Time to Unite Behind Trump

While the media focuses exclusively on deepening divides within the Republican Party, we need to take a step back and remember the stakes of this election. A certain Senator this evening exhorted voters to “vote their conscience.” Yes, his non-endorsement of Donald Trump was clear, but let’s consider what our conscience actually demands of us.

Does your conscience consider the fact 3,400 Americans, many of them children, have been killed in the past 8 years in the city of Chicago acceptable? How about the fact the unemployment rate for African-American teenagers has risen in 2016 to 31%? Or that economic growth, the ultimate engine for lifting people out of poverty and into the middle class, is running at the slowest pace in a peace-time recovery since World War II? Are you comfortable with the fact that after years of decline, the violent crime rate has been rising since early 2015? Can your conscience tolerate the fact that Radical Islam is on the march, poisoning the minds of millions, seeping into Europe and even this country, while stripping millions of Muslim women and gays in the Middle East of basic human rights and dignity?

Are we willing to accept that this is the best that America can be? If your conscience says, “yes, the status quo is acceptable,” then perhaps you should vote for Hillary Clinton. After all, she is not an agent of change. Rather, she is beholden to an entrenched donor and political class that will continue the policies of President Barack Obama. Moreover, this status quo will persist beyond her 4 year term as she appoints judges, regulators, commissioners, and civil servants who could serve decades beyond her final day in office. A Hillary Clinton Presidency will cement our current trajectory for a generation. However, even if you are comfortable with the status quo, does your conscience permit you to vote for a woman of Hillary Clinton’s character? Obama’s own FBI Director noted Clinton’s “extreme carelessness” as she attempted to keep her emails secret from voters while exposing our nation’s secrets to our enemies. She even told the mother of an American killed in Benghazi that a video was the cause of the attack while telling her own daughter and a foreign diplomat otherwise. If Hillary Clinton can’t be trusted to tell a grieving mother the truth, can she be trusted in the event of a national crisis?

True to the American spirit of perpetually seeking national betterment, perhaps your conscience says the status quo isn’t good enough, that we can do better. That we can turn a safety net that merely makes poverty more palatable into a safety trampoline which makes poverty less prevalent. That we should give all parents choice where their children go to school to end the vicious circle of entrenched poverty. That we can accelerate growth by returning power and freedom to the most innovate citizenry the world has ever known. That we have a leader who is unafraid to call out evil in the world by its true name and work to eradicate it, instead of merely downplaying it.

Doing better requires doing something else. It requires voting not for an all-talk-no-action entrenched DC elite but for an outsider who is a doer not a talker. Doesn’t our conscience demand a vote for Donald Trump? We need a President who will cease to accept the decline into mediocrity that is our present course. Would we not rather have Paul Ryan as a governing partner with a Republican White House than as a leader of the opposition against yet another Democrat President who is simply presenting the same old ideas in new packaging?

If we believe conservative principles will make American lives better, we have a moral imperative to vote for the candidate most likely to institute them. Without a doubt, that candidate is Donald Trump, helped by his fantastic running mate, Mike Pence, and a partner in Congress in Speaker Ryan. I will vote my conscience, and it demands a vote for Donald Trump.

He offers change. She offer more of the same. He will return power to ordinary people and to the markets to free up the economy, boost working Americans, and improve social mobility. She will continue the same top-heavy policies that have seen weakened growth and ever-rising inequality. He will restore strength around the world after a President who has let American power recede by backing off red lines, downplaying Radical Islamic terror, and letting China expand in the South China Sea. Her foreign policy? Well, let’s put it this way: if global warming is such a major problem, perhaps the fact Secretary of State Hillary Clinton left a world on fire shares some of the blame.

Let’s unite and win in 2016.

The GOP Establishment Has Itself and George Bush to Blame for Trump’s Rise

With each passing day, it appears to be increasingly likely Donald Trump captures the Republican nomination given his committed base, strong national numbers, a lead in New Hampshire that is insurmountable so long as “establishment” candidates like Marco Rubio, Jeb Bush, John Kasich, and Chris Christie split the vote, and a Teflon-like insulation from his own statements. From George Will declaring a Trump nomination could be the end of the Party to discussions of an anti-Trump PAC, the establishment is up in arms over Trump’s rise and seems to be blaming the base for his success: supporters are falling for a cult of personality, they’re unsophisticated, just looking for a loud candidate, and so on.

I too am a Republican who is no Trump supporter but am tiring of the establishment’s blame game. If they want someone to blame, they should try looking in the mirror lest we forget how Trump was treated in 2012. Rather than ignoring him as a fringe figure, Mitt Romney gladly visited the Trump International Hotel in Las Vegas to receive his endorsement in person. Plus, Romney originally planned to have Trump make an appearance at the Convention, only to be cancelled due to a Hurricane. Rather than ignore Trump, the Party decided to embrace and therefore legitimize Trump. If Trump is to be considered a monster, then Romney and the establishment are Dr. Frankenstein. They’ve lost control of their creation (as though they ever had control), and he’s turning out to be quite popular with the villagers.

The establishment’s blame goes beyond the actions in 2012 and is more fundamental. The Republican Party has a George W. Bush problem, and his economic record is partly responsible for Trump. The establishment has yet to come to grips with the economic failings of Bush’s Presidency, which left the working and middle class in worse shape.

The core of Trump’s support comes from working people. For instance, the latest national CNN poll showed Trump with 42% among those earnings under $50k and 46% among those who did not graduate college. The CNN poll is consistent with other national polling. Blue collar workers have clearly gravitated towards Trump.

Now, I am no defender of Barack Obama’s economic policies, and GDP growth during this recovery has been slower than under President Clinton or Reagan. Like many Americans, I blame subpar growth on Obama’s tax and regulatory policies, and the facts are that while job growth has been solid, real median incomes have fallen to $53,657 in 2014 from $55,313 in 2008, per the Census Department. Additionally, in December 2008, America had 12.9 million manufacturing jobs. As of November 2015, that number is 12.3 million, according to the Bureau of Labor Statistics.

For many Americans, the state of the economy is still fragile, and angst remains. Unease with Obama policies could explain why voters are seeking change, which would imply more support for Republicans, but it does not explain why so many voters are totally ignoring establishment choices in favor of someone as unorthodox as Trump. It is here where Bush comes in.

