Tag Archives: jack heidel

After the New Tax Law: Debt Is an Even Bigger Problem

Posted on by
Reply

 

The Republicans in Washington are exuberant because passing the new tax law means that they finally have gotten something done. And the new law will have at least one highly beneficial effect:

  • The new 21% corporate tax rate will increase profits for domestic corporations and encourage multinational corporations to bring their foreign profits back home. Even if these profits are used to buy back company stock or are paid out in larger dividends, the new money will be put to use in the U.S. economy one way or another. This will give the economy a boost and create new and better paying jobs. This is how private enterprise works and it is the best economic system ever invented.

But at the same time the new law has two huge deficiencies which make it a net minus on the whole:

  • It adds $1 trillion to our debt over the next ten years, as scored by the joint Committee for Taxation, the official scorekeeper. And this is after the positive economic effect is taken into account.  Our debt is already 77% of GDP (for the public part on which we pay interest), the highest it has been since right after WWII, and will continue to get worse without major changes in public policy. As interest rates rise and return to normal historical levels, interest payments on the debt will increase quickly, creating a huge drain on the federal budget.

  • The trillion dollar artificial stimulus created by the new tax law, i.e. the trillion dollars in new debt, is likely to overheat the economy, which is now already growing at a 3% annual clip.  This means that inflation is likely to gain increased momentum, thereby causing the Federal Reserve to raise interest rates faster than it otherwise would. This means that interest payments on the debt will be pushed up even faster than otherwise. Without fiscal retrenchment, a new fiscal crisis is virtually inevitable in the relatively near future.

Conclusion. Fiscal restraint in Congress is now more urgently needed than ever, and it is going to be even harder to accomplish than before the new tax law was passed. I am an eternal optimist but it sure would be easy to get discouraged!

Follow me on Twitter 
Follow me on Facebook 

Fixing Our Broken Healthcare System

Posted on by
4

 

As I get organized to enter the 2018 Nebraska Republican Primary for U.S. Senate, I want to make it clear why I would challenge the apparently popular incumbent Senator Deb Fischer who is running for reelection. The reason is very simple and clear cut.  The new tax law which she voted for will raise our national debt by $1 trillion over the next ten years and likely overheat our already vigorously growing economy in the process.  In other words:

  • Our national debt, already sitting at 77% of GDP (for the public part on which we pay interest), is the highest it has been since right after WWII and already slated to get worse, even before the new tax law supported by Senator Fischer. When interest rates inevitably rise in the near future, interest payments on the debt will become a huge burden on our economy.

  • Controlling the cost of healthcare, which already eats up 18% of our GDP (and is growing much faster than GDP), is the key to shrinking our annual deficits and therefore being able to shrink our debt as well.

But is it possible to control healthcare costs within the framework of a free market? I think it is and here is one way to do it:

  • For private healthcare, repeal the employer mandate and replace the ACA income based tax credits with age based tax credits (which then apply to everyone). This will allow healthy employees to migrate away from employer provided health insurance towards individually underwritten health insurance (including Health Savings Accounts) at much lower cost. This saves money for employers and rewards healthy life styles. High risk pools for unhealthy people would receive federal and state subsidies.
  • Medicaid recipients would also be able to migrate into this new private system.
  • Medicare Advantage (Medicare Part C) would be required to offer Medical Savings Accounts which were authorized in 1997 but have not been widely utilized. This will make Medicare Advantage highly attractive to healthy people and encourage migration from regular Medicare (Part B) to Medicare Advantage.

Conclusion. The point here is not to try to insist on one particular way of controlling the cost of healthcare but to demonstrate that it can be done within a relatively free market framework.

Follow me on Twitter 
Follow me on Facebook 

Donald Trump’s First Year as President

Posted on by
2

 

As I gear up to enter the 2018 Nebraska Republican Primary for U.S. Senate, see here  and here, I am focusing on what I consider to be the overwhelmingly most critical and urgent issue facing our country: our rapidly growing national debt, now 77% of GDP (for the public part on which we pay interest), and steadily getting much worse. Nevertheless, just over a year ago an unexpected political earthquake shook the country as Donald Trump was elected President.  As I become a candidate myself for national office, I need to make clear what I think about Mr. Trump.  I will start out by saying that I did not vote for him because of his sleazy behavior towards women.
I will try to be objective about his accomplishments in office, both positive and negative.
On the positive side:

  • He is standing tough on North Korea, working with the U.N., China and other Asian countries to impose strong sanctions on the North Korean economy. He is upgrading U.S. missile defense, as a smart precaution against a North Korean attack on the U.S.

  • He has worked with many other countries to eliminate the ISIS physical caliphate.
  • He has cajoled NATO members into contributing an additional $12 billion towards our collective security.
  • The economy is now growing at a 3% annual rate thanks (at least in part) to his efforts at regulatory reform.

