Trump stimulus

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cswift01
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Trump stimulus

Post by cswift01 »

Dear all,

So, given that many are economic wonks on TSPcenter, I was curious to your ideas. Now that it's looking like the Trump Stimulus is going to become a thing, I've been wondering about a few more items:

1. How will they pay for infrastructure spending, which should be a separate bill?
2. How will they change lifeline items such as Social Security, Medicare and others? I've read reports that there are ideas to address all three.
3. If NAFTA were to be dropped (which is looking more likely by the day), what impact do you foresee on the market?

I know that for the moment we're only talking about prognosis, however, many of us craft our yearly investments in December/January so a talk about these things might help someone.

Thanks,

Me

skiehawk11
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Re: Trump stimulus

Post by skiehawk11 »

1. Debt.
2. Reduce benefits.
3. NAFTA won't get dropped, but the markets would respond negatively if the probability increased to greater than 50 percent I would wager.

greengrass
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Re: Trump stimulus

Post by greengrass »

skiehawk11 wrote:1. Debt.
2. Reduce benefits.
3. NAFTA won't get dropped, but the markets would respond negatively if the probability increased to greater than 50 percent I would wager.
That's what I'm tracking as well.

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cswift01
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Re: Trump stimulus

Post by cswift01 »

skiehawk11 wrote:1. Debt.
2. Reduce benefits.
3. NAFTA won't get dropped, but the markets would respond negatively if the probability increased to greater than 50 percent I would wager.
I'm wondering if we're heading towards the Reagan period where we'll have stagflation again. I do see high inflation down the road, but I'm curious if it will go the stagflation route. I'm addressing that with my personal investments.

ksmoly04
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Re: Trump stimulus

Post by ksmoly04 »

cswift01 wrote: 1. How will they pay for infrastructure spending, which should be a separate bill?
2. How will they change lifeline items such as Social Security, Medicare and others? I've read reports that there are ideas to address all three.
3. If NAFTA were to be dropped (which is looking more likely by the day), what impact do you foresee on the market?
1. Yes to your's and skiehawk11's assessment. It will be a separate piece of legislation from the tax reform bill.
2. House Speaker Paul Ryan just announced that entitlement spending will be worked in CY2018.

To Skiehawk11's comment about the debt, this infographic from the Congressional Budget Office explains the difference between mandatory (debt interest payments, entitlements) and discretionary (defense and non-defense which will include any infrastructure spending).

For FY16, total revenues were $3.3 trillion, while expenditures were $3.9 trillion. Of the $3.9 trillion in expenditures, $2.67 trillion were mandatory (must-pays) and equates to 68% of all spending.

When taken in light of revenues, that $2.67 trillion represents 80.9% of all revenues (e.g. taxes) that were collected.

The unfortunate reality is that even if the nation were to say that we're going to zero out our debt and start over from scratch; the mandatory spending consumes so much revenue that deficit spending will immediately occur. So the only two options for the Congress are to 1.) raise taxes by $700 billion (which only slows the accumulation of new debt) or reduce the amount of spending on the entitlement programs.
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skiehawk11
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Re: Trump stimulus

Post by skiehawk11 »

These are my personal opinions and they aren't backed up by any hard science or economics; just observations and information gleaned from years of reading.

Both of the Senate's and House's tax plan do not do enough in either tax cuts or helping with revenue. Each bill in its current form increases the deficit by 1.5 trillion dollars over a 10 year period. This includes the assumption of GDP increasing temporarily. This is spelled out clearly by both the House and Senate and has been confirmed by several partisan and nonpartisan organizations. The 1.5 trillion dollar deficit is the minimum amount added. If infrastructure spending occurs, a recession or any major event not assumed (increased military spending, re-authorization to some degree of the ACA subsidization, etc), Congress will add even more to the deficit.

The infographic that ksmoly04 pointed to is important in what I wish Congress did which is take care of the mandatory spending revenue streams. I would be okay trading a lower income tax bracket and corporate taxes for everyone if this was offset by increasing revenues for mandatory spending. Essentially, reduce income and corporate taxes and increase payroll taxes. The current total rate is 15.3% divided evenly between employer and employee (https://www.ssa.gov/oact/progdata/taxRates.html). The total payroll tax rate should increase to around 18 percent with a split of (10 percent employer and 8 percent employee) and the income limit should be repealed. The amount gained should be offset by reductions in income and corporate taxes. This maneuver would enable Congress to completely fund Social Security and Medicare well into the future (assuming benefits stay the same). Congress should also authorize that any excess payroll revenues should be used to buy treasury bonds (as they do now), but limit what the funds can be used for (pay down the debt, safety moat for SS and Medicare, infrastructure spending, education).

