Republican Tax Plan (a nothingburger with cheese)

[B-Man]

TRUMP Goes Around Do-Nothing Republican Leaders and Strikes Debt Limit Deal with Pelosi-Schumer

 

President Trump shocked Republican leaders with the announcement.

 

Republicans in Congress have been unable to keep campaign promises and pass legislation this year to help working Americans.

Politico reported:

President Donald Trump on Wednesday defied Republican leaders and agreed to Democrats’ demands to raise the debt limit and fund the government for three months, setting up a brutal year-end fiscal cliff.

 

During a meeting with congressional leaders at the White House, Trump surprised his GOP colleagues when he granted Democrats’ request that Republicans pass a Hurricane Harvey relief package with a three-month debt increase. Top White House officials and GOP leaders had spent the past few days urging Republicans to raise the debt ceiling through the 2018 midterm election.

 

 

 

 

 

 

 

Schumer, Pelosi thrilled Trump ‘went with the better argument’ on debt limit increase

​Why are they surprised ? don't tell me that they believed their own spin about who and what Trump is ?..

 

 

.

Edited September 6, 2017 by B-Man

[Nanker]

They made a deal with Hitler! The Nazis!

Edited September 6, 2017 by Nanker

[ALF]

Looks like Trump owes the democrats a big favor now . I would guess keeping DACA . The art of the deal , which is good give and take. I like it

[DC Tom]

..Trump surprised his GOP colleagues when he granted Democrats’ request that Republicans pass...

 

 

Wait...how's that work again?

[B-Man]

They made a deal with Hitler! The Nazis!

 

[Kelly the Dog]

A certifiable ignorant ass__hole Trump makes a deal with the two most slimeball, squirrelly disingenuous Democrats (and there is a LOT of fierce competition for that prize)...

 

What could possibly go wrong?

[B-Man]

Trump isn't a Rubix cube.

 

Kiss his ass, he'll love you.

 

Rip him, he'll target you.

 

Policy is secondary

[Kelly the Dog]

Trump isn't a Rubix cube.

 

Kiss his ass, he'll love you.

 

Rip him, he'll target you.

 

Policy is secondary

Which is exactly what we need at this time from the leader of the free world.

[DC Tom]

Trump isn't a Rubix cube.

 

Kiss his ass, he'll love you.

 

Rip him, he'll target you.

 

Policy is secondary

 

And a Rubik's cube has five colors other than orange.

[TPS]

 

Feels like we've been through this before.

 

Spending in excess of taxes (deficits) only generates surpluses (wealth) for the private sector if there are productivity gains in the private sector or there's successful investment by the private sector to generate new products & services.

 

If your argument is that governments sometimes provide a needed liquidity boost when there's a hiccup in usually well-functioning markets to stabilize a potential calamity, then we agree. But if your argument is that simply throwing money at a problem will stimulate growth out of the sky, then we definitely don't agree.

I think we've been through all economic topics before and before that....

 

The accounting identity from national income accounts: (S-I)=(G-T) + NX

Each ( ) measures the sector's annual surplus or deficit: any sector that spends more than its income is borrowing from the other sectors. Simplify and assume NX=0. A government deficit of $100 (G>T) means S>I by $100, a private sector (business + households) surplus. Government's deficit creates $100 in financial wealth (government bonds) for the private sector. This annual flow has nothing to do with productivity, but it does increase the demand for goods and services, increasing sales.

 

The identity doesn't claim causality. Government actions can influence private sector balances, and private sector actions can influence the government's budget. Two examples: the housing bubble increased borrowing for mortgages and HELOCs, putting the private sector into deficit, but that stimulated a lot of economic activity, driving down the unemployment rate and generating a lot of tax revenue, reducing government's deficit; after the crisis, the tax revenue effect went in reverse, and along with the Obama stimulus, trillion dollar deficits helped turn private sector deficits into huge surpluses.

[GG]

I think we've been through all economic topics before and before that....

 

The accounting identity from national income accounts: (S-I)=(G-T) + NX

Each ( ) measures the sector's annual surplus or deficit: any sector that spends more than its income is borrowing from the other sectors. Simplify and assume NX=0. A government deficit of $100 (G>T) means S>I by $100, a private sector (business + households) surplus. Government's deficit creates $100 in financial wealth (government bonds) for the private sector. This annual flow has nothing to do with productivity, but it does increase the demand for goods and services, increasing sales.

