Can the U.S. Navy Win in a War Against China’s?

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A war with China would be a naval war, and the United States Navy is not at all prepared. Long assuming our invulnerability as a navy centered on aircraft carrier strike groups while the nature of warfare changes, we have watched China rapidly develop a navy of far more ships equipped with advanced weaponry that has surpassed our own.

Compounding this mounting disparity, our navy has been plagued by mishaps. Two years ago a fire aboard the USS Bonhomme Richard, a ship designed to land amphibious Marine assaults, burned for five days, so destroying the ship that the Navy decided to decommission it for scrap. The captain of the carrier USS Theodore Roosevelt was relieved
USS Theodore Roosevelt entering port at Da Nang, Vietnam.

of command for disputing Navy command’s reluctance to evacuate the ship when a Covid-19 outbreak at sea in the spring of 2020 sickened a thousand of the 4,800 crew members and led to one death.

In June 2017, the destroyer USS Fitzgerald collided with a commercial vessel near Japan, killing seven U.S. sailors. Two months later, USS John S. McCain collided with a commercial vessel near Singapore, killing 10 American sailors. And there had been other less serious collisions earlier that year that damaged two Navy cruisers.

These occurrences led Sen. Tom Cotton of Arkansas together with three House representatives to commission a report just released by Marine Lt. Gen. Robert Schmidle and Rear Adm. Mark Montgomery on the “Fighting Culture” of the surface fleet. Based on interviews with 77 active and retired service members of all ranks, it looked for underlying problems affecting performance and came up primarily with an insufficient focus on warfare officer training, a preoccupation with micromanagement, and zero tolerance of one-off errors that remove valuable officers discarding their years of experience. Former Secretary of the Navy John Lehman cited a few of the victorious admirals of World War II. “Nimitz put his first command on the rocks,” Lehman told them, “and Halsey was constantly getting into trouble for bending the rules or drinking too much…Ernie King was a womanizer and a heavy drinker”. None would have made it to the rank of captain in today’s Navy.

“But in each case, there was a critical mass of leadership in the Navy that recognized that these were very, very promising junior officers. And so, while they were punished for mistakes, they were kept in a career path. That’s not the case today. It’s just not done because it’s too dangerous for anybody that tries to help someone who has made a mistake.”

stretched thin

The accidents of 2017 brought to the surface other factors affecting performance. Of the 297 ships that make up the fleet, the Navy keeps up the pace of 100 ships always overseas around the world, the same number as during the Cold War when the Navy peaked at 594 ships in 1987 under Reagan. “The Navy is predisposed to say ‘yes,’ primarily because they see forward presence as central to their conception of what the Navy provides this nation,” said Robert Work, a retired Marine Corps officer who has served as deputy defense secretary and Navy undersecretary.

Before the Cotton report, interviews in 2020 with crews on ships based in Japan assessed that their commanding officer was unable to say ‘no’. Vice Adm. Joseph Aucoin, who commanded the Seventh Fleet during the collisions, wrote that he had “made clear” to his superiors “the impact of increased operational demand on training and maintenance well prior” to the accidents. Despite “explicitly stated concerns,” he wrote, “the direction we received was to execute the mission”. He was fired shortly after the accidents.

The Navy fired Capt. David Adams after his submarine ran aground in Florida, resulting in $1 million in damage. He had warned his superiors that his crew was too inexperienced to handle a predawn return to port, but was told to perform the mission nonetheless.

This has the Navy trying to do too much with too little, with shortcomings the result. Sailors arrive at their ships with too little training, lacking skills in the basics of sea navigation, and are then worked an average of 108 hours a week instead of the Navy’s standard 80-hours. When in port, the Navy has traditionally put its sailors through 3-to-5 week courses to teach them the seafaring skills that have made it the world’s best navy, yet a General Accounting Office report in 2018 said that the Japan-based Seventh Fleet had “no dedicated training periods”, and that warfare-training certifications of more than a third of its ships had expired. Overlong deployments wear on fatigued sailors who spend a year at sea in some cases. Aircraft carriers have recently been overworked with back-to-back “double pump” deployments. Maintenance is deferred or eliminated.

