Thursday, 30 November 2017

Je TAXE, La Rentree

Messieurs Oiseaux, Veuillez Arreter. Puis Partez a l'Etranger

Last week, the US House and Senate completed passage of a tax 'reform' bill at the behest of President Donald Trump. At the time, I wrote up some of my thoughts on the Bill here, settling on a final grade of "D" for the whole thing. Mainly because it:
  1. Alleges to solve a problem that does not exist - the economy is not in need of a "stimulus" right now by the president's own admission.
  2. Would not even really achieve (1) anyways - it's primarily a reduction in marginal tax rates for corporations, and companies do not hire workers simply because they have more money. Companies hire because they need more manpower to produce products. It's basic economics.
  3. Wastes a lot of political capital on something that, in reality, is not going to affect the overwhelming majority of Americans' tax bills.
  4. By CBO calculations, adds $1.5 trillion (with a T) to the debt over 10 years. We're already $20 trillion in debt, so this is at best ill-conceived.
In the intervening week, there has been a lot of noise about who is going to 'win' and who is going to 'lose.' Many friends are debating on Facebook and other social media, and I am sad (though unsurprised) to see that most of the debate is little more than the repetition of reductive talking points. (e.g., it is going to be a big benefit for "the middle class," or "I make less than $100,000 so my taxes are going to jump.")

One friend whom I asked admitted forthrightly that he had in fact not done any sort of calculation, but just presumed that what he was hearing about his tax bill was true.

Let me repeat what I said last week - if you are not an S-corp, or a C-Suite executive in a big company, or an advocate for some special interest group (e.g., Realtors (R) - and yes, that is actually a trademarked term), this tax reform bill is not about you.

They never really are.

For a start, here are some common talking points.
  1. I won't be able to claim my state income tax.

    No; you won't. But odds are, if you take the standard deduction (70% of filers do this), you do not claim this anyways. And if you do, chances are that unless you live in a state like California or New York, the increase in your tax due to this deduction will be offset by the decrease in the marginal rates you will pay.
  2. My mortgage interest deduction will be capped.

    In fact, this only comes in to play on mortgages going forward. It only applies if you buy a new house - your existing mortgage is grandfathered in. And even if you do buy a new home, the cap is being reduced from $1 million to $500,000. And that is on the interest portion you pay, not the payment itself or the house price, which if you put down 20%, would be $625,000. Unless you buy a house that costs more than $625,000, this does not affect you in any way.
  3. They are going to reduce my ability to deduct my medical expenses.
    Yes; the proposal does remove this deduction. But guess what? This only applies if your medical expenses are more than 10% of your income. And then, only if they are out of pocket and not covered. 
The most important thing to remember is this: 70% of filers take the standard deduction. Chances are very good, you are one of them. If you do, then all the discussions about mortgage, or state income tax, or medical deductions literally have nothing at all to do with your tax liability.

Nada. Zip. Nothing.

The sad truth is this: in terms of your tax liability, in all likelihood these changes are not going to have any real impact on you.

Let me repeat myself. 

The tax reform is not about you. It never was. It never is.

It's like the whole phony proxy war going on right now about net "neutrality." It sure sounds scary - what I see on the internet is suddenly going to be controlled by rapacious capitalists at AT&T. 

The truth there is that net "neutrality" is not about your ability to watch "The Crown" on Netflix or silly cat videos on YouTube. It's all about the money - whether it is going to go to the software guys in Silicon Valley, or the telcom guys in New York.

If you get worked up about net neutrality, either you work for Google, or you're a glove puppet for Google. 

It's not about you.

Trust me. 

Now, I am a sceptic, so I understand if you don't. There is an old saying: Trust but verify.

Here is a pretty simple tool you can use. It's an on-line tax calculator. Plug in your income, your mortgate, the number of kiddies at home, and your state income tax. It will spit out your tax liability under both the House and Senate plans (they are not identical, and need to be "reconciled.") There is a link that allows you to run the same calculations under the current laws.

