Will the Rule of Law Survive Donald Trump?

Say Goodbye to the Internet As We Know It

Few topics of government policy spur outrage, but don’t mess with my Internet is one. The Republican-controlled Federal Communications Commission (FCC) has upended yet another popular Obama administration policy by turning control of the Internet over to the corporations that provide access, allowing them to do with it as they please.

In just the week after the plan was announced by FCC
chairman Ajit Pai, the FCC received more than 200,000 phone calls in protest. Over 500,000 comments were left on the agency’s website, adding to the 20 million that have come in since outlines of the agency’s intentions became apparent earlier this year. (Obama’s Clean Power Plan drew 4.3 million comments over six months).

A lunatic fringe shamelessly took its anger too far. The changes stirred threats of violence and ethnic slurs — Pai’s parents immigrated from India — and daily protests in front of his house as far back as May, inexcusably frightening his wife and children ages 3 and 5.

Nevertheless, chairman Pai is resolute in defying public opposition despite there being no groundswell of support for the government ceding the Internet to corporations.

The FCC under Obama appointee Tom Wheeler established in 2015 the rule that required equal treatment by Internet service providers (ISPs) of all content, from e-mail to movies, delivering all to customers without preference given to any source, without slowing the one to speed the other. This simple rule was tagged “net neutrality”. Mr. Pai calls it “micromanaging the Internet”.

Under his plan, ISPs will be unrestrained, free to deliver the Internet to customers according to whatever preferential plans they devise. Internet providers need only be “transparent” about what they are doing. And the FCC would only monitor the companies to determine they are doing what they say they are. Proponents call this “restoring Internet freedom”.

The legal right for the Obama administration to set the neutrality rule for ISPs was to declare broadband an essential public utility much like telephones and electricity. The White House, on the side of the communications companies, wanted the FCC to “roll back burdensome, monopoly-era regulations”. In fact, the monopolies could become local. Many areas of the country have limited choices of Internet providers serving a given locale. The 2015 regulation at least imposed a standardized service, whereas the administration’s changes gives those providers a monopolistic power to set their own rules in areas that have no recourse.

The Obama administration’s tucking the Internet under the Communications Act of 1934 gave Mr. Pai an opening to regularly mock neutrality regulation as a Depression-era throwback — “Ma Bell” for a 21st Century industry. The Wall Street Journal said the Obama administration “regulates the web like an 1890s railroad”. A vice-president at AT&T calls it “lumbering government intervention”, unmindful perhaps that it was the government that was instrumental in the creation of the Internet.

The government and various universities such as MIT conceived of a “galactic network” of computers that could talk to one another which became a web that spans the world, an astounding creation that has thoroughly transformed how we obtain information and communicate with each other. Business was a beneficiary of this achievement; the government charged nothing for its use. Tim Berners-Lee, a computer programmer in Switzerland, created the World Wide Web and earned no royalties, whereas it was an opportunity eagerly adopted by businesses for developing profitable services. Yet in the attitudes we quoted, we see that corporations now somehow think the Internet should belong to them.

There is some irony in their name-calling, considering that the FCC itself was created by the 1934 Act. The statute and what it structured served the country unchanged for 62 years. It is still in force.

Ajit Pai claims the abuse Obama’s neutrality rule was meant to curb was only chimerical. Yet the changes he is putting in place, allowing ISPs to do as they choose with the only requirement that they must report their policies, and most likely obscured in the fine print of their contracts, is what opens the door to abuse. If a company owner holds a certain political view, nothing would prevent blocking content or political commercials, actions not even apparent to customers. Comcast says, “We do not and will not block, throttle, or discriminate against lawful content — and we will be transparent with our customers about these policies”, but that’s voluntary and nothing blocks profit temptation or management turnover from seeing that change.

Comcast, Verizon, AT&T, Charter and the others making up the dozen major providers argue that without the ability to introduce tiers of service at different rates, they have no incentive to innovate, to boost speeds, to build out their systems. “We need massive investment in networks going forward”,
says Pai. “The infrastructure of the internet isn’t like slow-moving utilities. It’s not a water company.”

Consumers in the millions have made it plain that they like the Internet the way it is. Yet in the face of protest Ajit Pai, knowing what’s best for us, has said he is ending net neutrality “so that consumers can buy the service plan that’s best for them”. We will be seeing different plans at different rates emerge from the carriers. A basic plan that blocks favorites such as Facebook and Instagram will cost the least. A social media package will cost somewhat more. You say you stream movies? For that you need to buy the platinum plan. The Internet is destined to follow the cable television model as corporations seek ways to make more money.

