As Inauguration Day approaches on Friday as I write, I sense that most Americans (and probably others) are resigned to the fact that Donald Trump is about to become President of the United States. Cognitive dissonance being what it is, since the morn of November 9 many have also been busily discounting the potential downside of that onrushing reality.
Fine. People do what they need to do. Some take comfort in the fact that several of Trump’s cabinet choices are not as scary as he is, but what is anyone to make of the fact that the better choices flat out disagree with most of the President’s own high-profile policy pronouncements—on Mexican walls, NATO and Europe, the Iran Deal, a Muslim immigration ban, and more besides? Some take comfort in assuming the strength of American institutions, legal and otherwise, in preventing an unfit man from running the ship of state aground. Some opine that Trump is no more outré politically than was Ronald Reagan in 1980–81, and, predictable liberal whining notwithstanding, that didn’t turn out so bad after all. So, the intimation goes, neither will this. Others just pray in very general terms.
But here’s the problem for at least a few of us: If you know how cognitive dissonance works, then you are liable to be aware of the historically oft-rehearsed process of delusional fear abatement—and then, alakazam!, it no longer works. That’s my problem: way too much post-grad psych and history reading. Alas, truth does not always set you free; it’s as likely to help deplete your single malt stock.
No matter how hard I try, I cannot make myself forget about the palliating blather so many American, British, and other intellectuals mouthed about Mussolini, Hitler, and Stalin in the interwar period—not that Donald Trump is a serious enough man to measure up potentially to quite that scale of evil. But the underlying similarity remains: Dishonest or simply mad speech is the smoke indicating the fire of dishonest and mad acts both past and prospective.
So I am afraid, but my fear is oddly schizophrenic. On the one hand, I am afraid that Trump will blunder in ways that make the long-term damage to the reputation of American institutions already done by his mere election (remember Watergate?) much worse. He could further emaciate America’s ever-anemic social idea, worsen class, racial, and ethnic tensions, inadvertently harm the economy, further derange a skittish international security environment, and even cause a major war. So when mentally surface-dwelling people, mostly Republicans in my recent experience, say they “want Trump to succeed” because a “failed presidency” is bad for the nation, I recall Simone Weil’s observation that “it is better to fail than to succeed in doing harm.”
On the other hand, there is plenty of low-hanging fruit that any non-Democratic Administration could have picked, some of which even a Hillary Clinton Administration might have picked. So many areas of American public policy are dysfunctional that vast improvements can be had with relative ease now that one party controls the Oval Office and both houses of Congress, and, to some extent, that would also have been the case had the party been the Democrats instead of the Republicans. That’s so because in many areas the extent of dysfunction is so obvious and extreme—take the tax code, for example—that even ideologically tilted solutions are better than no solutions at all.
Some of these dysfunctions are the thorns of plutocratic abuses long plied by the elites of both major parties, and here again the tax code is probably Exhibit A. Others we suffer thanks to the legacy political correctness manias of market fundamentalists to the one side and progressive social authoritarian engineers to the other; here the vast array of regulatory regimes, more than the tax code, is implicated. Back in the late 1990s, it was the politically/theoretically correct thing for market fundamentalists, Democrats as well as Republicans, to repeal Glass-Steagall and free capital as well as goods and services to roam globally. And it’s been the politically/ideologically correct thing for empowered progressives over the past eight years to drive the last vestiges of Abrahamic religious traditions, including the conjugal definition of marriage, out of town on a rail, closely followed by the exile of individual agency and responsibility at the hands of identity politics preachers shouting about ”structural violence” and other magical incantations. Between these two ahistorical, common-senseless anvil halves, American society has been all but smashed to bits.
For present, practical purposes it doesn’t really matter where the problems come from. It is what it is, and we are where we are. If, for example, Donald Trump et al. can reduce the extortionary tax burdens that middle-class Americans and small businesses bear, radically simplify the rest of the tax code so as to force hordes of parasitic lawyers and accountants to (perhaps) get productive jobs, avoid insulting the native intelligence and sentiments of less-than-college-educated people, and manage to avoid a nuclear war—whatever other nefarious things they may do—they can probably get re-elected forever. And in a coldblooded political way they would deserve their triumph.
In short, I’m afraid that a Trump Administration might succeed well enough in some ways to fail disastrously in others, even if it takes eight ultimately miserable years for it to do so.