Check for yourself.

Tuesday, 21 November 2017

Peter and the Wolf

One of the gifts of longevity is that it brings perspective. Not that I am an old man, of course. Not yet. But I've the benefit of nearly a half century of experiences. Experience, as I have said before, is what is left behind as we live, a bit like ashes after the fire.

Friday night, I was out for a quick drink and dinner with my wife; en route, her mobile rang, and she took the call from a friend. Her son and ours were these past couple of years classmates and friends at the same school. Our son this year, entering grade seven (the dreaded middle school), has moved to a new school, leaving behind the old one and some old friends.

Our son is a bit of an introvert - quiet, introspective. He's always preferred books to sports. He's cautious - eyeing the other kids and studying them - until he can sort who is who, and upon gaining some level of familiarity and comfort, makes a small number of friends. In some ways, this marks him as other in his cohort, and on a couple of occasions, has attracted the attention of bullies. Bullies in the classic sense, mind you. 

I personally hate bullying; I hate it at an intellectual level, and I despise it at a visceral one. 

The purpose of the call Friday was that Alastair's friend (the son of my wife's friend) has become the target of bullies back at his old school. The school was woefully impotent in dealing with the harassment when it was focused on our son; in this case, they have taken some steps to deal with the problem. The other boy's mother was calling to report the improvement to Jennifer.

I'm happy for this other boy of course - he, like Alastair, is a bit other, and that makes something of an easy target. Now that my son is gone, the wolves have found him.

I'm pleased that the school at least makes an appearance of intervening.

My wife and I, over drinks, were talking about this case, specifically, and of bullying more generally.

Why, we discussed, did it seem that these kids who last year took on our son, so conveniently turned their eyes to the next "weakest" kid in the class? Why him?

We read a lot these days about "bullying," whether it's the president engaging in infantile wars of insults with Hollywood celebrities, or executives belittling employees in companies, or teen girls shaming or excluding each other - the "mean girl" syndrome made famous in a movie of the same name?

The common "wisdom" is that bullies are internally conflicted - themselves vulnerable, weak, and insecure - and that their aggression is a defensive reflex. 

Honestly, as I get older, I find this excuse less and less persuasive.

In Japan, there is an expression, "弱肉強食" - weak meat, strong eat. 

I find this much more aligned to what my eyes see and my ears hear.

There is a new movie just released called "Wonder," where a congenitally disfigured little boy who for the first few years of his life is home-schooled; the parents, reckognising that they cannot shield him from the ugly truth of life forever, enroll him in a private school for grade five, and the boy (named "Auggie") of course encounters some rough sledding. I've not seen the movie, but I'm connected to an ex-teacher (who I had for both sixth and eighth grades) who did see it today, and has given high praise.

One comment of hers that struck me was this:
You also could see that bullies are really the insecure people.
Now, my former teacher has had far more direct experience with kids than I have, and I give a great deference to her wisdom here. But again, I am a sceptic at this point that this is the truth behind bullying.

Weak meat, strong eat.

We live in a society that likes to pretend that it is more refined than it really is. We believe that, if some bad guy tries to break into our house, the cops will get him. Or that white collar crooks who game the system can be constrained by ever more “regulation.”

We pretend that the veneer of civility is thicker than it really is. 

I don't believe it. It is denial in the extreme. RULES and enforcement are not what cause crooks not to break car windows, Wall St crooks not to use crooked, illegal deals to get rich, or bullies not to hurt other kids. There are just not enough police, enforcers, or teachers willing and able.

Bullies seek out perceived “weak” kids because they have been re-enforced with the knowledge that they are going to get away with it. 

For all of our rules and our therapists and our technological wonders, we are not so removed from what we have always been - human beings are tribal, violent creatures who over millennia have evolved skills to kill or be killed.

We live in a world of predators and prey. Kids can sense this.