 

The identity doesn't claim causality. Government actions can influence private sector balances, and private sector actions can influence the government's budget. Two examples: the housing bubble increased borrowing for mortgages and HELOCs, putting the private sector into deficit, but that stimulated a lot of economic activity, driving down the unemployment rate and generating a lot of tax revenue, reducing government's deficit; after the crisis, the tax revenue effect went in reverse, and along with the Obama stimulus, trillion dollar deficits helped turn private sector deficits into huge surpluses.

 

Then why hasn't Zimbabwe printed its way into prosperity.

 

Your example works only if there's a productive economy utilizing the liquidity that the central bank is creating. The central bank doesn't create wealth. It provides liquidity to the banks to lend. But, if there's no wealth being created in the private economy, the incentive for the private banks to lend disappears because there's nothing new to lend against and all that central bank liquidity is just paper sloshing around.

[Magox]

Time to merge this thread with the "Global Warming is a Hoax" thread....

Just admit it, you have no idea of what is being discussed here

[Magox]

There would be no larger house of cards economic system than what the MMT proponents would want. Basically they are saying that there is no need for Bond issuance and taxation to raise revenues because the U.S. government could print it and pay for services and products. Which in turn would create economic output and serve as a feedback loop of sorts. Therefore deficits don't matter. Which over a period of time here in the U.S would probably work.

 

The problem with this is that the assumption is that everyone will continue to hold their assets in dollars or continue making dollar based transactions.

 

If everyone keeps playing the same game, the game continues. Once the music stops, it all comes crashing down.

 

So what would trigger This? And who cares if technically the MMT proponents could be right if the everyone continued holding and transacting in US dollars that everything would be A Ok.

 

What if another country begins to have a currency that is seen as more stable and asset allocation begins to shift in that direction? Or investors move into hard assets? Or bonds backed by countries practicing safer sound economic policies increasingly come into higher demand?

 

In regards to transactions everything is done through credit cards now a days. They don't have to be done in dollars because the currency conversions happen instantaneously, so visitors from abroad aren't reliant on US dollars. As a matter of fact there is nothing holding anyone back to maintaining their holdings in US dollars.

 

Their whole argument is that the U.S will always be the top dog, that the U.S dollar will always be the best game in town and through our continuous spending, reserve currency status, disregard for debt because it doesn't matter since we can print the money and cover the debt and promises of growth that investors, merchants what have you will continue to hold assets and maintain their transactions in U.S dollars.

 

The fall of the house of cards wouldn't be overnight that's for sure. Slowly but surely asset reallocation would occur and the reliance of US dollars would diminish, other safer alternatives would emerge bit even that wouldn't do it.

 

It would take a run-on-the-bank sort of panic like what we saw with Lehman to bring the party to a halt. If there is no foundation then it won't be able to weather a great storm.

Edited September 7, 2017 by Magox

[Deranged Rhino]

Doing a drive by:

 

The problem with this is that the assumption is that everyone will continue to hold their assets in dollars or continue making dollar based transactions.

If everyone keeps playing the same game, the game continues. Once the music stops, it all comes crashing down.

 

This "assumption" has been the underlying motivation of our foreign policy decisions since at least 1975 when OPEC tied the dollar to oil...

 

Economic hegemony by force.

 

It's also why any new energy technology has been seen as a national security threat to the US government for the past 40 years.

[Dr.Sack]

There would be no larger house of cards economic system than what the MMT proponents would want. Basically they are saying that there is no need for Bond issuance and taxation to raise revenues because the U.S. government could print it and pay for services and products. Which in turn would create economic output and serve as a feedback loop of sorts. Therefore deficits don't matter. Which over a period of time here in the U.S would probably work.

 

******this is patently false. MMT says deficits within reason are okay so long as hyper-inflation is avoided. Taxes can be lowered if it leads to greater economic growth hence taxes will inevitably grow with it.****

 

The problem with this is that the assumption is that everyone will continue to hold their assets in dollars or continue making dollar based transactions.

