Support the Center - Policy Website

Supporting Political Reform to Break the Two-Party Duopoly

Main navigation

Economics

Understanding US Identity Politics

by

Introduction

The 2016 election was contested based on “identity politics”.  The 2020 election will also turn on identity politics along with other factors such as the economy.  As polarization based on identity has become salient in our politics and society, a spate of excellent research explains its origin and characteristics.

This article provides a brief synthesis of approaches, which together provide a clear view of the history and character of our politics, including:

  • populism of the left and right,
  • re-alignment of the Parties since the 1960’s based on policies and party composition based on race,
  • ideological divides – the politicization of language around race, taxes and big government
  • the increasing emphasis of Democrats on group-coalition politics (group interests) as opposed to general economic well-being,
  • increased sorting of our Country along a range of dimensions, exacerbating political divisions,
  • identity politics as an outcome of sorting, and its emergence as a determinant of voter behavior,
  • identity as tribalism, and implications for inter-group political conflict,
  • is there a way out?

[Read more…] about Understanding US Identity Politics

Promoting A Rational Skills-Based Immigration Policy; This Is Neither Democratic or Republican; It is Centrist, Practical, and Celebrates Diversity While Supporting American Pride and Community

by

Trump’s rhetoric on immigration divides us due to its racist framing.  If Trump were sincere about solutions and not just stoking his base, he would instead fashion a comprehensive, centrist, practical immigration policy that could obtain broad support through benefits such as keeping our population and economy young, enhancing the talent in our work force, and enriching our communities.

What is a centrist, rational, immigration policy?  It is a skills-based immigration policy, based on letting in a mix of those who immediately bring resources and talent to our economy, along with workers who will do tough jobs that Americans just will not do anymore.  These lower salaried workers could either be guest workers, or rewarded after so many years of successful work and other skills attainment, such as mastery of English, consistent tax payments, etc., with a path to citizenship.   This last point – guest workers versus potential citizens – should be a debate.

Border security is a necessary part of these overall discussions.   Similarly, the discussion of border security and other enforcement mechanisms should not occur in isolation from an overall immigration policy.  Decisions which are made on border security should effectively integrate with and support the details of the skills-based immigration policy Americans decide to agree upon. [Read more…] about Promoting A Rational Skills-Based Immigration Policy; This Is Neither Democratic or Republican; It is Centrist, Practical, and Celebrates Diversity While Supporting American Pride and Community

Government Shutdown – Democrats Should Not Accept Extortion As a Legitimate Policy Lever

by

A Truly Beautiful Wall – One Worth Building

Support the Center believes Democrats should dig in to resist what is Trump’s last minute stunt to extort a small piece of his proposed border wall, which has come at the expense of routine government services and the people who provide and consume them.

The US cannot run its appropriation process as a blackmail machine, whether that blackmail comes from Democrats or Republicans.  That means Schumer’s shutdown in January (which lasted 3 days) was wrong, and the current shutdown, which Trump is causing, is wrong.  The party that insists on a controversial measure and holds routine appropriations hostage, is the responsible party, and in the current situation, that is Trump.

Extortion at the expense of important services, such as the TSA, Homeland Security, National Parks, the IRS, cannot be allowed as a routine policy.  The only way to prevent this distortion of the appropriations process, is to not allow the blackmail to succeed.  Trump must be pushed back this time, or this tool will be used time and time again.

Extortion to prevent routine appropriations is wrong even when the cause is a good one.  But in this case, Trump has chosen to sacrifice our public purpose for a stupid goal, a partial wall, not even a complete one.  A rundown of the stupidity involved:

