Ladder

As the election draws near and the battle rages between the old pro and the new kid on the block, all those who vote the party are lining up in their usual positions but the undecideds are in a dither. The establishment, who for many months poo-pooed a Trump victory suddenly came alive and the press, the politicians, the business people and the bankers are piling on to save their sacred rungs high on the ladder. The college educated who have slowly moved up are going for the pro and those like the chimney sweeps on the bottommost rung are looking to Trump. The big question is will the old Reagan Democrats come out and vote. Most people are passively for and actively against so these folks only vote when their ire is up. They are plenty smart enough to know that if you keep doing what you’ve always done, you’ll keep getting what you always got and they are not happy with what they got.

Credits

The question often comes up as to why half of the taxpayers pay so little income tax. Here is an example to illustrate the point. Married couple with three children earning $60,000 Standard deduction $12,600 Personal exemptions 5 $20,000 Taxable income $28,000 Tax on $28,000 for married filling joint $3,277 Subtract from tax due the child tax credit of $1,000 per child and this couple owed $277 in income tax. Since the average income is $53,000 more than half pay no income tax. The interesting thing about the child tax credit is that it pays even if no tax is owed. In tax language this is called a refundable credit. Here is another example. Married couple with stay at home mom and dad works at Walmart and earns $19,000. This family receives $3,000 child tax credit, plus $6,200 earned income credit. In addition there is a MN working family credit of $2,000 so this person who has reported income of $19,000 has in fact a gross income of over $30,000 and of course pays no income tax. I do not believe it is acceptable for a working man to raise three children on $30,000 per year and I have no idea how they do it but many do. Some have suggested raising the child tax credit to $5,000 and I would not object to that as I believe that a man who works full time should make enough money to support his family. Doing this would cost the government $200 billion dollars per year and they can just print it up since that is what they do when they need money for things like the bank bailout.

Scandal

When Trump started to do well in the polls last summer, I thought that the press would dig into his business dealings, especially in New York City and find all sorts of illegal activities. The city is noted for its corruption, most notably in the construction business and Trump would be up to his neck in shady deals but what they came up with was the scandal in the Trump University. Today on NPR there was a story about some guy who said his father was gipped out of $100,000 by Trump 35 years ago but he had no evidence. The story was run based solely on his word and his remembrance of the facts. Unless they come up with something better than that, this shows some desperation.

Real estate business

Trump and his tax returns. People in the real estate business have special privileges built into the tax laws, the most important of which is depreciation. If I am a real estate agent and build an office/apartment building that cost 10 million dollars using a bank loan to finance the deal, I can deduct from rents received the interest and taxes on the loan. In addition I can deduct the cost of maintenance and repairs and the cost of depreciation. The cost of all of these items except depreciation represents out of pocket cost to me but depreciation is just a paper cost. Interest on a 10 million dollar loan for 30 years at 4%. $570,000 per year Taxes and insurance $100,000 Maintenance and repair estimated at 3% $300,000 Total $970,000 Rent received $970,000 This is a break-even situation but now enters depreciation. Buildings like this are depreciated over a 27.5 year schedule so this is 10 million divided by 27.5 or $360,000 per year. I can now deduct $360,000 from my other income so I can live a comfortable life without paying any income tax. This has been a part of the tax law for many years and credited with the growth in office buildings, shopping malls, apartments and condo complexes. The average voter is not familiar with how depreciation works and would only see that I did not pay any income tax. They would not take into account the risk I took investing in this project. They would not consider the fact that banks would not give such a loan to someone who did not have the character, collateral and credit to repay the loan. This is what Trump means when he says he uses OPM’s, other people’s money. At some point in the future if the building is sold at a profit, the gain is taxed at capital gain rates which are lower than regular income tax rates. This is how the real estate business works.

Light crude

A discussion of oil imports and exports reveals a misunderstanding of the process. The US imports about 9 million barrels of oil per day but only recently was allowed to export oil. The law did allow the export of refined oil products which total about 4.5 million barrels per day. The question arises as to why the US is still importing any oil since fracking offers almost unlimited production. The oil from the US is called West Texas Intermediate (WTI) and is light and sweet. Light meaning low viscosity or thin and sweet means low sulfur. Imported oil is called Brent and is thicker and contains more sulfur. The refineries along the Gulf have long been set up to use imported oil and only in the past few years have been making the change to light crude. This will not only reduce dependency on imports but will help clean up the environment since sulfur is one of the main causes of acid rain. US crude contains more of the high value products like gasoline and jet fuel and US crude is less costly than imported oil. It is a win-win to replace imported oil with domestic oil and this process is underway.

