Nasty, Angry, And Foolish

Last night we watched Resident Alien on Peacock rather than The Frontrunner’s State Of The Union (SOTU) speech. Are we glad we did! Episode four of season three was an epic show in an excellent series. We don’t even mind that it took us an extra day to finish. The Frontrunner’s speech just confirmed what we strongly suspected. Usually in political races candidates are trying to find different lanes. In the 2024 presidential election we can be sure that both of these candidates are going to be in the nasty, angry, and foolish lane.

Let’s start with The Frontrunner. We were going to go with 43 cites of 43 sites but today’s The Morning Dispatch was enough for us. Their headline for the SOTU was: The State Of The Union Is Angry. Read it all and subscribe so you can read their editorial about the rematch between The Donald and The Frontrunner: The American People Should Demand Better. We agree but the American people didn’t.

For nasty we will use this from the the NRO’s real time analysis of the SOTU:

[The Frontrunner] leans over the lectern and taunts Republicans who scuttled the bipartisan Senate supplemental bill dealing with the border crisis. [Emphasis added]

Dealing is a bit of an overstatement. But this is even nastier:

[The Frontrunner is] now berating the Supreme Court justices, to their faces, about overturning Roe v. Wade, and declaring that “my predecessor” failed to care about the American people,

Well, foolish is too easy. To include just a few things from the SOTU: shrinkflation, caps on drug prices, raising the minimum wage, and increasing incentives to buy houses without trying to increase the incentives or ability to build them. For ongoing stuff check out Scott Lincicome’s recent Capitolism Newsletter at The Dispatch. Here is a bit:

Leaving aside the obvious entertainment value of having the federal government officially weigh in on the age-old internet debate over whether burgers, tacos, gyros and other bread/meat combinations are “sandwiches,” this—like the case against Big Sauce—is simply not something that requires the full force and attention of the federal government.

As Scott says, when administration focuses on trivial things, and he has the evidence that they do, it is less able to do important things.

When we compare The Donald to The Frontrunner on the Nasty, Angry, and Foolish criterion it doesn’t seem necessary to provide any evidence on the first two. The tricky thing is trying to evaluate The Donald’s policies for foolishness because as we think somebody else said (we don’t think there was a copyright), The Donald has moods rather than policies. So to look at something written we took NRO’s interview of The Donald’s minion, Kari Lake who is running for the Senate in Arizona. The first question can be summarized as: Do entitlements need to be reformed? Kari’s answer is:

I do not think we should touch [entitlements]. There’s so many other things that we could do. But this is something that the hard-working people of this country have paid into and earned. And to pull the rug out from under them at time when they need it most, especially as people are struggling so much — it’s wrong, it’s a promise we made, they paid into it. They never got the option to not pay into it. They paid into it and that’s the wrong place to be tinkering and moving things around, and at risk of those people not having that security blanket.

Check out the full questions and answers at NRO. Note that this first one ties into The Donald. At best Kari’s answer can be most kindly described as foolishness. Not reforming Social Security means about a 23 percent reduction across the board that will likely happen in 2033. Means testing is an important part of our preferred solution because it saves the security blanket.

Then there is the deficit and debt:

Well it’s going to be difficult. I mean, we’re in a dire situation, I don’t think there’s a lot we can do. This is gonna be difficult to pull ourselves out of this. And we’re gonna have to get very creative. And I’m not going to be able to sit here in three minutes and tell you how we’re going to fix the problem. If it were a problem we can fix in three minutes, it probably would have been fixed, but we’re certainly not going to do it on the backs of the hard-working American citizens who have worked hard and paid into this. I think a lot of the things we need to do is increase revenues by bringing manufacturing, home bringing back some high-paying jobs. All of the things that Joe Biden has done have hurt American workers. He’s on the verge of sending our auto industry overseas with these EVs to China. [The Donald] wants to make sure we’re keeping those good jobs here. We need to bring and reshore some companies in manufacturing and get some jobs that are actually paying Americans a good living wage, where they’re able to then pay into the system and pay into taxes.

More foolishness. We would be impressed if she was able to finish that answer with a straight face. We will translate and summarize: Kari is saying we need to increase tariffs so hard working Americans can pay more taxes and subsidize business we like.

Read the rest of it to get some foolishness on Ukraine and elsewhere. With The Donald and Kari we need to ask: Why do we need the GOP? Why would a person vote for the GOP when it is just a slightly different version of nasty, angry, and foolish?

