Would iconic game show hosts, Monty Hall (“Let’s Make A Deal”) and Bob Barker (“The Price Is Right”), be envious or embarrassed? Before they showered a contestant with a grab bag of prizes, questions had to be answered, guesses ventured or choices made. That is, now, so passé. Our politicians are engaged in gratuitous gamesmanship, that while obviously bald-faced vote-buying at its core, is popular with a citizenry that has been progressively acclimated to government handouts. Gimme, gimme! “I want my student loans forgiven, more than generous tax credits and my entitlements expanded and assured. I deserve it because I borrowed too much, my kids are failing in school and my brother in-law is a jerk.”
No problem, because we are now in that every four year “silly season” of pathetic, political promises that bursts any pretension that gift-giving preeminence resides only in the holiday season. Call it the “Great Giveaway;” eclipsing a combination of Amazon’s “Big Deal Days” and Black Friday – free shipping included. And when they give out taxpayers’ money, there is no trifling with discounts or deal-making. Judging from the amount of loot that both Presidential candidates have pledged, they probably graduated from the Nicolas Maduro School of Financial Literacy. Before we all end up in debtor’s prison, let’s examine what amounts to a bridal gift registry at Fort Knox:
- No Tax on Tips (Harris & Trump) – This could register in the “last laugh” category as most service workers, likely, don’t even declare their tip income. I almost forfeited my Social Security benefits when I requested that they be classified as tips.
- No Tax on Social Security Benefits (Trump) – In their “2024 Trustees’ Report,” they indicate that the Social Security Administration will only be able to pay full benefits through 2035, with reserves depleted by that date. If the concept of affordability even registers with our government and given this program’s path to insolvency, it is very unlikely that this proposal would be enacted.
- No Tax on Overtime (Trump) – This is certainly a sop to “blue collar” workers, but in what economists refer to as “externalities” and the what rest of us more elegantly call unintended consequences, this could be very problematic; tantamount to an 8-hour workweek, with additional hours being overtime.
- Eliminate SALT Deduction Limits (Trump) – What was originally intended to penalize high tax states and localities would now be a “love letter” to California, New York, New Jersey and Minnesota, among others.
- ImposeUniversal Tariffs (Trump) – The logic that across-the-board tariffs would be salutary is challenged by a majority of economists. It is obvious, that in most cases, affected countries would retaliate with offsetting tariffs, or worse. Tariffs are no more than a tax, so all that is in dispute is, would the costs be borne by consumers (higher prices and inflation) or by businesses (lower profitability)?
- Fight Price-Gouging/“Greedflation” (Harris) – This is an imaginary problem, looking for a perpetrator to falsely accuse. The specific target is grocery prices which peaked at approximately the same level as general inflation in mid-2022. A cursory look at the profit margins of Kroger ( the second largest grocer and a pure-play) shows no signs of confiscatory pricing. The primary culprits for the inflation spike of 2020-2022 were the pandemic and government spending.
- “Take On High Rental Prices” (Harris) – This smacks of price controls which would be disastrous. It should be illustrative that Argentina, perennial economic “basket case” since the 1950’s, recently rescinded rental price controls. Consequently, their real estate market is flourishing after years of being moribund.
- Newborn/Child Tax Credit (Harris & Trump) – Both candidates offer $5,000 to $6,000, some of it refundable beyond tax credits, to lower income taxpayers. Presupposing that these amounts are tenable within the context of affordability and spending priorities, a better idea would be to apply some portion of these monies to stock ownership at birth (investamerica.org). Benefits would include investment compounding, a gateway lesson in financial literacy, improved retirement planning and a narrowing of wealth disparities.
- Tax Credit For Business Startups (Harris) – This is a “laugher” as most startups pay no taxes. And startups have a voracious appetite for capital, so would $50,000 in credits just get us more hot dog and lemonade stands? This would raise the ire of enterprising kids, but do the politicians care? Kids don’t vote!