On the positive side, under President Bush, we enjoyed nearly 3 consecutive years of unemployment at 5% or less, roughly full employment. However, the Bush economy was not great for everyone. GDP growth averaged a meager 2.1% during his two terms, and the middle class did not enjoy much of this growth. Just as under Obama, real median incomes fell under Bush, from $57,724 in 2000 to $55,313 in 2008. Even more importantly to understand the Trump phenomenon is the decline in manufacturing employment, from 17.2 million in December 2000 to 12.9 million in December 2008. Of course, millions lost homes in a financial crisis for which Bush bears some responsibility. The political establishment of both parties have failed working and middle class Americans for at least fifteen years now.

Unsurprisingly, republican voters are willing to look outside the establishment, which has failed them economically for years. Moreover, the establishment, by focusing all of its ire on Obama, has not reached out to workers in a compelling fashion to explain how the GOP can make the economy work for them. While he may be selling a false bill of goods (what makes for good politics is not necessarily good or plausible policy), Trump has made a clear and simple case to workers, essentially: you’ve been screwed by incompetent politicians who work for donors not you, who negotiate terrible trade deals with China, and who have let illegal immigrants undercut wages whereas I will work for you and bring back your jobs. Let’s be honest, if you’re a white guy working in manufacturing, it has probably been a tough decade, and this pitch is compelling.

At the very least, Trump is making an overt effort to show he cares about the middle class, something other candidates and the establishment at large have been unable to do. Rather than recognizing the problems of today differ from 1980, we often reflexively revert to Reaganism (perhaps because Bush policies didn’t work so well). Some, like Carson, push flat taxes that would likely hurt the poor. Senator Cruz is pushing a Business VAT that would disincentivize employment (probably not a good sell to workers), and while Rubio has more interesting economic policies given his new child tax credit, he has not made a sustained pitch to the working class on economics, focusing on foreign policy instead, though that may be changing.

For Republicans to win national elections and possibly put Upper Midwest states in play, they need to do better with working and middle class Americans. To do so, the establishment must recognize its economic policies have failed in the 21st century (as have Democratic policies). In many ways, workers are worse off than 20 years ago, which is a stinging rebuke of our political establishment. Until the republican establishment admits failings and modernizes conservative principles to solve 21st century problems (for example, negative marginal tax rates), the GOP establishment will justifiably continue to lack any credibility with its working and middle class voters.

Trump’s proposals are ultimately simplistic and essentially are “blame the other guy (with other guy being China, Mexico, Vietnam, Donors etc.),” but he is the only major candidate arguing to workers he cares about their well-being. No wonder they are flocking to him. The base is not failing the establishment. The establishment has failed its base for 15 years with lousy, outdated, and unoriginal economic policy offerings, and until they recognize this, blue collar republicans will be receptive to outsiders like Trump.

Bush failed the middle class. Unless the GOP intellectual elites cede this and make necessary policy updates, Trump won’t be an aberration. He’ll be the first in a long string of populist outsiders while the power of the establishment continues to atrophy.

The State of the Union: Strong But Unsatisfactory

Later today, President Barack Obama will deliver his final State of the Union Address, filled with the typical pomp and circumstance. Following the pattern of virtually every speech given by each of his predecessors in the Modern Era, Obama will declare the State of our Union is “strong” or something to that effect. Democrats certainly will hope voters feel exactly that way in November as they try to retain the White House for a third straight term, a feat they have not accomplished since President Truman. However, the leading Republican candidate, Donald Trump, has a campaign slogan (Make America Great Again) that could be taken to imply the state of our union is not strong.

So cutting through the partisan spin; what really is the state of the union? I would argue it is strong but unsatisfactory. The fact is that America is the best positioned nation in the world, but there is still much work to be done. In this sense, both sides have valid points to be made; our situation is not necessarily as dire as republicans campaigning suggest while there are greater risks to our future than the President has conceded.

To be frank, the fact we are strong is not really an accomplishment for the President. While we were in deep recession in 2009 when Obama assumed Office, America was still the strongest nation on earth. While our banking system had been crippled by the Housing Crisis and Lehman failure, requiring the Bush Administration to launch widespread bailouts to avert Depression, the worst of the financial crisis had passed by January 20, 2009, and depression was off the table. America was still the center of innovation with the best technology firms in the world residing here, mainly in California. We were the clear global hegemon economically and militarily.

Today, I would argue that last sentence still rings true. Yes, GDP growth has been undeniably sluggish, but our economy is far larger than any other, and it adds far more value than export-driven China, which has run into significant problems of its own of late. The official unemployment rate is down to 5%, and even if we adjust for some of the cyclical weakness in the labor force participant rate, unemployment would be 6.5-7%, which is neither great nor horrible. Yes, China is saber-rattling in the South China Sea, and Putin has caused problems in Syria and Eastern Europe, but our military and naval wherewithal is without rival.

China’s military might is entirely regional, and Putin lacks the economic power to exert influence much beyond his own borders and Syria. Given his nuclear arsenal, we cannot force him to do anything, but he can’t force other nations to do much either. He and China are undoubtedly challenging the U.S. Security Order with limited successes, but the fact remains, there is nary a region in the world where we are not a key (if not the key) player. America is the lone indispensable nation on the face of the earth. The setbacks and loss of influence in the Middle East, parts of Eastern Europe, and select spots in South Asia are not markers of inevitable decline but rather missteps quickly reversible under new, more assertive American leadership.

Consider the following questions. Is there a nation you would rather be today than the United States? Would you trade America’s future for that of another nation? Is there a more dynamic economy on earth? Would you swap our military power for that of another country? Is there a nation where you can enjoy more political freedoms or economic potential than here?

Chances are you would answer “no” to all (or at least most) of those questions. How then, can one say the state of our union is anything but strong? Again, the same was true in 2008, and it is a testament to just how well positioned America is and how dynamic the American people are that these statements are almost taken as a given. Being “strong” is really not an accomplishment of the President; the accomplishment is not torpedoing that strength, something almost no President could manage to do. That is why the American people rightly demand more than a strong state of the union.

Now, Obama has some indisputable accomplishments. The economy is stronger than in 2008, but it is not strong enough. GDP growth of around 2-2.5% has been positive but not spectacular. Real median income is lower than in 2000; the typical worker has not felt this recovery. This has been a problem for 15 years and is a serious challenge neither party has done a good job of addressing. We need to make structural reforms, restructure our tax code, and improve education to build a stronger economy from the bottom-up to grease the tracks of upward mobility. A poverty rate of 15% continues to be a stain on this country, and our programs need to focus more on lifting people from poverty rather than simply making poverty more comfortable. We need to reform, and yes cut, entitlements like Medicare and Social Security to ensure they will be solvent for those of us who really need them in our later years. Is our economy strong? Yes. Satisfactory? No.

