This morning I read an article about Ted Cruz’s plan to use seized drug money to build Trump’s Wall. I read an article about Trumps cutting taxes to businesses. Then I read another article about Trump imposing a 20% tariff on Canadian softwood imports. Taken together they would not seem to warrant treatment in one place, but both articles report a common phenomenon—public policy proposals that represent a complete misunderstanding of money.
Before I get into money aspects, just a bit of a background is in order for these two issues. Tax cuts for business is a way to give businesses an incentive to hire more workers. This happens in a strange way, it is largely invisible workers who will not actually show up on the shop floor. Tax cuts do not create jobs, demand for goods and services create jobs. But, Trump is convinced of the opposite just as he in convinced little green men bugged his bedroom. A former Obama Administration Trade Negotiator reports that Canadian Trade Negotiators chose to not make a deal over softwood thinking they would fare better under a Trump administration since he is a builder. Ted Cruz must see the writing on the wall when it comes to positive support by US Taxpayers for paying for the wall and is attempting an end run in an effort, I guess, to curry favor with Trump. Enough background.
A fictional story should illustrate one of the articles. A bunch of lumber folks in Canada got together and set up a softwood lumber association. They pooled some money and made donations to Canadian politicians to get them elected to Parliament. Once in Parliament, the elected representatives realized that there were jobs in the lumber industry in their districts. The softwood lumber association lobbyist came around with information about how the politicians could structure the tax or subsidy or employment laws to make it cheaper for the lumber folks to make money and hence hire more people. Since their tax bills were lower, or their subsidy from the government was higher, or their labor costs were cheaper, they hired more people, cut down more trees and exported to the US more softwood. In essence, in this fictional story, the price of softwood coming out of Canada and used in Canada is cheaper because of at least one kind of government support than it would be if only free market forces were determining the price of softwood.
Now, I say this is a fictional story because I do not know how the Canadian system works. If it works like the US system, I could, with some hours of research, put capital letters on the associations and lobbyists and identify chapter and verse the parts of the tax code, labor laws or outright grants of some kind or other to the softwood folks. What the fictional story illustrates is how moneyed interests determine public policy in a democracy.
On the other side of the story, Trump tweets how badly our politicians have been beaten by the Canadians over the years on these trade issues. Never mind that the US gives an energy subsidy to every energy user (it starts with the tax write-offs for oil companies and continues all the way down to the pump in one form or another) so that no one, despite cries of expensive gas and diesel, pays the real cost of moving their goods (the US subsidizes all transportation in this fashion). This includes the failure of the governments to charge heavy trucks for the cost of the damage they do to the highways in contrast to passenger cars. So, the US unfairly competes on the world market by making transportation cheap. Then too, US industry uses of unemployment insurance to maintain a labor pool, is a form of providing cheap labor to give our seasonal workers an income in the offseason. So, while we cry foul when the Canadians use some form of subsidy to increase profits for one of their industries we do the same thing, often on a larger scale.
The bottom line is any tax, subsidy, or regulatory advantage that gives a firm greater profit is an unfair trade practice. To wit, all such are unfair trade practices. Yet, they are written into the US and state tax codes by, indirectly, campaign donors to legislators.
It is interesting that the businesses that reap a profit from government tax cuts, subsidies and regulations are the first to cry when they have to cut pollution (which is a cost they impose on others), hire indiscriminately, or just plain pay fair.
Now, the tax cuts for business. While Trump imposes a 20% import tax on Canadian softwood, he creates an unlevel playing field for US firms by helping them make goods and services below cost. He will loudly argue it is the American Way. Actually, it is the way he and other rich guys keep getting richer. Watch the employment statistics and the national debt as a result of his lining his pockets.
So, how is this not understanding money? Simple, it does not matter where a dollar comes from it is a dollar. So it if it is seized funds from a drug lord or money you sent in with your tax returns (or didn’t get back) it is the same. It is a dollar just like any other that you have provided in one way or another (yes even the seized funds of a drug lord are there because of the laws that make it American money). It is not Mexico paying for the wall. A better idea is seizing Trump’s fortune and let that pay for the wall.
Giving rich guys money to create jobs, doesn’t cut it. If you do the analysis, less than 00.1% of such gifts to the rich make it to the job creation end of things and that is only because they can’t find a way to hang on to that 00.1%. You and I don’t know this, but the real kicker is we have let the rich guys pick the candidates we elect and make the laws to keep them rich. What if we were to find out?