Content companies such as Netflix will be told they need to pay extra to guarantee uninterrupted delivery of their streaming fare. Proof is that it’s already happened. In early 2014, before the Obama administration stepped in, Comcast slowed Netflix downloads to a crawl. They extracted payment from Netflix and speed returned. Comcast has already indicated that it will resume that practice, charging content companies for fast downloading of their data once the Trump administration reverses the rules.

Mr. Pai showed an ideological mindset when he bypassed the 2014 Comcast incident, telling the Journal:

“The entire predicate of government regulation should be that there is, or is highly likely to be, a fundamental market failure that warrants pre-emptive regulation. That’s a sine qua non. But there was no evidence of that in 2015. The hypothetical harms that were discussed were exactly that: hypothetical.”

Major content creators and sources — Netflix, Google, Amazon, etc. — know this will be the outcome. They have been lobbying hard to halt the changes, foreseeing the ISPs becoming gatekeepers charging tolls to content providers and charging more to consumers at the other end. Conservatives consider this a standard free marketplace outcome — just how capitalism is supposed to work — and trust that it will self-correct through competition if any pricing structure gets out of hand.

Innovative start-ups and small companies don’t see it that way. They will be disadvantaged, goes their argument, because they will be left in the slow lane for not having money enough to pay for the preferential treatment that the Internet giants can easily afford.

Five sit on the commission, three Republicans and two Democrats. The Republicans vote as one, so the changes are assured, no matter the public outrage. In a Journal profile last May (titled, “Why ‘Net Neutrality’ Drives the Left Crazy”), Mr. Pai was asked if the protests and public comments might deter him. His answer: “At the end of the day, I’m not going to be intimidated. No one is going to sway me away from the course that I truly believe is the right one for the American people”.

Mar-a-Lago’s Search for American Workers

An attempt to hire Americans, Trump’s Mar-a-Lago club got U.S. Labor Department permission to hire 70 foreign works as cooks, waiters, and housekeepers to work over the winter. They had first followed the rules to advertise the jobs to all comers, but inexplicably no one responded to the tiny ad in a Palm Beach newspaper that had no phone number or e-mail address and asked that people “apply by fax”.

Senate Under the Influence

The tax plan needs money so why do beer, wine, and spirit companies — including foreign producers — get a special tax cut costing $4.2 billion over 10 years. As it is, taxes on booze haven’t changed since 1991, and with no indexing to inflation are already 45% lower in adjusted dollars. Will everyone get cases for Christmas?

What the Mnuchins Owe You

Certain cabinet members qualify to use military aircraft for overseas flights for security reasons. Then there’s Treasury Secretary Steve Mnuchin and his Scotch actress wife who commandeered military aircraft domestically over last summer until they were found out. They cost us taxpayers $172,283. They would have cost $3,402 had they flown commercial, says this analysis.

Tim Geithner, Obama’s first Treasury secretary, flew commercially, always in coach, when traveling domestically, says his assistant secretary for public affairs.

The Republican Tax Plan, a Colossal Indulgence at the Nation’s Expense

Republicans have long condemned Democrats for pushing through by simple majority vote, without a single Republican on board, the Affordable Care Act. How could they force on the nation a health care plan that affected one-sixth of the American economy.

Republicans are now employing the same maneuver — reconciliation, which requires only a simple majority &#0151 to ram through massive tax cut legislation that this time affects the entire U.S. economy, and for decades to come, without a single hearing, without a single Democrat on board.

The same conservatives, who in 2009 so objected to Obama’s $858 billion
stimulus, a desperate measure to shore up the economy to prevent a depression in the wake of the financial crisis, are now in their mania for tax cuts injecting a huge stimulus not during a recession but at a time of an overheating economy and full employment, a bill that has been scored to add at least $1 trillion to the deficit.

These are the same conservatives who have long been the guidon bearers for reducing the national debt. That mission collides with that passion for cutting taxes, which cuts the government’s revenue and aggravates debt. Since at least the Reagan years, they resolved the contradiction by insisting tax cuts are a kind of magical elixir which produces growth enough to fill the revenue void, even potentially to overflowing.

That’s where we are right now with House and Senate Republicans arguing the
virtues of their tax plans. Underpinning this moment, they had previously voted themselves a gift of $1.5 trillion in play money over and above the running annual deficit for the coming decade because all the things they yearn to do will cost plenty. Actually, not really, they assure us. Growth will fill in the gap. The tax cuts will pay for themselves.

Senate Majority Leader Mitch McConnell had said six months ago that the tax plan should be revenue neutral — tax rate cuts should be balanced by loophole closings so there would be no addition to the deficit. But that was a mirage. McConnell has since downed the elixir, saying in a CNN interview that “a fairly conservative estimate …of this pro-growth tax reform” should make up for lost revenue. That’s the general chorus. A Wall Street Journal editorial had said, flat out, “The revenue hole would be filled by faster economic growth”. And not just filled. “This plan will cut down the deficits by a trillion dollars”, said Treasury Secretary Steven Mnuchin.

