Tag: Bush

Trump and Taxes: A Bush-Like Plan from “The Donald”

It’s been a challenge to assess Donald Trump’s fiscal policies since they’ve been an eclectic and evolving mix of good and bad soundbites.

Though I did like what he said about wanting to pay as little tax as possible because the government wastes so much of our money.

On the other hand, some of his comments about raising tax burdens on investors obviously rubbed me the wrong way.

But now “The Donald” has unveiled a real plan and we have plenty of details to assess. Here are some of the key provisions, as reported by the Wall Street Journal. We’ll start with the features that represent better tax policy and/or lead to lower tax burdens, such as somewhat lower statutory tax rates on households and a big reduction in the very high tax rate imposed on companies, as well as a slight reduction in the double tax on capital gains.

…no federal income tax would be levied against individuals earning less than $25,000 and married couples earning less than $50,000. The Trump campaign estimates that would reduce taxes to zero for 31 million households that currently pay at least some income tax. The highest individual income-tax rate would be 25%, compared with the current 39.6% rate. …Mr. Trump also would cut the top capital gains rate to 20%, from the current 23.8%. And he would eliminate the alternative minimum tax. …For businesses, Mr. Trump’s 15% rate is among the lowest that have been proposed so far.

But there are also features that would move tax policy in the wrong direction and/or raise revenue.

Most notably, Trump would scale back certain deductions as taxpayers earn more money. He also would increase the capital gains tax burden for partnerships that receive “carried interest.” And he would impose worldwide taxation on businesses.

To pay for the proposed tax benefits, the Trump plan would eliminate or reduce deductions and loopholes to high-income taxpayers, and would curb some deductions and other breaks for middle-class taxpayers by capping the level of individual deductions, a politically dicey proposition. Mr. Trump also would end the “carried interest” tax break, which allows many investment-fund managers to pay lower taxes on much of their compensation. …The Trump plan would raise revenues in at least a couple of significant ways. It would limit the value of individual deductions, with middle-class households keeping all or most of their deductions, higher-income taxpayers keeping around half of theirs, and the very wealthy losing a significant chunk of theirs. It also would wipe out many corporate deductions. …The plan also proposes capping the amount of interest payments that businesses can deduct now, a change phased in over a long period, and would impose a corporate tax on future foreign earnings of American multinationals.

Last but not least, there are parts of Trump’s plan that leave current policy unchanged.

Which could be characterized as “sins of omission” since many of these provisions in the tax code - such as double taxation, the tax bias against business investment, and tax preferences - should be altered.

…the candidate doesn’t propose to end taxation of individuals’ investment income… Mr. Trump would not…allow businesses to expense all their new equipment purchases, as some other Republicans do. …All taxpayers would keep their current deductions for mortgage-interest on their homes and charitable giving.

So what’s the net effect?

The answer depends on whether one hopes for perfect policy. The flat tax is the gold standard for genuine tax reform and Mr. Trump’s plan obviously falls short by that test.

But the perfect isn’t the enemy of the good. If we compare what he’s proposing to what we have now, the answer is easy. Trump’s plan is far better than the status quo.

Now that I’ve looked at the good and bad policies in Trump’s plan, I can’t resist closing with a political observation.  Notwithstanding his rivalry with Jeb Bush, it’s remarkable that Trump’s proposal is very similar to the plan already put forth by the former Florida Governor.

I’m not sure either candidate will like my interpretation, but I think it’s flattery. Both deserve plaudits for proposing to make the internal revenue code less onerous for the American economy.

P.S. Here’s what I wrote about the plans put forth by Marco Rubio and Rand Paul.

Voters Deserve a Better Debate

We had our second debate of the primary season on Wednesday, a grueling five hour affair pitting fifteen Republican hopefuls against each other in two debate sessions. When CNN’s hosts weren’t asking inane questions – i.e., whether candidates had considered their Secret Service nickname or whether they would trust Donald Trump with the nuclear codes – they did find some time to focus on foreign policy issues. I have a piece over at the National Interest discussing the debate, and highlighting some of the misleading narratives underlying much of the GOP debate.

Though there were some factual errors, the bigger problem was the reliance of most candidates on fundamental ideas which are effectively untrue, like the idea that the U.S. military is weak or small compared to that of other nations:

Ben Carson noted that “our Air Force is incapable of doing the same things that it did a few years ago. Carly Fiorina argued that “we need the strongest military on the face of the planet,” while Marco Rubio noted that “… we are eviscerating our military.” Such claims are entirely false: the U.S. military is among the world’s largest, spending more than the next 13 countries combined in 2013 (including China and Russia)!  Today, the United States makes up 38.4% of all global military spending, and spends substantially more on the military than it did on average during the Cold War.