“I guarantee you every unit in the Navy is up to speed on their diversity training,” said one recently retired senior enlisted leader quoted in the Cotton report. “I’m sorry that I can’t say the same of their ship-handling training.”

outnumbered

At less than 300 ships, how will the U.S. Navy combat China, which already boasts a 350-ship fleet and is poised to build more at a stunning rate? Donald Trump promised a 355-ship Navy when campaigning in 2016, a promise quickly forgotten. Instead, procurement averaged eight ships a year, which is only the replacement rate for the 30-35 year expected life of the Navy’s ships. “Look, I accomplished the military,” Mr. Trump said obscurely at one point, but force expansion of the Navy did not happen. As if suddenly making good on his pledge, his administration spent some of its last days in office planning for that 355-ship goal, leaving the job to President Biden.

Prospects under Biden so far appear to be no better. He is preoccupied with infrastructure, social programs, and withdrawing from Afghanistan. His fiscal 2022 budget calls for $211.7 billion for the Navy and Marine Corps, a 1.8% increase from 2021, but asks $22.6 billion for shipbuilding, a decrease of $700 million.

“China ‘crost the Bay!”

With the coming of Xi Jinping, China abandoned the “peaceful rise” disguise of former leader Hu Jintao and adopted a policy of open belligerence, defying international rules of the oceans by declaring ownership of the South China Sea. First drawn in 1947 and revealing China’s long-held secret designs, a “nine-dash” line had appeared on clandestine Chinese maps unseen by the West, a line that rings the sea from Vietnam to the Philippines and
South China Sea map showing the
nine-dash line ringing China’s claims.

Indonesia, embracing the island of Taiwan, and on to just west of Japan’s Okinawa in the Senkaku Islands. Half a dozen nations surround the Sea and lay claim to one or another sector, but China claimed as its own the rocks, reefs and shoals long in dispute, and began turning them into islands.

In reaction, the United States and other nations began periodically sailing through the South China Sea as proclamation of the freedom of navigation of the world’s oceans. The Sea holds a strategic importance that cannot be exaggerated. A third of the world’s shipping passes through it, the sea floor covers extensive deposits of oil and gas, and its fisheries feed millions in Southeast Asia. For China, two-thirds of its maritime trade and four-fifths of its oil imports pass through these waters, which they view as a vulnerability were the Sea to be left to other navies to patrol.

In 2015, Xi Jinping stood beside President Barack Obama in the Rose Garden and pledged that these newly-created islands would not be militarized. He promptly broke the pledge, saying it was a security matter caused by the temerity of the U.S. not staying out of the South China Sea. In 2016 an international arbitration tribunal in the Hague, Netherlands, ruled that atolls and reefs do not confer territorial rights, that China’s claim to those waters has no legal basis, and that China had violated the 1982 United Nations Convention on the Law of the Sea Treaty to which Beijing is a party. The U.S. never signed, but on the fourth anniversary of that ruling, the U.S. formally declared its concurrence for the first time, with Secretary of State Mike Pompeo calling Beijing’s actions “completely unlawful”. On the fifth anniversary days ago, his successor Antony Blinken reaffirmed the Trump policy, castigating China for continuing “to coerce and intimidate Southeast Asian coastal states, threatening freedom of navigation in this critical global throughway”.

China ignored the 2016 verdict. President Xi warned Marine four-star and Trump’s first defense secretary Gen. Jim Mattis on his visit to China that Beijing would not yield “even one inch” of territory it claims as its own; Xi’s policy is to declare as its own territory that does not belong to China. Under his rule China went on to turn shoals into artificial islands and fit them out with army barracks, radar installations, missile launchers, and airstrips capable of handling aircraft from fighter jets to heavy-lift cargo transports. Beijing has even mapped the areas as administrative districts encompassing the Spratly and Paracel islands and created the imaginary city of Sansha to govern them. China accomplished this with extreme rapidity while the U.S. only watched it happen.

