Living in the past, Trump reincarnates Reagan trickle down plan as most forward looking policy for America

Trump speaking in Detroit

Today, Donald Trump gave some specifics about his Tax plan, among other subjects, if he were elected President.  I review here what the major features of his plan includes.

Trump believes that taxes are the biggest differentiation between him and Hillary.  He repeated his campaign's rhetoric and false claim that Hillary says she will increase taxes on the middle class.

Overall, his approach to taxes is to reduce them for most people, but especially for the wealthy and Corporate America.  Although he stated that he is the future thinking of American taxes, his tax plan is to reactivate the 1980's Reagan trickle down economic policy, which many argue does not increase the number of jobs, or give wage increases to workers.  What it does do is pad the bank accounts of the extremely rich.  He spoke nothing about minimum wage increases.

The "trickle down" policy is cited as one of the major reasons for the redistribution of wealth from the middle class to the rich which caused today's income inequality.  Most of his recommendations would reduce revenue to run the Federal government and likely increase the deficit unless severe cuts are made to the social safety net or other programs thought unworthy by a Republican Congress.

For example,  Donald Trump admits that the tax code is extremely complicated but does not mention how the tax code would change, other than by reducing the number of tax brackets from seven down to three.  The three brackets would be 12%, 25% and 33%.

Donald believes that taxes and regulation on Corporate America have had the most adverse impact on reducing the GDP.  Further, he believes that reducing the already highest business tax rate of all western countries from 35% to 15% will improve the economy and spur on business investments and job growth.  The problem with that statement is that 2/3 of all businesses pay no taxes and those that do, have their taxes reduced through exemptions, deductions and off-shore tax havens to about 12.6%.  If reduction in Corporate taxes had any long term impact on increasing jobs or increasing wages, we should have already seen it.  We have not.

Not stopping there to improve the lives of the wealthy, Mr. Trump also advocates elimination of estate taxes.  This was received by a large round of applause from the audience, who apparently either are very rich themselves or do not understand that estate taxes are not paid by any family having less than a $10.8 million estate.

Mr. Trump indicates that the rich will pay their fair share of taxes, but this is very subjective.  Mr. Trump did not get into details on what constitutes a fair share.  For example, if a Corporate CEO who enjoys a $15 million annual income shelters $14 million of it in offshore tax shelters, does he pay tax on the $15 million or $1 million?  Even if he finds legal ways to protect most of that income, what constitutes a fair share?

One tax advantage offered that could favor working women is elimination of all child care expenses from taxes.  Again no specifics but on the surface, it appears that provided you have a job and a child in day care, your child care costs might be deductible from your gross income and not be subject to a tax.  The average cost of child care for working women is about $200 per week, so this has the potential to save over $10,000 from being taxed.  We'll have to see how a Republican Congress would find this proposal, but if history is any indicator, Republicans are not very generous appropriating money for such social reasons.

For example, on the subject of equal pay, if Republicans in Congress passed equal pay legislation, women's wages would be increased by about 30%, potentially increasing the take home pay by much more than $10,000.  That has been rejected by Republicans more than once.  My guess is that Trump's child care deduction will be solidly rejected if Republicans stay in control of Congress.

Donald indicates that more about his tax policies can be found on his website.

Fed Chairman Bernanke's report to Congress

Ben Bernanke

Federal Reserve Chairman Ben Bernanke met today with Congressional leaders of the Financial Services Committee to report on the Federal Reserve's take on the state of the economy and Federal Reserve actions in that regard.

In an introductory statement Mr. Bernanke made it clear that the fiscal policy that legislators have chosen to take has been a detriment to the economic recovery.  In an effort to acknowledge the impact that a dysfunctional Congress has on the economy, he highlighted that tight fiscal policy will restrain economic growth.  He warned that political fights over raising the debt ceiling as has happened in the past would hamper the recovery.  Although a few of the Congressmen on the committee appeared to understand the importance Congress has in assisting in the recovery, it is still to be seen if Congressional Republicans take this guidance into consideration as they enter discussions about raising the debt ceiling, ending sequester or resurrecting the American Jobs Act.

Bernanke believes the economy is recovering at a moderate pace.  He cited the improvements in the housing market as contributing to economic gains and predicted this would continue to improve notwithstanding recent mortgage interest gains.

He believes the labor market is improving gradually and contributed a 0.1% drop in the unemployment rate to the Fed's policies of buying assets.  He admits that job growth has a long way to go to be considered satisfactory.  As I have stated in previous blogs, I question the impact that buying assets really has on the job market especially because it does nothing to increase demand for products and services.  It does have an important impact on the stock market as we have seen investors sell off stocks and bonds when Bernanke hinted that the asset purchase program was going to be discontinued.