Many candidates also expressed support for the idea that it is U.S. absence from conflicts which creates problems, rather than U.S. intervention itself. Again, this narrative has proven to be demonstrably false in the last ten years, as examples from Libya, Iraq and elsewhere show:

Jeb Bush noted that “when we pull back, voids are created. We left Iraq… and now we have the creation of ISIS.” Again, this narrative is convenient for many candidates, allowing them to blame President Obama’s troop withdrawals, rather than the initial disastrous decision to invade Iraq, for the rise of ISIS. Unfortunately, it is similarly false: Iraq’s sectarian problems existed long before the U.S. withdrawal of troops in 2011, and the rise of ISIS is at least partly a result of the Bush administration’s decision to disband the Iraqi army.

When we base our foreign policy debates on such misleading ideas, candidates will present policy options which are unworkable or even counterproductive. Voters deserve a better debate, one which acknowledges the nuance and complexity of foreign affairs. You can read the whole piece here

Interpreting the New Deportation Statistics

Shortly before Christmas the Department of Homeland Security (DHS) released a report detailing deportations (henceforth “removals”) conducted by Immigration and Customs Enforcement (ICE) during fiscal year 2014.  Below I present the data on removals in historical context – combined with information from the Migration Policy Institute and Pew.  See my previous writings on this topic here and here.       

ICE deported 102,224 unauthorized immigrants from the interior of the United States in 2014, down from a peak of 188,422 in 2011.  Removals from the interior are distinct from removals of recent border crossers.  Removals from the interior peaked during the Obama administration and have since fallen to a level equal to that of 2007. 

Source: MPI and DHS.

The number of interior removals under the last six years of the Bush administration (the first two years are unavailable so far) was about 475,000.  From 2009-2014, the Obama administration removed about 950,000 from the interior of the United States.  

President Bush’s administration removed an average of about 276,000 unauthorized immigrants per year for the years available and an average of 79,000 of them annually were interior removals.  President Obama’s administration has removed an average of 405,000 unauthorized immigrants a year, an average of 158,000 of them annually were interior removals.  There were a large numbers of unknowns during the Bush administration that decreased as the years progressed. 


Source: MPI and DHS.

The Obama administration’s recent decrease in the number of interior removals is not the whole story.  The best way to measure the intensity of immigration enforcement is to look at the percentage of the unauthorized immigrant population removed in each year.  Based on estimates of the total size of the unauthorized immigrant population, 0.89 percent of that population was removed from the interior of the United States in 2014 – down from 1.15 percent in 2013. 


Source: MPI, Department of Homeland Security, Pew, Author’s Calculations. 

For every year for which data was available, the Bush administration removed an average of 0.7 percent of the interior unauthorized immigrant population.  President Obama’s administration has removed an average of 1.39 percent of the interior unauthorized immigrant population every year of his presidency – about twice the rate as under the Bush administration.  Even when focusing on interior removals, President Obama is still out-deporting President Bush based on the data available.

The unauthorized immigrant population increased under the Bush administration from 9.4 million in 2001 to a peak of 12.2 million in 2007 and then declined to 11.7 million in 2008.  During Obama’s administration, the number of unauthorized immigrants has, so far, stayed at or below 11.5 million.    

Obama’s interior removal statistics show a downward trend beginning in 2012 through to 2014.  The Obama administration has also focused immigration enforcement on criminal offenders (not all unlawful immigrants are criminals) but the data is a little difficult to disentangle for 2014 so I left it out of this blog post – stay tuned for a future one on that topic. 

The Obama administration has clearly not gutted interior immigration enforcement as their 2014 figures for interior removals are higher than they were for every year of the Bush administration except for 2007 and 2008.  

Is Obama Really the Most Frugal President of the Past 50 Years?!?

Two years ago, there was a flurry of excitement because MarketWatch journalist Rex Nutting crunched annual budget numbers and proclaimed that Barack Obama was the most fiscally conservative president since at least 1980.

I looked at the data and found a few mistakes, such as a failure to adjust the numbers for inflation, but Nutting’s overall premise was reasonably accurate.

As you can see from the tables I prepared back in 2012, Obama was the third most frugal president based on the growth of total inflation-adjusted spending.

And he was in first place if you looked at primary spending, which is total spending after removing net interest payments (a reasonable step since presidents can’t really be blamed for interest payments on the debt accrued by their predecessors).

So does this mean Obama is a closet conservative, as my old—but misguided—buddy Bruce Bartlett asserted?

Is Obama Still the Deporter-In-Chief?

This is a difficult question to answer.  As Matt Graham at the Bipartisan Policy Center has pointed out, the rate of internal removals as a percentage of all Immigration and Customs Enforcement (ICE) removals has declined during the Obama Presidency.  But this, in and of itself, doesn’t tell us much about the long run trends of internal enforcement.  We need data from the past that we can compare President Obama’s immigration enforcement record to.  We only have the rate of internal deportations for the last year of the Bush Administration.  Cato has filed a FOIA to find out if the government kept statistics on internal versus border removals prior to 2008 but I’ve heard the data wasn’t kept.

