free market economy among them) requires this level of sacrifice from the American public or the biggest U.S. trade partner won’t change its ways.

Even if Chinese companies partially lower their prices to offset tariffs, consumers are bound to feel the pinch. And as for writing a check to the U.S. Treasury for tariffs? That doesn’t happen. Ever.

American companies buying the goods are the people writing the checks. And they pass along the cost in the former of higher prices to consumers, who ultimately bear the brunt. That’s how it works. That’s how it’s supposed to work. It’s this added cost — this disincentive to buy imported goods — that’s supposed to drive policy change. Meanwhile, China announced Monday that it will impose higher tariffs on $60 billion of U.S. goods. That’s what Trump trade policy has actually wrought so far.

And while there’s an argument that “both sides pay” in a tariff war — another point made by Trump’s director of the National Economic Council, — but Donald Trump won’t even go that far. His position on tariffs has been consistent — consistently misleading. Now, perhaps this can be ascribed to the usual Trump salesmanship that overstates arguments much in the manner of a high-pressure real estate salesman whose idea of a “fixer upper” is a candidate for condemnation to the rest of us. But what’s especially noteworthy here is that Americans might actually rally around a straight talk description of what’s going on. 

In fact, even those American soybean farmers who have been hit so hard by Chinese retaliatory tariffs might support the White House’s position on China trade out of sheer patriotism, if Trump administration claims bore some resemblance to reality. 

Instead, farmers are getting angry — and increasingly desperate.

It’s one thing to sacrifice for a country that claims to need your sacrifice, it’s quite another to sacrifice to a White House that claims everything is going swell. Add the financial losses of exporters like those farmers with the high cost to consumers (the last round of tariffs having cost $1.4 billion a month, the new round probably much more, according to experts) and you aren’t talking about chump change. Does Mr. Trump think the country won’t notice or that they’ll just take his word for it? What happens when Walmart shoppers notice that prices are much higher? Is he counting on them not putting two and two together?

Make no mistake, we weren’t impressed with this tariff strategy from the beginning. While there is an intellectually honest argument for tariffs, we believe the counter-argument generally holds more weight in an increasingly interconnected global economy. And this White House appears to be especially ill-equipped for a complex and protracted trade war that requires study, patience and a clear strategy, which is hardly the modus operandi of a (failed) leader...Trumpzi.... who makes stuff up as he goes along. Trump is certainly capable of hurting China, but to what end? What would victory even look like? Certainly, a better fair trade enforcement mechanism than China has offered in the past would be great, but what else? We don’t know, but whatever the outcome, this latest escalation is unlikely to bring a swift end to a trade war between two economic powers, neither of which can boast a head of state known for his honesty or willingness to be scrutinized.

What will House Democrats "Do"?

Laurence J. Kotlikoff  Professor of Economics, Boston University

This expert essay was published in The Conversation. Although I'm certainly not an economist, I agree with most of the analysis by Laurence Kotlikoff. 

Yet, I disagree with his assessment about Social Security. Surely, it would help if Republican paid back the money robbed from the trust fund to fund other "pork" programs. 

But, for the most part, this is good expert advise to the New Democratic Majority in the US House of Representatives:
Now that Democrats control the House, the question on many minds is what they will do with it.

Incoming Majority Leader Nancy Pelosi says Democrats will focus on corruption, money in politics, drug prices, gun control and protecting young immigrants. 

Although these are important, in my view, they are second-order issues.

The biggest challenges facing the U.S. are much deeper and seriously jeopardize Americans’ future prosperity. Namely, soaring national debt, Social Security’s solvency and the lack of affordable health care.

As an economist, I’ve spent a lot of time researching and writing about these issues. And as a presidential candidate in 2016, I tried to put them on the national agenda when I staged an independent write-in campaign.

Were I leading the House Democrats right now, I would focus on passing three key bills. The Senate would likely turn them down, but their passage would show the country that Democrats are prepared to govern.
The US$200 trillion fiscal gap

It starts by acknowledging the true state of America’s fiscal condition.

No politician that I know of has ever told the truth about this, either because he or she didn’t know the truth or were hiding it. Brace yourself. Here’s where we really stand.

The official debt is $21.7 trillion – more than the value of all goods and services that will be produced in the U.S. this year. But this ignores massive unfunded obligations that have been kept off the books, such as paying for future Social Security, Medicare and Medicaid benefits.

When you calculate the present value of all anticipated future outlays less all the receipts projected by the Congressional Budget Office, you get a whopping $200 trillion fiscal gap. This is how much we – or more accurately our children – really owe.

