Category Archives: politics

SALT Debates

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Recall the SALT—State and Local Taxes—deduction, capped at $10,000 under the Trump income tax reform of a few years ago. Keep in mind the current debate among Progressive-Democrats about whether to raise the cap to $80,000, or higher, or eliminate the cap altogether. Set aside the debate centering on how much lifting the cap would aid essentially exclusively the Evil Rich vs most of those Evil Rich are heavy donors to various Progressive-Democrat politicians.

Consider instead that

some of America’s top earners—including private-equity managers and law firm partners—are already legally circumventing the cap on much of their income.
That is because state governments and the Trump administration blessed a cap workaround for owners of closely held businesses that is proliferating around the country.

That workaround is quite byzantine, too.

Here’s how it works. Normally, so-called pass-through businesses such as partnerships and S corporations don’t pay taxes themselves. Instead, they pass earnings through to their owners, who report income on individual tax returns. That subjects them to state individual income taxes—and the federal limit on deducting more than $10,000, created in the 2017 tax law.
Details vary by state, but the workaround flips that concept. The states impose taxes—often optional—on pass-through entities that are roughly equal to their owners’ state income taxes. Those taxes then get deducted before income flows to the business owners.
The laws then use tax credits or other mechanisms to absolve owners of their individual income-tax liabilities from business income. Thus, they satisfy state income-tax obligations without generating individual state income-tax deductions subject to the federal cap.

The SALT cap was well intended, if set too high at $10k. However, both the SALT and these convoluted workarounds illustrate the foolishness of using our tax code for social engineering and other political purposes instead of simply to raise revenue to cover the few Constitutionally mandated spending purposes.

One low, flat rate tax on income from all sources would simplify things immensely, with no negative impact on revenues for the government. And it would reduce the cost of compliance, with an associated reduction, however small, in end prices to consumers.

The Petra Principle

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We’re hearing increasing numbers of reports (I know, it’s the NLMSM, but still) of turmoil in the Kamala Harris (D) Vice President staff, and we have a number of those staffers hitting the bricks.

One journalist, Miranda Devine, who writes for the New York Post, had a thought on that during a Fox News Primetime interview. She suggested that the Harris half of the Biden-Harris Presidency is

elevated above her ability….

And

[Y]ou want your Vice President to be ready to lead. She can’t even lead her own office.

Could be. Certainly, her performance is an illustration of what happens when someone is chosen for a job on the basis of her race and her sex and not on the basis of her talent or experience.

Advice

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Rebecca Grant, DC-based national security analyst, had some for President Joe Biden (D) vis-à-vis Russian President Vladimir Putin on the subject of the latter’s threatened invasion of Ukraine. The venue for that advice is the summit between the two men that occurred yesterday.

Grant is naively optimistic, though.

The 30-nation Euro-Atlantic alliance is primed to deter and counter rash Russian actions.

No, it’s not. Johnson is just posturing, and the UK, a signatory to the Budapest Memorandum (as is Russia), already has betrayed Ukraine by acquiescing to Russia’s occupation of Crimea and eastern Ukraine rather than enforcing the Memorandum. Beyond that, Germany is already in the bag for Russia, and France is carefully quiet.

America is already involved.

Indeed, we are. We’re also a signatory to the Budapest Memorandum, and under the Obama-Biden administration, we’ve also betrayed Ukraine by declining to enforce that memorandum. Beyond that, ships in the Black Sea are ducks in a pond for any force on the shores.

Biden and NATO can do more to deter Putin.  Start with immediate air exercises in Ukraine with US and NATO aircraft.

It’s a start, did Biden have the integrity and moral courage to do so, but more is needed, a yet sterner test of Biden’s…strength. Economic sanctions are insufficient and unlikely to be enacted, anyway. The more that’s actually needed is moving US (because we can’t count on a NATO whose European members won’t even honor their own commitments to fund and equip the alliance) troops into Poland, south toward Ukraine and north toward Kaliningrad, and moving US naval forces to within air strike range of Kaliningrad.

Grant closed her advice with this:

Heat up one tank engine and we’ll know about it.

Certainly. But what will Biden do about it? Grant opened her piece with this:

Ukraine’s borders are a parking lot for Russian tanks, trucks, and artillery ready for a three-pronged blitzkrieg.

Even after that first tank has lit off and crossed the border, that parking lot, for the next number of days, will remain a parking lot of targets. Von Moltke learned that problem in 1914, and even though Putin’s generals likely will have learned from that, the same or worse bottlenecks exist in western Russia and eastern Ukraine.

Biden is unlikely to do any of that, though. He got his marching orders from Putin via Colonial Pipeline, and he already has kowtowed to Putin via Nordstream 2.