confrontations

There has been a steady procession of incidents. A year ago April, Vietnam accused a Chinese patrol ship of ramming and sinking a Vietnamese fishing boat near the Paracel islands. That June, another was rammed in the same zone by a Chinese ship. During the same period a Malaysian drillship was harassed near Borneo. American and Australian warships came to its relief. Chinese boats protected by the coastguard have been fishing in Indonesian waters. To drive off Philippine boats and deprive them of their catch, swarms of Chinese fishing vessels band together as a “maritime militia” near Thitu, an island in the Spratly archipelago controlled by the Philippines but now claimed by China. Beijing clearly thinks that steady pressure will over time drive all others out with China having the Sea entirely to itself.

For its part, the U.S. and other nations conduct one or two destroyer sail-throughs as a way of insisting that, save for the 12-mile limit that extends from China’s shores, the South China Sea is international waters. These are met with Chinese navy or coastguard ships ordering ours over bullhorn to “leave immediately” followed by Beijing denouncing us for “provocative behavior”. Some of the sail-throughs make our point more emphatically as when a year ago two carriers, the USS Ronald Reagan and USS Nimitz, went on station in the South China Sea
USS Ronald Reagan in the South China Sea on the 4th of July 2020.

and launched from their decks hundreds of jet and helicopter flights day and night across the July 4th weekend to project a dramatic display of force.

Taiwan

China is moving closer to annexing Taiwan as its own, much as it has taken over Hong Kong, with the difference that Taiwan would require an invasion. China has upgraded military bases on its
A Chinese warplane flew near Taiwan in September.
southeast coast and deployed its DF-17 missiles there in what could be preparation. “Every rocket-force brigade in Fujian and Guangdong is now fully equipped”, reported Hong Kong’s South China Morning Post. In January, China flew more than two dozen fighters near Taiwan, possibly as a message to America’s new president, and in April, when Biden loosened restrictions on contacts with Taiwan officials, Beijing repeated the sorties, this time entering Taiwan’s airspace and accompanied by a message to Biden not to “play with fire”.

The U.S. withdrew formal ties with the island nation in 1979 in order to establish relations with mainland China, but we are pledged to aid Taiwan if attacked, and a law even calls for us to ensure that Taiwan can defend itself. Abandoning them would be calamitous, especially in the wake of leaving Afghanistan, telling the world that they can no longer count on the U.S. and had best made accommodations with Beijing.

Whether elsewhere in the South China Sea or a move against Taiwan itself, a U.S.-China confrontation is all but certain. Its outcome is anything but certain.

what the navy would be up against

China’s navy is already a formidable opponent. Its newest ships, such as a new class of heavy cruisers, are comparable to modern American ships. Compared to 12 U.S. aircraft carriers, China has only two with a 3rd under construction and a suspected five or six
China’s first aircraft carrier, a reconditioned Russian castoff sold to China by Ukraine.

planned. But the balance shifts asymmetrically in China’s favor in the assumed theater of conflict close to China’s shores in the South and East China Seas. China now has more submarines than the U.S. Its new Type 055 stealth guided missile destroyers, coupled with air defense networks, present a shield against our fighters and bombers from getting through. Its arsenal of anti-ship ballistic missiles known as “carrier killers” is capable of targeting those ships at a distance of up to 2,000 miles. Our Navy doubts the ability of missiles to hit maneuvering ships, but ships are slow, China’s network of radar and satellites grows increasingly sophisticated, and to take the prize of a carrier, China would likely send a swarm of missiles.

The strategy is designed to hold our carriers at a range beyond the reach their aircraft while Chinese forces conduct missions in its local waters such as the invasion of Taiwan that is sure to come. Beijing needs only to make Washington realize that intervention in its region too costly when faced with the decision to risk its carriers and their crews of 5,000. By three years ago our Navy was telling Congress. “China is now capable of controlling the South China Sea in all scenarios short of war with the United States”, Adm. Philip Davidson told the Senate during his confirmation process to head the Indo-Pacific command. “There is no guarantee that the United States would win a future conflict with China”.