Repeal The Sixteenth Amendment?

Stephen Green at InstaPundit has a quote from a Travis Nix post at The Hill on the upcoming SCOTUS case on unrealized income: Historic Supreme Court Case Could Imperil The Entire US Tax Code. The argument that Travis is trying to make is that the current income tax code is “riddled” with various taxes on unrealized income so the Supremes will face a difficult decision because the particular decision in the case will lay open the tax code to all sorts of challenges. Stephen concludes:

It’s clear that the income tax is unsalvageable — repeal the 16th Amendment!

No to Travis and triple no to Stephen. No to accepting the weak argument from Travis. No, it is not clear that the income tax is unsalvageable. And no to repealing the 16th Amendment.

Sidebar: No, we are not suggesting that the current US Tax Code is anywhere near optimal. Over the past 100 plus years we have gotten to not quite awful. Starting over again without the 16th Amendment, especially with the bipartisan agreement on high tariffs, is likely to lead to awful. End Sidebar.

We didn’t suggest you read the whole post from Travis because it isn’t very convincing. When you present your case in person, in writing, or in court you want to start with the big story to hook your readers or listeners over to your point of view. Travis starts by trying to convince us that partnership income is unrealized:

For example, the main tenet of partnership tax law is that partners are taxed on income allocated to them for tax purposes, whether or not they actually receive the income. The Supreme Court upheld this principle in 1938, less than three decades after the 16th Amendment was ratified.

Well, duh, partnerships are different than corporations. Broad brush alert: Different states have varying laws and there are details we are not going to discuss. And partners, other than a few state regulated organizations, can choose to incorporate. Partners can take their income as they see fit and they can end the partnership anytime they choose so the cash is available to them at their option. So the difference between the 1938 case and the current one is that the partners controlled the distribution of income to themselves in 1938 and the corporation, rather than the minority stockholders, controlled distribution in the current case. Even if it was a big obvious given the nature of the law and accounting it was still well done by the Supremes in 1938. We hope for equally good in the next session.

Our prediction is that the three SCOTUS leftists will support any tax. That leaves the serious six to make the decision. We’re not expert enough on Constitutional interpretation to know what the serious six should do. If they strike down the law it doesn’t spell doom for the income tax code but it might spell doom for a wealth tax. We would be pleased politically with that outcome but it is more important to follow the law and the Constitution. Let’s work on serious stuff on improving taxes rather than wasted effort to repeal the Sixteenth Amendment.

Income, SCOTUS, and GOP Tax Policy

Adam M. Carrington at NRO’s Capital Matters tell us about a future Supreme Court case on taxes. SCOTUS doesn’t do taxes often so this one is of note to us accountants. You should read the whole thing to get Adam’s take on the issues. Adam tells us the facts of the case:

Toward the end of this term, the justices agreed to hear Moore v. United States for the fall 2023 docket. The case resulted from a provision in the 2017 tax bill passed by Republican congressional majorities and signed by President Trump. The law required a one-time tax payment on certain profits held overseas since 1986. Prior to this bill, such money had not been taxed before it was “realized,” or given to the person in some form. An American couple, Charles and Kathleen Moore, had invested in an Indian company that had consistently reinvested profits back into additional company expenditures. Though they never received any dividends from those investments, they received a tax bill for nearly $15,000.

Before we get to SCOTUS, the first thing the GOP should do is recognize its error and fix it. Here is a link on realized and unrealized income. In accounting terminology there is realized income where you get the cash or claims to cash. Unrealized income is what the link calls paper gains. The link says that in the US only realized gains are taxed. Well, almost always as the Moores found out. The Moores are saying that the GOP failed to follow that rule. We think the GOP should try to fix the error immediately and not wait for SCOTUS. Of course, the Democrats won’t allow even a tiny reduction in taxes but the GOP should try especially since they control the House.

For the SCOTUS serious six who worry about the constitution, Adam gives us the text from the sixteenth amendment that allowed a federal income tax:

“Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” [Emphasis added]

The problem for the serious six is that the amendment uses the word incomes that we have bolded for you. It does not say realized incomes that would seem to make it a slam dunk for the textualists. We predict the political three (Sonja, Elena, and Ketanji) will vote against the Moores to pave the way for additional taxes on unrealized income like wealth taxes. The serious six will have a challenge deciding if the word incomes, as used in the sixteenth amendment was limited to realized incomes or if it included unrealized income. We think there is a good argument for making the meaning realized income because taxes must be paid to the government in cash. If you haven’t realized the income then you will be unable to pay the tax.

