Justin Amash’s Twitter Mic Drop In Defense Of Tax Reform

Justin Amash, a Republican congressman from Maine, isn’t typically the one you’d expect to drop the mic on Twitter, but he did so over the weekend. NBC News correspondent Kasie Hunt alleged that tax reform was responsible for the exploding deficit and Rep. Amash set the record straight in less than 180 characters.

On Sunday, Hunt tweeted an observation about Acting White House Chief of Staff Mick Mulvaney’s conversation with CNN’s Jake Tapper in which Mulvaney said that the $2 trillion deficit increase under President Trump required Democratic votes. Calling the comment “an outright falsehood,” Hunt added, “They used budget reconciliation to pass tax reform so they wouldn’t need Democrats.”

https://twitter.com/kasie/status/1081947628265443329

The problem for Hunt is that tax reform did not run up the deficit as Amash pointed out. “Do you believe tax reform caused a $2 trillion debt increase in one year?” he tweeted. “Tax reform is roughly $1.5 trillion over 10 years. The debt increase is almost entirely due to bipartisan discretionary spending increases and bipartisan apathy toward ever-increasing mandatory spending.”

https://twitter.com/justinamash/status/1082010264642428929

Is this an example of he said/she said or is one of the two definitively right?

To settle the dispute, we only need to look back a few months to the end of the federal fiscal year in September. At that time The Resurgent described how the deficit had risen to the highest level in six years:

“Total outlays for 2018 were $4.108 trillion compared to $3.981 trillion in 2017. The spending increases were driven by rising interest costs paid on a greater amount of federal debt as well as increased military spending, which rose by six percent, and Social Security spending which increased by four percent.”

Amash is correct that the majority of the increase in the deficit was due to increased spending. Some of these costs were mandatory spending which was originally authorized by both Democrats and Republicans. The increased cost of interest on the national debt and the rising cost of entitlements like Social Security were bipartisan commitments.

So was the increase in defense spending. The Bipartisan Budget Act of 2018 increased military spending to $716 billion, an increase that President Trump celebrated as the “most amount ever.” As its name suggests, this spending bill was passed with broad support from both parties.

This isn’t to say that tax reform has no part in the deficit increases, however. Amash’s use of the qualifier “almost entirely” suggest that he agrees that tax reform did play a role. There are two components to the deficit, spending and revenue, and both were factors in the deficit.

As we discussed back in October, federal revenue for the year was almost flat despite the booming economy:

“According to Treasury Department statistics, flat federal revenues were part of the deficit problem. Total federal receipts were $3.329 trillion in 2018compared with $3.316 trillion in 2017. FY 2018 included three months – October, November and December 2017 – at higher tax rates. This means that the 2019 revenue picture looks even worse.”

So, the bottom line is that revenue for 2018 did not increase while spending did. Because revenue did not go down, it isn’t accurate to say that tax reform drove the increase in the deficit. It is fair to say, however, that without decreasing corporate tax rates, there would have been more revenue and the deficit would have been smaller. In fact, even as the economy boomed, tax revenues from businesses fell by more than 30 percent. Still, if spending had not increased, the deficit would not have increased.

It’s true that cutting corporate tax rates to make them more competitive with the rest of the world was the express purpose of tax reform. It’s also true that without tax reform there might have been a downturn rather than an economic boom, especially considering President Trump’s war on trade. The loss of tax revenue, which was retained by businesses and used by many for capital investments, was a driving factor in this year’s economic growth.

The big question is whether federal revenues will recover in coming years or whether the lost tax receipts will be a bigger driver of the deficit in the future. The conservative gamble is that revenue will be replaced by economic growth. If the government takes a smaller slice of a bigger pie, it will theoretically get the same total amount of pie, if not more.

The problem for conservatives in the Trump era is that the president’s trade policy is at odds with his tax policy. While tax reform let businesses keep more of their own revenues, tariffs and trade restrictions mean that many businesses will have fewer revenues to keep in the first place.

Amash is absolutely correct that spending remains the biggest problem, however. The ongoing shutdown illustrates that about three-quarters of the federal government is on autopilot and does not require appropriations from Congress. It is entitlement spending that is breaking the federal budget.