  • The Senate, the House and Trump had a deal, a continuing resolution, which would have allowed debate on the isolated issue of “the wall” or border security as the Democrats prefer to frame the issue.  Trump broke the deal, as he has done before, when conservative journalists, notably Ann Coulter, indicated he wouldn’t get her vote if he let the Government open.  Since when is Ann Coulter allowed to blackmail a President?   Well, a weak one like this one, concerned primarily with self-image, is evidently easily blackmailed.
  • A $6 billion partial wall is a stupid expenditure, ill defined, and a waste of money.
    • What would be built for $6 billion, and where?  Trump has not defined this, and this is a glaring omission as the entire wall is estimated to cost $20 billion plus depending on the estimate, would take years to build, and may not even be feasible to build given land rights around the border.  What and where would $6 billion build?
    • And how does this fit with the rest of the wall?  Is that the next demand?
    • Even the entire wall, at $20 billion plus or more, depending on estimates, has many conceptual issues as a preventative structure.  As a result, the President has wavered in how he describes it, because even he realizes that careful examination of what it would look like, how it would be constructed and where, are unsettled issues.   If you are really concerned with physical border security, why not have experts define it, not a campaign slogan.
    • This President doesn’t rely on experts to define the best methods to an end.  We should not trust him with this Project even if we think it is a worthwhile idea.
    • Fully 50% of the illegal entrants into the US, fly in and overstay their visas.
  • The “wall” really is a substitute for an intelligent comprehensive debate on immigration.  Support the Center believes in skills-based immigration such as Canada and Australia emphasize.  This means letting in highly skilled people but also some less skilled, but hard working, workers either with a planned path to citizenship or as temporary workers with safeguards to prevent them from going illegal.It is possible Trump believes in skill based immigration as well, but as long as he keeps harping on degrading Mexicans as rapists to appeal to his base and our basest emotions, we cannot get to the real policy debate.  Letting Trump have the wall will allow him and Democrats and Republicans avoid an intelligent, comprehensive debate about who we should allow to settle in America.  It all can be done without lying, putting down non-white peoples, and unnecessarily dividing the country.

So, to conclude, rational citizens and politicians need to take a firm stand against disruption of  routine appropriations that keep government going.   And when the cause is a stupid one (as Trump proposes it – an unfinished, undefined $6 billion waste of taxpayer dollars to support a racist idea), Democrats need to dig in and completely deny Trump’s demands.

US Government Budget and Deficits – The US is on an Unsustainable Path, Which Only Centrist Policies Can Correct

by

No topic is more fraught with misunderstanding than one about fiscal responsibility and the Federal Government.  We outline several areas of misunderstanding, and some perspective and a framework to be used to guide the discussion.

Where Does the Money Go?

There is a lack of understanding of where our Government spends its (our) money and the tough choices that will need to be made to reduce the deficit.  I will never forget when Jillie and Marko (the names are changed) came up the driveway and upon seeing their Trump sticker, I asked why they supported him.  “Because I’m tired of our Government spending all it’s money on foreign countries!”  When informed that spending on other governments, including foreign aid, military assistance and humitarian aid is less than 1% of Federal spending and therefore well under .25% of GDP,  Jillie was surprised.  (Despite her surprise, her mind was not changed by mere facts.)

Another misunderstanding is how much money goes to “welfare” defined narrowly as money provided to the non-working poor (but without Medicaid included).  In 2015, about $235BN (<6%) of a $4.11 TN dollar budget could have been classified as welfare under this definition.  About a third of this ($75BN) went to food stamps which support a broad cross-section of the population (44MM at the peak of the Great Recession).  Many who get food stamp assistance are not poor, for example many young people collect food stamps. [Read more…] about US Government Budget and Deficits – The US is on an Unsustainable Path, Which Only Centrist Policies Can Correct

Trump’s Steel and Aluminum Tariff Will Hurt American Workers and Further Damage the International Trading Order

by

Trump is expected to announce steel and aluminum tariffs on 03/08 (today), against the advice of his chief economic advisor (who resigned as a result) and many Republicans in Congress including Paul Ryan, Speaker of the House.

Trump supporters, Steve Bannon, big steel and steelworkers might tout that we are finally striking back at China’s dumping of steel, but the implementation of these tariffs is so clumsy, so devoid of strategy, so ignorant of basic economic theory and practice, and so offensive to our allies who might otherwise be able to help our cause in this case, that the harm will surely outweigh the good.   And this is true even if no retaliation against US products takes place, the absence of which is unlikely.

Here are facts about the tariffs and who might be helped by them and who might be hurt: [Read more…] about Trump’s Steel and Aluminum Tariff Will Hurt American Workers and Further Damage the International Trading Order

Economic Growth and Deficit Growth Under the Trump Administration; Uneven Benefits and Unrealistic Promises of Growth; Republicans Favoring Sound FIscal Policy Need to Wake Up to False Promises

by

Over the past 4 months, the Trump Administration and Congress have made their economic policy clear – stimulate the economy to spur more growth at a time of full or near full unemployment.  The theory Trump officials and Congressional Republicans promote is that tax cuts will spur such dramatic economic growth that the deficit impact will be zero.  The CBO does not agree, and as a non-partisan agency, has projected $1.5 trillion in additional deficit, from the tax cuts, over 10 years.