However, on the negative side:

  • The new tax law, which he signed, is likely to kick off higher inflation with the trillion dollar artificial stimulus from increased debt. This will lead to much higher interest rates which will make our huge debt far more costly.
  • His noxious tweets undermine his presidency, by overshadowing his achievements. His personal popularity has dropped from 46% right after the election to 35% today.

Conclusion. The best way for a member of Congress (or candidate for same) to respond to President Trump’s erratic behavior is by being objective, agreeing with him if possible and not hesitating to call him out when necessary. This is what I will try to do.

Follow me on Twitter 
Follow me on Facebook 

There Is Really Only One Way to Reduce Our Debt

Posted on by
6

 

In 2012 I was a candidate in the Republican Primary for U.S. Congress, Nebraska District 2. My platform at that time was to “Eliminate the Deficit.” Today I am about to enter the 2018 Nebraska Republican Primary for the U.S. Senate.  My platform will be to “Fix the Debt.” (http://www.fixthedebt.org/)
Our current debt ($15 trillion for the public part on which we pay interest) is now 77% of GDP, the highest since right after WWII, and steadily getting worse.  At the present time it is essentially “free” money because interest rates are so low. But that is already starting to change.  Every 1% increase in interest rates will increase interest payments by $150 billion per year.  A huge upsurge in inflation (which can happen at any time), followed by a corresponding rise in interest rates, will become a huge drain on the federal budget and likely lead to a new crisis much worse than the Financial Crisis of 2008.


With healthcare spending, both public and private, now almost 18% of GDP, and growing rapidly, there is really only one practical way of getting our national debt under control: stabilize the cost of healthcare in the U.S.
Consider the following data:

  • Our national health expenditure grew 4.3% (much faster than inflation) to $3.3 trillion in 2016, $10,348 per person, and accounted for $17.9% of GDP.
  • National health spending is projected to grow at an average rate of 5.6% for 2016 – 2015, and reach 19.9% of GDP by 2025.

  • Federal Medicare Outlays were $588 billion in 2016 or 15% of federal outlays.
  • Federal Medicaid outlays were about $390 billion in 2016 or 10% of federal outlays.
  • The federal tax exclusion for employer provided health insurance was $250 billion in 2016.
  • Summary: the federal government spent almost $1.23 trillion on healthcare in 2016, over 30% of all federal spending of $3.9 trillion.

Conclusion. The only practical way to get our nation’s debt under control is to limit the growth of healthcare spending. Right now federal spending on healthcare is defined benefit (i.e. open ended).  We simply must move to a defined contribution system where all of us as healthcare consumers assume responsibility for our own healthcare spending.  Detailed proposal forthcoming!

Follow me on Twitter 
Follow me on Facebook 

Shall I Enter the Nebraska Republican Primary for U.S. Senate?

Posted on by
Reply

 

The tax bill was signed by President Trump on Friday and is now law. In spite of many good individual features, including the reduction of the corporate tax rate from 35% to 21%, it has the overall negative effect of adding $1 trillion to the national debt over the next decade, and this is after allowing for new growth.
Every Republican Senator voted for this new law.  That means every single one of them is responsible for increasing our debt by $1 trillion.  This includes Nebraska Senator Deb Fischer, who is up for reelection in 2018.  She needs to be chastised for voting for this atrocious law.
I am seriously thinking of entering the Republican Primary against her, if there is sufficient support for my candidacy.  Here is a summary of my views on the most important issues.  Roughly in order of importance:

  • Debt. Now worse than ever with the new tax law, we will soon be back to trillion dollar annual deficits.  The only real solution is to curtail the growth (no actual cuts needed!) of entitlement spending.  Otherwise a new fiscal crisis will soon occur.

  • Global Warming. The evidence for man-made global warming is overwhelming,  including warmer and more acidic oceans, shrinking artic sea ice, and rising sea levels. The best solution is to impose a (refundable!) carbon tax to replace all sorts of ad hoc and arbitrary regulations.
  • Economic growth. The U.S. is the most prosperous large country in the world and prosperity equates to economic growth. But our economy is now growing at a 3% annual clip and the new tax law is likely to overheat it and cause inflation to take off.  This will force interest rates up prematurely.
  • Trade Policy. Withdrawing from NAFTA would be a disaster for the whole country and especially Nebraska with its export based ag economy. It is China’s mercantilist policies, restricting imports from other countries, which need to be opposed.
  • Immigration Reform. With a national unemployment rate of 4.1% (2.7% in Nebraska), a severe labor shortage is developing. The solution is to establish an adequate guest worker visa program so that employers can be assured of having the employees they need.