Meanwhile, neither party seems concerned with the deficit. Where the Republican Party of the Obama era held a hard line on spending, current Republicans have forced a shutdown to because they don’t think the government is spending enough.

Kim Jong Un Warns Trump He May Take ‘New Way’ Unless US Removes Sanctions

President Trump was quick to celebrate peace on the Korean Peninsula after his summit meeting with Kim Jong Un last year. Since then, however, progress has been mixed as North Korea refrained from nuclear testing and held high-level talks with the South but also failed to dismantle its nuclear weapons and ballistic missile programs. Now, in his New Year’s address, Kim Jong Un is warning President Trump that unless the United States “takes genuine measures for building trust” the North may return to its old ways.

In the speech, reported by Politico, Kim noted steps that he had taken toward the “complete denuclearization” of the Korean Peninsula saying that he agreed “that we would neither make and test nuclear weapons any longer nor use and proliferate them, and we have taken various practical measures” to fulfill this promise. He then challenged President Trump with two words: “Your turn.”

What Kim wants is illustrated by a statement issued in December through North Korean state media. “When we refer to the Korean peninsula, they include both the area of the DPRK and the area of South Korea where aggression troops including the nuclear weapons of the U.S. are deployed,” the statement said and then continued, “When we refer to the denuclearization of the Korean peninsula, it, therefore, means removing all elements of nuclear threats from the areas of both the north and the south of Korea and also from surrounding areas from where the Korean peninsula is targeted.” The statement called on the US to lift the sanctions on North Korea as well as for “completely removing the nuclear threats of the U.S. to the DPRK.”

Essentially, Kim is telling President Trump that the North Korean position on denuclearization is unchanged. The North rejects unilateral denuclearization and wants the US to remove its nuclear weapons from the Korean theater. The US removed its nuclear weapons from South Korea in 1991, but in his speech, Kim said that “strategic assets,” which North Korea often understands to include anti-ballistic missile systems as well as submarines and aircraft carriers, “should no longer be permitted” in or near the Korean Peninsula.

Kim also wants to be rewarded for the actions that he has already taken over the past year. His price for the détente with South Korea is the removal of US sanctions.

Kim also sought to drive a wedge between the US and South Korea. While President Trump is pushing South Korea to based on the peninsula, Kim encouraged the South to participate in several bilateral projects that exclude the United States.

In the speech, Kim warned that North Korea “might find ourselves in a situation where we have no other choice but to find a new way” if the US did not uphold its end of the bargain. While Kim was not specific about what “new way” the North might take, most observers doubt that it would involve a resumption of nuclear testing.

“One thing is clear: Kim is not going to return to any sort of posture where the US or its allies would consider a military attack, and that means no missile or nuclear tests for the foreseeable future,” Harry Kazianis of the Washington-based Centre for the National Interest told the South China Morning Post.

Ruediger Frank, an analyst at 38 North, believes that the entreaties to South Korean President Moon provide a clue as to what Kim’s “new way” would be. The speech was a message to Donald Trump, he writes, saying, “You are not our only option for security and economic development. If you refuse to be cooperative, we will ignore you and turn to China. Oh, and we will take South Korea along.”

Kazianis agreed, “Kim can present Trump with a choice: Either play ball with me on a negotiated nuclear settlement and reduce sanctions or I will go to China for help and get the economic development I want and keep my nukes.”

President Trump’s trade war now places him in an awkward position with respect to Korea. President Trump signed a new trade deal with South Korea last year that limits South Korean steel and aluminum exports to the US. The trade spat with China means that Trump now has less leverage with the Chinese against the North Koreans. The three geographical neighbors may become closer trading partners at the expense of US influence in the region.

If North Korea can pull the South into China’s orbit, it would be a major blow to the United States. South Korea is one of America’s largest trading partners in terms of both imports and exports. The nation is also home to 15 US military bases that provide a counterbalance to China as well as protecting South Korea from Northern aggression.