From there, Congress has a better chance of reducing non-mandatory spending in line with the reduction in income and corporate taxes. The GOP could call themselves tax cutters, shoring up Social Security, and Medicare/Medicaid, reducing government size, etc.

Infrastructure spending should be funded by gas taxes, issuance of special treasury bonds, and other fees and taxes depending on the infrastructure to be invested in. I would consider this good debt because it's investing in making the economy efficient.

Debt isn't bad when managed correctly. That means understanding how to utilize debt as a tool and using it appropriately.

For the sake of staying on point, I am not going to address whether payroll taxes and/or the welfare systems in place should be reduced or eliminated. That's a philosophical debate and the probability of either occurring is close to none at this point. I have no problems debating that subject in a different thread. :)

Tax cuts work over the short term, but do not fuel long term growth. There are many studies out there that show that. I also know there are studies out there that show otherwise. Those studies are in error because they assume incorrectly a linear correlation to tax cuts and increase in GDP growth and they don't account for other factors that could have an impact on growth. Also, of interest is how the tax cut is funded (deficit spending or actual spending reductions).

EDIT: When in doubt of a particular tax study, look at the economic model used, the assumptions made, and the time frame. It helps a lot.

crondanet5
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Re: Trump stimulus

Post by crondanet5 »

Whatever the Republicans do will be repaired by the Democrats after they win the midterm elections. The debate over federal benefits to the indigent, infirmed and elderly is meaningless. You are either Scrooge or Bernie Sanders. Take your side and stand on your box. Just remember the rest of the world is kinder to its citizens instead of playing stingy. And the infrastructure remains in poor condition. Somebody forget that promise?

cashworth
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Re: Trump stimulus

Post by cashworth »

Lets start by rethinking what is mandatory spending. The only thing mandatory is interest on the debt, everything else can be changed by a vote.
Big politics have us all convinced that we MUST pay for these entitlements via taxes, but there is no discussion on why healthcare cost is 15% GDP? I'm not saying reduce the benefit, I'm saying where is the bargaining power? Does an ambulance ride really cost $8000?

Jalpunk
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Re: Trump stimulus

Post by Jalpunk »

cashworth wrote:Lets start by rethinking what is mandatory spending. The only thing mandatory is interest on the debt, everything else can be changed by a vote.
Big politics have us all convinced that we MUST pay for these entitlements via taxes, but there is no discussion on why healthcare cost is 15% GDP? I'm not saying reduce the benefit, I'm saying where is the bargaining power? Does an ambulance ride really cost $8000?
If our politics weren't so corrupt in terms of lobbying and unlimited anonymous bribes...I mean donations, perhaps politicians could agree to create laws to reign in the healthcare industry while still allowing them to make plenty of money and practice capitalism, while also allowing for society to afford their services without going bankrupt and spending much much more than other first world countries do on healthcare.

skiehawk11
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Re: Trump stimulus

Post by skiehawk11 »

cashworth wrote:Lets start by rethinking what is mandatory spending. The only thing mandatory is interest on the debt, everything else can be changed by a vote.
Big politics have us all convinced that we MUST pay for these entitlements via taxes, but there is no discussion on why healthcare cost is 15% GDP? I'm not saying reduce the benefit, I'm saying where is the bargaining power? Does an ambulance ride really cost $8000?
Oh, there are a few reasons why healthcare (not health insurance) is so expensive:
1. Administrative costs are a driver;(http://medicaleconomics.modernmedicine. ... healthcare);
2. The fact that the U.S. subsidizes drugs and drug research for the rest of the world (http://www.ibtimes.com/how-us-subsidize ... pe-2112662);

This article (https://healthcareinamerica.us/high-adm ... 10cbf34808)disputes the fact that admin costs are a driver (they have a compelling argument). They state that the reason why healthcare costs increase is largely due to chronic illnesses and an ill designed healthcare system.

It stands to reason that lowering healthcare costs/rate of increase will slow the cost of health insurance as well.

Re-thinking and doing are to very different operative words. In fact, debt can be wiped out just as easily with a vote. Re-defining won't fix the problem so why get caught up in semantics? Let's look at the breakdown of healthcare costs and start figuring out what factors influence each section and then instead of words, we have data to determine how to start fixing our healthcare system.