 

***In MMT so long as the USD is the the only acceptable currency to distinguish taxes then there's no worry. As far as demand for U.S. debt the Chinese could re-evaluate their currency tomorrow, but would be playing economic suicide. They will continue buying US T-Bills and accepting USD for the goods they manufacture for our markets.***

 

If everyone keeps playing the same game, the game continues. Once the music stops, it all comes crashing down.

 

***With the power of the world's largest military, and most sophisticated Central Bank, that's likely not going to be us. And keep in mind systems are designed to crash.***

 

So what would trigger This? And who cares if technically the MMT proponents could be right if the everyone continued holding and transacting in US dollars that everything would be A Ok.

 

***the USD is used 64% used as the reserve currency. The EURO is lagging and the Chinese yuan is a new entrant. China & Russia signed a currency swap in 2015, we should embrace economic competition. The more the yuan appreciates the quicker we get back to exporting.***

 

What if another country begins to have a currency that is seen as more stable and asset allocation begins to shift in that direction? Or investors move into hard assets? Or bonds backed by countries practicing safer sound economic policies increasingly come into higher demand?

 

***The Chinese yuan is the only viable competitor, and they are a command economy with stifling central planning. It should be pointed out that every major currency we compete against has more "socialism" than we do, as far as government involvement in spending as a % of GDP.***

 

In regards to transactions everything is done through credit cards now a days. They don't have to be done in dollars because the currency conversions happen instantaneously, so visitors from abroad aren't reliant on US dollars. As a matter of fact there is nothing holding anyone back to maintaining their holdings in US dollars.

 

***Consumers household credit although large represents a fragment of the economy, when looking at international currency exchange. This really isn't a valid point.***

 

Their whole argument is that the U.S will always be the top dog, that the U.S dollar will always be the best game in town and through our continuous spending, reserve currency status, disregard for debt because it doesn't matter since we can print the money and cover the debt and promises of growth that investors, merchants what have you will continue to hold assets and maintain their transactions in U.S dollars.

 

***Again as long as Congress, the Treasury and the Fed can work out a suitable and sustainable growh rate - they could easily achieve a targeted inflation rate using TPS formula of Govt spending less revenue. This is also not taking into consideration the role of private sector debt, something post-Keynesian economists are sure to point was THE contributing factor of the 2007/2008 GFC.***

 

The fall of the house of cards wouldn't be overnight that's for sure. Slowly but surely asset reallocation would occur and the reliance of US dollars would diminish, other safer alternatives would emerge bit even that wouldn't do it.

 

***Japan, The Euro, UK, China, all have universal healthcare and public sector debt levels higher than the U.S., yet they sustain their economies. Yes there are emerging markets like Brazil or S. Africa but they are decades behind the U.S.***

 

It would take a run-on-the-bank sort of panic like what we saw with Lehman to bring the party to a halt. If there is no foundation then it won't be able to weather a great storm.

 

***The banks weren't run on, so much as Wall Street essentially foreclosed on itself. Lehman was the chosen loser, but the business model of CDOs/MBSs, derivatives, meant that the possibility someone was going to lose was highly probable. Again let's not confuse solid central bank monetary policy with private sector banking, or as some say 'casino capitalism'.***

 

 

Edited September 7, 2017 by Dr.Sack

[ALF]

Fact Checker Analysis

Ted Cruz’s claim that two-thirds of the Hurricane Sandy bill ‘had nothing to do with Sandy’

The help for Sandy came in two parts — an uncontroversial vote in late 2012 for a $9.7 billion increase in the Federal Emergency Management Agency’s borrowing power for flood relief, and then a $50.5 billion package that was approved in January 2013, without the votes of Texas Republicans (or many Republicans).

Many Republicans said that the emergency spending should have been offset by cuts elsewhere. House Speaker Paul D. Ryan (R-Wis.), at the time chairman of the Budget Committee, was one arguing the money needed to be offset. “This legislative abuse is an insult to families facing real emergencies in the wake of the storm,” he declared.

So was the $50 billion bill filled with pork — two-thirds of which was unrelated to Sandy?

No.