Conclusion.  Senator Deb Fischer is simply unwilling to make the tough decisions necessary to shrink annual deficits and thereby control our burgeoning debt.  I would be a sensible replacement for her.  Will you support me if I run?  Let me know at jackheidel@yahoo.com.

Follow me on Twitter 
Follow me on Facebook 

The New Tax Bill Is Likely to Take Us over a Fiscal Cliff

Posted on by
7

 

The Republican tax bill has now come out of conference and will soon be voted on by both the House and the Senate. It is expected to easily pass both chambers and be signed by the President. As I have discussed extensively on this blog, I have no argument with the individual features of this bill.  They will definitely increase economic growth which is highly desirable.
The problem is that the tax bill will also add $1 trillion to the debt over ten years (as scored by the JCT).  It is simply outrageous for the GOP to consciously add $1 trillion to our already $15 trillion debt (the public part on which we pay interest), which at 77% and climbing, is the highest it has been since right after WWII.


But the damage will be even worse than this.  The trillion dollar artificial stimulus is likely to overheat an already briskly growing economy.  As the Economist reports in its latest issue:

  • Second quarter growth of 3.1% and third quarter growth of 3.3% are very strong.
  • Median household income grew 5.2% in 2015 and 3.2% in 2016.
  • The average net worth of households in the middle income quintile grew by 34% between 2013 and 2015.
  • The wages and salaries of production workers grew at a 3.8% pace in the third quarter of 2017.
  • The unemployment rate at the end of 2018 is likely to be between 3.4% and 3.8%.

Economic growth is good because it raises living standards across the board. But faster growth also means higher inflation which means higher interest rates as the Federal Reserve responds.  Higher interest rates mean higher interest payments on our massive debt. Every time the Federal Reserve raises interest rates by ¼ %, the interest payments on our debt will increase by about $38 billion per year.  A 2% increase in interest rates, likely within two years, means a $300 billion increase in annual interest (on top of the $266 billion paid in FY 2017).  Our massive debt will soon become a huge burden for the federal budget.

Conclusion. Adding $1 trillion to the debt on top of the existing debt is a terrible idea. Such artificial stimulus at a time when GDP growth is already picking up will drive up interest rates all the faster and greatly speed up the day of reckoning for extreme fiscal irresponsibility.

Follow me on Twitter 
Follow me on Facebook 

What Are the Good Features in the Republican Tax Bill?

Posted on by
3

 

I have made very clear in recent posts that one negative feature of the tax bill, increasing national debt by $1 trillion over ten years, greatly outweighs its good features.  For this reason I ask Nebraska Senator Deb Fischer to put the welfare of our country ahead of the demands of her Republican colleagues and vote against the bill.


Nevertheless, the tax bill does have beneficial features and I would like to acknowledge them here.  Major ones are:

  • Lowering the corporate tax rate from 35% to 21% and moving to a territorial system, making us far more internationally competitive and encouraging our multinational corporations to bring their foreign profits back home.
  • Establishing immediate expensing of capital investment, thereby speeding up business investment and increasing economic growth.
  • Reducing itemized deductions for state and local taxes and mortgage interest, but not eliminating them as should be done for much greater revenue savings.
  • Increasing the standard deduction to $12,000/$24,000 (for singles/couples) which will reduce the number of individual taxpayers who itemize deductions from 30% to just 6%. This single feature alone achieves major simplification.
  • Measuring inflation adjustments for income thresholds by the Chained Consumer Price Index (CCPI) rather than the current CPI. CCPI takes consumer behavior into account when computing inflation and will lead to an increase in tax revenue over time.
  • Eliminating the individual mandate for the ACA which will lead to fewer healthy people signing up for health insurance. This begins a process of healthcare cost reform which must continue much further to significantly reduce the cost of American healthcare. Much more later.

Conclusion. The good features in the tax bill do not nearly outweigh the awfulness of adding $1 trillion to our debt over the next ten years. The Republican Party should be ashamed of itself for such poor fiscal and economic stewardship.  What is it thinking?

Follow me on Twitter 
Follow me on Facebook 

Senator Fischer, if You Vote for the Awful Tax Bill, There Will Be Political Consequences!

Posted on by
2

 

Congressional Republicans have agreed on a compromise tax bill, details to be released soon. After scoring by the Joint Committee on Taxation, it will be voted on separately by the House and Senate, sometime next week.  It is likely to reach the President, and be signed into law, before Christmas.