Closing this fiscal gap will require dramatic changes, including much higher taxes and drastic spending cuts. Yes, Republicans hate the former and Democrats loathe the latter. But the longer we wait to do this, the larger the taxes our kids – or theirs – will pay and the lower the benefits they will receive. And at some point, America’s decades long intergenerational Ponzi scheme will collapse.

There is hope, however. Several simulations and studies I’ve conducted suggest three basic reforms that could largely eliminate the $200 trillion fiscal gap – while reducing risinglevels of inequality in the process.
Real tax reform

Let’s start with taxes.
The current fiscal system is riddled with inefficiencies, and what’s worse it lets the superrich pay literally zero taxes. This means there are ways to increase revenue without creating major burdens on the poor or middle class.

I would ask the now Democrat-controlled House Ways and Means Committee to draw up legislation to get rid of the current corporate income, personal income and FICA taxes. I would replace them with a value added tax, a highly progressive personal consumption tax, a progressive payroll tax and a high carbon tax.

These changes would dramatically improve incentives to work and save, make the rich pay their fair share and help save the climate – all while increasing revenues by 5 percent of GDP.
Modern Social Security

Of our nation’s $200 trillion fiscal gap, $34 trillion is Social Security’s unfunded liability – that is, how much we owe tomorrow’s retirees beyond how much revenue the system is expected to take in. This is why by the early 2030s, Social Security will be out of money, requiring a bailout or a draconian and permanent benefit cut that’s close to one-quarter. (MaineWriter, it could help if Republicans paid back the trust fund with money borrowed and never replaced.)

Democratic hero Franklin Delano Roosevelt helped establish Social Security in 1935. As such, it’s the party’s baby. They want to protect and preserve it at all costs.

It’s not just the system’s finances that are a problem but also its structure. The system has hundreds of thousands of incomprehensible rules. It’s a bureaucrat’s fantasy and a user’s nightmare.

The solution, however, isn’t to save it but to retire it – and replace it with something better. Social Security was based on the idea that today’s workers can support today’s retirees. While your benefits are tied to how much you earned, longer lifespans mean the payouts last much longer than a half-century ago.

A simple system that is more directly linked to what each person sets aside for retirement, with proceeds invested in the same global index fund, free of fees, would be simple, transparent and fully funded. The government would match contributions by the poor and contribute in full on behalf of the disabled and unemployed.
Affordable insurance for everyone

Another top priority should be health care, the biggest concern among midterm voters.

Close to 30 million Americans are uninsured – up 3 million since President Donald Trump took office.

Given today’s health care costs, even an unexpected gall bladder operation can bankrupt an uninsured middle-class household. No American should be forced to live with such financial risk. Everyone, not just the president and his family, needs basic coverage. Since a big chunk, roughly $60 trillion, of our $200 trillion debt comes from Medicare and Medicaid, the challenge as I see it is how to make universal basic health care affordable for the government.

Bernie Sanders and other liberal politicians argue the path to universal health care is “Medicare for all.” I advocate something slightly different: “Medicare Part C for all.”

Also known as the Advantage Plan, Medicare Part C pays HMOs to provide basic health care coverage, including outpatient and inpatient care, prescription drugs and other services, for the poor. It currently covers one-third of Medicare participants. Let’s just expand it to everyone. Yes, Medicare Part C limits you to one provider. But you can change providers annually.

Under the plan, every American would receive an annual voucher based on his or her pre-existing conditions. The voucher would be larger for those with higher expected health care costs. The voucher would be used to purchase, in full, the system’s single basic health insurance plan from one’s chosen health insurer. No insurer could refuse coverage to any participant regardless of their pre-existing conditions or place of residence.

It would be affordable because, although it allows for multiple private providers, it would be single-payer – which would dramatically reduce costs.

‘Heed the call’

There are a lot of issues that I also think should be high on Democrats’ priority list, such as meaningful banking reform and ensuring all American children get an equal education. But tackling America’s crushing debt load and reducing the fiscal gap – issues that Republicans have previously indicated they care about – would pay the biggest dividends and show Democrats can identify and solve real problems.

Will the Democrats take advantage of their “blue wave” and pursue such an agenda? I hope so. There are lots of new blue members of Congress that ran on fixing the country, not playing political games. As they ponder their first steps in 116th Congress, they would do well to heed Bob Dylan’s lyrics: Come senators, congressmen Please heed the call Don't stand in the doorway Don't block up the hall For he that gets hurt Will be he who has stalled.