Beyond economics, we have unsatisfactory progress in other areas. Race relations are not where they should be, and in too many communities, police-community (particularly in black precincts) relations are not where they should be. Many parties (from a media that generalizes every story to bad cops to self-aggrandizing community leaders) share the blame, but we need to take steps in local communities to rebuild trust. Gun violence is too high, and this nation does not handle mental illness as well as it could. There are no easy answers, and the gun issue is too often politicized. The scourge of violence is real though. Is our culture strong? Yes. Satisfactory? No.

In foreign affairs, we do not have a clear strategy to permanently roll back ISIS from Iraq and Syria and its outposts in Libya and elsewhere, though our military certainly has the capability to defeat the terrorist organization. We have ceded influence to Iran in the Middle East. Our Eastern European allies are on edge as NATO seems ambivalent about a bellicose Putin, and we are not investing sufficiently in a 21st century Navy that can guarantee freedom of navigation in the South China Sea. We have the tools to address these international challenges; it is just a matter of gathering the will and thinking in years not weeks when budgeting and planning. Is our international standing strong? Yes. Satisfactory? No.

The President is right to say the state of our union is strong, and America continues to be the world’s best positioned nation—the world’s only superpower. That said, republicans are right to say we can do a lot to make America even stronger and build an economy that works better for everyday citizens. GOP candidates need to refine their rhetoric and avoid doom and gloom, which is not in sync with reality.

The genius of America is that we are always striving to make the country better because the pursuit of happiness and liberty is an unending effort. We are never satisfied with the state of the union. The GOP should offer clear contrasts with and criticisms of current policy but must maintain optimism. We are an optimistic people, and the optimism is entirely justified.

After all, how else should we feel about the strongest, most morally just nation on earth that serves as a beacon of hope for oppressed people the world over?

No, Trump Won’t Doom Conservatism

As the calendar prepares to turn, one fact has remained constant: Donald Trump is the clear leader in Republican Primary national polls. He is almost certainly trailing Ted Cruz in Iowa but maintains a large lead in New Hampshire where establishment candidates have fractured the vote and should he win there is poised for strong showings through the March 1 “SEC Primary.” While national polls have dubious predictive power, establishment types are increasingly antsy about Trump’s staying-power as they (correctly) believe he would struggle in a general election. Take George Will for instance who last week declared in a column entitled, “If Trump wins the nomination, prepare for the end of the conservative party”:

“It is possible Trump will not win any primary, and that by the middle of March our long national embarrassment will be over. But this avatar of unfettered government and executive authoritarianism has mesmerized a large portion of Republicans for six months. The larger portion should understand this:

One hundred and four years of history is in the balance. If Trump is the Republican nominee in 2016, there might not be a conservative party in 2020 either.”

Now, there are two issues with Will’s column. First, a Trump nomination would not be the end of a conservative party in America. Presidential campaigns lend themselves to hyperbole (“this is a mildly important election” doesn’t turn out the vote so well), and that is the case here. Given his poor standing with Hispanics and women voters, I agree Trump would likely lose and lose badly. The only path I see would be choosing someone like David Petreaus as his Vice-President (to calm voters antsy about making Trump Commander-in-Chief) and go for an Upper Midwest strategy. Against Hillary Clinton, one would have to put the odds of a Trump victory at less than 15%, barring some dramatic economic collapse or terrorist attack that destroys President Obama’s popular standing.

Even if Trump lost though, the GOP is not doomed. Surely, many prognosticators saw disaster for liberals after Michael Dukakis suffered the third straight Democratic ignominy in 1988. In the three elections from 1980-1988, the GOP carried the electoral vote a combined 1440-174. That is called being lost in the wilderness, yet Democrats have proceeded to win 5 of the next 6 popular votes, and in 2008, America elected the most liberal man to be President since at least Lyndon Johnson in 1964 (Ideologically, Obama is probably to the left of Johnson, he is merely less effective at making his agenda law). My point here is that political persuasions are “stickier” or more entrenched than we sometimes give them credit for, and to suggest the GOP is one defeat from obsolescence is over the top, particularly with Republicans controlling the House and 31 Governor’s Mansions from which conservative reform agendas are being carried out. Would a third term for the Democratic Party have significant long-term consequences? Yes. Is the conservative party a terrible candidate away from disappearing? No.

Second, there is this sense that Trump is a cancer on conservatism when in reality Trump is exploiting a cancer that has already grown on the movement. Will is right to call out Trump’s constant boasting as a sign of a lack of self-esteem (this is an ironic charge from a man whose columns read like a self-conscious showcase of as many inane, multisyllabic words as possible in an effort to prove his intellectual superiority), and I too am no Trump fan, taking serious issue with his rhetoric, past policy flip-flops, Muslim travel suspension, and so forth. Trump is no typical conservative by any stretch, but his popularity in conservative precincts is easy to understand.

The intellectual, donor, and corporate establishment has grown increasingly adrift from the base with a rising elitism poisoning the conservative movement. Elements of the party have morphed from capitalist to corporatists with large, entrenched firms enjoying a convoluted tax code that serves to raise the barriers to entry. As explained in a bit more depth below (and in much more detail here) economic policy coming from the party seems to either reflexively reflect 1980s policies or benefit the monied interests. I’ve always struggled as to how a conservative can be an elitist given that the ideology is one optimistic about the skills of ordinary people. We have so much faith in man, we prefer to endow each individual with power rather than leaving it the hands of centralized bureaucrats who deem themselves experts. Conservativism is inherently populist, but often one can feel conservative DC elites looking down at Trump supporters and the citizenry at large.

Justifiably or not, the Republicans are viewed as the party of the elites, and that is problematic. Just examine the 2012 exit polls:

Romney lost 35%-63% among voters earning under $30,000 and 42%-57% among voters earning $30,000-$49,999. Romney lost the overall popular voter 47.2% to 51.1%, but if he had done 5% better among those earning under 50k (going from 38% to 43%), the popular vote would have been 49.2% for Romney to 49.1% for Obama. Obama still would have likely have won the Electoral College (Romney getting 253 instead of 206 votes, short of the 270 needed to win), but it would have been closer. For all of the talk about doing better with Hispanic voters to win elections, doing better with the working and middle class is critical for the Republican Party to win national elections (admittedly, doing better with the working and middle class likely entails doing better with Hispanic voters).