As I have previously discussed at great length, this is a very bad bill for the following reasons:

  • Lowering the corporate tax rate to 21% is actually a good idea because it will encourage U.S. multinational companies to bring their foreign profits back home for reinvestment as well as encouraging foreign companies to set up shop in the U.S.
  • Adding $1 trillion to the debt over ten years, as previously scored by JCT and likely on rescoring, is what is so awful about the tax plan. It is also sad because this could be avoided.  Our debt (the public part on which we pay interest) is already, at 77% of GDP, the highest it has been since right after WWII, and is predicted by the Congressional Budget Office to keep getting worse without major changes in current policy.
  • As interest rates rise, interest payments on the debt will grow dramatically (right now our debt is almost “free” money). Eventually this will lead to a new financial crisis, much worse than in 2008.
  • Overheating the economy, now growing at 3% per year for the last two quarters, makes the tax bill even worse. The last thing our economy needs right now is a trillion dollars of artificial stimulation. This will force the Federal Reserve to raise interest rates faster than it would otherwise.
  • Nebraska Senator Deb Fischer, who is up for reelection in 2018, voted for the Senate version of the tax plan. She should reconsider for the final combined bill and vote no.

Conclusion. If Senator Fischer votes for the final version of this bill, and if it passes and is signed into law by the President, then she is personally responsible for the devastation it will wreak on our economy. What can I as an individual Nebraskan do about this?  It should not be hard to figure out.  Stay tuned!

Follow me on Twitter 
Follow me on Facebook 

 

Who Is Responsible for the Atrocious GOP Tax Bill?

Posted on by
Reply

 

I want to emphasize as strongly as possible that cutting the corporate tax rate from 35% to 20% is a very good idea. It makes the U.S. much more competitive with other developed countries and thereby encourages our multinational companies to bring their foreign profits back home for reinvestment in the U.S.  It will also encourage international companies from other countries to set up shop here and thereby contribute to more jobs and better paying jobs in the U.S.
As I pointed out in my last post, the tax plan needs to be revenue neutral to be beneficial.  Very unfortunately, the current plan adds $1 trillion to our already out-of-control debt over the next ten years.  Furthermore, our currently hot economy (3% growth for two quarters in a row) is likely to overheat from an artificial stimulus of $1 trillion.  This will cause inflation to speedup more quickly and force the Federal Reserve to raise interest rates precipitously to head it off.  This will lead to much higher interest payments on our debt which, in turn, will lead to a new and much worse fiscal crisis in the relatively near future.


I live in Omaha and most of my blog readers likewise live in Nebraska.  The Republicans hold a 52-48 majority in the Senate.  One Republican Senator, Bob Corker, from Tennessee, has already announced his opposition to the Tax Plan (now in Conference Committee) because he “will not vote to add even one more cent to the deficit.”  Thus the Republicans will not be able to pass this atrocious tax bill if they lose even two more votes (fifty votes needed with the VP able to break a tie).
If this awful legislation does become law, and Nebraska Senators Deb Fischer and Ben Sasse vote for it, we will be justified in holding each of them personally responsible.

Conclusion. The GOP is on the verge of making a very bad mistake. The party with a reputation for fiscal responsibility is on the verge of throwing it away for what will turn out to be a very short term gain.

Follow me on Twitter 
Follow me on Facebook 

Ignoring Massive Public Debt Is Morally Unacceptable

Posted on by
Reply

 

The House and Senate have now each passed their own versions of tax reform and a conference will come up with a single version acceptable to both legislative chambers. Each of the individual bills has been scored to add $1 trillion to the national debt over a ten year period and so the final bill will probably have the same feature.  This is a badge of dishonor on the controlling Republican Congress for the following reasons:

  • Yes, economic growth at 2.1% of GDP since the end of the Great Recession is too slow and has caused stagnant wages for millions of middle- and lower-income workers. Even though the unemployment rate has now dropped to 4.1% and the economy has grown at a rate of 3% for the past two quarters, there is still much labor slack to make up for.
  • Yes, the corporate tax rate is too high and encourages multinational companies to invest overseas. Immediate expensing for new business investment would also speed up growth and thereby create new jobs and higher wages.
  • Revenue neutral tax reform is “easily” accomplished by “simply” offsetting all tax rate cuts by closing loopholes and shrinking deductions by an equal amount. Since two thirds of taxpayers do not itemize deductions, it is primarily the higher income taxpayers who benefit from tax deductions and they can afford to pay higher taxes.

  • Current national debt, at 77% of GDP (for the public debt on which we pay interest), is the highest it has been since right after WWII, and is already predicted by the CBO to steadily keep getting worse. When interest rates eventually return to more normal and higher levels, interest payments on the debt will soar. And this will continue indefinitely, eventually leading to a new fiscal crisis, much worse than the Financial Crisis of 2008.

The GOP tax plan should be killed. Although a revenue-neutral tax plan could be put together and would be beneficial, the current plan makes our debt much worse and should be killed. We simply must make shrinking the debt a very high priority and not be distracted from getting this done.

Follow me on Twitter 
Follow me on Facebook