Understanding the emotional nature of the stock market, Bernanke was careful not to repeat the mistake of hinting at a change in the asset program at the committee meeting.  He emphatically stated that the current asset purchase program will continue and monetary policy will be "accommodative" for the foreseeable future.  As of noon today the US markets appeared to be unaffected by Bernanke's comments.

In order to help prevent another Bush era financial collapse of the big banks, Fed policy is to prevent  collapse by increasing the requirement for cash reserves under what is called Basel III capital reforms.

 In summary, Bernanke explained three mechanisms that the Fed is using to support economic growth.  These are mortgage asset purchases, forward guidance on Fed plans for the federal fund rate target and Basel III capital reforms.

Based on the comments at the committee meeting, it appears obvious that the Fed needs a lot of help from Congress to revitalize the economy.  Bernanke's warning about Congressional actions around fiscal policy may have been his cry for help.

How the rich will make $millions while avoiding the impending financial crisis

Ben Bernanke

When Fed commissioner Ben Bernanke announced that the Fed’s purchase of mortgage securities might be reduced if the economy continued to improve, he gave early warning to the 1% that they should cash out of the market and use one of their off-shore tax shelters to keep their money safe.

As a result, the market lost billions of dollars in the last two days when many wealthy investors cashed out.  The market doesn't look much better today.

I contribute the recent loss in the stock market directly to the one-per centers.  

This was not a case of middle-class investors cashing out their 401K’s because the penalty is too much to cash out a 401K.  It was not a case of investors moving their investments around because that would have had no net change impact on the market.  It was an outright removal of investment cash by selling while prices are still good.  The group of investors who can do this without tax consequence are the wealthiest people in America.  Other investors may soon follow in this selling frenzy now that the trend is sounding alarm bells.

Middle-class workers who try to save some of their pay in 401Ks have the most to lose. 

They do not have the freedom to cash out of the market without losing 40% of their cash to early withdrawal penalty tax.  They must weather the storm when disaster happens.  So when the billionaire investors got out of the market it caused the loss in value which will be to the detriment of middle-class owners of 401Ks.

In 2007 we saw the serious financial collapse of the market as millionaire’s and billionaire’s who had the freedom to remove their dollars from the market did so at a rapid-fire pace.  In that disaster middle-class Americans lost up to 50% of their savings in 401K’s.  

After only the last two days, the market has lost up to 5% of its value.  The trend seems to be continuing today.  If it continues to lose at this rate it will only take a month to repeat the 2007 disaster.

Do the wealthy believe that Bernanke’s security purchase program is really improving the employment situation?  Is that what is worrying them?  Of course not!  They are the job creators, so they should realize that increasing jobs only happens when there is an increase in product and service demand.  That is not happening.  So what are they worried about?  

They worry that Bernanke may be starting to realize that any increase in the economic outlook or jobs for America is really not due to his policies.  They are getting the idea that Bernanke will end security purchases even if the job situation and the economy does not improve.

Up until now, Bernanke’s policies have kept interest rates low and made it easy for investors to purchase stocks and bonds without fear.  The stock market usually does very well when interest rates are low and investors feel confident.  This undoubtedly favors the wealthiest investors.  

By removing that investor guarantee, Bernanke has decreased the certainty of profiting in the stock market.  And one thing the 1%’ers love more than anything is profit.  So they are willing to trash the rest of America and start the collapse of the market in order to preserve their beloved cash.

I expect that this free-fall in the stock-market will persist in the upcoming weeks as more and more of the wealthy catch on to what many of them have already deduced.  They will remove their cash from the market, shelter it off-shore and just wait it out.  When the market bottoms out, they will be ready to pounce on some really cheap stocks and the whole cycle will repeat itself.  That's how you make millions and avoid the financial crisis.

And for the millions of baby-boomers who are retiring, or about to retire, they can thank the wealthy for the additional burden that they will have in their old age as they try to find ways to stretch their greatly reduced nest eggs.  Even when the market comes back eventually, we will have lost whatever time it takes and this lost time will stunt financial growth.

I hope I am wrong.

The Imbalance Between Work Visas, Job Growth and US College graduates

Sen Orrin Hatch (R-Utah)

Certain high tech computer companies have sent a letter to President Obama recently complaining about the rejections of some visa applications.  In the past rejections were nearly absent but apparently the rejection rate has gone up.  This infuriates these large international corporations.  It seems like they are on the verge of collapse if they cannot hire foreigners.  Or maybe it's just that they are so use to getting their way that government intervention in their policies gets them mad.  In any case, their actions seems to have received the attention of Orrin Hatch.

