Month: November 2019

On the first day of the open-hearing impeachment inquiry, Committee Chairman Adam Schiff, called his initial two witnesses, career State Department diplomats William Taylor Jr. and George Kent. They were there because of their service in the US embassy in the Ukraine. 

Listening to them testify brought back vivid memories of my two years as deputy for Pacific area policy dealing daily with personnel in most of the US embassies through the Pacific region. 

Our US foreign service officers are highly intelligent, well-educated and comprise the preeminent foreign service in the world.

Having said that, there is one additional, overarching distinguishing feature; they operate in and support a powerful and pervasive culture of elitism. They are nice folks, pleasant to be around but that culture is part of who they are and how they operate.  The purpose of making that point is to amplify my assessment of their congressional testimony during the week of 18 November. 

Far from providing damning evidence of criminal presidential behavior, the State Department personnel mostly confined themselves to four topics:

First, a 20-30-minute opening statement describing, in agonizing detail, their own sterling résumés and that they know more about how the Ukraine should be treated than anyone on earth. 

Secondly, for the most part they had zero first-hand knowledge of incriminating actions by President Trump. 

Third, their poorly hidden disgust with President Trump’s foreign policy.

And fourth, their disdain for the president’s personal envoy, Rudy Giuliani.

Based on my experiences with the State Department, none of the these surprised me; let me elaborate on 3 and 4. 

Constitutionally, the president is charged with defining US foreign policy, not the State Department.  The State Department executes.  But what happens is that Ambassadors and their staffs become fixated on “their country”, begin to believe they know what is best for “their country” regardless of how it may or may not “fit” into the President’s global policy, regional policy or specific policy for that particular country. 

One of the most important pieces of the Trump foreign policy is an ongoing effort to re-think our decades-old policies on foreign assistance which is normally about $50 billion per year. The problem is that much of that assistance goes to countries wherein corruption is endemic and where a significant portion of the “aid” is routinely syphoned off leaving little actual aid for the intended users. 

A good example, would be a shipment of foodstuffs or MREs (meals ready to eat) to be distributed to a starving populace. It is not unusual to find those products FOR SALE the following day in the local markets. 

The issue in the impeachment hearings is the presence, or absence, of a quid quo pro involving a Biden investigation in return for military aid to Ukraine.

So, now let’s put the military aid to the Ukraine into the context of the President’s new foreign policy on aid to foreign nations.

When a senior leader has to make a decision on a major issue, here is what normally happens.  The staff will put “everything on the table” and develop a number of courses of action (COA) for discussion and eventual decision. 

In the case of aid to Ukraine, the alternatives discussed would likely have included:

COA 1:  following the Trump doctrine, Ukraine (considered to be the most corrupt country in Europe) should not get any aid. 

COA 2:  give them the military aid (they need munitions capable of killing Russian tanks) but make it contingent on tangible efforts to clean up their corruption. That is an example of quid quo pro that is used every day in US embassies; give something, get something.   

COA 3: consider in the offer, VP Biden’s successful bribe to withhold $1 billion in aid to Ukraine unless they fired their corruption prosecutor.  Also consider in this COA Ukraine’s role in our 2016 presidential election.

COA 4: Give them the military weapons, period. 

Also consider that the aid to Ukraine was a multi-agency action; Departments of Defense, State, Energy, the White House, the US embassy in Ukraine and the European Union were all players.  Emails, meetings, phone calls were ongoing for months creating a ripe environment for rumor and innuendo.

Obvious from their testimony, the Ukraine Embassy folks felt left out and believed they should have been in charge. 

Presidential envoys to foreign nations to consult, negotiate and investigate have been common throughout our history. As the president’s personal envoy to assess corruption, Rudy Giuliani did not need to check-in, check-out or inform the embassy of his mission or findings.  Obvious from their attitude and testimony, this was very disconcerting. 

After days of, “I assumed, I thought, I understood, my impression was, my feelings were, I’ve never met the president, I have never talked to the president”, finally our ambassador to the European Union, Gordon Sondlund, testified that he looked President Trump in the eye and asked him, “Mr. President, what do you want from the Ukraine”?  The president replied, “nothing, nothing”.  Course of action #4. 