I’m nearly 50 years old; I was not bullied terribly as a kid, but I had more than one incident, starting in kindergarten. I remember the names and faces of the kids, and the attacks, 40 years later. 

If you were ever bullied, I am sure that you do as well.

Thinking back 35 or 40 years ago, I was not big enough nor popular enough to be one of the predators. Thank God I was not considered odd or weak enough to be one of the prey, either. Spend ten seconds recalling your youth. If you were a bully or one of the bullied, I am sure you can remember, even if you've tried to forget. And if you were, like me, in neither camp,  I am pretty damned sure that you can name a couple of your former classmates who were.

From time to time, I think about them. I wonder where they are? What's become of them?

One of the things I sincerely regret from my youth was that when I was young, I knew that what was going on was wrong, and yet I kept quiet. It was mainly because of fear - the predators saw the kid on the playground whose leg was lame, and they were all over him. If I had said anything, it might have been me. So I kept my mouth shut. 

Chances are, you did, too.

I would like to think that, if I had the chance to be 11 again, I would stick up for the weak, but I know it's not true. 

The funny (and also, sad) thing is this - the bulk of the kids on the playground standing by the swings watching, hoping that they don't catch the eye of the wolf over by the jungle gym together could easily stop the bullying. But they don't. As an adult, this is obvious. As a kid though, it's one of those matters of faith that parents telly you, but you just never accept.

So we keep quiet.

Parents as well - the mother of the girl who desperately wants to be friends with the queen bee mean girl pretends that it's OK because it's not her daughter. The father of the boy not quite "cool" enough or good enough at football who encourages his son not to sit with the "Melvin" at lunch - enable this. Our kids watch what we do, and they respond. 

I'm no psychologist, but I honestly think that bullying weaker kids is the way that the strong ones express their dominance. We're not so different from gorillas; we just have fancier toys.

Saturday, 18 November 2017


The Trump administration have been searching for some sort of legislative victory - the multiple attempts to "repeal and replace" the ACA are a political version of the Cleveland Browns, three legged dog of the NFL act.

Today, news has arrived that the Republican majority in the House have passed a tax bill; it's now to the Senate, to reconciliation, and then to Trump's desk.

I am guessing that he will sign it faster than he can pour a bottle of ketchup on a steak "so well done that it rocks on the plate."

Is it "good" or "bad" is another question, and the political fur is already flying. Friends in the blogosphere and social media are all over each other, one side claiming loudly that it is a direct attempt to kill, chop, and put into a rich man's stew what's left of the middle class (Ohio Senator Sherrod Brown got into a rather indecorous shouting match -the words "spew" and "bull crap" were used), while others claim it's going to add further fuel to our economy, providing revenues to cover the cuts and "making America great again!!!"

What is the truth? I don't know, and no truthful person does with perfect clarity. But here's a summary of what I see, after looking over some synopses.

  1. For most of us (myself included), it’s going to be more or less a wash. Most will see some sort of marginal reduction (a few hundred dollars) due to rate reductions, but much will be eaten up by the loss of deductions. For individual taxpayers, despite all the shouting on the House floor, it really doesn’t make a huge difference.
  2. Second, it will make things a lot simpler for some of us. The elimination of the Alternative Minimum Tax is, IMHO, structurally a long-overdue move. It often is portrayed as a way to ensure that “the wealthiest families” cannot escape taxation, which is a laudable idea. And in 1969 when it was passed, the AMT was designed to capture about 155 families in the entire country.

    Last year, the AMT got 4 million taxpayers. More than 1/4 of the people paying had adjusted gross incomes of less than $200,000. That’s to be sure, upper middle class, but it’s really not what was envisioned in 1969, and complying with the AMT is a headache.

    (Disclosure: Each year for the past 20, since I purchased my first house, I have had to pay some amount of AMT, and in those days, earned decidedly less than $200,000 per year. It’s a long, not atypical Silicon Valley story involving stock options, but the AMT personally cost me a couple of million dollars - at the time I left my startup, I had a few hundred thousands stock options (the company later was sold) that I had to forfeit because I could not pay the AMT had I had exercised them.