- Down Payment Assistance For First-Time Homebuyers (Harris) -Witness the student loan mess and it is evident that our government is clueless about making sound, loan underwriting decisions. A better strategy (which I presented in my earlier essay, “Locked Out”) would be for the government to take equity in these homes, mitigating downside risk, and then relinquish their ownership to the homeowner, if they have demonstrated good financial stewardship over some period.
- Expand “Good Jobs” (Harris) – This appears to be a euphemism for expanding union jobs which would be an unfortunate continuation of the Biden Administration’s love-fest with labor unions. Cue up Johnny Olson, “The Price Is Right” announcer, who famously exhorted contestants to, “Come On Down!” However, today’s superfluous, political promises require no promotion of participation. Almost everyone can be a winner. And the shameless, handout hysteria continues. Harris wants to forgive loans for Black men and help those convicted of marijuana offenses to establish marijuana dispensaries, while Trump wants tax credits for auto loan interest payments. So, if you are not Black, a Michigan autoworker, or a member of any number of “chosen” beneficiary groups, you could feel some frustration, if not disenfranchisement. Not to worry, our Indigenous People can set this straight. They are, after all, experts on everything related to tribes: traditions, names, uniforms, music, etc. As much as our politicians say that they want to unite us, they drive us to special interest groups – a new and perverse form of tribes. But before our society gets further atomized into tribes by our politicians, what are the chances that these promises of indefensible giveaways will actually come to pass? A lot will depend on not only who becomes President, but whether the political majorities in Congress will be complicit or contentious, respective of all these spending proposals. And maybe, hope on hope, our elected officials will show some restraint in the face of our debts and deficits. Washington has a spending problem, not a revenue problem. Over the last 50 years, there has been a fairly consistent relationship between federal outlays (spending) and receipts (revenues) as a percentage of GDP: 20.5% and 17.5%, respectively. The difference represents our annual deficit. The relationship became further distorted post-2019, with spending accelerating to over 23.5%; spiking our deficits to almost 7% of GDP. Rational thinking would presume that political courage and honesty might be asserted before our government’s wasteful extravagance results in ever higher interest rates necessary to attract buyers of U.S. treasuries. The targets for remediation are obvious and the pain should be shared. Regarding Social Security, 1) raise the FICA limit on payroll taxes from the current, $168,000, 2) now regressive, make payroll taxes progressive, 3) raise the retirement age and 4) employ means-testing to reduce or eliminate benefits for high-earners. These modifications could be phased in over time to assure Social Security solvency. Next, bring some discipline to means-tested (dependent on income level) welfare, which has exploded, by reducing qualifying income levels and instituting greater work requirements. And taxes could also be raised in a way that doesn’t vilify high-earners and by association, capitalism. Institute a “fair” minimum tax for individuals similar to what is currently being enforced on corporations. Individuals would pay the higher of their adjusted tax rate (after deductions and credits) or a minimum tax rate of 15%-25%. Reclaiming a credible fiscal policy should also include projections of deficits-to-GDP that would demonstrate a downward trajectory over time; bringing renewed confidence to bond buyers and business. What giveaway goodies could be next in the “silly season” sweepstakes: tax deductions for The Farmer’s Dog pet food and BLUECHEW tablets? It is tragic that we have all become inured to this fiscal frivolity that makes Oprah look like a cheapskate. Some have estimated that if all of these budget-busting spending proposals were enacted, they could add $4 trillion (Harris) to $8 trillion (Trump) to our country’s debt. Face it, our government is one of the worst non-profits on the planet; they routinely ask their “donors” (taxpayers) to pony up more, overspend their resources (leaving current or future “donors” on the hook), constantly veer off mission (promoting social agendas) and neglect donor intent (their personal well-being and the certitude of our national security). Until we wise up, it will continue to be “the grift that keeps on giving.”
Greg Houser, CFA October 20, 2024