53% of voters thought Romney policies favored the rich; only 34% thought the middle class was favored. 21% of voters believed the most important quality was having a President who “cares about people like me.” Romney lost those voters 18% to 81%, and this block of voters was decisive in delivering the election for the President. Republicans have a clear empathy problem. Now, there are two possibilities here. One, the republicans offer the right policies for these voters and are doing a terrible job communicating them, or two, the policy mix is bad for these voters and they are acting rationally by voting for Democrats. As the Democrats are keen to offer free stuff, winning the communications battle will invariably be tough, but there is definitely room for improvement, especially as conservative policies can help lift working people more than an entangling, 20th century safety net. Plus, republicans don’t have to win these voters outright, just do less badly.

There are strains in the Republican Party that are offering wise policies, focused on improving and expanding the earned income tax credit, eliminating marriage disincentives, and successfully employing charters schools as Washington DC has done. Leaders like Paul Ryan, Mike Lee, and Marco Rubio have each come up with some good proposals in these areas, but Republicans have failed to come out with a comprehensive economic policy that all Americans, poor, middle class, and wealthy, can buy into in part because few in the party seem to recognize that the past 15 years, under both Presidents Bush and Obama, have been lousy for the middle and working class. President Bush’s economic record is far from perfect. This country has lost 5 million manufacturing jobs in 20 years and seen real median income declines since 1997:

Under President Reagan, America saw stellar economic growth, but his policies addressed specific problems, including a lack of capital and squeezed margins. His tax cuts were aimed at fixing specific problems and are not a timeless solution in and of themselves. Today’s problems are different with a job-skills mismatch, burdensome lending regulations, inefficient deductions, and internationally obsolete code, and the solutions need to address these ills while recognizing policies must help the working and middle class lift themselves up (different from the Bernie Sanders approach of tearing the rich down). Has any somewhat viable Republican Presidential candidate made an argument they will help workers?

Trump has. The premise of his campaign is helping workers. He has said Super PACs screw Americans because politicians become beholden to corporate donors. Our free trade agreements have cost us jobs because our leaders are terrible negotiators (and if you were one of the 5 million who lost a manufacturing job, you would have some sympathy for this argument). Over the summer, Trump said, “the middle class is getting clobbered in this country. You know the middle class built this country, not the hedge fund guys, but I know people in hedge funds that pay almost nothing and it’s ridiculous, OK?” It is unsurprising that Trump has built a strong base of support amongst working and middle class voters in GOP primary polls because his campaign is directly targeted to them.

Now, this is separate from arguing Trump policies would actually help the middle class (this is very debatable), but he, being a master brander, has done an excellent job selling it. It has been easy for him because the establishment has shown no interest in reaching out to these voters in years. Did Romney ever prosecute the case as to how ordinary Americans would be better off? Exit polls (and memories of the campaign) say “no;” the establishment has no built in credibility. We’ve gone from Reagan calling all Americans “heroes” to Romney decrying “the 47%” behind closed doors. Plus, no other candidate has made a compelling argument to these voters. Ben Carson has an inspiring life story but has been unable to offer a specific policy vision on economic or foreign affairs. Jeb Bush is just constitutionally incapable of making compelling arguments, and while he has promised 4% growth, he has never articulated how his plans ensure the growth will be enjoyed by all. Rubio hits some of the right notes, like an expanded-EITC, but has focused on foreign affairs (he is best positioned to appeal to working people in my opinion but has failed to make a clear effort). Ted Cruz’s tax plan would likely hurt workers and creates a VAT that disincentivizes employment—it’s an unimaginably idiotic tax plan to be frank.

Trump’s competitors have made it easy, proving utterly incapable or uninterested in offering an inclusive economic message. Given 15 years of stagnation and a republican establishment that has made little substantive effort to include them, working and middle class voters are understandably frustrated and willing to go for an unorthodox candidate. Enter Trump who has a message tailored for them and who has faced no competition on the economic populist front. No wonder he polls so high.

Trump isn’t a doctrinaire conservative, but conservatives have failed to update policies or explain how our vision economic plans can help all Americans. That is the movement’s failing. Blaming Trump voters for being unprincipled for backing a (charitably) inconsistent conservative has proven pointless in bringing down his support and is perhaps unfair to his supporters. If you offer voters nothing, don’t be surprised if they look elsewhere and ignore your warnings. Voters are perhaps willing to look past Trump’s faults because they see no alternative—what has the conservative movement done for a steelworker the past decade?

By failing to build a conservative economic plan that can work for all Americans and then failing to sell our vision in a clear and convincing fashion in all corners of the country from Wall Street to 125th Street, we have left the field wide open for Trump. Within reason, conservatism and populism are not at odds, for what good is a policy that does not benefit most of the populace? Who is better positioned to argue that their policies will help people than the party promising to return power to the people? If there is no conservative party in 2020 or 2024, it won’t be because of Trump. It will be because Republicans have failed miserably in being the Opportunity Party.

The Paris Agreement: Yet Another Meaningless Deal

On Saturday, nearly 200 nations signed a climate pact that President Barack Obama called a “turning point for the world.” Obama argued this agreement was the one “the world needed.” Upon reading the actual text of the deal, it would appear the world didn’t need very much, if the President’s claim is to be taken at face value. In the end, this deal is as fanciful and toothless as the Kellogg-Briand Pact of nearly a century ago that banned war in the wake of World War I. While the failings of this deal are unlikely to be as grave (World War II was pretty awful, you know), it suffers from the same fatal flaw: no enforceability.

This agreement doesn’t actually do anything; it is merely a voluntary plan whereby nations will unilaterally cut emissions or something. The over-arching goal is to keep global temperatures rising 2 degrees (Celsius) from the current expectation of some in the science community for 2.7-3.7 degrees. If this voluntary deal works really well (!!!), the agreement leaves open the possibility of pushing for a more aggressive 1.5 degree target.

This agreement “invites Parties to communicate their first nationally determined contribution no later than when the Party submits its respective instrument of ratification, accession, or approval.” This agreement merely invites nations to come up with their own plan to bring down emissions to unspecified levels to lead to less climate change. Does that sound vague? Don’t worry; this agreement also creates an “ad hoc working group” to monitor nations’ progress because groups of bureaucrats are renowned for getting things done.