US Unemployment
A Steady Decline in US Unemployment over 9 Years

The Tax Cuts and Jobs Act (TCJA) largely benefits corporations (35% to 21% corporate rate) , pass-through businesses and wealthy individuals.  Here is how the Tax Policy Center of the Urban Institute and Brookings Institute break out the benefits:

In 2018, taxes would be reduced by about $1,600 on average, increasing after-tax incomes 2.2 percent (table 1). Taxes would decline on average across all income groups. Taxpayers in the bottom quintile (those with income less than $25,000) would see an average tax cut of $60, or 0.4 percent of after-tax income. Taxpayers in the middle income quintile (those with income between about $49,000 and $86,000) would receive an average tax cut of about $900, or 1.6 percent of after-tax income. Taxpayers in the 95th to 99th income percentiles (those with income between about $308,000 and $733,000) would benefit the most as a share of after-tax income, with an average tax cut of about $13,500 or 4.1 percent of after-tax income. Taxpayers in the top 1 percent of the income distribution (those with income more than $733,000) would receive an average cut of $51,000, or 3.4 percent of after-tax income.”

Their research indicates that taxpayers in the 95th-100th income percentiles ($300K+ and up) will benefit the most at 4.1%, followed by those in the top 1% who will get 3.4%.  So even on a percentage basis (not absolute dollars), those at the very top are the greates individual benefactors of this reduction.

Another benefit for the very wealthy comes on the estate side.  As Forbes (a conservative publication favoring tax reduction) reports:

The tax bill, passed by the House and Senate yesterday, temporarily doubles the exemption amount for estate, gift and generation-skipping taxes from the $5 million base, set in 2011, to a new $10 million base, good for tax years 2018 through 2025. The exemption is indexed for inflation, so it looks like an individual can shelter $11.2 million in assets from these taxes. Another federal estate law provision called portability lets couples who do proper planning double that exemption. So, a couple could exclude $22.4 million for 2018.

In an upcoming set of interviews with my neighbors in Berrien County (to be soon published on this site), supporters of these cuts shrug off these facts (“Let the Rich be Rich” one said) and project that the benefits to middle class Americans will come through increased incremental business investment.  One said that investment-spurred growth due to the tax reductions will  cover and erase the projected $1.5 trillion deficit.

So let’s assess the growth that will be spurred by the tax cut:

  • Corporations, especially large ones, are sitting on $1.84 trillion in cash in the US as of 07/19/2017, according to Moody’s.  They have had the dollars to invest for years but have not.  Instead they have bought back stock or hoarded the cash.  There may be an incremental incentive to invest if effective rates are now lower due to the new law, but the Companies themselves have said they are likely to reward shareholders first before investing.
  • An argument could be made that if US tax rates have been higher than foreign rates, then changing the playing field so US companies pay the same rates as firms abroad should bring business back to the US from offshore.   But effective business tax rates in the US have not been much higher than OECD tax rates, even before the corporate rate reduction.  As an article in Forbes (“The Truth About Corporate Tax Rates”) by Martin Sullivan, 3/25/15, concludes:

    The bottom line: The conclusion reached by the CRS report is more accurate than that of the Business Roundtable. On average, the foreign effective tax rate is not much lower than the U.S. domestic tax rate.

    (Note that Forbes generally supports tax reductions.)

    It is a gamble to say that US investment versus offshore investment will increase due to these tax reductions.

  • Partnerships, generally smaller than public corporations, will benefit from pass-through provisions of the bill.  While surveys show some of these firms will increase investment, the question is how many and how much:

So some increase in hiring and investment is likely, but not enough to offset the likely increase in deficit spending.