The Congressional Research Service issued a comprehensive report on the provisions, and it’s clear that virtually all of it was related to the damage caused by Sandy. There may have been some pork in an earlier Senate version, but many of those items were removed before final passage. There were also some items that appear to have been misunderstood.

https://www.washingtonpost.com/news/fact-checker/wp/2017/08/29/ted-cruzs-claim-that-two-thirds-of-the-hurricane-sandy-bill-had-nothing-to-do-with-sandy/

[ALF]

Why Sequestration Is Poised to Kill Trump's Budget

One might think that Trump’s proposal would be easily pass through the Republican Congress, as it expands the security budget and winnows much of the rest of the government. Many Republicans are defense hawks seeking more money to fight ISIS and modernize the armed forces. Many others are budget hawks bent on cutting Washington down to size.

Yet the proposal is dead on arrival. To appropriate funding as the White House wants, Trump would need to repeal or subvert sequestration.

https://www.theatlantic.com/politics/archive/2017/03/donald-trump-meet-sequestration/519798/

[Magox]

 

There would be no larger house of cards economic system than what the MMT proponents would want. Basically they are saying that there is no need for Bond issuance and taxation to raise revenues because the U.S. government could print it and pay for services and products. Which in turn would create economic output and serve as a feedback loop of sorts. Therefore deficits don't matter. Which over a period of time here in the U.S would probably work.

 

******this is patently false. MMT says deficits within reason are okay so long as hyper-inflation is avoided. Taxes can be lowered if it leads to greater economic growth hence taxes will inevitably grow with it.****

 

The problem with this is that the assumption is that everyone will continue to hold their assets in dollars or continue making dollar based transactions.

 

***In MMT so long as the USD is the the only acceptable currency to distinguish taxes then there's no worry. As far as demand for U.S. debt the Chinese could re-evaluate their currency tomorrow, but would be playing economic suicide. They will continue buying US T-Bills and accepting USD for the goods they manufacture for our markets.***

 

If everyone keeps playing the same game, the game continues. Once the music stops, it all comes crashing down.

 

***With the power of the world's largest military, and most sophisticated Central Bank, that's likely not going to be us. And keep in mind systems are designed to crash.***

 

So what would trigger This? And who cares if technically the MMT proponents could be right if the everyone continued holding and transacting in US dollars that everything would be A Ok.

 

***the USD is used 64% used as the reserve currency. The EURO is lagging and the Chinese yuan is a new entrant. China & Russia signed a currency swap in 2015, we should embrace economic competition. The more the yuan appreciates the quicker we get back to exporting.***

 

What if another country begins to have a currency that is seen as more stable and asset allocation begins to shift in that direction? Or investors move into hard assets? Or bonds backed by countries practicing safer sound economic policies increasingly come into higher demand?

 

***The Chinese yuan is the only viable competitor, and they are a command economy with stifling central planning. It should be pointed out that every major currency we compete against has more "socialism" than we do, as far as government involvement in spending as a % of GDP.***

 

In regards to transactions everything is done through credit cards now a days. They don't have to be done in dollars because the currency conversions happen instantaneously, so visitors from abroad aren't reliant on US dollars. As a matter of fact there is nothing holding anyone back to maintaining their holdings in US dollars.

 

***Consumers household credit although large represents a fragment of the economy, when looking at international currency exchange. This really isn't a valid point.***

 

Their whole argument is that the U.S will always be the top dog, that the U.S dollar will always be the best game in town and through our continuous spending, reserve currency status, disregard for debt because it doesn't matter since we can print the money and cover the debt and promises of growth that investors, merchants what have you will continue to hold assets and maintain their transactions in U.S dollars.

 

***Again as long as Congress, the Treasury and the Fed can work out a suitable and sustainable growh rate - they could easily achieve a targeted inflation rate using TPS formula of Govt spending less revenue. This is also not taking into consideration the role of private sector debt, something post-Keynesian economists are sure to point was THE contributing factor of the 2007/2008 GFC.***

 

The fall of the house of cards wouldn't be overnight that's for sure. Slowly but surely asset reallocation would occur and the reliance of US dollars would diminish, other safer alternatives would emerge bit even that wouldn't do it.

 

***Japan, The Euro, UK, China, all have universal healthcare and public sector debt levels higher than the U.S., yet they sustain their economies. Yes there are emerging markets like Brazil or S. Africa but they are decades behind the U.S.***

 

It would take a run-on-the-bank sort of panic like what we saw with Lehman to bring the party to a halt. If there is no foundation then it won't be able to weather a great storm.