“There’s no evidence anywhere that a tax cut of that magnitude…will offset the full cost”, says Douglas Holtz-Eakin, the Congressional Budget Office (CBO) director under George W. Bush. “Tax cuts rarely pay for themselves”, agrees conservative-leaning economist and Harvard professor Gregory Mankiw. “Dynamic scoring”, used by some of the groups that evaluate tax and budget proposals, do allow for tax cuts to spur some growth, but they and economists such as Mankiw don’t think growth can go beyond covering a third of the shortfall.

That means the proposed tax plans would add a net of $1 trillion to the national debt over 10 years, and that is added to the business-as-usual deficits forecasted. For fiscal 2017 the nation’s deficit reached $666 billion, the sixth highest on record. The CBO projects that, if no action is taken, the deficit 10 years out will reach almost $1.5 trillion for the single year 2027.

bait and switch

As analysts and the media quickly discovered in the 400-plus and 500-plus page bills of the House and Senate, a number of the treats that bring about cuts for the different tax brackets must be quietly taken away several years out if the tax plans are to be shoehorned into the $1.5 trillion deficit limit. To come in under that number the bills’ authors have implanted expirations for almost 50 provisions. In the Senate plan after 2025 virtually everything begins to expire– the doubled standard deduction, the expanded child deduction, even the revised tax brackets. For the prototypical family of four earning the national median income of $59,000 that House Speaker Paul Ryan used as exemplar, their $1,082 tax dwindles to nothing by 2027. That’s the general condition for all but the top 0.1% for which, as shown in this illuminating table from the Tax Policy Center, the tax cut bizarrely grows ever larger.

White House Budget Director Mick Mulvaney (and now the disputed head of the Consumer Finance Protection Bureau) blew the cover off this deception on “Meet the Press” just before Thanksgiving.

“One of the ways to game the system is to make things expire… What we tell folks is if it’s good policy, it will become permanent. If it’s bad policy, it will become temporary. A lot of this is a gimmick.”

He is saying that, like the Bush tax cuts when they were about to expire, Congress and President Obama made all but one of them permanent. That’s the Republican assumption this time around, that when the time comes, even Democrats will vote for permanence rather than face voters after allowing tax rates to revert to their earlier highs. And what that says is that the tax plan, with the expirations that hold down costs rescinded, will ultimately cost more than $1.5 trillion. But we were not supposed to figure that out.

And in fact a number of the outfits that have been “scoring” the tax plans estimate that, as written, they will blow past the $1.5 trillion. The Committee for a Responsible Federal Budget outlines why they think the deficit will reach $2.2 trillion and why the national debt will exceed the size of the annual economy in just over a decade. In three different models of the tax plans run on the Penn Wharton Budget Model by the University of Pennsylvania’s Wharton School, the tax plan would see deficits zoom up to $3.5 trillion over 10 years.

how tax cuts become tax revenue

How do Republicans make their case that growth will overcome this soaring debt? The multiple corporate tax cuts. The tax on profits slashed from 35% to 20% , and some $2.6 trillion in foreign profits enticed to come home at only a 12% levy instead of 35% is money that corporations don’t have to pay to the government. That will lead to expanded hiring and higher wages, which means more and fatter paychecks and a bonanza of taxes remitted to the government. Paul Ryan tells us so:

“Fixing the business side of our tax code is really all about helping families and workers. Cutting the corporate tax rate means more jobs here in the United States. It will foster increased competition, which will directly drive up wages for our workers.”

The White House Council of Economic Advisers is similarly convinced. The corporate tax cut would add from $4,000 to $9,000 to the typical household’s income.

Where’s the proof of that? Since the financial crisis we’ve seen corporations pile up record profits but little has flowed through to the workforce. Corporate execs have preferred using profits to boost the price of their stock — buying it back to spread net worth on fewer shares, increasing dividends to make the stock more attractive. That’s what they did when the Bush administration offered a no-strings tax holiday for repatriated foreign profits in 2004. Not only did they not create jobs; the top 15 companies laid off 21,000 workers over the subsequent three years.

Corporate CEO’s didn’t need tax cuts for stock indexes to go on their record-breaking tear. Not to be overlooked, they and the management class own a lot of that stock. Using corporate profits to maximize value to shareholders maximizes value to themselves. Why raise wages for the thousands who work for them?