Signing to this deal merely signifies the “Voluntary participation authorized by each Party involved.” Are there any enforcement mechanisms that punish nations for failing to bring emissions down (or for some developed nations, rise more slowly)? Nope. We are operating solely on the trust system—no way that could produce underwhelming results. Some hailed the underlying goal of the deal as ground-breaking: “Parties aim to reach global peaking of greenhouse gas emissions as soon as possible.” Others may contend that the phrase “as soon as possible” means absolutely nothing and gives offending nations plenty of room to maneuver if confronted (i.e. more action just wasn’t possible). This deal also says developed nations are to give developing ones at least $100 billion/year by 2020 to help fund their development, thereby making income redistribution an international affair. Good luck getting everyone to write those checks…

Those who are unconvinced climate change is the world’s most pressing problem and aren’t prepared to crush the economy to cut emissions should actually be thrilled by today’s deal as no new policies have to be implemented. If we actually wanted to cut emissions, any deal needs to have set targets and strict ramifications for violations (for example, automatic WTO admissible tariffs to hurt the economy of offenders). Otherwise, developing nations, like China and India, will cheat, pointing to the fact there were no restrictions on the West’s industrial revolution a century ago. Of course, they benefit from our revolution (India doesn’t have to invent the car for instance), so there should be restrictions if we are to have some, though perhaps not quite as onerous for a bit of time. Adhering to unenforceable deals threatens to leave the American economy relatively uncompetitive as other nations’ flout the deal’s requirements.

Fortunately for the climate alarmists in our midst, the private sector is already helping to solve the problem. Our abundance of natural gas is hurting coal, and with or without government regulations, coal will likely go the way of the dodo bird in this country over the coming decades. As we export LNG, energy production around the world will only get cleaner. Automotive emissions keep improving, and the advent of the electric car will only help. Continued advancement in battery technology could facilitate a smaller, cleaner grid while improvements in transmission will make nuclear more viable in more regions. Even in countries like China, popular discontent over ridiculous pollution levels could force the regime to act over time if only to keep the public happy. Indian cities aren’t far behind.

However, our President is a climate alarmist, which leaves one befuddled as to why he would be happy with this deal that is voluntary and lacking enforcement mechanisms. This climate pact is strikingly similar to the Iran Deal, which is nonbinding (heck no one even signed the agreement!) and has laughable verification measures (not to mention the fact that re-imposing sanctions with Russian approval and European unity is as likely as Hell freezing over, unless of course unfettered climate change here serious impacts the temperature down below…).

Our President seems to have a lot of trust in foreign powers to do the right thing despite their national interest. It’s a fascinating turn for a President who so recognized the free-rider problem, he coerced Americans to buy healthcare insurance or face stiff financial penalties (the individual mandate). Of course, if the insurance under Obamacare is as good and affordable as advertised, wouldn’t people be clamoring for it and not need coercion? I guess, unlike China and Iran, Americans can’t be trusted to the right thing.

Moreover, our President may see no need to make legally-binding agreements since he never feels the law binds him as evidenced by the lawless immigration executive orders and potential one on Guantanamo Bay. Ultimately, our President seems to enjoy doing things for the sake of doing things. That is how Democrats inevitably react to gun violence (just pass a law, even if it wouldn’t have stopped this shooting). Obama wanted a deal with Iran to check off a box on his legacy, even if the deal was a poor one. Similarly, he wanted to do something on the climate. We can all sleep easy and claim the moral high ground now that this high-sounding, completely unenforceable garble has been agreed to. In the view of our leadership, just doing something is an achievement, results be damned. That is the only way to explain the Iran Deal, the Paris Accord, gun violence reactions, and our tepid ISIS bombing campaign. At least we can feel good about ourselves as the world implodes!

Now, I don’t believe economy-crushing cuts make sense, but it astonishes me how horrendous of a negotiator our President and his Secretary of State, John Kerry, are. They are either delusional or lying when calling such a deal as this a groundbreaker. If we ever want to deal successfully with China or Putin or Iran, this naïve idealism is dangerous.

Recently, Obama and the Left have often linked climate change to terrorism. Well, the Paris Agreement will do as much for emissions as those 20 bombings/day have done to roll back ISIS.

Just like coal, this deal will end up being a puff a smoke, not worth the two weeks of diplomats’ hot air blown in Paris.

A Conservative Argument for the Estate Tax

On this “Giving Tuesday,” Mark Zuckerberg announced in a public letter to his just-born daughter that he and his wife would be donating 99% of their Facebook stock. The gift is aimed at advancing “human potential and promote equality for all children in the next generation.” This gift is a massive commitment of $45 billion (at Facebook’s current share price) that has the potential to truly better the world. Don’t feel too badly for their daughter, Max, who is still in-line to get about $450 million (at today’s market price), or about 2x Mitt Romney’s net worth.

In light of Zuckerberg’s action, it seemed pertinent to briefly discuss the estate tax, and why I actually think conservatives should support it (despite deftly dubbing it the “death tax”) as I have alluded to in the past. My view is admittedly out of the orthodoxy and runs counter to our slate of Republican Presidential contenders who want to eliminate the tax.

Briefly before delving into my argument, I would emphasize my support for an estate tax in principle and not for our idiotically concocted one. Under current law, all estates beyond $5.4 million pay the same marginal tax rate of 40%. A small business owner with $30 million faces the same marginal rate as Warren Buffett, which is absurd. A primary concern of mine (and all conservatives…hopefully) is the ability of the super-wealthy to maintain their status for generations, which cannot be done at $30 million but can be at $30 billion. That small business owner or farmer also likely has less liquid wealth, and heirs could be forced to sell to pay the taxman, which argues for a lower initial rate. For illustrative purposes, I would propose a progressive estate tax of perhaps 15% for $5-15 million, 25% for $15-25 million, 35% for $25-$50 million, 50% for $50-$250 million, and 70% for $250 million and higher. I would also allow one’s tax burden to be nullified by charitable donations. That would mean the Zuckerberg estate would face no estate tax liability as it is donating over 70% to charity.