Republicans have no new ideas - many candidates run on fear, misinformation and myths

Pundits are already predicting the 2014 election will be challenging for Democrats and good for Republican candidates. Why? Instead of making hollow predictions, media reports have a responsibility to inform the the public about the ideas and policies defining candidates. Let me list the ideas and policies I see for each party, in a comparison report. After compiling these two quick lists below, I can't find any reason whatsoever for supporting Republican candidates.  

What's most distressing is how Americans are not hearing from the media, in a meaningful way, about how Republican and Democrat candidates are supporting the chance for the middle class to achieve and maintain the American Dream.  

Republican Ideas

1. Cut taxes for the rich

2. Support tax incentives ie corporate welfare for big corporations.

3. Cut social safety net programs like Social Security, Medicare, and Medicaid for the poor, veteran’s benefits, Pell grants for poor college students and food stamps.

4. Cut medical coverage for women who need access to health care and contraception.

5. Oppose equal pay for equal work for women and men.

6. Increase defense spending to spend on contracts for corporations that receive tax incentives.

7. Control access to voting by restricting polling hours on voting day and requiring picture ID cards, even though third world countries are able to minimize voter fraud with finger print or thumb prints.

8. Obstruction of job creation investments in the economy to build vital infrastructure like bridges, roads, railroads, high speed rail, public transportation and airports, policies that will benefit and improve the quality of life for the middle class.

9. Oppose universal access to health care.

10. Oppose Obamacare while government workers and elected officials enjoy government funded health insurance.

11. Support for unlimited Second Amendment rights regardless of the number of innocent people who are victims of gun violence.

12. Oppose quick path to citizenship for immigrants and asylum seekers.

Democrat Ideas

1. Share the wealth by supporting a graduated tax system based on income.

2. Assess corporations with a fair tax; eliminate loopholes.

3. Support for the promise made to people who invest in Social Security and Medicare.

4. Create support for people who need public assistance like Medicaid for the disabled, severely and persistently mentally ill and the mentally challenged.

5. Support for universal health care.

6. Support for women’s health and safety net for children’s health programs like CHIP and food stamps.

7. Support for equal pay for equal work “Lilly Ledbetter”

8. Support a strong defense system.

9. Support for veterans who give up their youth to defend America.

10. Expand voting rights for all American citizens.

11. Support investment in America’s infrastructure, bridges, high speed rail, roads, public transportation and the jobs associated with these projects.

12. Support for Obamacare.

13. Support for reasonable gun regulations to prevent the growing public health problem of gun violence.

14. Support for education for all children from pre-school through high school, college or technological institutes.

15. Support for a rapid path to citizenship for all immigrants and asylum seekers.

It makes no sense for Republicans to be declaring the 2014 elections as theirs to loose.  Instead of acting like the rooster at sunrise, the Republicans should be creating ideas rather than reacting to worn out old policies where there is virtually no proof of desirable outcomes.  There's virtually no evidence that any of the Republican ideas on my home made list has created one job or improved the human condition.  

Instead of intimidating voters with picture ID cards and obstructing voters rights, I'd like for all Secretary of State regulations to include asking voters to write, on the ballot, the reason why they're voting for a particular candidate. I suspect a required explanation by voters could create an informed electorate, as well as educate those of us who are mystified to understand why anybody would vote for idea void Republicans.

It takes One to Know One - Warren Buffett Creates Wealth, Shares Wealth and Supports Optimistic Capitalism

http://www.wealthdaily.com/articles/warren-buffett-endorses-minimum-tax-for-the-ultrarich/3800

“The ultra-rich, including me (says Warren Buffett) , will forever pursue investment opportunities.”- quote.

Warren Buffett is now taking time to invest in America's future, by speaking out for higher tax rates on rich people, like him.

Watching Warren Buffett speak about wealth is like being in the presence of the real Santa Clause.  He looks like a modern Santa and speaks about money like it's chocolate in a Christmas stocking.  

In other words, he's a jolly man who loves to spread optimism about creating and sharing wealth,

Buffett is charming when dropping quotes like, "Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway (to work). http://www.brainyquote.com/quotes/authors/w/warren_buffett.html

As a word crafting minimalist, Buffett sure gets to the point, especially when it's about investing money to create wealth.  

Now, Buffett is trying to teach politicians about the value of sharing wealth by taxing the rich.  It sounds so simple. Rich people and the super-rich, should pay more than a 14 % tax rate, especially, considering many middle class taxpayers fall into a 30 % tax rate.

In fact, super-duper-ultra-rich people don't pay any taxes, at all.

Buffett is probably the world's most successful (and arguably likable) investor.When he speaks "wealth", he's talking from a pinnacle that a majority of the universe will never reach.  

