MAY 1, 2017


TRUMP TIMES

The Merit Society

Many Americans with independent wealth or with secure, well paid jobs probably think of themselves as well-placed citizens living in the greatest country on earth. They may point to all that they own and to all that they can do as evidence of their special position allowing them to have anything with little monetary restraint upon their particular desires. Their focus is on achievement and exceptional performance. Coming out on top is the ultimate goal. When pursuing economic gain winning is frequently the primary objective.

There is nothing wrong with superior results and outstanding achievements as a measure of human performance. One who has earned great respect and high praise through his or her personal actions deserves public acclaim. We rightly wish such individuals the very best.

There is trouble ahead when extravagant consumption, great financial wealth, and vast property holdings are mistakenly viewed as the unquestioned proof, measurement, and evidence of a superior individual capable of extraordinary performance.

Less than the Best

The executives of Wells Fargo Bank and of United Airlines have been in the news lately. They headed companies where many of their employees held customers and members of the public in contempt and treated those customers very poorly. The wealth of those executives is great. Yet their wealth alone in no way gives evidence of their concern and respect for others. If it did, they would never have set policies that led to such despicable company results.

Does anyone doubt that the command and control of their companies was in the hands of the executives of Wells Fargo Bank or of United Airlines?

I don’t think so.

Stockholders First in America

Until the news turned against them the executives of United Airlines and Wells Fargo Bank no doubt saw themselves as examples of the very best that America has to offer. Now they may think of themselves as misunderstood leaders who never intended by their policies to promote employee actions that harmed their companies and hurt their customers. So what caused the negative fallout? To meet sales quotas thousands of customers at Wells Fargo Bank had new accounts opened that they had never asked for. At United Airlines the need to transport employees led to having a seated customer with a paid seat dragged and thrown off an airplane that had been overbooked and had no seats left for those employees.

To understand the motivations of executives of corporations whose stock is publicly traded one needs to remember Milton Friedman, a US economist who served as a policy advisor to President Ronald Reagan from 1981 to 1989. Mr. Friedman promoted the idea that the primary duty of executives was to serve and to enhance the well-being of stockholders. Since then executive compensation that includes stock options has led those executives to toe the line in pursuit of stockholder value. Rising stock prices, stock splits, stock buy-backs, and regular and rising dividends are the hallmarks of stockholder value. Increasing bottom line profits quarter after quarter, year after year, is the most important measure of executive accomplishment.

When Growth Fails Cut Costs

If sales growth falters and expenses stay the same or rise, to maintain or increase the bottom line there is one option that will work when nothing else does:

Cut expenses to the bone.

Since labor, benefits, and payrolls are always in clear view, the costs of employees are frequently first on the cutting board.

Home of the Brave

I have absolute confidence in the bravery of millions and millions of Americans who rise each day to take on their required tasks that are necessary to support themselves and their families. Many face almost insurmountable odds yet succeed in getting the job done. Their homes are maintained; their children are fed; and their dedication never flags to go forward with what is necessary to successfully continue.

Land of the Free

Where is your freedom?

At work executives command when, where and what you will work on and executives control whether or not you will have a job in the future. There may be a company policy or legal rules that prevent arbitrary firing but in the end the fate of workers is in executive hands.

For most Americans their only real freedom is in their personal lives beyond and outside of their work places. Almost all that is needed to maintain a personal life is available only at a price that requires money to buy. A person without property or savings or a job has no source of income and must rely upon the kindness of others.

It is a rare individual who finds freedom without a job and the income that a job provides.

The Alleged Escape to Self-Employment

There have long been some employees who have viewed self-employment as a possible escape to the demanding time schedule and ever-increasing number of assignments at the employer’s — and especially the corporate — workplace.

For some having enough cash to purchase an ongoing business ready made and already successful a degree of reality may be associated with the self-employment choice. For those starting from scratch as a one-person business with the hope of growing bigger and hiring employees the reality of self-employment may be disappointing for reasons like these:

Uncompensated time spent on administration;
Uncompensated time spent on employee management;
Uncompensated time spent on marketing;
Uncompensated time spent on travel to see customers;
Cost of payroll taxes and employee benefits;
High cost of individual health insurance policies;
Cash flow issues due to late customer payments; and.
Lack of enough revenue to cover an owner’s salary;

Ultimately no business owned by a self-employed person can survive without customers. Those customers are other businesses, governments, and the employees of governments and of other businesses. If other businesses or governments are not hiring employees or are firing employees without hiring new employees, the success of a new businesses conducted by a self-employed owner is unlikely.

Corporate Politicians

Since President Ronald Reagan’s term of office, we have seen the rise of both Democrats and Republicans yet there has not been much economic improvement in the day to day life of middle income and of lower income households under any administration. Where once there were defined benefit pension plans now there are Individual Retirement Accounts and 401Ks or similar arrangements. Where once there were employer health plans with little or no out-of-pocket expenses now there are higher employee costs and health savings accounts. Where once homes were priced at three times annual wages now homes cost ten times annual wages or more. Where once an education was affordable now graduates with vocational, with technical, or with college degrees face the same destiny: Decades of debt payments on educational loans.

The list of changes goes on and on but the pain of new arrangements is evident to all:

Benefit costs to be paid by employees — not employers.