Christian Brose was from 2015 to 2018 the staff director of the Senate Armed Services where he worked for Sen. John McCain, is now in private industry, and wrote “The Kill Chain: Defending America in the Future of High-Tech Warfare”. This excerpt, from an opinion piece in The Wall Street Journal of a year ago May, seems to be a dismayingly accurate summation:

“The core problem is that the decades-old assumptions underlying the U.S. military are increasingly obsolete. We have long assumed that no adversary would be able to overmatch us technologically and deny our ability to project military power world-wide. As a result, we have built our force around small numbers of large, expensive, manpower-intensive and hard-to-replace platforms: ships, aircraft, satellites and vehicles. Our political, military and industrial leaders have continuously directed most defense resources to these traditional platforms. And nothing…has altered the demands of our defense establishment for more of the same.”

Biden’s Tax Plan Takes Some Radical Departures

Joe Biden commendably intends for his American Families Plan to be paid for. That requires raising taxes. His plan “doesn’t add a single penny to our deficits”, is his claim.

The infrastructure plan being worked out in rare cooperation between 22 Republicans and Democrats is another matter. The question of how to pay for their $1.2 trillion “framework” is for another day. Senate Minority Leader Mitch McConnell has decreed that the 2017 tax cuts under the Trump administration are sacred
no matter how unpopular they were with the public. The question of where does the money come from prompts vague notions of selling roads to private corporations that would presumably charge tolls, or the fuzzy concept of a federal infrastructure bank. The plan does not even venture to raise the gasoline and diesel tax to what it should be today had it been indexed to inflation back in 1993.

For the American Families Plan no bipartisan deal is possible. It contains greatly expanded entitlements that those on the right consider virtual socialism. It can therefore only be passed by the reconciliation process, which disallows the Senate’s filibuster for bills affecting the budget and requires only 51 votes. It is in Families that Mr. Biden and the Democrats will insert the tax hikes to pay for it and reverse what they consider to be the abomination of the 2017 tax cuts that reduced the corporate profits tax by 40% and gave 52.2% of the benefits of the individual tax rate cuts to the top 5th of income earners.

There is no guarantee that the Families Plan will pass even using reconciliation. The Democrats can lose no more than four votes in the House and none in the Senate, yet there again are Senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona with their numerous misgivings as well as the rumblings of some other Democrats wary of losing votes by raising taxes. There is also the intransigence of House Speaker Nancy Pelosi, who says she will not bring the infrastructure bill to the floor for a vote until after the Senate has passed Families by reconciliation.

Biden’s taxes considered

But what if all goes well for the president? What should we think about the tax changes he proposes?

 Corporate:  
The tax rate on profits would go to 28% from 21%. Various credits, accelerated depreciation, immediate write-off of capital investment, carried-forward losses, can sharply reduce a corporation’s taxable profits (infamously to 0% for some of the biggest companies), so Biden wants all corporations with a net income of $2 billion or more to pay a minimum 15% on “book” profits — the profit calculated before such deductions. The Treasury Department estimates that would ensnare only 180 companies and only 45 of those would owe the minimum — quite a drop from the $100 million income threshold proposed in 2019 that would have netted 1,100 companies in the U.S. to be tested for the minimum tax.

 Individuals:  The top bracket would revert from Trump’s 35% to Obama/Biden’s 39.6%. That’s a rather timid increase, though, considering that progressives such as Ms Ocasio-Cortez, influenced by the Berkeley school of Emmanuel Saez and Gabriel Zucman, had been clamoring for as high as 70%.

Trouble is, these modest increases are wholly inadequate to the president’s goal of his Family program not adding a penny to the nation’s debt. He also works against himself with his foolish pledge that those earning $400,000 or less will not see their tax bill rise a penny. The median household income in the U.S. was $78,500 in 2020 according to the Department of Housing and Urban Development which confirms the obvious, that $400,000 a year is a whopping big number. In his search to find money to fund his program, Biden would exempt all but the mere 1.8% of American households that earn this much and more, foregoing, say, the 10% all households were he to lower the bar to all who earn $300,000 or more.