Cost

The news media is expressing surprise at recent revelations that the administration misled the public regarding the Iran nuke agreement. Have they so soon forgotten the misinformation that came with Obamacare. Remember you can keep your doctor, you can keep your plan and the cost will go down $2,500 per year per family. In fact the cost of Obamacare has increased more slowly than before Obamacare but that is average cost. Since there are so many more people who pay nothing for healthcare the average cost is rising more slowly but for those who pay for health care the cost is rising more rapidly.

Dodd Frank

One of the outcomes of the mortgage crisis was the changes in banking led by Dodd-Frank. Before these changes the five big banks held 44% of all banking assets and were considered too big to fail. This meant that they were so large that even if they failed because of management mistakes the government would have to step in and save them from bankruptcy. It was felt that since the bankers knew this they would be willing to take risk that they might otherwise not take if the backing was not expected. In the world of finance this is called a moral hazard. After Dodd-Frank the big five banks now hold 67% of all banking assets. Many of these new assets come from small community banks many of whom were pushed out of business. Over the past twenty years, the share of US lending handled by community banks has fallen by half, from 41 percent to 22 percent, while the share handled by large banks more than doubled from 17 percent to 41 percent. One more example of the unintended consequences of good intentions!

emails and poverty

Here is a quote from yesterday’s news: The official poverty rate in 2015 was 13.5%, down from 14.8% in 2014, the Census report said. While this is certainly good news please understand that the poverty rate from 1960 to 1965 came down from 22% to 15% and then begin to level out and stayed in that range for 50 years. Recall that the War on Poverty started in 1964 and since that time the country has spent The War on Poverty has cost $22 trillion -- three times more than what the government has spent on all wars in American history. New subject: Sometimes when a person in Washington accidentally tells the truth it is considered a mistake. The release of hacked emails has proven that to be true. What people say in public is not what they say in the “private” emails. I think the use of emails will be on the wane from here on out.

Child care

Since I spent many years talking to people about taxes and heath care, I was interested in Trumps new plan and especially the part about dependent care savings accounts. This caught my eye because it is the same concept of health care savings accounts. Recall the idea there is to have employers set aside money each year for each employee to be used for health care and any money not used will be saved for retirement. This encourages users to shop for medical care and to pay for most treatments up front without going through an insurance company. The patient will get the advantage of competition from price shopping and the provider will not be burdened with filing insurance documents. With Trumps child care plan the same idea works. Money is set aside to be used for child care and eldercare and any money left over can be used for retirement. People can choose the child care provider and it can be grandma and she can be paid with after tax dollars. This creates competition which lowers cost. The downside of this plan, like all tax favored plans, is that half of the people pay no income tax so it does not help them. Part of the plan tries to address this by saying that if a person puts a $1,000 into the plan the government will add $500 to the pot so that is like a tax break. The other plans will be paid for by employers. Maybe this will open the door to use health savings accounts to replace Obamacare.

Changing

One of the many ways in which Trump is changing this election has to do with entitlements like social security and Medicare. He has stated that he will not touch these government programs, that he feels they are part of our society and we must find ways to pay for them. For all of my adult life, I have heard that we cannot keep going in debt and for the most part, conservatives believed this and have promoted the idea of changing social security and Medicare. Trump has now reversed this and joined the liberals by taking entitlements off the table. This has caused a great anxiety among the true conservatives and has them in a quandary. The way to solve the debt problem is to increase economic growth. This happened in the last few years of the Clinton administration when the GDP was above 4%, and it can happen again with the right approach. It certainly will not happen with the GDP averaging 2% since the year 2000. In looking at the establishment candidates that included about 14 of the Republicans and Hillary Clinton, there were none who would not continue the status quo. Trump has turned the world up-side-down and this is just what many voters want. They are fed up with the blah, blah, blah they have been hearing from candidates for the past too many years. They are willing to overlook his many verbal gaffs in the hope that something different might come out of this election. The “they” I refer to are most of the 70% of Americans who are not college graduates. If they go to the polls with the same numbers that they go to Trump rallies they can turn the tide against the establishment and put Trump in the White House and after that get ready for fireworks as these displaced establishment types will do everything they can to fight against changing their world.

Graduation rates

The Minneapolis School District graduated 64% of its students which is up 6% from 2014. Many believe that this improvement was due to relaxing standards. Only 50% graduate in four years. Most bond issues in this area pass as people are convinced that many of the problems can be solved by spending. Polls show that people think that the cost per student is about $4,000 but in fact Minneapolis spends $21,000 per student. If people knew this they would be less likely to approve new bonding issues. Catholic Schools in this area cost about $4,000 per year and student performance is much better than public schools and there are a number of reasons for this, the most important of which is parental involvement. Catholic Schools have a waiting list and do not hesitate to expel students with discipline problems and this allows the teacher to maintain a learning atmosphere in the classroom. Any teacher will tell you that when parents are involved and discipline is maintain the students will learn. As a matter of fact they will tell you that it is a pleasure to be in such a classroom.