Gary Cohn, Trump’s economic adviser, asked a group of corporate chieftains at a conference convened by the Wall Street Journal how many of them would use tax cuts to increase company investment, essential to job growth. “Why aren’t the other hands up?”, he asked, when only a few were raised. Businesses run on market opportunity, not taxes. Or, as Warren Buffet’s notably said, “I have yet to see [anyone] shy away from a sensible investment because of the tax rate on the potential gain”.

So what will happen if the big corporate tax plunge doesn’t lead to many new jobs, doesn’t produce paycheck taxes to fill the revenue hole, and the deficit soars. Those on the left are looking over the horizon and they see Paul Ryan telling us in panic mode that entitlements — Social Security and Medicare — are the cause and must be cut. Today’s tax cuts will have engendered the rollback of the social programs, the ultimate conservative dream fulfilled.

to do and not to do

An international competition to lure companies to take up residence with of the outfits that have been “scoring” the tax plans estimate that, as written, they will blow past the $1.5 trillion. The Committee for a Responsible Federal Budget outlines why they think the deficit will reach $2.2 trillion and why the national debt will exceed the size of the annual economy in just over a decade. In three different models of the tax plans run on the Penn Wharton Budget Model by the University of Pennsylvania’s Wharton School, the tax plan would see deficits zoom up to $3.5 trillion over 10 years.

how tax cuts become tax revenue

How do Republicans make their case that growth will overcome this soaring debt? The multiple corporate tax cuts. The tax on profits slashed from 35% to 20% , and some $2.6 trillion in foreign profits enticed to come home at only a 12% levy instead of 35% is money that corporations don’t have to pay to the government. That will lead to expanded hiring and higher wages, which means more and fatter paychecks and a bonanza of taxes remitted to the government. Paul Ryan tells us so:

“Fixing the business side of our tax code is really all about helping families and workers. Cutting the corporate tax rate means more jobs here in the United States. It will foster increased competition, which will directly drive up wages for our workers.”

The White House Council of Economic Advisers is similarly convinced. The corporate tax cut would add from $4,000 to $9,000 to the typical household’s income.

Where’s the proof of that? Since the financial crisis we’ve seen corporations pile up record profits but little has flowed through to the workforce. Corporate execs have preferred using profits to boost the price of their stock — buying it back to spread net worth on fewer shares, increasing dividends to make the stock more attractive. That’s what they did when the Bush administration offered a no-strings tax holiday for repatriated foreign profits in 2004. Not only did they not create jobs; the top 15 companies laid off 21,000 workers over the subsequent three years.

Corporate CEO’s didn’t need tax cuts for stock indexes to go on their record-breaking tear. Not to be overlooked, they and the management class own a lot of that stock. Using corporate profits to maximize value to shareholders maximizes value to themselves. Why raise wages for the thousands who work for them?

Gary Cohn, Trump’s economic adviser, asked a group of corporate chieftains at a conference convened by the Wall Street Journal how many of them would use tax cuts to increase company investment, essential to job growth. “Why aren’t the other hands up?”, he asked, when only a few were raised. Businesses run on market opportunity, not taxes. Or, as Warren Buffet’s notably said, “I have yet to see [anyone] shy away from a sensible investment because of the tax rate on the potential gain”.

So what will happen if the big corporate tax plunge doesn’t lead to many new jobs, doesn’t produce paycheck taxes to fill the revenue hole, and the deficit soars. Those on the left are looking over the horizon and they see Paul Ryan telling us in panic mode that entitlements — Social Security and Medicare — are the cause and must be cut. Today’s tax cuts will have engendered the rollback of the social programs, the ultimate conservative dream fulfilled.

to do and not to do

An international competition to lure companies to take up residence with of the outfits that have been “scoring” the tax plans estimate that, as written, they will blow past the $1.5 trillion. The Committee for a Responsible Federal Budget outlines why they think the deficit will reach $2.2 trillion and why the national debt will exceed the size of the annual economy in just over a decade. In three different models of the tax plans run on the Penn Wharton Budget Model by the University of Pennsylvania’s Wharton School, the tax plan would see deficits zoom up to $3.5 trillion over 10 years.

how tax cuts become tax revenue

How do Republicans make their case that growth will overcome this soaring debt? The multiple corporate tax cuts. The tax on profits slashed from 35% to 20% , and some $2.6 trillion in foreign profits enticed to come home at only a 12% levy instead of 35% is money that corporations don’t have to pay to the government. That will lead to expanded hiring and higher wages, which means more and fatter paychecks and a bonanza of taxes remitted to the government. Paul Ryan tells us so:

“Fixing the business side of our tax code is really all about helping families and workers. Cutting the corporate tax rate means more jobs here in the United States. It will foster increased competition, which will directly drive up wages for our workers.”

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Dec 8 2017 | Posted in Taxes | Read More »