By the way Ambassador Sondland had failed to include that critical episode in his lengthy self-aggrandizing opening statement.  

 Marvin L. Covault

WEALTH TAX, RIGHT OR WRONG FOR AMERICA

What is a wealth tax?  Today, wealthy Americans pay taxes on things like superyachts and fine art when they purchase them, but not after. A wealth tax would make them pay taxes on their assets every year. Elizabeth Warren would apply an annual asset tax of 2% on households worth more than $50 million and 6% of worth greater than $1 billion.

There are some significant downsides to the wealth tax that the progressive/socialist candidates fail to mention while campaigning. 

First: Rich folks do not put their excess cash under a mattress; they invest it and pay taxes on the interest and dividends.  The wealth tax takes money out of the hands of those who invest and provide the continuous flow of capital which, of course, is the fuel for capitalism.

Second: The wealth tax would apply to an estimated 75,000 households. There are already 73,500 full time IRS employees.  How many more thousands of employees would they need to expertly administer the wealth tax?  Big government getting bigger.  

Third:  Wealthy people have very competent tax lawyers who know how to apply tax avoidance measures. The only way to prevent this is to rewrite the tax code and eliminate the loopholes, which is unlikely to happen.  Additionally, the wealthy can move assets to trusts and family foundations or shift property among generations; and they will do so.

Fourth:  The wealth tax is a proven failed system.  In 1990, a dozen nations in the Organization for Economic Cooperation and Development imposed wealth taxes. By last year, it was down to three.  France was the latest casualty. 

Fifth:  A significant amount of wealth held by the rich is in hard-to-value assets, such as art.  Will the valuation be accomplished in 75,000 households by thousands of contract experts or by IRS amateurs? How will the taxpayers appeal contested valuations? Thousands of households could end up in litigation for months or years. 

Sixth, a scenario: A 40-year-old entrepreneur is worth $500 million dollars and therefore required to pay a wealth tax.  His 2% wealth tax due is $10 million. Because he consistently invests excess cash and after paying state and federal income taxes, he is short of cash to pay the wealth tax.  Not to worry, Ms. Warren says, “l have a plan.”  Rather than force the taxpayer to sell resources and pay cash, he can tender a portion of his non-liquid assists to the government.  Now he has a new business partner who may well be some nameless, faceless, possibly incompetent bureaucrat in Washington. Extend this over the next 20 or 30 years, 2% every year, and what does he have remaining?  Then he dies and his estate pays a 40% death tax on the remaining assets. This is a nightmare scenario that would play out across the country. 

Seventh:  Because of the downside reasons 1-6 above, rich people figure out how to move their wealth abroad.  It isthe principle reason other countries dropped the wealth tax. 

Eighth:  Ms. Warren has developed the wealth tax issue in response to questions about how she proposes to pay for Medicare for All.  And she sells this new tax revenue stream as if it is all that will be needed.  Wrong, really wrong. Warren’s estimates, which some liberal economists consider too optimistic, that the wealth tax on personal fortunes exceeding $50 million would raise $3.75 trillion over the next decade, ($375 billion per year).  That $375 billion would provide about 13% of what is required for one year of Medicare for All.  Will the middle class pick up the remaining 87%?

As if the above numbers are not misleading enough, Warren also claims Medicare for All will actually save money because of economies of scale for a government-run program. There is zero data to support such an outrageous claim but there are numerous examples of the incompetence of government whenever it is charged with running a large operation.  Cases in point:

In FY18 FEDEX reported a net profit of $2.97 billion and UPS had $4.79 billion while the US Postal Service had a net loss of $3.9 billion.  This is the norm and happens every year.

Government-run Amtrak has reported operating losses every year since its inception in 1971, averaging $900 million per year with 93% of its routes unprofitable. The per-ticket taxpayer subsidy over the past 5 years has been $51 per Amtrak ticket sold. 

The best relevant comparison of how Medicare for All will succeed is to look at the current Veterans Administration which has been a disaster for decades.  It is a bureaucratic, bloated, money pit that has left sick veterans to die while waiting for care.  Medicare for all would attempt to service 18 times the number of those who rely on the VA. Lots of luck saving money.  Check out the disastrous government-run medicine in the UK and Canada. 