 

***The banks weren't run on, so much as Wall Street essentially foreclosed on itself. Lehman was the chosen loser, but the business model of CDOs/MBSs, derivatives, meant that the possibility someone was going to lose was highly probable. Again let's not confuse solid central bank monetary policy with private sector banking, or as some say 'casino capitalism'.***

 

 

" MMT says deficits within reason are okay so long as hyper-inflation is avoided. Taxes can be lowered if it leads to greater economic growth hence taxes will inevitably grow with it."

 

So what is "within reason"? How much debt should we be able to run up ? 60% , 100%, 200%, 500% of Debt to GDP? This "within reason" is what we need to know. WIthout properly defining it, this goes nowhere.

 

And since in your own words Taxes destroys money, at what level should taxation lie from where we are right now? You believe there should be taxation not because you believe it is necessary for it's intended purposes of paying for government spending, but you pretty much imply that it's necessary to serve as a check on hyperinflation. Again, this is another vague comment meant to straddle both sides of the argument to shield MMT from the crux of it all. Which is what are the levels of debt and taxation that is allowable?

 

"In MMT so long as the USD is the the only acceptable currency to distinguish taxes then there's no worry. As far as demand for U.S. debt the Chinese could re-evaluate their currency tomorrow, but would be playing economic suicide. They will continue buying US T-Bills and accepting USD for the goods they manufacture for our markets"

 

So as long as the USD is the only "acceptable" currency to distinguish taxes, no worries? What does that even mean? Are you saying the only currency that continues to be in command of Reserve currency status? Also, there is no guarantee that the Chinese would continue buying Treasuries or for that matter any country. Every day that passes by there are more options to diversify, there are more currencies gaining credibility and more work-around options to bypass using the U.S dollar. Countries such as China, Russia and other emerging nations are continuing to lessen their reliance on US dollar based transactions.

 

"With the power of the world's largest military, and most sophisticated Central Bank, that's likely not going to be us. And keep in mind systems are designed to crash"

 

This is just a total disregard of history and assumes that the U.S will always continue to remain in this status. And, "systems are designed to crash" What does this mean? Sounds cute, but put some meat behind it so I can actually grab on to something. Again, these vague statements allow proponents of such radical ideas to attempt to wiggle their way out of really making a detailed case. It's all been generalities and theories.

 

"the USD is used 64% used as the reserve currency. The EURO is lagging and the Chinese yuan is a new entrant. China & Russia signed a currency swap in 2015, we should embrace economic competition. The more the yuan appreciates the quicker we get back to exporting.*

 

Again, this goes under the assumption that the U.S will always hold it's status and dominance. And currency swap agreement doesn't make your case. Economic competition and viability is exactly what would the beginning stages of the house of cards to come crumbling down. Without there being alternative options the game continues, the more viable options available the less reliance to hold and transact in USD.

 

"The Chinese yuan is the only viable competitor, and they are a command economy with stifling central planning. It should be pointed out that every major currency we compete against has more "socialism" than we do, as far as government involvement in spending as a % of GDP."

 

Right now it is, but who says that the gradual degradation of the USD has to come from only the Chinese Yuan? There are so many unforeseen potential triggers, there could be a new currencies formed, wars, debt crisis's that could create severe dislocations and funds could in a massive way in a very short time period from one area to another. Fear is a powerful thing and at some point very important decision makers will look under the hood at the whole model and see if there is a lasting foundation to continue to invest in.

 

*Consumers household credit although large represents a fragment of the economy, when looking at international currency exchange. This really isn't a valid point."

 

I wasn't talking about household credit, go back and reread what I wrote.

 

"Again as long as Congress, the Treasury and the Fed can work out a suitable and sustainable growh rate - they could easily achieve a targeted inflation rate using TPS formula of Govt spending less revenue. This is also not taking into consideration the role of private sector debt, something post-Keynesian economists are sure to point was THE contributing factor of the 2007/2008 GFC"

 

Again, more vagueness. So what is a suitable and sustainable growth rate? You have to consider taxation, debt etc. And the contributing factor to the latest downfall was for a whole host of reasons, anyone who pins it on one point has an agenda they are trying to push. It was a perfect storm of events that was caused by government, greed, malfeasance and a whole host of other reasons and is meant for a separate thread. Which we've discussed on this board ad nauseum. Years back.