I’m totally serious about taxes and the inadvertent economic damage that a Trump Administration may do, for the two zones seem to me to overlap.
As to the former, let me just note two recent personal experiences. First, I received my first monthly salary payment for teaching a course on the side of my day job here at TAI. The gross amount of the salary was $2,500; the net after taxes came out to $1,703.12. And that’s not the whole numbers story, for that nearly $800 in disappeared income includes only Federal and District of Colombia jurisdictions; in due course the State of Maryland, where I live, will also take a bite out of my apple. How much of the various Federal taxes I paid on that money will come back to me one day in Social Security or Medicare benefits? Some, but it’s hard to say how much; for practical purposes, that money is as long gone to me psychologically as the rest of my taxes—and I am no different in this regard from most people.
Numbers aside, it’s when I apply what I know about government bureaucracies (having worked in one) that I really get steamed. If government bureaucracies at any level actually provided services worth their budgets, that would be one thing. But they don’t. That is not entirely the fault of the bureaucracies, at least not in the United States. Between the layers of the federal system, the incoherent and self-contradictory laws that legislatures pass, and the overweening legal constraints placed on executive prerogative below the top levels, it’s a wonder that most bureaucracies produce any services at all. That said, the craven, self-satisfied featherbedding that goes on, via public service unions in the civil service and other forms of public bureaucracy, doesn’t help. Public service unions cannot be justified under any form of democratic theory, and in the main have just become adjuncts to a new spoils system.
I know what I’m getting from that tax bite, and for damned sure it’s not worth anything close to $800. I know it, you know, and every working man and woman not part of the spoils system knows it. And that’s why radical tax reform stands to be so popular: It’s about the money, sure, but even more it’s about fairness and about what it feels like to get fleeced over and over and over again by people whose names you never learn and whose faces you never see.
Now second, unlike most Americans, I happen to be the president of a corporation. Keep laughing, go right ahead and enjoy yourself. I don’t mind, because it really is sort of funny, since my business aptitude is, I would estimate, on a rough par with that of Yosemite Sam. But it’s also true, and, as Damon Runyon used to say, “a story goes with it.”
My paternal grandfather bought a lot of downtown Washington real estate, some residential and some commercial, during the Depression. He and my grandma were immigrants, so this was no small thing to them. Also not small was the family they sprouted: ten children—nine boys and one girl. To make a long story shorter, my grandpa incorporated his properties, first to keep his widow in groceries after his passing, and then, second, to keep the family together after her passing. The first part of the plan worked: My grandma never wanted for anything during the decade she outlived her husband. The second part of the plan, not so much.
All the brothers got along but the women they married did not. Before long, the family divided against itself, with those who wanted to re-invest the profits and grow the business at loggerheads with those who wanted to rake out as much dividend cash as they could. It got so bad that the brothers—my paternal uncles—decided to sell off the properties and euthanize the corporation. They sold off quite a bit just before the 1968 riots tanked downtown property values for some time—but not everything. In due course, some of my older first cousins took to running what was left, and after my father passed away in 1983, I, as an only child, benefitted from his share. We’re not talking great gobs of money here—maybe $3,500-$4,000 or so a year—but that was a cash kick much appreciated as my wife and I wrestled with private school tuition and other expenses.
Alas, my older first cousins sold off some more property, which was good, but they also got pretty old, which is neither good nor bad but just the way things go. So my cousin Erwin looked around for someone to take over when his legs and back and memory began to play unfunny tricks on him. That person had to be a stockholder, had to be in the DC area, and apparently had to be stupid enough to allow his arm to be sufficiently twisted to agree. To say that I ran unopposed doesn’t really capture the essence.
Since becoming president of the family corporation, there have been two and only two sources of revenue, producing exactly the same amount of money each year. The corporation pays taxes to the Federal government, the District of Columbia government since it is incorporated in Washington, and to the State of Maryland because one of the properties, a small share of an LLC, is located in Annapolis. We have been in the custom of distributing a dividend once a year, in January. It has become a clerically ornate process for small pieces of money, since the original nine brothers/shareholders are all deceased, and their shares got divided down among children and now also grandchildren. So where once nine checks needed to be written each year, now 25 checks need to be written.