On average:

Public health activity (immunization/vaccination services), operation of research labs, etc): 3% (growth rate: 3.3%)

Investment: 6% (growth rate: 2.9%)

Admin Costs: 7% (growth rate: 5.6%)

Prescription drugs and equipment: 13% (growth rate: 4.0%)

Professional Services: 30% (growth rate: 3.6%)

Hospital and other care facilities: 41% (growth rate: 4.2%)
Breakdown of costs: http://marketrealist.com/2014/11/analyz ... -expenses/

EDIT:
Other solid articles:
https://nahu.org/media/1147/healthcarec ... epaper.pdf
https://www.beckershospitalreview.com/f ... e-u-s.html
http://www.aha.org/content/11/11costtre ... report.pdf

cashworth
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Re: Trump stimulus

Post by cashworth »

skiehawk11 wrote:
cashworth wrote:Re-thinking and doing are to very different operative words. In fact, debt can be wiped out just as easily with a vote just as easily as what defines mandatory spending. Re-defining won't fix the problem so why get caught up in semantics? Let's look at the breakdown of healthcare costs and start figuring out what factors influence each section and then instead of words, we have data to determine how to start fixing our healthcare system.

http://www.aha.org/content/11/11costtre ... report.pdf
Skie - I agree with your premise (yes, somebody in DC, please look at actual data) but you missed the entire point of my comment. The semantics are important. Mandatory/entitlement spending is always viewed as a must-pay while discretionary is the only thing debatable. Just because its mandatory, does that mean we don't analyze its value?
The smoke and mirrors game has America debating who is going to pay for it rather than what exactly are we paying for?

skiehawk11
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Re: Trump stimulus

Post by skiehawk11 »

Ah, I did mistake your point. My apologies.
Just because its mandatory, does that mean we don't analyze its value?
I 100 percent agree on that.

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Aitrus
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Re: Trump stimulus

Post by Aitrus »

Good points, skie and cashworth.

I'm all for reducing the size of government and encouraging people to not be dependent on government. And I'm aware that while my Libertarian-style government won't happen overnight (if at all), we can at least make the nation's Safety Net realistic again. The Safety Net has turned into a Safety Hammock, where many able-bodied people are on the dole, and the retirement of today's seniors is being paid for by today's youth and tomorrow's children. That just seems wrong to me. Let's reel the entitlements and welfare systems back to sane levels.

Doing so isn't being a Scrooge, as cron suggests. It's encouraging others to be responsible for their own welfare instead of enabling laziness / carelessness. I understand that there are those that can't work or care for themselves, but that's not who I'm talking about. I'm talking about those who choose not to work or make bad life choices that result in their inability to work. The rest of us are not responsible for those choices, nor should we be punished (in the form of excess payroll deductions / taxes) for those choices.

The next step after that would be to eliminate those agencies that don't have direct authority in the Constitution to exist. Start small, and work up to bigger and bigger fish.
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skiehawk11
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Re: Trump stimulus

Post by skiehawk11 »

Aitrus wrote:Good points, skie and cashworth.

I'm all for reducing the size of government and encouraging people to not be dependent on government. And I'm aware that while my Libertarian-style government won't happen overnight (if at all), we can at least make the nation's Safety Net realistic again. The Safety Net has turned into a Safety Hammock, where many able-bodied people are on the dole, and the retirement of today's seniors is being paid for by today's youth and tomorrow's children. That just seems wrong to me. Let's reel the entitlements and welfare systems back to sane levels.

Doing so isn't being a Scrooge, as cron suggests. It's encouraging others to be responsible for their own welfare instead of enabling laziness / carelessness. I understand that there are those that can't work or care for themselves, but that's not who I'm talking about. I'm talking about those who choose not to work or make bad life choices that result in their inability to work. The rest of us are not responsible for those choices, nor should we be punished (in the form of excess payroll deductions / taxes) for those choices.

The next step after that would be to eliminate those agencies that don't have direct authority in the Constitution to exist. Start small, and work up to bigger and bigger fish.
I 100 percent agree with you Aitrus, but the issue you present is a non-issue. Your criteria is to ensure people work and can take care of themselves and that a system not enable laziness/carelessness.