Gorby and Putin

Here is a recent quote from Trump that many have criticized: "The man has very strong control over a country," Mr Trump said of Mr Putin at one point. "It's a very different system and I don't happen to like the system, but certainly, in that system, he's been a leader, far more than our president has been a leader." Back in the 80’s many of my liberal friends thought more highly of Gorbachev than of Reagan and even today they feel that the wall came down because of Gorbachev not Reagan. The Russian leader was affectionately referred to by these same liberals as Gorby. Here is a quote from Clinton. "We are not putting ground troops into Iraq ever again and we are not putting ground troops into Syria," This is reminiscent of Bush 41 when he said read my lips, no new taxes. This came back to hurt him when he decided to raise taxes when congress promised to cut spending. Unfortunately he not only broke his promise but so did congress but people forgot all about congress.

Status quo remains

As I watch the campaign unfold, I am impressed with the Clinton strategy and how the American people are going along with it. She will not give a press conference and will continue to give speeches to friendly audience where she can blast Trump by repeating all of his stupid statements. She will lie low and continue fund raising, using her billion dollar plus war chest to run TV ads. All those donations from big business, big banks, Wall Street hedge funds and foreign governments by way of the Clinton Foundation will carry the day. The establishment professionals will win again as even the Republican elite sign papers lambasting Trump. When the dust settles all the power will be in the hands of those who have had it for decades and the status quo will remain.

Free college

I was listening to a talking head say that Hillary is offering inner city blacks a $15 minimum wage and free college tuition while Trump is only promising jobs. Taking a closer look at these students going to college, it easy to see that free tuition is not the answer. Many of them drop out of high school and many others have diplomas earned by grade inflation and just pushing people though. They are not prepared for college work. With free tuition these students could go to a community college part time and work full time if they were better prepared academically. I am not that familiar with the situation of blacks in the inner city but I have similar experience that I can relate to. In the early 70’s, I had many clients who were professors at the University of North Dakota and one them, was the man responsible for enrollment in the medical school. This was a time when affirmative action was causing many universities to re-evaluate their student body. The med school had no Native American students and the general population was 5 percent Native Americans. About 60% of these lived on reservations. This man set up a program to bring more Native Americans into the med school but he met with no success. At first he offered a free ride which included all expenses but he could not find anyone interested. Then he looked at getting Native Americans into college and he had some luck there but these students were not interested in a pre-med curriculum. Finally he looked to the neighboring states of Minnesota and Montana but didn’t have much better results. In the years that followed a program called INMED, Indians in medicine, was developed and slowly over time students were found and brought into the med school. This meant they had to take chemistry, physics, biology and math in college. Today about 20% of all physicians in the United Stated have graduated from the University of North Dakota. This same thing would work with inner city black kids but it would take a concerted effort and many years to succeed. While living conditions in the inner city are bad they are no worse than the situation on the reservation.

Chicago murders

Here is a statement from Chicago Police Superintendent regarding violence in the streets. "The historical cycle of violence we have seen in some communities must come to an end," Johnson said. "Repeat gun offenders who drive the violence on our streets should not be there in the first place, and it is time to changes the laws to ensure these violent offenders are held accountable for their crimes." Many of these murders are gang members killing other gang members and it would not be unreasonable to conclude that the authorities are not too upset about that. How else can you explain why repeat gun offenders are still out on the street? Apparently these are some black lives that do NOT matter and this shows that the organized group called Black Lives Matter is more interested in politics than in saving lives.

Press and polls

Watching the news coverage of the election can be very confusing. Polls show that people are most interested in the economy, jobs and terrorism. The press often complains that the real important issues are not discussed and most people know why. Whenever Trump meets with the press they ask about the wall and whenever Hillary meets they ask about the emails. Hillary refuses to have a press conference because she knows that all they will take about is emails and she is smart enough not to go down that road. Trump on the other hand knows they are going to ask about the wall but goes out anyway and keeps getting in deeper. It is easy to see who is used to living in the world of politics. Trump has yet to learn that politics is different than business.

Change

Once again we have to watch candidates for president make the same promises they always make and once again we hope against hope that they can succeed. We are hearing both sides say the immigration system is broken and they are going to fix it and this has been broken for many years. We hear both sides say they are going to fix the VA and this has been broken for many years. Just two years ago the government came out with a plan to fix the VA and not much has changed. They promise good jobs for the middle income people whose incomes have dropped. We are Charlie Brown and government is Lucy pulling the football away from us. We have become cartoon characters. The working people are so fed up with all these broken promises that they will vote for Trump just because he is different. It doesn’t matter that he is a big mouth and hurls insults around, they are desperate and are willing to take a gamble, that by some miracle he may bring about some real change, not just the words hope and change but real change. He is fighting against globalization and by making new trade deals may offer some short term relief to the middle income groups but long term these people will have to get new skills and those most likely will require more formal education.