Biden will only kowtow again.

In any event, we’ll be hearing, today and in the coming days, the claims of the two participants. We’ll learn empirically, in the coming weeks and months, the outcome of the summit.

Deglobalization, Costs, and Inflation

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There is considerable angst developing in response to the developing move toward economic deglobalization. That angst is centered on the risk of inflation as nations move away from the Ricardian concept of nations focusing their economies on what their own population does best and/or has the best access to necessary resources, and importing from other nations that which the importer might need or want but that those other nations might produce more efficiently and cheaply. The Ricardian concept holds, correctly, that such specialization leads to lower costs overall for all nations and all consumers while yielding the greatest prosperity for all nations and their populations.

The angst is well enough described by Yuka Hayashi in her Sunday Wall Street Journal article.

…tariffs and “Buy American” procurement rules, businesses moving production back to the US where it will be less vulnerable to those policies, and depressed immigration inflows.
“The reorganization and shortening of supply chains…will have a cost that will be passed down to the vendors and ultimately to consumers,” says Dana Peterson, chief economist for Conference Board, an independent research group supported by large US businesses.

And

Studies have shown that globalization has influenced US prices. Kristin Forbes, a Massachusetts Institute of Technology economist, has found that those parts of the consumer-price index influenced by global factors, such as commodity prices, currency fluctuations and global value chains, drove half the changes in the index between 2015 and 2017, up from about 25% in the early 1990s. Economists Robert Johnson of the University of Notre Dame and Diego Comin of Dartmouth found in a 2020 paper that international trade had the effect of reducing US consumer prices by an annual 0.1 to 0.4 percentage point between 1997 and 2018.

And

Deglobalization gained impetus with the global financial crisis of 2008…. It might be adding to current high inflation….

All of that is certainly true, and deglobalization is, not might be, contributing to high inflation, but none of that makes deglobalization, of necessity, an unvarnished bad.

Ricardo’s ideas work only in an idealized world where all the nations are, if not friendly with each other, at least have no enmity among each other. In the real world that does not obtain, and some nations are enemies of others. Within that, some nations might hold resources that their enemy nation(s) might need, and other nations might produce useful, even critical, goods that their enemy nation(s) cannot produce as efficiently or cheaply.

It is against that real world backdrop that a fluid balancing of economic globalization and deglobalization occurs.

Deglobalization certainly can be carried too far, but some deglobalization is necessary from a national security perspective: we need to identify the industries and materials that are critical to our national defense and to our economy and then develop wholly domestic supply chains for them that extend from dirt in the ground to final product at its usage destination. These supply chains don’t need to be—shouldn’t be—our sole source for those resources, intermediate products, or final products, but it’s a Critical Item to have one or two such for each industry and material from which we can expand should an enemy try to cut us off.

That will increase price levels for those items and for related, substitutable, items, but that’s a necessary price to pay for our security—especially compared to the price we’ll pay if we’re cut off completely by an enemy nation, as the PRC already has tried to do with its rare earths production near monopoly.

Loopholes

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The usually solid editors over at The Wall Street Journal had a piece last Friday regarding, in their terms, a bizarre loophole for Oklahoma criminals.

It seems that Supreme Court Justice Neil Gorsuch wrote a majority opinion in McGirt v Oklahoma that held that since the Federal government—Congress—has never actually dissolved the nation’s treaty with the Creek Nation, Oklahoma’s

authority to prosecute crimes involving Native American perpetrators and victims has vanished in nearly half of Oklahoma.

Because that’s the expanse of the Creek Nation’s reservation under that treaty.

Their editorial then listed a number of cases that fell out of McGirt that allowed a number of negligent persons and outright criminals get away with their crimes because the events involved Native Americans over whom the State has no jurisdiction to prosecute or no standing to protect.

The editors’ overwrought headline, How to Get Away With Manslaughter, then was bookended with a cynically emotional finale:

The Supreme Court should look these cases in the face. Is this justice, Justice Gorsuch?

The Editors’ ire is justified, but it’s aimed in the wrong direction.

All any Federal judge, Justices included, can do under our Constitution (vis., Art I, Sect 1) and their oaths of office, is to apply the law, including our supreme Law of the Land, as they are written. They cannot, in particular, adjust either, nor can they manufacture from the bench laws that plug loopholes in laws.

The loophole the Editors decry here, as any loophole in any law, can only be plugged statutorily, and only Congress can make law that does so.

The items listed, and many others to come, indeed aggregate into a vast and serious failure to perform. However, the failure is Congress’, and it’s on Congress to correct it. Judges cannot, and especially, Justices cannot.