Trickleup Recession Brewing

What do you get when you force the sixth largest economy in the world - California - to pay higher taxes than most of the rest of the United States? Add New York, New Jersey, Massachusetts and other states that have higher mega-cities and the high taxes that generally required to support such urbanized centers. As deductions for state taxes and expensive mortgages (also a hallmark of big cities) fade into history under the Republican tax plan, a whole lot of residents in those states will have significantly lower discretionary income to spend. Considering that over 70% of the American economy is determined at the consumer level, slamming states with more consumers than any other states is going to take a big bite out of grassroots spending.

Perhaps it will be good to slow or stop the escalating housing costs in those states, but remember that residential real estate is also a fundamental component of non-corporate American wealth. 

 
With property tax deductions capped to reflect “average” lower cost markets combined with the above-noted lower amounts of discretionary income, that housing bubble will pop. And trust me, those reductions in value and spending will rapidly spread to impact the rest of the country as well. These high tax states, which are hurt the worst by the GOP “tax reform” legislation, represent about a third of the nation’s population. What do you think reduced spending by that segment of America will do for the entire economy?

We already have it on record what CEOs of America’s largest corporations intend to do with this tax windfall. See my November 29^th blog, The Deep Dark Republican Hole, where major CEOs evidenced little interest in using that windfall to create new jobs and invest in their own companies when asked by Donald Trump’s highest economic advisors. Dividends and job-killing corporate stock purchases (mergers/acquisitions/stock buybacks) are their focus. And as I have blogged before, where capital investment is envisioned, most of that new equipment is aimed at reducing jobs through automation and artificial intelligence. Income inequality accelerates. Not many new jobs. Not much more economic flow that will make up for the tax revenues the government has given back to the rich. There are very few neutral economists who predict otherwise. Most Americans truly understand exactly the bill of goods that the GOP tax plan truly is.

“Steve Schmidt, a Republican strategist, said that amid all the talk about the need to score an important victory for their party, ‘it bears mentioning that the ‘win’ is something that is extraordinarily unpopular with 75 percent of the American people.’… The tax proposal seems ill fitting for the mood on the right, perhaps explaining some of the skepticism. It would add $1 trillion to the deficit, according to the official congressional scorekeeper, contradicting the calls for fiscal austerity that conservatives made for years under President Barack Obama. And its generosity to corporations and the wealthiest Americans is at odds with the soak-the-rich economic populism President Trump preached during his campaign.

“But for groups like the U.S. Chamber of Commerce, those in the Kochs’ vast network and others closely aligned with the pro-business wing of the Republican Party, the tax bill would be the only tangible legislative achievement after 11 months of an uneasy and, so far, unproductive alliance with a president they fiercely resisted during last year’s election.

“The legislation is among the most unpopular public policy initiatives taken up by Congress in recent years, polling shows. A variety of factors is compounding that, Republicans say, from its complexity, to the secrecy and hurriedness of the process to the perception that the benefits will flow largely to a select few… ‘We Republicans get into the weeds and talk about technical tax policy and the budget process, and for the average American, that ends up sounding like the adults on the old Charlie Brown cartoon — wah, wah, wah,’ said David McIntosh, president of the Club for Growth, which has been among the groups pushing for tax cuts. ‘And the Democrats are messaging: ‘This is not fair to the middle class and the poor.’’” New York Times, December 6^th.

GOP suicide? They are still the masters of right wing conservative social issues, and the base can think of little else. But when the recession follows “tax reform,” everybody but that basemight just take notice. A GOP Congress proposed and passed this tax act with not one single solitary Democrat anywhere in the mix. And a pseudo-populist president has pledged to sign it into law when it reaches his desk. But the Trump/GOP’s economic missteps don’t stop there.

The administration’s failure to find serious traction in replacing multinational trade agreements with bully-driven bilateral treaties is beginning to push U.S. exports into second class status versus those nations willing to participate in those modern multiparty trade structures. Expect our trade imbalance to get worse.

Meanwhile, the clear ravages of climate change - from hurricane destruction in Houston, Florida and Puerto Rico to explosive wildfires and long-term droughts in California - are slowly moving from the billions of dollars of hard costs towards the trillion dollar mark. Yet, instead of trying to reverse the negative impact of greenhouse gasses that have caused or exacerbated these natural disasters, we are the only nation on earth to have rejected the Paris climate change accord and officially to have embraced a government policy that both denies mankind’s role in the process and encourages increased use of carbon-emitting fossil fuel. More money flowing out of our pockets to deal with these hard dollar costs.

As mass shootings from civilians with military assault rifles mount, as the United States adopts woefully unpopular foreign policies (such as the universally condemned move to recognize Jerusalem as Israel’s capital thus virtually guaranteeing a failure in the local peace process), immigration walls and travel bans, and as the United States is officially making travel to the United States more difficult, our local tourist destinations and the support systems are taking a rather direct financial hit. “A report by the U.S. Department of Commerce said that travel to the U.S. for the first six months of the year dropped 3.9% compared with the same period in 2016, with travel from Mexico showing the biggest drop — 9.4%.

“‘The latest government travel data is deeply concerning, not just to our industry but to anyone who cares about the economic well-being of the United States,’ said Roger Dow, president of the U.S. Travel Assn… The Commerce Department has reported that international travel to the U.S. began to surge in 2010 and then started to decline gradually in 2016.

“From February of this year through June, international travel from Mexico and overseas countries dropped sharply, ranging from 8% to 16% each month, compared with the same period in 2016. Travel from Canada to the U.S., meanwhile, has remained strong, partly making up for the loss of travel from Mexico and overseas.” Los Angeles Times, December 6^th.

Day-by-day, despite its massive economic and political power, the United State is increasingly viewed by the rest of the world in a negative light, and global decisions about the United States are based on that perception. A dangerous place, a notion gone rogue. In Germany, for example, aside from the migrant crisis, local polls place Trump’s America as the largest threat to global economic and political stability… well behind any threats posed by North Korea and Kim Jong-un. Even Britain, which has officially struggled to remain a staunch American ally, very officially reacted strongly and negatively to Trump’s retweet of U.K. right wing anti-Muslim faked propaganda. Canada’s Prime Minister flew to Beijing to enlist China in a multinational trade agreement to balance Trump’s demands on the NAFTA renegotiation.

What is going to become painfully obvious in the next couple of years, and Mr. Trump is going to have to find “others to blame” for his mistakes, is that the U.S. economy is not only unlikely to experience the explosive growth promised by the Republicans who have tripped all over themselves to rush a horribly-drafted tax bill through Congress, but we may well face a Republican-induced recession. Meanwhile, the country will have assumed a massive addition to our deficit to fund a windfall to the rich without any government investments in true economic growth: education, infrastructure and research to spur an economy for the rest of us. Oh, don’t worry, they can save money by slashing Social Security, Medicare and healthcare.

I’m Peter Dekom, and I feel really bad for the coming generations of Americans who will be saddled with a continuing reduction in their standard of living forced on them by these under-thought policies that cannot work.