Let’s assume that 63.6 percent of all ICE removals were internal from 2001 to 2007.  I chose 63.6 percent because that was ICE’s internal removal rates in the year 2008 – the first year when that statistic is available.  That means that the number of internal removals under the Bush administration was about 1.25 million.  From 2009-2013, the Obama administration’s has removed just over 1 million from the interior of the United States.  Of course, Bush had three more years to deport unauthorized immigrants.  660,000 people were removed from the interior of the United States during the first five years of the Bush administration.

Source: Department of Homeland Security, BPC, Author’s Calculations.

President Bush removed an average of about 250,000 unauthorized immigrants a year, an average of 160,000 of them annually were interior removals.  President Obama has removed an average of 390,000 unauthorized immigrants a year, an average of 200,000 of them annually were interior removals.

Source: Department of Homeland Security, BPS, Author’s Calculations.

As I’ve written before, the best way to measure the intensity of immigration enforcement is to look at the percentage of the unauthorized immigrant population deported in each year.

Source: Department of Homeland Security, BPC, Pew, Author’s Calculations.

I focus on the internal removal figures as a percentage of the estimated unauthorized immigrant population and assume that the internal removal rate of 63.6 percent prevailed throughout the Bush administration.  If that interior enforcement rate was steady, then the Bush administration deported an average of 1.43 percent of the interior unauthorized immigrant population every year of his presidency.  President Obama’s administration has deported an average of 1.75 percent of the interior unauthorized immigrant population every year of his presidency.  Even when focusing on interior removals, President Obama is still out-deporting President Bush - so far.

The Obama interior removal statistics certainly show a downward trend – especially in 2012 and 2013.  However, the Obama administration has not gutted or radically reduced internal immigration enforcement no matter how you dice the numbers.

The ‘New Normal’ of High Unemployment

I almost feel sorry for the Obama administration’s spin doctors. Every month, they probably wait for the unemployment numbers from the Bureau of Labor Statistics with the same level of excitement that people on death row wait for their execution date.

This has been going on for a while, and today’s new data provide another good example.

As the chart below indicates, the White House promised that the unemployment rate today would be almost 5 percent if we enacted the so-called stimulus back in 2009. Instead, the new numbers show that the jobless rate is 7.9 percent, almost 3.0 percentage points higher.

Obama Unemployment

I enjoy using this chart to indict Obamanomics, in part because it’s a two-fer. I get to criticize the administration’s economic record, and I simultaneously get to take a jab at Keynesian spending schemes.

What’s not to love?

That being said, I don’t think the above chart is completely persuasive. The White House argues, with some justification, that these data simply show that they underestimated the initial severity of the recession. There’s some truth to that, and I’ll be the first to admit that it wouldn’t be fair to blame Obama for a bleak trendline that existed when he took office (but I will blame him for continuing George W. Bush’s policies of excessive spending and costly intervention).

That’s why I think the data from the Minneapolis Federal Reserve are more damning. They show all the recessions and recoveries in the post-World War II era, which presumably provides a more neutral benchmark with which to judge the Obama record.

Fed Toys with Ratcheting Up the Credit Crunch

When the Basel I accords, mandating higher capital-asset ratios for banks, were introduced in 1988, they were embraced by the administration of President George H.W. Bush. With higher capital-asset ratios came a sharp slowdown in the money supply growth rate and—unfortunately for President George H. W. Bush and his re-election campaign—a mild recession from July 1990 through March 1991.

Now, we have Basel III and its higher capital-asset ratio requirements being imposed on banks in the middle of a weak, drawn-out economic recovery. This is one of the major reasons why the recovery is so anemic.

How could this be? Well, banks produce bank money, which accounts for roughly 85% of the total U.S. money supply (M4). Mandated increases in bank capital requirements result in contractions in bank money, and thus in the total money supply.

Here’s how it works:

While the higher capital-asset ratios that are required by Basel III are intended to strengthen banks (and economies), these higher capital requirements destroy money. Under the Basel III regime, banks will have to increase their capital-asset ratios. They can do this by either boosting capital or shrinking assets. If banks shrink their assets, their deposit liabilities will decline. In consequence, money balances will be destroyed.

So, paradoxically, the drive to deleverage banks and shrink their balance sheets, in the name of making banks safer, destroys money balances. This, in turn, dents company liquidity and asset prices. It also reduces spending relative to where it would have been without higher capital-asset ratios.

The other way to increase a bank’s capital-asset ratio is by raising new capital. This, too, destroys money. When an investor purchases newly-issued bank equity, the investor exchanges funds from a bank account for new shares. This reduces deposit liabilities in the banking system and wipes out money.

We now learn that the Fed, using the cover of the Dodd-Frank legislation, is toying with the idea of forcing foreign banks that operate in the United States to hold billions of dollars of additional capital  (read: increase their capital-asset ratios).

This will make the credit crunch “crunchier” and throw the U.S. economy into an even more vulnerable position.  The last thing the Fed should be doing is squeezing the banks and tightening the screws on the production of bank money.