Wake up America, it’s time to look at the whole Medicare for All story. And while you are at it, look at Ms. Warren’s list of 56 other new programs that will require more funding, more government control, more bureaucracy and more regulation. 

Marv Covault

Never before has there been a presidential campaign where one party was running on a platform of massive tax increases and unimaginable spending.

The question is, are we getting the whole story?

Statements like, “the income of the top 20% of households is 60 times as much as the bottom 20%” can be heard day after day.  Simple, direct, easy to understand, and a good media sound bite, but is it true?  No.

The bottom 20% households earn, on average, about $4900 (a very low number because so many have no income at all) while the average top 20% household earns $295,900, a ratio of 60 to 1. But it is not 60 to 1, not even close.  Here is why.

The top 20% earn an average of $295,900 and pay $109,100 in taxes; left with $186,800 in, what I will call, available resources. Conversely while the bottom 20% pay no income tax they are the principal recipients of $1.9 trillion in annual public transfer payments. The average low-income household receives $45,400 in government transfers and $3,300 in charitable funds. They pay $2,700 in sales and property taxes.

The average bottom 20% household has $50,900 available resources ($4,900 plus $45,400 plus $3.300 minus $2.700)

So, the income inequity, touted particularly by candidates Warren and Sanders, is not 60 to 1 ($295,900 vs $4,900) it is actually 3.7 to 1.

One problem with the math is that the progressive/socialist democrat candidates lay out their programs piecemeal.  Today it is X dollars for education, the next day it is green stuff, then Medicare for All, and on it goes.  As each is presented there is occasionally a feeble attempt to define how a particular program will be paid for.  But what they never do is articulate the totality of it all, spending and revenue. So, let’s take a stab at that using projected costs and revenue over the next 10 years.

Medicare for All: $32 trillion

Green New Deal/climate change: The American Action Forum estimates that the energy and environmental components would cost $10 trillion. 

Free college tuition: $800 billion

Cancel student debt: $1.6 trillion

Open borders: Illegal immigrants currently cost $116 billion per year.  Open        borders could easily multiply that by a factor of 3 or $3.5 trillion over 10 years.

K-12 education: $800 billion

Child care plan: $1.07 trillion

New infrastructure: $1 trillion

Expanded tax credit to the poor: $2.5 trillion

Affordable housing: $1.9 trillion

Slavery reparations: Not included but estimates range from $17-50 trillion

The total cost is $54 trillion in new proposals over the next decade, on top of the $12.4 trillion deficit projected by the Congressional Budget Office.

Over the next decade the federal government is projected to collect about $4.4 trillion per year and spend about $5.6 trillion. This is without taking into account a single one of the progressive/socialist democrats’ new proposals cited above.

In order to pay for the above campaign promises, we would need to increase the federal government revenue from $4.4 to $9.8 trillion per year. That cannot possibly happen and even if it could be accomplished the national debt would still increase from today’s $21 trillion to $34 Trillion in a decade; dangerous territory. 

Then there are the proposals to “tax the rich.” Increased revenue estimates range from $9.3 trillion under the best-case scenario and, more realistically, $3.9 trillion over the next ten years.  In other words, if these politicians want to spend what they propose, they’ll have to impose enormous taxes on everyone who pays taxes including the middle class.

Additionally, draconian tax increases either across the board or just on the rich has some very scary side effects.  For example, A 70% tax rate on the rich may be smart politics, but it is not smart economics. Economists explain that higher tax rates on the rich have the potential to reduce capital formation, lower economic output, shrink the labor supply, depress levels of entrepreneurship, lead to lower middle-class wages, reduce economic mobility, drive away superstar inventors, lower levels of innovation, lead to higher taxes for everyone else, and encourage tax complexity. In other words, the potential to dramatically and negatively transform our economy.

These numbers are not partisan. They come from the Congressional Budget Office, top liberal think tanks, Wall Street Journal editorials, and various economists’ studies.  While these numbers are not exact and estimates are constantly changing, they paint a picture of the absurdity of the progressive/socialists democrat collective campaign promises.  

In every campaign we hear people say, “politicians will say anything to get elected” and just pass it off as harmless rhetoric.  These numbers are not harmless.  They are scary, dangerous and have the potential to severely alter the foundations of this country.  Wake up America.

Marv Covault