 

  1. Tax Code Efficiency

As some government spending is required and 100% debt funding is unsustainable, we have to tax. The conversation turns to how much we have to tax (dependent on how much we spend) and how we structure our tax code to generate the requisite revenue. Some liberals have this fixation on a “fair” tax code with no discernible definition of fairness. Conservatives focus on an efficient tax code, which is to say the code that has the least retardant impact on growth. Such a tax code would allow the economy to perform the best, all else equal, and help the poor and middle class improve their standing and their standard of living.

This requires taxing the least productive segments the most and most productive the least. Plus as we need to generate a certain amount of revenue, the decision to tax one party is in a sense a decision to not tax another (dynamic scoring adjusted). The estate tax generates about $20 billion in revenue per year or less than 1% of total federal revenue, so it isn’t particularly big (though I would put forth that $20 billion is still a lot of money, call me old-fashioned). If we want to generate the same aggregate revenue, we would have to increase other taxes by that $20 billion. One could argue income and corporate taxes are on today’s productivity whereas an estate tax is on the accumulated productivity of the past. Which tax would appear to drag on economic growth more?

From a different perspective, the estate tax in a sense takes money away from the ensuing generations (the heirs), and as I explain in point 2, it is very uncertain they will use the funds in a productive fashion whereas income is more clearly associated with productivity. Whom would you rather tax if you want a tax code that is likely to impact productivity the least? While there are individual exceptions no doubt, in aggregate, the estate tax targets less productive capital (from either vantage point), meaning we can tax more productive capital and labor less (to the tune of about $20 billion/year), which at the margins should support growth. (In full disclosure, I would note the Tax Foundation seems to disagree with me, though I would suggest it overstates the productivity of the estate capital taxed).

I would also note that I actually hope my estate tax generates no revenue because individuals choose to donate to charity in lieu of paying a tax to the government as my concept would allow. On the whole, charities can be far more productive users of capital than government bureaucracy. While this would lead to lower revenue, it would alleviate the welfare burden on our government, allowing spending to fall (in all likelihood more than the tax revenue shortfall).

2. Capitalism Requires Meritocracy and Efficient Use of Capital

For a capitalist society to work efficiently, individuals and organizations need to benefit based on merits. The most talented should do better and accumulate wealth because they are superior allocators of capital. It is a good thing Warren Buffett has $75 billion and your Uncle Billy doesn’t because Buffett is more adept at making wise investments and is more likely to pursue projects that generate value. Individuals should rise and fall based in large part on their ability and willingness to work hard.

Large estates are large because someone had a talent and was able to generate value. A just and efficient society is glad and benefits from their accumulation of wealth. However, there is no guarantee their children are equally talented/hard-working. Without an estate tax, those funds can be passed down to a generation that wastes the funds (the Paris Hilton’s of the world if you will). Now, some inheritors do tremendous things with the inheritance, but just as many (more I would argue) do not. In aggregate, society does best when capital is tied with those who are the best allocators of it not those with the best last name.

The American Dream is founded on the idea anyone with enough hard work can rise in society. An aristocracy enjoying the fruits of past generations’ labor can stifle advancement and lead to economic malaise, undermining the advancement of others. That isn’t a capitalist or conservative society. It is a corporatist society benefitting entrenched, status quo players. If we really thought passing down things blindly was so great, why did we ever revolt against monarchial rule? The American experiment is directly juxtaposed to aristocracy, which can arise without an estate tax.

Now, this is not to suggest passing down money is bad. It is wonderful to give one’s children the ability to do anything (problems arise when they have so much they can afford to do nothing). The ability to provide a better life for one’s children, even after one’s passing, can be a key motivator that increases productivity. The danger doesn’t lie in someone passing down $5 million, which can easily be wasted in a generation (or shorter), the danger is in the $5 billion passed down that can let numerous generations ride on the coattails of success. That is why a progressive estate tax is far more rational as it more directly deals with the meritocracy issue without punishing parents for wanting to give their kids and grandkids more opportunity.

Inherited wealth on a large scale can breed laziness and an under-productive over-class in an extreme. For families to rise, some inevitably must fall. An estate tax actually helps to engender meritocracy and thereby enhance growth over time.

3. The wealthy are already disbursing their estates to society

Since launching several years ago, Bill Gates and Warren Buffett’s The Giving Pledge has been a stunning success, getting 138 billionaires to pledge half their wealth (or more) to charity. Again, these participants, under my conception of an estate tax, would essentially face no estate tax liability, since I would fully credit any charitable contributions against the theoretical tax liability. It is telling that so many of the most fortunate choose to give away the vast majority of their wealth. They are beneficiaries of my second point (meritocracy) and understand the importance of preserving that structure, rather than letting future generations fritter away their hard earned wealth. Of course beyond the pledge, countless wealthy individuals are exceptionally generous as well.

Now admittedly, not everyone is a member of the pledge, and some would probably prefer to pass on everything. However, there is some wisdom to the crowd—that is a basic tenet of market economics. For instance, stock prices are fairly efficient and good (probably the best) barometers of fair value because a wide crowd, everyone in capital markets, is buying and selling to the crowd-determined appropriate price. History has proven it hard to beat. Perhaps, the actions of the world’s richest signals the proper policy? While I wouldn’t blindly follow the crowd, it does merit some thought. Moreover, given how much wealth is being donated anyway, the estate tax, if done right, will actually be used in very few instances.

4. It really isn’t double taxation

A common refrain conservatives use against the estate tax is that it is double taxation (taxing already taxed income). That is a bit simplistic, and I would note much of our tax structure, including sales tax, some income taxes, some capital gains taxes etc. are double-taxes. If possible, eliminating all forms of double-taxation would require increased taxation on primary forms of income (unless you are willing to shed hundreds of billion in revenue per year). It isn’t clear that is a preferable system.

Now some estates are as classically argued “double taxed,” but most of the largest estates are not. Most large estates come from entrepreneurs and business founders whose wealth is the equity in their business. This wealth is not taxed prior to death. To illustrate, let’s take the case of Mark Zuckerberg and assume he died Monday before deciding to donate money. He has $45 billion in Facebook stock, but this wealth has never been taxed because it is paper wealth. We tax income (which his Facebook holdings are not) and realized capital gains, and since he is still holding FB shares, the gains are unrealized. When he dies (in the hypothetical), he has actually never been taxed on his wealth. The estate tax would be his first tax not a double tax. Most large estates are similar; much of the estate tax revenue is primary not double taxation.