Discounting inflation — wages to remain stagnant.

Stockholders rise, all others buy stock or get out of the way.

The Election of 2016

Faced with only a steady decline in living standards under the prior rule of “traditional” Republicans and of Democrats alike, the response of the “taken for granted” voters from the rust belt and elsewhere in America was clear last November:

No matter what you call yourselves or what you have been offering: Change our lives for the better or get out.

Almost six months have passed since Donald Trump was elected President of the United States.

Leaving aside the shouting and the name calling, the alarms of pending disaster and the calls for impeachment what is President Trump is doing?

Let us consider two recent proposals:

Obamacare Repeal and Replacement Proposal

Repeal of the 3.8% tax on businesses and investment income to support health insurance premium subsidies is mandatory.

Ending regulations mandating coverage or limiting business discretion in the application of the law are mandatory.

The terms of replacement are fully negotiable to the extent necessary to ensure that there are enough votes in the Senate and the House of Representatives to pass the bill to President Trump’s desk for his signature.

This is primarily a tax cut bill first — not a bill offering to all citizens health care access and treatment regardless of personal economic circumstances.

Income Tax Reform Proposal

Elimination of the Alternative Minimum Tax designed so that those who shelter vast amounts of income from taxation would at least pay some taxes in support of the services that the government provides.

Elimination of the Estate Tax designed to prevent vast wealth from being passed down after death from one generation to the next thereby giving the inheritors great advantage over others with whom they will compete in the future economy.

Reduction of the corporate income tax rate from 35% to 15% thereby allowing corporations that have held vast profits overseas for decades to avoid US taxes to now bring those profits home at a greatly reduced cost.

Maximum tax of 15% on business profits that are passed from Subchapter S Corporations and similar organizations to be reported on individual income tax returns.

Reduction of current 7 tax brackets to 3 tax brackets of 10%, 25% and 35% cutting the highest marginal tax rate by 4.6% from the current rate of 39.6%.

Elimination of itemized deductions except for mortgage interest and charitable contributions.

Doubling the standard deduction. For those under 65 the maximum tax savings for married couples filing jointly would be $8,890, the minimum tax savings would be $2,540. For single filers under 65 the maximum tax savings would be $2,222, the minimum tax savings would be $635. Those getting the maximum tax savings would likely have annual taxable income of more than $400,000. Those getting the minimum tax savings would likely have annual taxable income of less than $15,625. Those over 65 would get a slightly higher tax savings ranging from $125 to $438.

__________________________

Where Are We Headed ?

It is too early to tell exactly what will be the final results after President Trump has finished his term in office. However, some idea of what will happen may be suggested by his current proposals as of April, 2017.

Who Reaps the Benefit?

Our discussion is limited to ObamaCare and to Income Tax Reform — both subjects that may impact millions of US citizens.

ObamaCare:

As flawed as ObamaCare may be, one thing is certain:

Millions have health insurance coverage now who will not have it if premium subsidies are ended and premium costs go up.

Some suggest that premiums will go down if the health insurance industry is cut free from regulation of any sort and allowed to compete for the health insurance consumer’s dollars. That may be true for those who are not old, not sick, not living with a preexisting medical condition, and who have enough income to afford what health insurance companies choose to charge. People will pay what health insurance companies ask unless they are too poor or they are so wealthy that they can afford to self-insure themselves for healthcare costs.

So what will happen if Obamacare is repealed?

Those taxed to support ObamaCare costs will have a lot more money in their bank accounts.

Many who are healthy will choose not to buy health insurance.

Those who have too little or no money to pay for health insurance will live without health insurance coverage.

Income Tax Reform:

If passed as proposed, the overall tax savings for those with the highest taxable incomes annually would far exceed any tax savings that may available to middle and lower income households.

Those who favor great tax cuts for the wealthy claim that potential tax savings will be used by the rich to invest in new businesses that will generate new jobs and create a new economic boom.

Critics suggest that tax savings will be used to enhance financial returns to stockholders, to purchase already existing businesses, to invest in stock market and bond market speculation, or to increase the cash position on company balance sheets.

Making America Great Again

Since the great economic downturn that hit bottom in 2009, the Dow Jones Industrial Index has soared from less than 7,000 to more than 20,000 now. Stockholders must certainly believe that over the last eight years in America the outcome for their financial positions has indeed been great. I suspect that those who carried Donald Trump to victory last November had a different view. Globalization and the drive to enhance profits and shareholder value no matter what the cost to the communities, to the workplaces, and to those who saw jobs disappear have dramatically changed the world once known by Donald Trump’s supporters and by everyone else living in America.

It remains to be seen what will make America great again.

Will it be ongoing and new policies that continue to increase the wealth of the few at the expense of the many?

Will it be continued importing of foreign labor while outsourcing domestic production to foreign lands?

Will it be continued automation of headquarter offices and of the assembly lines in the manufacturing facilities they own?

Will artificial intelligence and automation in the most technical and professional fields cut the amount of employee effort needed to one-fourth of what it use to be while producing whatever is needed?

What will happen to the mass market of consumers who buy the goods and services offered by American businesses?

Who will maintain economic growth when only fifteen percent of American households have discretionary income.