The serious six should make the right legal decision. From a political point of view, conservatives and most of the rest of the right would want taxes on unrealized incomes unconstitutional. But conservatives recognize the purpose of the Supreme Court is to interpret the laws and Constitution as written. If such taxes are legal then we need to change the laws or even the Constitution. If not, we and the Moores can rest easy about one issue. We look forward to an accounting and tax decision.

The Woman Who Would Be Queen

We weren’t sure how to do the genders in the title and still connect Justice Ketanji Brown Jackson with Kipling, Connery, and Caine. Conservatives and others on the right have been having a field day with the decisions stopping race based admissions in both private and public universities. As just a small sample, here is Hans Bader on the false claims of the leftist dissenters and Scott Johnson at PowerLine has a series (we give you the last one so you can work back) celebrating Justice Clarence Thomas.

We have let this simmer for a few days because our take is different. Yes, we agree with conservatives everywhere that the majority decision is well done and long overdue. By tying admissions to the constitution, the serious six have eliminated the possibility of a legislative “fix” by the leftists. Clarence’s takedown of the dissent is impressive scholarship. Our disagreement, however, is on the implications of the dissent. Surely many of the intellectual problems with the dissent had already been pointed out in discussions in chambers.

Despite the obvious shortcomings of the dissent Ketanji still went forward with it. That is why we find her dissent scary, very scary. As we see it Ketanji is saying she will be our divine ruler. The law, as Scott and many others have pointed out, or the facts, as Hans and many others have pointed out, do not matter to her if she deems the policy issue important enough. Ketanji is laying down a marker that Supreme Court decisions can be based entirely on her policy preferences. The good news is that she needs four minions to enact her royal jurisprudence. The bad news is that she already has two. The even worse news is that, unlike the Kipling story, the left’s support of Ketanji’s lawlessness is unlikely to be moved by anything like scratch.

Binary Choices: Thanking The Donald

There have been lots of constitutional decisions by the Supreme Court in this term plus the batting down of Roe v. Wade last year. We need to thank The Donald for keeping his promise to outsource judge selections to conservatives.

We also need to flip the bat, spike the football, and slide on our knees towards the corner flag for our analysis that the general election contests between The Donald versus Herself in 2016 and The Donald versus The Frontrunner in 2020 were binary choices for America. Individuals voters had lots of choices but the choice for America was a binary choice. The candidates were mutually exclusive and collectively exhaustive set of possible presidents in the 2016 and 2020 general election. So if you were embarrassed by Ketanji’s dissent, (do read all Rich has to say) and you should be, and if you chose to not vote for The Donald in 2016 or 2020 then you share the blame for Ketanji being on the court and are lucky there aren’t three more like her.

We’re not suggesting you should ever vote for The Donald in a primary. Any GOP president would have produced similar nominees. Any other GOP nominee would have won in 2016 and 2020. And we certainly don’t want The Donald nominated in 2024. He was, however, the right binary choice in the recent general elections and we thank him for keeping his promise on appointing judges.

Ruling Monoculture And Their Goons

Recently we discussed the ruling monoculture and their lack of diversity that leads to neck jerking changes in direction. Today, we want to talk about what used to be called brown shirts, the folks that lead the charge with threats and sometimes actual violence for the leaders. We saw a young woman at the gym recently with with a black t-shirt that said “Abort The Court” on the back. We thought she was down on handball because it is played in courts. Really, but when she turned around

Sidebar: Human memory as we often remind you is fragile. We didn’t want to rely on ours so we searched for Abort The Court shirts and found over a dozen examples but none like the one we saw so memory it is. End Sidebar.

we saw the front had pictures of the justices with the constitutionalists in red. We didn’t have enough time to see if there was any additional call to violence beyond the murderous note on the back and the color on the front.

As we see it, this shirt flows directly from our ruling monoculture. If you wore a shirt instructing folks to kill leftist justices or anyone else on the left you would get some immediate and unkind responses. If you want to kill the conservative justices, hang W or shoot Steve Scalise nobody much cares. But if Sarah Palin targets certain races the New York Times will stop an inch short of libeling her as inciting violence. Sarah has appealed so it might not be an inch short.