That's probably why the very small number of super rich people in the world probably don't say much about Buffett's support for a minimum tax policy, whereby they would pay a base tax rate.  Rarely do people reach the threshold of earning over $500,000  a year or more, to reach before paying the minimum tax rate. They are so few in number that they hardly form a quorum of themselves.

Buffett speaks from experience when he says, 

"The rich are always going to say that, you know, just give us more money and we'll go out and spend more and then it will all trickle down to the rest of you. But that has not worked the last 10 years, and I hope the American public is catching on." 

Warren Buffett:  Read more at http://www.brainyquote.com/quotes/authors/w/warren_buffett.html#cOksMRkhjgLI4TKt.99 

Buffett is receiving mixed reviews about his New York Times opinion column about taxing the rich. 

http://www.nytimes.com/2012/11/26/opinion/buffett-a-minimum-tax-for-the-wealthy.html?_r=0

He writes: "Suppose...an investor you admire and trust comes to you with an investment idea. 'This is a good one,' he says enthusiastically. 'I’m in it, and I think you should be, too'."

"Would your reply possibly be this? 'Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.' Only in Grover Norquist’s imagination does such a response exist."

Ironically, critics of Mr. Buffett's knowledgeable point of view are those who will never earn anywhere near the money accumulated by his company, Birkshire Hathaway.  While some may snub Buffett's taxation opinion, critics who can speak, with authority, from his point of view, are as rare an unicorns.  

In other words, if Buffett says the rich, the "super rich" and the "ultra rich" can afford to pay more taxes, then, who are we, who pay a 30 percent rate, to argue with his experience?

It takes one to know one, my mother always said. For Warren Buffett, those who either know him, or would like to, wish it were possible to emulate his success, even if doing so meant paying a higher tax rate than 14 percent!

Warren Buffett said,  "Someone's sitting in the shade today because someone (esle) planted a tree a long time ago".

http://www.brainyquote.com/quotes/authors/w/warren_buffett.html#cOksMRkhjgLI4TKt.99

American politicians are overdue when it comes to taxing the rich.  For whatever reason, they're timid about taxing the rich but think little about putting the burden of paying for government on the middle class.  Nonetheless, it's never too late to meet a master from among the rare ultra rich and learn from him.

Taxes and Yellow Ribbons

Like overt profanity, the word "taxes" seems to generate as much angst as using four letter obscenities.  

Yet,  reputable news sources report economic growth and stability from three important countries where people pay a lot of taxes.  Great Britain and Germany are both experiencing economic growth.  Japan's currency, the Yen, is stronger than ever against the US dollar. 

Today's Wall Street Journal (August 13th) reports the euro-zone economy grew at the fastest pace in four years. http://online.wsj.com/article/SB10001424052748703960004575426572933053474.html?mod=djemalertEuropenews.


Americans, on the other hand, are experiencing weaker than expected economic growth.  Of course, waging wars in Iraq and Afghanistan not to mention other world hot spots like Korea, don't help to reduce expenses. Raising taxes on the rich appears to upset Congress. These are the men and women who are likely living in the tax bracket of incomes where higher taxes take money from their personal checkbooks.  

Americans have lost sight of the greater good with regard to taxes.  We want young men and women to defend our nation but we pay them with yellow ribbons and thank you parades.  Public servants like police, fire, and rescue personnel are required to train non-stop in life protecting exercises; but people who depend on these services balk at paying higher taxes to compensate the providers who maintain law, order and safety in our communities.  

Americans are upset about the use of federal stimulus money to help bail out banks and Wall Street. Rightfully so, because these companies are among the very wealthy that often find ways of not paying their fair share of taxes, i.e., the source of the money that went into the billion dollar bailouts, in the first place.  

If everyone really paid their fair share of taxes, then a bail out of rich companies could have been seen as a rescue effort rather than a reward for incompetent leadership and inventing investment schemes like credit default swaps (what ever that term means!).


But, Americans are becoming more greedy and myopic.  Other nations, which were once our enemies, are now economic engines. Several wars were once waged against Great Britain.  Germany and Japan were destroyed by American military might.  These countries are now experiencing stable economies while America's is stumbling along.  Taxes are high in all of these countries,  yet the people have a very high standard of living and good health care. 

It's time to stop making political headlines with the word "taxes".  Instead, the word should be a euphemism for future investment.  Like running a household or a small business, we squirrel money away today so it can grow with interest to be used at a later time.  Taxes should be viewed the same way.

Paying taxes should be a patriotic an exercise. Along with flying an American flag or pinning a yellow ribbon on our front door step, we need to pay for being a strong and free nation.  A formula for our future should read thus:  Patriotism + Taxes = Economic Security.