    I personally hate the AMT, and will be glad to see it go.
  3. Third, it’s theoretically a good idea to move our corporate tax structure to a territorial system - where taxes are due on profits where you make them and not globally. The US is one of (might be the only) OECD country who do this. It brings us in line with our European competitors. I suspect it may make American businesses more competitive in the long run, as it reduces compliance and costs.
  4. Fourth, with respect to (3), it is not going to result in job growth. As others have said, companies hire workers to produce goods and services that are in demand, and that produce more value than the cost to produce them.

    For example, imagine General Motors, who manufacture and sell cars in many countries around the world. Now, rather than the system the US has, it moves to the territorial system, reducing GM’s tax burden. Will they then hire more workers? To make what?

    GM is already well aware of how many cars that are demanded world-wide. They have smart guys with maths degrees who sit in rooms and make all sort of forecast models. That GM will have marginally more money in FY 2019 than FY 2018 will not mean that an additional Chevy Malibu is going to be needed. If they needed that line worker, they would have hired him. Taking the money from tax savings and giving it to him to make a car that can’t be sold is something that to me is so obviously a flaw in the argument of how corporate tax cuts create jobs that I hardly believe anyone tries to use it.
  5. The bill is going to put to the test the Democrats’ argument that ‘taxation is a patriotic cost of citizenship,” because the single biggest burden it presents is that it will not allow people to deduct their state income taxes against federal ones. This is going to hit high-tax, Blue states far, far harder than it will the Red, low-tax states.

    I live in California, which has among the highest income taxes in the country. New York, Illinois, and New Jersey also make the cut. ALL of them are firmly Democratic. On the other hand are states like Texas and Wyoming. This provision will not affect them in any way. High earners in Blue states - San Francisco, New York, Chicago - are going to see their taxes go up over the long haul.

    Do not be fooled that this is a tax that will hit middle and lower income Americans. It only affects people who do not take the standard deduction, which has actually been raised.

    Rich people living in high-cost coastal cities will see this part of their tax bill go up. To me, that’s a kind of poetic justice. Will it be off-set by the rate reductions? For the really Richie Riches, it will. For the guy who makes $300,000 or so, I doubt it. (Again, full disclosure: I fall in this group personally, so I expect that, over time, this “reform” will raise my personal tax bill marginally).
  6. It is a solution looking for a problem. By many accounts, the economy is growing steadily, if unspectacularly. Trump himself has crowed about how strong the economy is. So why do we need tax cuts to goose the economy? What is more likely is that it will provoke inflation, which will hurt the poor and middle, for what are frankly dubious benefits.

    We don’t “need” it. The whole thing strikes me as an attempt to make the corporate donor classes happy and at the same time allow the Republicans to claim some sort of legislative victory going into 2018. They’ve failed on the ACA, which was their big-ticket item (in corporate speak, their “stretch goal.”) So, the Republicans being the Republicans, when they need to so something, “Hey! How about a tax cut?!?!

    The Republicans need to understand that tax cuts are an option - one among many. They are not the solution to all the ills of the world.
  7. (Final, I promise)  With no parallel cuts to spending, this looks like it is going to juice the deficits. Again. Most analyses I have seen put the cost at more than a trillion dollars over 10 years. So much for being “fiscally responsible.” That, along with point 6, is very likely to result in higher interest rates, inflation, and poorer real dollar wages for most.

Summary: I grade the GOP tax bill with a D.

Friday, 10 November 2017

One Year Later

A year ago, the in its quadrennial presidential election cycle, Donald Trump was elected President of the United States. It was an outcome that very few people had expected (cartoonist Scott Adams to the side). 