We are not the first to notice it but one of the many problems with our ruling monoculture (ORM) is their unwillingness to eschew the violence of their supporters. The inflammatory shirt we and the many other slightly less explicit ones that are for sale are just some of evidence that makes us disappointed in ORM.

Rinse, Repeat On Climate And Energy

A friend and colleague, Dave Bange had taken to the local paper to recommend that we submit to authority because … well, we are not sure exactly. He is almost as upset as we are delighted with the Supreme Court ruling in West Virginia v. EPA. After complaining about some of the other decisions by the Supremes Dave summarizes the situation:

[O]n June 30, the Supreme Court issued a ruling that greatly limited the possibility that the US can meet the Biden [The Frontrunner] Administration’s goal of reducing greenhouse gasses to 50% of their 2005 levels [by 2030]. The ruling against the Environmental Protection Agency (EPA) was a dark day for everyone concerned about the increasing amount of carbon dioxide (CO2) in the atmosphere.

Then there is the fuzzy thinking about wind and solar power:

Given the steady decline in the costs for installation of both solar panels and wind farms, and the resulting implementation of both by power utilities, some progress toward reducing carbon emissions is being made. I believe this trend will continue despite the Court’s ruling.

Wind and solar are still unreliable, probably costly (and certainly subsidized), and have environmental concerns. Here is the data on US power over time. Looking at the charts one obvious question is: What about nuclear power? Of course, the great reduction in carbon dioxide over past years was made possible by the market switching from coal to natural gas because of the fracking revolution. Wind and solar could continue to grow but it will still be unreliable as the Texas blackouts made obvious. A little snow means no solar power.

There are two major problems with Dave’s argument beyond the pie-in-the-sky alternative energy solution. First, it is circular. The Frontrunner’s administration wants large reductions US emissions of carbon dioxide. They are reluctant to discuss the plan because the costs will likely be enormous. The people’s representatives, Congress, fortunately, disagree. So the 44th president (the one before The Donald) recognized that legislation wouldn’t pass and ordered the EPA to do what it didn’t have authority to do. The Supremes said the law said what it said and here we are. There is no reason why we should allow The Frontrunner and the EPA to act illegally. The 44th president, The Frontrunner, and Dave have little to say on why the US should try to meet those goals.

The second problem is the framing of the argument. The problem is not carbon dioxide in the atmosphere. The problem is Climate Change. Climate Change has costs and benefits, e.g., more people die from cold than from heat. We agree that as of today the best estimates are that the costs of Climate Change outweigh the benefits. Carbon dioxide is part of the cause of Climate Change. Different methods of reducing carbon dioxide have different costs and (almost?) all of them are subject to the law of diminishing returns. Trying to reach The Frontrunner’s goals is likely to be extraordinarily costly and not produce equal benefits.

We need to weigh the cost and benefits of government policies. One of the costs of The Frontrunner’s extraordinarily expensive goals is that they discourage fossil fuel exploration, extraction, and refining. These fuels that currently produce most of our electrical power and almost all of our transportation power are not going away anytime soon. But announcements like this shutdown of a refinery means more problems down the road.

Sidebar: Why is this refinery being shut down during a period of high gas prices? It is because of the long-term investment. The owners believe the administration when they say they want to stop fossil fuels and so millions or billions of dollars in updates that must make a return over decades become a bad investment. End Sidebar.

We need energy and Climate Change policies that consider both the costs and benefits of such actions. We continue to like what we wrote for sensible energy policies the other day:

It should start with modest carbon tax replacing the gas tax. Then we encourage the market with the elimination (well, reduction) of energy-specific subsidies. We create a safe harbor for X (50?) years for finding, recovering, and refining fossil fuels. And there should be an emphasis on economic growth world-wide including free trade because wealthy countries can adapt.

Perhaps we should add nuclear power too. Top-down solutions like The Frontrunner’s goals are not able to adapt to new information. It is even worse that the goals were arrived at in an illegal manner. Our goal should be to minimize the cost of Climate Change rather than minimize carbon dioxide or Climate Change. The is room for government action in encouraging research, helping nuclear power, and setting rules but the constant recalibrations necessary are what markets do best.

Energy And Climate Change Again

Matthew Daly’s “explainer” post from June 30 of Why The Supreme Court’s EPA-Climate Change Ruling Matters showed up in our local paper today. It is a whole half page that demonstrates the problems we as a country have in trying to create sensible policies for energy and Climate Change. His summary is:

In its major decision, the court limited the reach of the nation’s main anti-air pollution law that’s used to reduce carbon dioxide emissions from power plants. The 6-3 ruling declared that the Clean Air Act does not give the Environmental Protection Agency broad authority to regulate emissions from plants that contribute to global warming.