 Capital Gains:  In contrast, Biden’s plan for capital gains goes for broke. He wants to change the tax on profits from the sale of assets — stock, boats, art, etc. — from a flat 20% to as much as 39.6% for individuals earning $1 million or more (and retroactive to April 2021 to prevent a deluge of asset sales were a date to be set in the future).

This is overboard. It shows no recognition that there’s a 3.8% surcharge that Obamacare applies to the investment income of those with higher earnings; that there is a state, and in a few cases, local tax; that there are risks in investing. When so high a tax burden awaits, leaving so diminished a margin of gain, investors will ask why take that risk? Those holding assets will hang onto them rather than sell and pay a high tax.

Congress’s Joint Committee on Taxation has studied such behavior and judges the revenue maximization point to be a tax rate of 28%; as the tax rate climbs above that, the government starts losing revenue, is their finding. Someone needs to make the point with the president.

The government taxes our profits immediately at a preferential rate, but allows no more than a $3,000 deduction from income in a year when capital losses exceed capital gains. That asymmetry is at least somewhat balanced. But does Biden’s “fair share” plan stay stuck at that absurdly inadequate deduction while taxing full throttle? We tracked that $3,000 as far back as 1980. It may be older still, but it has never been adjusted for inflation. The $3,000 of 1980 would be over $9,600 today.

Then too, unlike the immediate taxing of the current year’s income, taxing profit on stock and other assets sold today that may have been bought years, even decades, ago does not take inflation’s erosion of profit into consideration at all. Capital gains taxed at a lower rate than income at least compensates somewhat for the tax code pretending that inflation’s erosion doesn’t exist.

Take those numbers above as example. Say you had invested $3,000 in a stock an 1980 and just sold it for $9,600. You didn’t make a dime. Today’s $9,600 has no greater buying power than the $3,000 of 1980. How can Mr. Biden justify raising the capital gains tax to the same rate as current dollars earned without allowing taxpayers to adjust the cost basis of an investment for inflation, a change long overdue anyway? Instead, the government grifts easy money from investors’ pockets.

 Carried interest:  The fraudulent claim of capital gain known as carried interest has been emblematic in the public mind that the tax code is stacked against them. The “2 and 20” scheme of hedge fund managers usually makes for the clearest example. They are paid an annual fee of 2% of the value under their management, and 20% profit — often profit exceeding some threshold.

On their tax returns they are allowed to declare their earnings as capital gains, subject to the 23.8% rate rather than as much as 43.4% were their take be considered ordinary income, even though (a) it is typically not their money that is invested, (b) they are therefore not at risk, and (c) their pay is for their work, and should be taxed like the rest of us.

Obama thought this scam should end but did nothing about it. Trump thought its practitioners were “getting away with murder” and promised to end it. He not only did nothing but signed the 2017 tax law that exempted from taxes 20% of the income passed-through to his personal earnings from his hundreds of Subchapter S companies.

But Biden needs the money for his programs. The American Families Plan is slated to put an end to this subterfuge, but the lobbyists will swarm to remind Congress members where campaign money comes from.

 Estate Tax:  
It was already a huge giveaway to the moneyed class when in the Tax Cuts and Jobs Act the Trump administration unconscionably doubled the amount that a wealthy person or family can transfer to inheritors tax free. While paycheck employees are taxed from the first dollar earned each year, the estates of those with accumulated wealth indefensibly paid no tax at all on the first $5.5 million of an individual’s wealth transferred in 2017, an amount which after doubling by the 2017 act has since grown to $11.7 million for 2021. And that’s per person. Double that again to $23.4 million for a married couple who transfer their estate before death. Above that threshold the tax is on a sliding scale with a maximum of 40%.

That change in 2017 could not have been any clearer that Republican leadership in Congress is in the service of their rich patrons, favoring them above the common folk, and in the case favoring McConnell himself. He is married to Elaine Chao, heir to a major Taiwan shipping company, and might have his own family assets in mind. McConnell in May said, “We’re not interested in reopening the 2017 tax bill. We both made that clear to the president. That’s our red line,” and Kevin McCarthy echoed, “Raising taxes would be the biggest mistake you could make.”