President Trump responded to Kim’s challenge with a New Year’s Day tweet, saying, “I also look forward to meeting with Chairman Kim who realizes so well that North Korea possesses great economic potential!”

https://twitter.com/realDonaldTrump/status/1080240049780940800

Erratic Trump Drives Erratic Markets

Once a bright spot of the Trump presidency, the stock market is continuing in an extended rout that began earlier this year after reaching a high in early October. Treasury Secretary Steven Mnuchin attempted to shore up the market with a phone call to bank executives over the weekend, but federal reassurances did little to calm jittery investors in trading on Monday.

Secretary Mnuchin announced in a tweet Sunday night that he had spoken with the CEOs of America’s six largest banks: Bank of America, Citi, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo. In an attempt to reassure investors that may have had the opposite effect, a Treasury statement attached to the tweet said that the “CEOs confirmed that they have ample liquidity available for lending” and that none “have experienced any clearance or margin issues and that markets continue to function properly.”

Per the statement, Mnuchin said, “We continue to see strong economic growth in the US economy with robust activity from consumers and business. With the government shutdown, Treasury will have critical employees to maintain its core operations.”

While the US economy seems to be working well, the same cannot be said of the US government. Nonessential government services are closed in a shutdown that may last well into the new year because the two parties cannot agree on how much to increase spending for the wall. The president’s unilaterally declared trade war is adding unnecessary costs to American business and consumer spending. The world watches as many of the most experienced and stable members of the Trump Administration exit the White House. In a number of cases, the departures are explicitly tied to President Trump’s capricious leadership.

President Trump sees the situation differently. In a tweet, the president said, “The only problem our economy has is the Fed.” Trump argued that the Fed does not understand “necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders.”

“The Fed is like a powerful golfer who can’t score because he has no touch,” the president added, “he can’t putt!”

While it’s true that the Fed has been raising interest rates this year, it’s also true that the move was long overdue. The Fed kept rates near zero during the apostle-recession years of the Obama Administration, which penalized savers and investors. Increases to interest rates now are a sign that the Federal Reserve views the economy as healthy.

Is it any wonder that investors are nervous?

With Monday’s close, the S&P 500 followed the NASDAQ into official bear market territory. The half-day of holiday trading left the S&P 2.7 percent lower for the day at 2,351. This is more than 20 percent lower than its previous intraday peak and defines the onset of a bear market. The Dow Jones Industrial Average fell more than 650 points, losing 2.9 percent of its value, but technically remained clear of bear status. Today’s session was the worst-ever Christmas Eve for the Dow.

While many fundamentals of the US economy remain strong, President Trump and Secretary Mnuchin are missing the point. Investors are concerned precisely because the Trump economic policy includes massive taxes on trade in the form of tariffs and trade wars, because the government is stalemated and incapable of solving even simple problems, and because President Trump’s style of governance thrives on chaos and instability, the very things that markets abhor.

In fact, rumors are beginning to appear that Mr. Trump will attempt to force the removal of his latest whipping boy, Federal Reserve Chairman Jerome Powell. It is Donald Trump and his lack of coherent policy that is driving markets lower, not some concern about bank liquidity.

“Until this weekend, markets were not that concerned about liquidity or clearance issues,” Win Thin, global head of currency strategy at Brown Brothers Harriman told the Financial Times. “At best, Mnuchin made a rookie policy mistake in trying to reassure markets; at worst, Mnuchin knows something that the markets don’t.”

The bottom line is that the Trump Administration cannot protect the markets from the president. Trump’s erratic behavior is translating into erratic markets. With two years to go in President Trump’s term and the senior members of the White House daycare staff hitting the exits, hopes for change seem far away.

The best gifts that Donald Trump could give to the nation this Christmas to end the trade wars, fund the government, and stay off Twitter. Unfortunately, the likelihood of these events is about the same as having Santa rappel down the White House chimney tonight.

 

Oops! Trump’s Claims Of China Trade Deal Were Premature

President Trump’s much-ballyhooed trade agreement with China is looking less like a done deal and more like a work in process. Statements by Chinese officials indicate that Trump’s announcement of a deal was premature and there are concerns that the president’s jumping the gun may endanger the entire agreement.