More precisely, it was the 44th president that tried to create the idea that carbon dioxide, not a pollutant, is a pollutant. The Supreme Court stopped that silliness. Then he tells us more good news:

The decision also could have a broader effect on other agencies’ regulatory efforts, from education to transportation and food.

Although we are not sure that Matthew sees it as good news that regulators should be limited by laws. Then he gives us a misleading read of the sides in the contest:

Leaders in coal-state West Virginia welcomed the ruling. But [our current president The Frontrunner] called it “another devastating decision that aims to take our country backwards.” He said he will continue to use his authority when possible to protect public health [huh?] and address climate change.

It is particularly dishonest paragraph because coal produces a substantial amount of pollutants. The Clean Air Act instructs the EPA to regulate those and other pollutants. The people that should be the most economically happy are the natural gas producers because burning natural gas produces carbon dioxide but less pollution than coal. An alternative and similarly dishonest way to summarize the sides in the dispute would be: Leaders in Communist China, the main supplier of solar panels created by slave labor, were disappointed in the ruling but reasonable people who think the laws should be enforced equally were delighted with the outcome.

It is proper that the issues of energy and Climate Change policy have been returned to the people’s representatives in Congress. There is still the danger that they will do something as stupid

Sidebar One: We try to steer away from stupid and call bad choices foolish. In creating energy and Climate Change policies, however, there are lots of ideas that deserve stupid as a modifier. The current high cost and low return scheme richly deserves that. End Sidebar One.

as what the EPA was doing and The Frontrunner still wants to do. If Congress takes such stupid actions they will be accountable to the voters.

Sidebar Two: So what might sensible policies for energy and Climate Change look like? It should start with modest carbon tax replacing the gas tax. Then we encourage the market with the elimination (well, reduction) of energy-specific subsidies. We create a safe harbor for X (50?) years for finding, recovering, and refining fossil fuels. And there should be an emphasis on economic growth world-wide including free trade because wealthy countries can adapt. End Sidebar Two.

Our system is not a perfect system as voters make mistakes too. But at least the voters bear the cost of their own mistakes.

Great News On Regulation

The Supreme’s decision to return to a constitutional republic on abortion has been getting an extraordinary amount of play. It is great that a majority of the Supremes have decided that they won’t make laws anymore but we don’t see it changing the abortion outcomes much. Most abortions happen early in the pregnancy and so we don’t expect much change in abortion statistics. Some, from NRO, do:

Now that the Dobbs decision has come down, we must ask the question: What does final victory look like in a post-Roe country? It means an America in which abortion is not merely illegal — it’s unthinkable. 

We think that our republic will look like a little more extreme version of Europe after the states do their legislative work. A few extreme states will keep Roe but most of them will be like Europe in the zero to twenty week range with only a few zeros.

Much more important is the recent decision to stop the executive branch from creating administrative law that has little or nothing to do with what Congress passed. The decision in EPA v. West Virginia came about because the 44th president tried to make carbon dioxide a pollutant (it is not):

This time, it was the Environmental Protection Agency and its Obama-era Clean Power Plan rule, which sought to require existing coal-fired and natural gas-fired power plants to reduce carbon emissions by producing less electricity or converting to green-energy sources — as the Court described its aim, to “compel the transfer of power generating capacity from existing sources to wind and solar.” This is one last loss for Barack Obama’s “pen and phone” strategy to use the executive branch to write laws that Obama could not get through Congress after the 2010 and 2014 elections.

The left and the Democrats that represent them are not happy about this. The Democrats are in power so they might want to reconsider. The party in power gets blamed for bad outcomes and this will reduce them. The second quarter is over so it is too late to save the Democrats from the possibility of an official recession in the first two quarters of 2022. But it might reduce the probability of brown-outs this summer and it could be a big help in 2024.

Most importantly for the country it might lead to the sensible Climate Change policy: a modest carbon tax. The decision by the Supremes means that the Democrats favored solution of command and control is unavailable to them. They don’t love higher taxes quite as much as controlling people and companies but the lack of alternatives might convince them of compromising on a carbon tax. The Supremes might have even reinvigorated Congress. The Supremes made the right decision on limiting the executive branch and it is good from the country. This is the 2022 decision folks will remember later in the century.