  • In a full employment economy, with overheating, there is a risk that inflationary pressures or asset inflation (“bubbles”) will grow and that the Federal Reserve will raise interest rates to choke it off.   Over the past two decades, the supply of goods in the world economy has had a moderating effect on inflation.  But as worker supply in the US gets tighter, and if wages increase as a result, it is uncertain as to whether businesses will absorb lower margins or raise prices to consumers.If the former, workers could benefit for the first time in several decades if wages increase.

    If the latter, the economy could head for a recession, as inflation spikes and the Federal Reserve reacts.  This is a risk to growth.

The Trump administration has taken other steps, some of which support and some of which could  hurt the economy:

  • Regulations have been loosened, but these primarily impact extractive industries such as coal, oil and gas.   These industries already were booming based on market pricing.  Market price is the biggest determinate of investment in these industries. not these regulations.
  • Immigration restrictions have already caused agricultural labor shortages in California, Michigan and other places.  This is a drag on the economy.
  • The infrastructure initiative just announced could add to overall economic demand but it’s structure relies heavily on States, who are already overburdened.  This program overpromises and is likely to under-deliver, but could be another source of overheating the economy, this time through spending.
  • This past week, on 3/1, the President announced tariffs to be imposed on aluminum and steel.  Besides alienating allies and damaging the reputation of the US vis a vis the trading order it has established, experts believe substantial damage can occur to the US economy if a trade war breaks out.
  • Productivity growth cannot be predicted to rise due to these tax reductions.  There are no direct incentives to investment in the Trump tax cuts.  In recent years, productivity has been unpredictable.

Summary:

  • The tax reductions inordinately benefit the top 5% and 1% of tax payers.
  • It is optimistic to believe that deficits incurred by the Trump tax bill will pay for themselves when we look closely at sources of growth and risks in an economy already at full employment.  As explained above, there are positive factors (better business confidence, lower business taxes for pass-through structures) and negative factors (immigration restrictions, a looming trade war, full employment with wage increases possible) that counter balance each other, making it unlikely that growth will accelerate dramatically over the next few years for a full 10 year run.  The risk of at least one recession in those 10 years is substantial.
  • It has to be kept in mind that any increase in deficits (the $1.5 trillion projected or something less) will be paid for by the general US public. This increase in US debt is not free, especially as rates rise.  When it needs to be paid off, it is likely that the middle class will bear the brunt, either from reduced services or benefits, or through tax increases, or both.  It is notable that Paul Ryan has already begun to talk about cutting middle class entitlements (such as Social Security and Medicare).
  • The middle class and the US as a whole will be a long-term loser due to the long-run negative impacts of this bill on the fiscal health of the US.

True Republicans and fiscal conservatives (this author among them) need to oppose the damage being done to our fiscal health by this bill, and push  for its repeal.

Trump’s Protectionist Threat is a Threat to the US Economy

by

President Trump keeps on mentioning the surpluses or deficits that we have with specific trading partners.  Recently he mentioned Norway’s prime minister that the US has a surplus with that country.  He is disturbed with the deficit the US has with Mexico.  NAFTA negotiations are in danger as the US proposes unilateral terms that won’t be accepted by either Canada or Mexico.

Trump has threatened outright protectionism – tariffs or taxes reducing the flow of trade in order to erase deficits or increase surpluses.

Here is the problem with US protectionism: [Read more…] about Trump’s Protectionist Threat is a Threat to the US Economy

Trump’s Mistake – Withdrawing from the Paris Accords

by

In his 6/1 Paris Accords withdrawal announcement, President Trump ignored most of his advisors, including his Secretaries of Defense, State and Treasury (but not his EPA advisor who agreed with withdrawal).   These advisors understood that a decision to withdraw from the Paris Accords would represent one more blow to America’s role as a world leader and would further loosen the binding ties between the US and our European and Asian allies.  Combined with the damage from Trump’s NATO visit, and withdrawal from the TPP, grave damage has been done to US standing in the world.   This is not just symbolic; soft power and influence should not be underestimated as tools in promoting alliances keeping in place rules and institutions established by the US over the past 70 years.   These institutions have formed a framework for world peace and relative financial stability.   Given the fragile state of world order (exacerbated in part by poor policies of the Bush and Obama administrations, one too aggressive, the other too timid), further disorder caused by a bullying and isolated US will not likely benefit US interests in the long run.

But back to the Paris Accords. [Read more…] about Trump’s Mistake – Withdrawing from the Paris Accords