In a series of tweets on Dec. 2, Trump said that China had agreed to “reduce and remove” their 40 percent tariff on American auto imports and start purchasing American agricultural products “immediately.” Before the trade war, Chinese tariffs on foreign autos were 25 percent. Since the trade dispute began, China has increased tariffs on American cars to 40 percent while reducing imports from other countries to 15 percent.

The lack of confirmation from the Chinese combined with Trump’s history of prematurely claiming success in international deals led many observers to be skeptical about Trump’s claims. Those doubts fueled an 800-point drop in the stock market on Tuesday after a 600-point rally on Monday.

Now statements by Chinese officials are confirming that the deal with the Trump Administration was merely an agreement to start negotiations. The Wall Street Journal reported this morning that China’s Commerce Ministry confirmed in a statement that the nation has agreed to a 90-day negotiating period in which both sides will stop increasing tariffs. The statement said that the negotiations had a “clear timeline and road map” and confirmed that “the Chinese side will start implementing the specific items both sides have agreed on, and the sooner the better.”

How much is already agreed upon was left unclear, but the Journal notes that Chinese government agencies and the nation’s supreme court announced tough penalties for violation of intellectual property rights. Infringement on intellectual property has been a major complaint of the Trump Administration. The new rules were dated Nov. 21, but were only made public yesterday.

On the other hand, the statement by the Commerce Ministry did not mention purchases of agricultural products or reducing auto tariffs. Some Chinese officials did suggest that their country may increase purchases of products such as soybeans and natural gas, which are in high demand in China. They did not specify amounts, however, and there was no indication of whether the tariffs would be reduced.

On Monday, President Trump even seemed to back off from his declarations of a trade victory. In a series of tweets, the president claimed that negotiations were already underway to see “whether or not a REAL deal with China is actually possible.” Trump added that China was “supposed to start buying Agricultural product and more immediately” and said that “it probably will.”

Trump closed his tweetstorm with the proviso, “ But if not remember [that] I am a Tariff Man.” The Trump Administration has said that if talks fail it will follow through with plans to raise tariffs on Chinese imports from 10 percent to 25 percent. The increase was originally scheduled for Jan. 1.

<blockquote class=”twitter-tweet” data-lang=”en”><p lang=”en” dir=”ltr”>….I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN</p>&mdash; Donald J. Trump (@realDonaldTrump) <a href=”https://twitter.com/realDonaldTrump/status/1069970500535902208?ref_src=twsrc%5Etfw”>December 4, 2018</a></blockquote>
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There is also confusion over the beginning of the 90-day period. Trump claimed that the truce period began on “the date of our wonderful and very warm dinner with President Xi in Argentina” on Dec. 1. Chinese officials have not confirmed this understanding of the timeline.

Many Chinese observers believe that Trump is deliberately trying to confuse the issue in order to trick Beijing into making concessions. “China should prepare but not rush to make concessions,” Yu Yongding, a researcher with government think tank Chinese Academy of Social Sciences and former adviser to China’s central bank, told the Journal. “This is a competition of endurance to see who breaks first.”

Some American experts agree. “It’s funny how far the administration has gotten on bravado and uncertainty — the ‘crazy uncle’ strategy with almost no organization, no whole-of-government approach, insufficient preparation and no talking points,” Scott Kennedy, a China expert at the Center for Strategic and International Studies, said in the Washington Post. “The strategy has thrown the fear of Marx into the Chinese. They have been knocked off their seats.”

Others point out that there are inherent risks in Trump’s approach. Michael Pillsbury, a former Pentagon official who Trump called “probably the leading authority on China,” told Axios that he was “getting warnings from knowledgeable Chinese about the American claims of concessions” that were never agreed upon by the Chinese. These include Trump’s claims about the immediate purchase of American agricultural products and Chinese tariff reductions.

“I have advised the president’s team that for the past 40 years the American side avoids disclosing Chinese concessions before the final agreed written statement is released,” Pillsbury said.

The Trump Administration’s brash China policy may have brought the two countries to the brink of a trade deal, but it is still possible that the president’s undisciplined tweets and claims may prevent a final agreement. There are signs that China is prepared to make concessions on some American priorities such as intellectual property rights, but at this point, a reversion to the pre-trade war status quo would be a victory for American businesses and consumers.