Back when my Cousin Erwin was running the corporation, he once tried to transform it from a normal corporation into an S-Corporation—essentially a partnership arrangement—in order to prospectively save money on taxes. The effort failed because the family as a whole is afflicted with APDS (Acquired Postal Deficiency Syndrome). Erwin could not get enough of the shareholders to sign a piece of paper and return it to him to effect the legal change. He could simply have told everyone that they would receive no more dividend money until they returned the right form with their signature, but he apparently did not think of that at the time, and so it never happened. That is a shame, and here is why.
One of the assets the corporation has had in recent years is a pair of notes on adjacent properties on Florida Avenue, NW. The corporation essentially acted as a bank, loaning the buyer the money to purchase the properties. We were getting principal and interest off the amortization schedules from that loan like clockwork each month until, early last month, the borrower decided that he wanted to pay off the remaining principal—slightly shy of $114,000. Compared to the corporation’s paltry annual income of about $40,000, that’s a lot of money. So we did that, and then my Cousin Mo, our treasurer, and I decided to hold back some of that money from the dividend to make sure we could cover the taxes on it down the road. We asked our accountant to estimate what the total tax liability on $114,000 would be at current rates, and his answer was about $45,000.
The Fed’s rate is 35 percent, which is what shrimpy little businesses like ours have to pay, since we’re not big enough to take advantage of the thousands of loopholes written into the code for the comfort of the big guys. But then we have to pay DC and Maryland, too, on top of that for doing for us, as best we can understand, pretty much nothing. This is important, because every person and every business is located somewhere, in some tax jurisdiction, and with few exceptions that jurisdiction levies taxes. Moreover, the Federal government, the State of Maryland, and the District of Columbia all use the full gross basis as the taxable amount, when a reasonable and logical argument exists for Maryland taxing what’s left after the Feds’ share, and the District taxing only what’s left now twice over after Maryland’s share. But that’s not how it works. So it is utterly misleading for some analysts to cite the Federal tax rates alone to make policy points when those rates are only part of the tax load on small businesses in the real world.
Anyone who thinks that a tax of $45,000 on a basis of $114,000 in earnings is a remotely fair share for government is, in my estimation, certifiable. Now, for our dinky residua of a corporation it really doesn’t matter all that much, because none of the stockholders depends on it as a day-job—besides which it’s all cash gravy since the investment and the brainwork that brings us this money in the first place, such as it is, are the work of a man who has been dead since March 1945. But this episode helps me understand the small business owners who do depend on their enterprises for a day-job, and if I were such a person I think I’d be more or less permanently pissed off. It’s not enough to make me a Republican—nothing, I feel safe in saying, could do that. But it’s sometimes enough to make me want to reach for that bottle of single malt.
So let’s say that the new Administration in league with Congress slashes personal Federal tax rates and drops the corporate tax rate from 35 percent down to a prospective 20 percent. (The Ryan-Brady proposal would do much more than that in structural terms, and what I know about it so far I tend to like.) I would be dishonest if I claimed I did not look forward to this. I do. But I am looking with eyes as wide open as I can pry them.
What are individuals and businesses going to do with these tax savings? The stock answer is that they’re going to spend and invest and hence superboost the economy, which, along with selective deregulation and a lot of government defense and infrastructure spending, will thereby create lots of new jobs. Maybe so; maybe not so: Aggregate demand levels do not really obey simple laws. At the same time, in anticipation of that result, money from within the U.S. economy and from abroad has been flooding into the stock market since November 9—although it reportedly has begun to slow down as Inauguration Day approaches.
That pulse of arguably irrational exuberance has been increasing bond yields, which helps overpromised pension funds to some extent. But where has all that money been going? Or, to put it another way, are there enough sound investments to accommodate this sudden rush of money, with more to come? If not, are we about to see another bubble—even if not in real estate this time—another sheeple-driven boom-bust cycle?
I’m not an expert on such matters, so between me and Yosemite we just can’t be sure. But in a deeply cronyized economy, I’m thinking, oh, could be. That then raises the obvious question: Could another financial crisis—and why not, since Wall Street is more concentrated today than it was in 2007, despite being less manic about securitizing toxic assets?—wipe out any economic gains generated by a tax cut and then some? You bet it could. And that’s not even figuring in wage erosion from more inflation if the economy is pump-primed too vigorously, and consumer cost increases from the crossfire of trade wars the new President seems determined to start.
So a kind of schizophrenia again ricochets around inside my head: I’ll just love the tax breaks coming my way; I intend to pocket them and then duck down real, real low.