Recently immigration legislation has been put on hold, largely due to amendments introduced by Senator Hatch (R-Utah), which would ease limitations on US companies to hire foreigners for US jobs in the Computer and Engineering disciplines.

For example, Mr. Hatch would like to increase the number of foreign H1-B visas allowed even above the 180,000 number which has already been offered (a nearly three fold increase over previous years.)  He would also like to eliminate the requirement that US Companies look for qualified Americans for the job before hiring a foreign worker.  He suggests permitting an honor system where US companies are simply trusted that they have looked for and not found any American worker who can do the same job as their visa candidates.

With all of the talk about a lack of jobs in America, the high unemployment rate and the difficulty college graduates are having finding jobs, it seems contradictory for Republicans to find new ways to reduce the job market for American citizens, especially in the face of their so-called pledge to focus on "jobs, jobs, jobs."

Are American college graduates too stupid to do the jobs that these huge American Corporations are offering?  Are the number of qualified graduates so low in comparison to the number of new job offerings that these Corporations must use the visa system to find qualified workers?  Are American Corporate managers too busy to find and train American workers?  Are there any cost differences that make a foreign worker much more desirable than an American worker?  How does the government audit the fact that American workers are not qualified or available before they issue visas?  The answers to these questions would help shed some light on the subject.

First, let's review a high level picture of the types of visas available.

There are a number of different pathways that a high tech company can use to employ foreign workers in the United States.  These pathways vary by the kinds of visa available.  These include H1-B, L-1B, L-1A, B-1 and OPT.  Although the H1-B visa is the most well known, the other visa pathways serve the same purpose in that the applicants are foreigners and can take jobs in America.

The H1-B, B-1 and OPT allow foreign workers to be hired and work for the US company in the United States.  The L-1A and L-1B allow foreign workers who are already hired in a foreign office of the US company to be transferred to the United States office of that company.  The L-1A is for management positions while the L-1B is for non-management positions.

All visas have duration limits but for foreigners of some countries the duration can exceed 10 years with extensions.  Once a foreign worker has taken an American based job, they can remain there for a long time and each year new foreign workers can obtain new visas.  When viewed from a duration aspect, the number of high-tech H1-B foreign workers in America increases each year by 65,000 to 85,000 workers.  It will be even more after 2013.  Over ten years, this means that on average 750,000 American jobs have been filled by foreign workers.  Looked at in a different way, this means that the number of college graduates who major in Computer Science will not have much luck finding jobs, especially when the number of foreign H1-B visas is increased to 180,000 per year in 2014.  It is little wonder that college students have turned away from science, technology, engineering and math majors.

L-1B and L-1A visas appear on the surface to be an expected entitlement of major Corporations.  Since the employees that apply for these types of visas already belong to the mother corporation, although in a foreign office, why shouldn't they be allowed to transfer freely between countries?  One reason is for the protection of American workers who are also working for the same corporation.  Another is in  fairness to American workers who might want to work for the corporation.

H1-B and US Workers Salary Comparison

Under current US law, using their own foreign workers, American corporations can hire in the foreign office and transfer the worker to the American office after one year.  In this way, the company can plan to replace or displace American workers each year simply by hiring in the foreign country.  Although H1-B visa law suggests that corporations pay the visa worker a wage that is competitive wage to US workers, the L-1B and L-1A visas have no such provision.   When a foreign worker is hired, the salary of that worker in his own country is usually tens of thousands of dollars less than their American counterpart.  It's then just a matter of economics for the American corporation to take jobs away from Americans.  Patriotism doesn't pay the multi-million dollar salaries of the C-level  executives of such companies.

Looking at the Bureau of Labor Statistics findings for the annual increase specifically for new Computer related job opportunities since 2010, we find expected job growth is about 72,000 jobs per year.  This compares to 85,900 computer graduates from American colleges each year.  That is less growth in the computer job market than there are college graduates on an annual basis.  This does not give any support to the idea that American companies must look to foreign countries for job applicants.

When you combine all of the visa pathways available to American Corporations, the number of US jobs filled by foreign workers far outweighs the availability of new jobs.  This gives evidence that US Corporations are not just filling new jobs, they are back-filling jobs being taken away from American workers.  Perhaps through attrition or outright layoffs, American corporations are reducing their costly American workforce while at the same time screaming for more visas for foreign workers.

American Corporations are also using 3rd party foreign consulting agencies to find H1-B contract workers at reduced cost.  In this way, the American corporation avoids having to give a competitive salary since the H1-B holder is not their employee.

When Republicans claim that increasing work visas helps bring prosperity to America they are really talking about the wealth of their constituents.  America to a Republican in office doesn't have the same definition as it does to 99% of us.