First, the president would slash the tax-free allowance to a lifetime $1 million of unrealized gains ($2 million for a married couple). He also wants to subvert the second outrage of inheritance: If an asset was once purchased for $1 and its market value has risen to, say, $5 when it is transferred to a family member such as son or daughter, the cost basis is “stepped-up” to $5 for no reason whatever and without any payment of a tax. The step-up costs the government $40 billion a year according to the Joint Committee on Taxation.

If ever sold, the asset’s new cost basis will someday be subtracted from the proceeds of its sale to arrive the taxable gain (or loss) — whatever gain has occurred above $5 rather than $1 had there been no step-up. Biden’s plan has something else in mind. It would tax at the moment of transfer as if the asset had actually been sold. And the tax would be at his elevated capital gain rates, imposing a tax of as much as 39.6%.

There would be temporary exemptions for assets that can’t be readily sold to the degree needed to pay a tax — primary residences, farms, family-owned businesses — and the rest of the law would be left in place, but capturing taxes on the gain of liquid assets at the point of transfer very cleverly validates the step-up. Put differently, that $5 cost basis for the inheritor to claim is now justified because the tax has been paid.

It won’t all be windfall for Mr. Biden though. Families who intended to transfer assets before death will hold off, waiting for Republicans to take over and line their nests again.

The Republican increase of the free transfer allowance isn’t permanent. The 2017 tax cuts act was passed (without a single Democrat voting for it) by reconciliation. But reconciliation measures expire after 10 years according to the “Byrd Rule”, conceived by longtime Senator Robert Byrd from West Virginia, if their continuance after 10 years contributes to a budget deficit. The Trump tax act is set to expire in 2026. You can assume that if the Republicans are then in control of the House and Senate, they will move to make their tax act permanent and Democrats will wish for the filibuster then if they somehow manage to banish it now.

 State and Local Taxes:  
The administration is carefully non-committal on where it stands on the 2017 tax law’s $10,000 annual limit on deductions of state and local income and property taxes from income known by the acronym SALT. In this case, it’s the Democrats furiously pressing for its repeal, notwithstanding that it makes badly needed money to fund Mr. Biden’s costly ambitions. The wealthy, accustomed to subtracting the full SALT menu of taxes to minimize taxable income, are irate, especially in the states with the highest income and property taxes — New York, California, New Jersey, in particular — all Democrat-majority states — and they expect their Democratic representatives in Congress to hold out for the cap’s elimination. Get rid of it and the Tax Policy Center says that almost everyone making over $1 million a year would benefit by an average of over $44,000 a year.

“No SALT, no deal”, says Representative Tom Suozzi of New York. Biden may have to relent and Republicans will come down hard accusing cronyism.

fair share?

Democrats constantly preach that the wealthy should pay their fair share in taxes, which always somehow translates as they should pay more. Fair share defies formulating; who is to say? A letter from Bob Sepich of Cary, North Carolina, in The Wall Street Journal, makes that point:

“According to the National Taxpayers Union, in 2018 based on adjusted gross income, the top 10% of taxpayers paid 71.37% of total federal income tax collected. The bottom 50% of taxpayers based on AGI paid 2.94% of federal tax collected. Why is it that progressives never define what a ‘fair share’ would be?”

Others express outrage that the 10% or 5% or 1% pay such an outsize share of taxes. They don’t get it that the wealthy are paying according to the very same tax brackets as everyone else. The reason they pay so much as a percentage is they make such colossal (obscene, if you like) amounts of money. The richest 1% of Americans gained $7 trillion in wealth in 2020. The 15 richest Americans gained $400 billion since the market bottomed out in March 2020.

The overall tax rate for the 400 wealthiest households in the U.S. wasn’t the top federal rate of 37%. It was — including federal, state, and local — just 23%. Saez and Zucman say that, — because their income is totally exposed — “For the first time in the past hundred years, the working class today pays higher tax rates than billionaires”: 25% vs. 23%.