Plus under current law, the cost-basis of an estate is “stepped-up,” meaning that $45 billion capital gain disappears as his heir marks up the cost-basis to the market price at death. If you eliminate the estate tax without eliminating the step-up feature, his wealth is never once taxed as it passes generation by generation. Meanwhile, workers and W-2 earners (almost all Americans) pay taxes every paycheck. That does not strike me as an efficient structure. Now, we want to incentivize entrepreneurship as they create jobs but no taxation is a bit much. Plus, our current system, in which taxes are deferred until gains are realized, is already an incentive as it lowers the present value of an entrepreneur’s tax bill relative to an employee.

Even if double taxation is inherently bad, which is far from clear and would require a far more drastic overhaul likely resulting in a large consumption tax (which has many negative side-effects), much of the estate tax revenue, particularly from the largest estates, is not a double tax but actually a primary tax. The true picture is a bit more complicated than the political talking points suggest (how unusual!).

5. The confiscation argument against the estate tax doesn’t hold

One constant argument against the estate tax is that it is the confiscation of hard earned wealth, which the government should not be in the business of doing. We could use that rationale for any tax however. The income tax also confiscates the earnings of individuals. Taxation is inherently coercive (optional taxes tend not to generate much revenue), so unless one is willing to argue against all taxes, it is hard to justifiably singling out the estate tax. In any functioning society, there has to be some taxation to pay for public goods. Someone worth $10 billion can still pass down over $3 billion after taxes/charity, which is still a tremendous sum despite my highly progressive proposal. Every tax is by its nature confiscatory and coercive. It is inconsistent to use this argument, often put forth by conservatives sadly, to oppose an estate tax while supporting other taxes.

 

Recognizing this can be an emotional issue for some, hopefully, these arguments at least give pause for further reflection. People of good will and of different political persuasions can disagree on this issue as I don’t see the estate tax as a clear conservative/liberal issue despite how our political parties use it. Ultimately, conservatism is best served when we push for comprehensive tax reform that, yes, includes a reformed estate tax. A conservative-oriented, merit-based society that has an efficient tax code actually necessitates an estate tax, and the two most frequent criticisms of the taxes are a bit lacking.

Death to the death tax is neither conservative nor wise policy.

Taxing in the 21st Century

Several Republican Presidential candidates (Trump, Bush, Rubio, Paul, Kasich, Jindal, Santorum, and Cruz to name a few) have outlined fairly specific tax plans aimed at accelerating U.S. economic growth. Most follow a similar pattern of eliminating deductions and lowering rates, which has worked quite well in the past (the Reagan Recovery being the standout example as seen in Chart 1). While the impulse to dust off the Reagan playbook is quite strong given the empirical data, conservatives really need to aggressively rethink how we tax and be careful not to knee-jerk back to past solutions. It is on this point where Sen. Ted Cruz’s tax plan stands out and should be applauded. While I have reservations about how the specifics of his tax plan, he has shown the greatest willingness to move away from the orthodoxy and rethink the nature of our tax code (more on his plan will follow)

Chart 1

r v o vc

With each passing day, the Reagan era grows more distant (an admitted redundancy that is still important to remember), and reflexively returning to his playbook is fraught with political danger (more and more voters were not old enough to cast a ballot for him) and policy danger. Conservatives need to do a better job delineating solutions from principles. Principles are what we believe (and as such are relatively unchanging) whereas solutions are how we implement principles (and as such change as the problems change). It is a disservice to Reagan’s legacy to simply suggest cutting marginal rates is the best answer to a slow economy as this implies there is a magic formula that would solve any problem.

The genius of the Reagan Administration was its ability to take conservative principles and apply them to policies to craft specific solutions to the problems of the day. We need to keep these principles, but today’s problems may necessitate different solutions. In brief as conservatives, we believe in returning power to the individual and away from the collective. Ultimately, individuals make better decisions regarding their own lives than a bunch of bureaucrats can hope to. This means entrusting power in the people and keeping government interference to a minimum.

Armed with these beliefs, Reagan focused his tax relief on capital. In 1981, the US was suffering from high unemployment and high inflation (stagflation). Reagan took over an economy that was treating capital poorly. As can be seen in the following chart, labor was gaining share in the economy—at the expense of capital, leading to a retrenchment in investment. There was a supply of capital crisis. When capital is treated poorly (ie 70% marginal tax rates and windfall profit taxes), holders of capital are less likely to invest it. When you don’t see capital investment, an economy grows too tight, sending prices skyrocketing (Chart 3, NB inflation is inverted). As prices soared, consumer confidence fell, leading to less spending and subsequently an even worse environment for investing.

Chart 2

obama econ

Chart 3

pce

Recognizing the supply problem the economy faced, Reagan freed up capital by rolling back regulations and focusing tax cuts on top marginal rates (bringing them down from 70% to 50% and later 28%). Reagan’s capital-aimed economic policies worked remarkably well, bringing inflation down and consumer confidence back (Chart 3) while economic growth soared (Chart 1). Reagan took conservative principles (empowering the individual rather than the collective) and applied them to the problems of the day (unfavorable policies inhibiting capital and causing an inflation shock) to create policies that bettered the lives of Americans.

Fast-forwarding to the present day, we have conservatives offering a variety of tax plans aiming to spur growth. When looking at tax plans, we need to drill down to the basics and ask the question: why we tax? The answer is simple: to fund government expenditures. There are some things government must spend money on (ie defense), and we cannot sustainably borrow money to pay for everything. Depending on the speed one wants to bring down our debt load, tax revenue likely needs to be 17.5-20.5% of GDP on average over the medium term.

It then becomes a matter of constructing a tax code that has the best impact on the economy over the medium term. In a sense, offering a tax break to one group needs to be offset by taxing another group; for instance, opting against an estate tax (which many conservatives call for) would cost revenue that needs to be made up elsewhere. On the other hand, eliminating ineffective deductions (the deductibility of corporate interest expense perhaps?) helps to fund tax breaks elsewhere. Ultimately, we would build a tax system that generates the necessary revenue while having the best economic impact, and this tax code could be dramatically different from our current convoluted mess (spoiler alert: it would be).