According to the CRFB in 2016, improper payments from Social Security amounted to 3 billion dollars which is .003% of benefits distributed. Not a major issue. Indeed, the vast majority of beneficiaries have earned their benefits by working many, many years. Which makes me wonder how Social Security has reduced people's incentive to work. I don't see that it does other than less than 1 percent of the population that has somehow tried to game the system. I'd call that a success.

http://www.crfb.org/press-releases/fact ... l-security

Additionally, Medicare/Medicaid abuse is also around 3.5 billion dollars of around 956 billion dollars or .003% of total benefits distributed. Here again, I wonder where this service has enabled people to become lazy and not become productive members of society. It's a non-issue.
https://oig.hhs.gov/newsroom/mediamater ... v2_508.pdf

If there was 10 percent or even 5 percent of funds distributed improperly (and an increase in rate of abuse) then I would start worrying that the welfare system is encouraging individuals to become lazy and make wrong choices, but it's an issue that just isn't happening. Less than 1 percent of the population would fit your criteria.

I also want to nit pick here a little bit because I am confused by your last sentence. All government agencies are Constitutional as they were authorized and funded by Congress to perform a certain action that Congress authorized with the passage of a law.

If I remember from previous discussions, you believe that the only powers granted to Congress should be the Enumerated Powers and not the Implied Powers. I'm not going to say you're totally wrong, but I will say that I do side with Constitutional and legal precedent on Implied Powers. This is a philosophical debate that begins (I think) with the letter of the law or not.

Also, I would recommend reading this paper for more information on the Necessary and Proper Clause history.

http://scholarship.law.georgetown.edu/c ... ext=facpub

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Aitrus
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Re: Trump stimulus

Post by Aitrus »

skiehawk11 wrote: According to the CRFB in 2016, improper payments from Social Security amounted to 3 billion dollars which is .003% of benefits distributed. Not a major issue. Indeed, the vast majority of beneficiaries have earned their benefits by working many, many years. Which makes me wonder how Social Security has reduced people's incentive to work. I don't see that it does other than less than 1 percent of the population that has somehow tried to game the system. I'd call that a success.
I understand where you're coming from, but I think you might be misunderstanding my point. I think that part of the problem is the definition of "proper". Meaning, that SS payments are "properly" going to individuals who really shouldn't, but are anyway because of how the rules currently stand. In other words, that SS is being lawfully given to those who shouldn't be receiving it because the law is poorly written to include those who don't really need / deserve it.

I'm not saying that all SS recipients haven't worked / earned their benefits. I'm saying that they shouldn't have relied primarily on SS for their retirement years, and, in addition, that people shouldn't be forced into it in the first place. It should be optional, not mandatory under penalty of jail time for noncompliance. In addition, the money one puts in should go towards one's own retirement, not somebody else's and that you receive an IOU in return that is to be paid by some future worker. In other words, privatize it.

I believe that the system has not only reduced people's incentive to work, but to save and invest in their own future. This lack of their doing so has resulted in many of them concluding that SS isn't enough for them to live on (as was implied / promised by the politicians of their youth), and that more money needs to be given to them.

And I'm speaking not only for SS, but for welfare programs in general (which is what Congress is hopefully planning to address). My wife, a teacher in an inner city school, sees kids that end up like this all the time (often because they follow their parent's example): https://www.youtube.com/watch?v=4KLLIs4tS_c
If there was 10 percent or even 5 percent of funds distributed improperly (and an increase in rate of abuse) then I would start worrying that the welfare system is encouraging individuals to become lazy and make wrong choices, but it's an issue that just isn't happening. Less than 1 percent of the population would fit your criteria.
It's 1% under current law. What needs to be addressed is the law: who is receiving it lawfully, and should they really be receiving it?
I also want to nit pick here a little bit because I am confused by your last sentence. All government agencies are Constitutional as they were authorized and funded by Congress to perform a certain action that Congress authorized with the passage of a law.

If I remember from previous discussions, you believe that the only powers granted to Congress should be the Enumerated Powers and not the Implied Powers. I'm not going to say you're totally wrong, but I will say that I do side with Constitutional and legal precedent on Implied Powers. This is a philosophical debate that begins (I think) with the letter of the law or not.
I do remember those conversations. Basically, my understanding of the Constitution on this issue comes down to this: just because Congress passes legislation and uses taxpayer dollars for it doesn't make it Constitutional. The Constitution limits what Congress can do, meaning, Congress doesn't have a blank check that is limited only by the one or two things in the Constitution. Rather, Congress starts at zero power / authority, and only gets to do what is in the Constitution. To believe otherwise turns the 9th and 10th Amendments on their heads. If Congress wants additional authorities, that's what Article V is for.

Here is a good article on the subject, including what I believe is a good assessment of what agencies are actually authorized in the Constitution: https://www.fff.org/explore-freedom/art ... partments/
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