I live in San Francisco, California, in the Pacific time zone, and thus we were still at work when the returns from back east started to come in. As anyone who pays attention to US politics even a tiny bit knows, San Francisco is one of the most reliably liberal, Democratic constituencies that itself has for years been called part of the "Blue Wall" - a bulwark that Democrats have increasingly counted on of populous west coast and northeastern states as part of their electoral calculus. It's close to true to say that there is not a single person living within a mile of me who was going to vote for Trump (confirmed later in reports in the Los Angeles Times here - in my specific precinct of about 500 votes cast, five - one per cent - were for the Republican candidate).

Here is an image of how the San Francisco Bay area turned out in 2016. There were exactly five precincts that went for Trump out of hundreds.

There basically was no mystery as to how our state would go, and given all the polls, most people were not even cautiously excited about the outcome. 

As the numbers from Florida and Ohio began to come in, the excitement turned to a nervousness and then concern. And then Pennsylvania was projected.

Much has been written about just how such a shocking result came to pass - poor campaigning by an unpopular Democratic candidate, Russian meddling, racism, magical thinking about blue collar jobs. 

There has been a lot of ink written in the past year about the rise of the so-called "Alt Right." It's a term I had not heard of until Clinton herself mentioned it in an interview. We all now know to one degree or another about Richard Spencer and Pepe the Frog and "White Nationalism." There has been recently terrible violence in Charlottesville, Virginia, where a self-identified member of the alt-right drove his car into a crowd and killed a young woman.

Two nights ago, the first broad vote was taken since the Trump victory, and the Democrats this time did a much better job of "turning out their base." In Virginia, the Democratic candidate (Ralph Northam) easily defeated the Republican nominee (Ed Gillespie) - the margin was much wider than anticipated. Though not a national election, the Democrats did very well, and have for the past couple of days been engaged in what, frankly, is a well-deserved round of end-zone ball spiking. The ostensibly "objective" media have been right up to the line of cheering (in some cases, over then line, not bothering to conceal their pom-pons).

There was nothing on the ballot here in San Francisco, and I've personally no great affection for the Republican party (I find the Democratic party loathsome in its current form), so the outcome has not immediate or even secondary impact on me.

The narrative - prior to Trump - had been that the US was changing in such a way (mostly, demographically) such that the Democrats would increasingly become dominant, as more states (Arizona, Texas, Virginia being the canaries so to speak) began to look like California. 

The outcomes in Virginia (and other locations) buoyed the spirits of Democrats.

I am not so sure - in the medium term, the Democrats surely will benefit from these changes.

No other single factor has had such a significant impact on the transmogrification of California from a reliably Republican state to one where the Republicans are more or less irrelevant to politics.

Put simply, the US is becoming Yugoslavia.

As I said, much was written about dog whistles and white identity politics when Trump won in 2016. Equally, though not in the same terms, much has been written the past two days about a different kind of identity politics as the Democrats surged. Or to be more accurate, identities, as the Democrats represent a sort of coalition of disparate groups whose interests do not naturally align. 

At least not to me.

Ultimately, this is going to be trouble for the Democrats. And it's going to be really, really bad for the country.

The future is not particularly encouraging; “white identity politics” in 2017 (often called "white supremacist") can be summed as "white people who vote as an identity bloc" - as black, Latino, Asian, and other groups increasingly have done for years.

And it may have started to happen in 2016.

Genuine “white supremacy” is a concept whose peak was probably in the 1920s, when eugenics was at its highest point of social and scientific acceptability. The US had just had as its president Woodrow Wilson, who praised the racist “Birth of a Nation” and who supported a globalist worldview where the nations of Europe plus the US and Canada would enforce a sort of Pax Atlantica upon the rest of the people of the world. Many many prominent scientists and intellectuals of the era were pretty much openly racist and promoted an idea of a racial hierarchy with whites at the top, Asians somewhere in the middle, and blacks at the bottom.

The Nazis put an end to the idea of racial eugenics as something that was OK in polite society, and in 2016, I do not believe that anyone in the US today can be successful politically advocating for the idea of white “supremacy.” 

You don't really believe it either, if you're being honest.