Most importantly, the efficient tax code would change over time because our economy is ever-changing. While conservatives should continue to push for as low of a tax burden as possible with a simple code that leaves individuals with as much power as possible, how that translates into marginal rates, deductions, and so forth can change a bit. Reagan faced an economy that treated capital poorly, and so, he lessened capital’s tax burden. Today’s economy is far different. Under Obama (as you can see in Chart 2), labor has done absolutely terrible, losing share to capital. This decline helps to explain why aggregate economic statistics (like 5% unemployment) seem out of whack with how most in the middle class feel. As such, it is critical to build a tax code that incentivizes work to get people back into the work force and working. This requires creative thinking from expanding the earned income tax credit, to contemplating the implications of a negative marginal tax rate bracket, and closing loopholes that provide little economic bang for the buck.

On the whole, it is hard to look at most of the Republican tax plans and not believe they would be better than the status quo, though none is without flaws. Most plans (like Rubio, Bush, and Kasich) stick relatively close to traditional conservative orthodoxy, but Cruz’s stands out. Cruz basically throws out the current system, has a 10% income flat tax, and a 16% business flat tax. Per the Tax Foundation, the Cruz plan costs about $3.6 trillion over a decade, but based on their view that the economy will be 13% larger (a plausible but definitely not unfriendly view), they see it only costing $770 billion. The US, in aggregate, is certainly not under-taxed, so there is nothing wrong with a tax plan that offers a moderate tax cut like Cruz’s does. I would note (that based on my rudimentary number-crunching) most of the growth driven revenue gains would be realized at the back end of the decade with years 9 and 10 generating up to $1 trillion of the incremental $2.8 trillion in revenue. Essentially, the revenue hit is not $77 billion/year, rather, it is much larger upfront and shrinks, possibly even gaining revenue at the tail end.

At first glance, it looks like Cruz provides labor with a massive tax cut, given the low 10% rate that for a family of 4 kicks in after 36k. However, his business tax would tax both profits and payrolls. So an employee earning $100,000 would pay a 10% flat tax, but his employer would also pay a 16% tax ($16,000). Under current law, the Social Security payroll tax is only 6.2%, so Cruz is really using a tax increase on payrolls to fund cuts elsewhere. Frankly relative to current law, Cruz is providing a dis-incentive to employee people.

Alongside this, Cruz would allow for the immediate expensing of equipment. Put in simple terms, buying a robot would not be subject to a 16% tax but hiring a worker would be. We continue to see a push towards automation in the economy. While painful for the worker being automated out, this is a good thing. I think we would all agree that on net ATMs have been a positive, even though they were a negative for bank tellers. Businesses should automate when the underlying economics make sense, but we don’t want decisions being made for tax purposes. An economy functions most efficiently when capital is allocated based on underlying economics and not tax implications. When taxes start changing allocation decisions, a government is picking winners and losers, which more often than not ends badly (how’d that Solyndra loan work out?).

Now, the government should not actively impede automation as this would leave the US poorly positioned in world trade and slow growth. The tax code should be neutral on the matter, and let economic reality be the determinant. Amazingly, this is one of the few things our current code does somewhat well. Employers pay a payroll tax but can deduct payroll immediately while purchases of equipment are deducted over multiple years (ignoring temporary tax breaks). When calculating the present value of the tax implications of the decision (a worker or machine), they roughly cancel out (or come fairly close), meaning that business owner would choose the economically wisest.

Cruz’s plan tilts the playing field away from workers and towards capital, incentivizing automation. Now if the pre-tax economics of hiring a worker or automating are the same, a business would choose to automate because it receives more favorable tax treatment. Interestingly, there is a pretty good case to be made that this plan would have worked particularly well in 1980 when the cost of capital was too high. Similar to Reagan’s steep marginal rate cuts, the Cruz plan would incentivize investing and have increased aggregate supply to bring inflation under control.

While Cruz’s plan benefits from original thinking, it solves past problems and would likely exacerbate the trend in chart 2 where labor has lost ground under Obama. This is one reason why I think the Tax Foundation’s growth expectations could be a bit optimistic. The Foundation does say the capital stock rises 44%, which makes sense as lower taxation would create more capital. The fact it grows 3x the economy does show the diminishing return of excess capital in the current environment. In fact, the issues with our capital stock could be dealt with more simply and just as effectively in two strokes. First, stop taxing repatriated profits at 35%, which would bring back $2 trillion. Second, Dodd-Frank has disincentivized bank lending, and as such, banks are carrying $2.5 trillion in excess cash. Roll back some of these regulations, and banks would be free to increase lending to small business and others, which would push growth faster.

Cruz (and others) are fighting the last war, focusing tax cuts in places where they will provide less growth. Reagan’s ingenuity was not that he lowered taxes but that he recognized the problems he was facing and structured his tax cuts in a way to solve those problems. Labor and capital supply an economy, and he faced a capital crisis. By fixing that, he put us on a path for 25 years of prosperity. Today, capital is doing well, and our crisis is on the labor front. Labor force participation is lower than it should be, wage stagnation is real, and capital has done fairly well with the top doing very well under Obama (who has helped exacerbate the very inequality he rails against). Again, the solution to this problem is not to punish the top to subsidize everyone else as that slows growth over time. However while Reagan tried to stimulate capital, we need to stimulate labor. This means debating a larger EITC, considering negative marginal rates, incentivizing job training, and eliminating certain loopholes (like carried interest and interest deductibility) to fund lower marginal rates. It also means keeping capital gains taxes and rethinking total opposition to the estate tax (or at least the stepped-up basis).

Reagan’s principles and the tenets of supply-side economics are as relevant as ever, but conservatives need to engage in further debate about how those principles apply to today’s challenges. The best answer could be wholesale change to the tax code (like Cruz has boldly suggested) or sticking a bit closer to the status quo. Taxes at the end of the day are a means to an end, a way to fund government while creating the conditions for the most robust growth. This requires an analysis of what breaks provide the least value and what taxes slow growth the most in today’s economy (and then eliminating those breaks to fund the elimination of those taxes!). It also requires a deeper debate on what part of the supply curve needs the stimulus. Admittedly, stimulating labor, without doing so at the expense of capital, is a challenge but not an insurmountable one (pairing labor-focused cuts with fewer deductions, a quasi-territorial corporate system, modified Dodd-Frank, and reformed estate tax is our best bet in my estimation).

Conservatives need to do a better job explaining how our principles and faith in the American people rather than government translate into solutions for today and are not merely regurgitated answers to the problems of 35 years ago. That is a pre-requisite for winning elections, and more importantly, it is the only way to actually make the American public better off. Re-examining our tax orthodoxy is a good place to start. Hats off to Senator Cruz for doing just that. While I would question the specifics of his plan, he is starting a debate we very much need to have.