 

"Japan, The Euro, UK, China, all have universal healthcare and public sector debt levels higher than the U.S., yet they sustain their economies. Yes there are emerging markets like Brazil or S. Africa but they are decades behind the U.S."

 

What does having Universal healthcare have to do with it? Are you trying to make the point that since they have higher levels of spending and more debt then we really don't have to worry about them competing? Or are you saying that since they are able to have so much spending, it proves that it's a sustainable model? Or are you responding within the context that if the U.S were to go down, these other nations who have higher debt levels would be in danger first? Whatever you are trying to say, I'm pretty sure it goes under the assumption that the U.S is the top dog, so no worries.

 

"The banks weren't run on, so much as Wall Street essentially foreclosed on itself. Lehman was the chosen loser, but the business model of CDOs/MBSs, derivatives, meant that the possibility someone was going to lose was highly probable. Again let's not confuse solid central bank monetary policy with private sector banking, or as some say 'casino capitalism"

 

Of course there was a run on the banks. Not in the most classical sense but in construct. Investors panicked, investors looked under the hood, evaluated viability and other factors and money was pulled and put into different assets primarily U.S treasuries and hard assets. Of course the government picked winners and losers and I was an outspoken critic of the whole deal, even though I do understand why it was done.

 

The point is that you've straddled the lines of fiscal prudence and higher levels of spending. That taxation destroy money but that it needs to be done. You've hedged yourself to defend MMT. Without putting some meat on the bones all we can do is discuss theories via generalities. It goes nowhere.

 

The arrogance that the USD will always be the best game in town and basing the majority of what you are supporting around the thought that the world will continue to keep playing this game shows a lack of historical awareness. There will always be a better game at some point, specially if the game that you are playing is built on a house of cards. Creating money with nothing really backing it at some point is destined to fail, specially if its done on such a large scale. The U.S can get away with it because we are still the best game in town. It won't last forever.

[TPS]

Then why hasn't Zimbabwe printed its way into prosperity.

 

Your example works only if there's a productive economy utilizing the liquidity that the central bank is creating. The central bank doesn't create wealth. It provides liquidity to the banks to lend. But, if there's no wealth being created in the private economy, the incentive for the private banks to lend disappears because there's nothing new to lend against and all that central bank liquidity is just paper sloshing around.

 

as I said, the ability of government to impact an economy via deficits depends on the availability of real resources, labor and physical capital. The US operates at around 80% of its physical capacity, so its resource constraint is usually availability of labor. Zimbabwe may have excess labor, but no excess physical capital. It would be silly to compare similar policy impacts on those two countries.

No one said the CB creates wealth; deficits inject additional demand into the economy. Anything that raises current demand and output stimulates current economic growth. The deficit also provides the "money" to the private sector necessary to purchase the bonds that "finance" the deficits.

[TPS]

Magox,

If you left "MMT" out of your post, the argument doesn't change at all. In other words, the end of the $ as reserve currency will happen regardless of whether we accept MMT or not. When will china, Japan, et al decide to no longer hold US treasuries?

 

A few other things. As I've said, taxes are also necessary to transfer purchasing power from the private sector to government. While MMT focuses on money, any good MMTer will emphasize real resources as the ultimate constraint on production and growth. We are getting closer to the point where additional claims by the government will be inflationary if not accompanied by a reduction of private sector claims (taxes).

 

Our current system of government finance operates as MMT claims, however we don't actively use it as Abba Lerner suggested through his theory of functional finance published in 1943, before any current MMTers were born. He stated we could use fiscal policy to achieve full employment (or reduce inflation) by increased deficit spending. The treasury should sell bonds to the extent they satisfy investor appetites, then print money to "fund" the difference. If inflation is the worry, then reduce deficits through higher taxes and lower spending. Note, the important idea is that deficits should be counter-cyclical, declining (and even in surplus) when at full employment, and rising when the economy slows. With the right set of policies, the deficit and debt would remain at sustainable levels over time.

 

There are of course problems. How do you actively manage the federal budget? You certainly don't want to be constantly toying with tax rates. It can manage demand-side inflation only. Relatedly, if we pursued a policy of full employment, then it would strengthen labor's bargaining position over time, and we certainly can't have workers getting uppity and demanding higher pay...

 

At the heart of MMT, and questions of fiscal policy in general, is political control of the economy To the benefit of a particular class.