On the other hand, however, as white people become more and more just one group in a nation with no single group being the majority, it is virtually guaranteed that there will be an emerging “white identity” political body.

While I personally find this appalling, it is entirely predictable. In the 1968 (when the so-called “Southern Strategy” was adopted by Richard Nixon and the Republicans), the US was still 84% non-Hispanic white. Blacks made up 11% of the population (source: US Census Historical Data, Historical Census Statistics on Population Totals By Race, 1790 to 1990, and By Hispanic Origin, 1970 to 1990, For The United States, Regions, Divisions, and States" )

When a group is seven out of every eight people, the idea of bloc voting is silly, not to mention, impractical. There are far more differences within the group than without. OTOH, for blacks, who were essentially the only visibly minority group in the country, bloc voting makes perfect sense, as they can concentrate their voices behind a politician who speaks to the top issues of their community.

In the intervening time, the demographics of the country have shifted. Enormously.

In the 2010 census, non-Hispanic whites now make up 63% of the total population. Black Americans have seen their percentage climb slightly, from 11% to 12%. But Latinos, who in 1970 were just 4% of the population, are now 16%. Asians have grown from less than one per cent, to 5% - there are now more Asians as a percentage in the US than there were Latinos in 1970.

The Democratic party has, for several cycles, openly courted ethnic blocs. With success. The Democrats can routinely count on 90% of black voters, and 70% of Asian and Latinos. As an aside, I live in California, one of the most reliably Democratic states in the country. It is believed that California has become “liberal,” partly in reaction to policies pushed by former governor Pete Wilson.

But what has really happened is that the demographics of California have shifted beyond what anyone could reasonably have imagined in 1963, the year our state became the largest in the nation. I’ve written about this before, but needless to say, the evidence is out there for anyone to review - had the demographics of California remained as they were, it would still be a Republican safe state.

The Democrats know this, and they do not hide the fact that their strategic long game is to encourage ethnic groups to bloc vote, at times even pitching their appeals as a way to pay back grievances against a vague, white enemy. 

Here is a graph looking at how vote patterns have evolved, focusing on foreign born (increasingly, Latino) voters have cast their ballots.

If you want to see why the Democrats are so eager to have "immigration reform," (and why Republicans are so against it), this chart should answer those questions. One party is trying, in the words of the former President of East Germany, to "elect a new people."

President Obama in 2013 at a “get out the vote” campaign targeting urged Latino voters to “punish our enemies.”

He tried to walk back the language - that he should have said “opponents” and not “enemies,” but I think that President Obama is a masterful speaker, and he uses his words as a surgeon uses a scalpel. The word “enemies” was not an accident.

Lee Kuan Yew, the father of the nation of Singapore, famously spoke in an interview with Der Spiegel some years ago, that in a truly multi-ethnic state, it is inevitable that economic and class interest will fall to the side, and people will vote with their tribal interests:

In multiracial societies, you don't vote in accordance with your economic interests and social interests, you vote in accordance with race and religion. Supposing I'd run their system here, Malays would vote for Muslims, Indians would vote for Indians, Chinese would vote for Chinese.

When you are the unchallenged numerical majority, appealing to tribal voting interests does not work - it can’t work. But that is not the case in California, and it is not going to be the case in the US for much longer.

I suspect that Trump is just the tip of the spear, and that it’s possible, likely even, that a crack-up is coming. The balkanisation of the US is not something to be excited about.

In the long term, it’s not going to be any better for the Democrats as it is for the Republicans.

Our politicians soon will not need to waste time appealing to anyone outside their "base," and will focus on getting those voters to the polls. And increasingly, "the base" is going to be, more or less, defined by your ancestry.

It used to be that marketers surveyed us, and then put us into little boxes. Now, they draw the boxes, and we jump in, all by ourselves.

I think it’s bad for the country, and I think personally, for my mixed-race son who doesn’t ‘fit’ into any of these groups, it’s going to be terrible.