Archive for the ‘Domestic Policy’ Category

Back to the Future: Reagan, Trump and Bipartisan Tax Reform

September 29, 2017

Stuart E. Eizenstat (Ambassador to the European Union, 1993-1996)

Cross posted from The Hill

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With the startling, positive outreach to the congressional Democratic leadership to forge an agreement on short-term funding of the government to avert a shutdown, increasing the debt ceiling and funding Hurricane Harvey relief, followed by further efforts to enlist Democrats on immigration reform and tax reform, the door is now more open than seemed possible for President Trump to create a bipartisan coalition for tax reform and tax cuts, just as Republican icon Ronald Reagan did in 1986. While Trump in 1991 told Congress the 1986 tax act was an “absolute catastrophe” because it closed real estate loopholes important to his business, as president he has warmly endorsed it.

The 1986 Tax Reform Act, signed by President Reagan almost exactly 31 years ago, was the first across-the-board tax reduction for everyone since the Kennedy tax cuts, and there have been none since. President Carter tried and failed to pass a comprehensive tax reform bill in 1978-’79, even with a heavily Democratic Congress.

The essence of the Reagan plan, embraced by the Democratic leadership that controlled the Congress, was to create a fairer, simpler tax system, with lower rates and fewer tax breaks for the wealthy and corporations, that did not inflate the budget deficit. By appealing to Democrats with the liberal idea of closing tax loopholes, shelters and deductions for the wealthy, with the conservative Republican philosophy of lowering tax rates, he forged a bipartisan coalition.

The act lowered personal and corporate tax rates, while remaining revenue neutral by broadening the tax base through eliminating tens of billions of dollars in tax loopholes for the wealthy and corporations. It also lowered the capital gains rate from 20 percent to 28 percent, agreeing with Democrats that capital gains generally benefiting the wealthy should be taxed at the same rate as ordinary income from workers — the heart of Reagan’s and now Trump’s blue-collar support. Reagan said in championing the bill that he wanted to “close the unproductive loopholes that allow some of the truly wealthy to avoid paying their fair share.”

It exempted millions of low-income families from a federal income tax by expanding the standard deduction, personal exemption and earned income tax credit; it drastically reduced the number of tax brackets, with the top rate for individuals cut from 50 percent to 28 percent; and it slashed corporate tax rates from 48 percent to 34 percent, paid for by eliminating or reducing corporate tax breaks.

Since the 1986 act, presidents and successive Congresses have eroded some, but not all, of its benefits. Scores of special, targeted tax breaks and shelters have been passed. The top tax rate for individuals has now increased to 39.6 percent, and the number of brackets has jumped to six.

For sure, President Trump is in the Oval Office in a different era: the middle of American politics has eroded; both parties are more partisan, less willing to compromise, and more subject to pressures from their left and right flanks. Yet even liberal champion Sen. Ted Kennedy (D-Mass.) voted for the 1986 Act.

Trump’s approval ratings are under 40 percent — far below Reagan’s. It will be harder to close loopholes to offset the revenue loss from tax cuts, and congressional Republican leaders seem less interested in doing so, relying upon “dynamic scoring” — that somehow tax cuts will produce so much more economic growth, tax revenues will magically close the deficit, something which has never been shown to happen.

The Republican leadership is so anxious to pass a tax bill by the end of the year, it will leave little room for the kinds of reforms Reagan and the congressional Democrats achieved to earn the tax cuts. If there is a 2017 tax bill, it is likely to be almost all tax cuts, with no tax reforms to broaden the base.

Still, there are important lessons to be learned from Ronald Reagan’s approach.

He announced his intention for comprehensive tax reform in his 1984 State of the Union message, almost a year before he submitted his proposals, so it was well thought through, and went through a lengthy odyssey in Congress, with full hearings, markups and deliberation. While Treasury Secretary Steve Mnuchin and National Economic Council Director Gary Cohn have been assiduously working on a tax bill for several months, speed seems to be a key goal for both the administration and the Republican leadership, to have one major victory before the end of the first session. This will almost certainly lead to cuts without Reagan-type tax reforms.

Ronald Reagan also courted Democrats, including Speaker Tip O’Neill (Mass.), Ways and Means Committee Chairman Dan Rostenkowski (Ill.), and Rep. Richard Gephardt (Mo.) and Sen. Bill Bradley (N.J.), who already had a similar bill in the hopper, working with the politically gifted Treasury Secretary James Baker. Trump got off on the wrong foot by threatening Missouri Democratic Sen. Claire McCaskill to support the principals of the tax proposal he presented in her home state. But he has recently rectified this with a sincere outreach to a number of key Democratic leaders, as Ronald Reagan did.

There are substantial hurdles to forge a bipartisan consensus: Democrats are insisting that most of the individual tax cuts be focused on the middle class, and that deep tax reductions be paid for by loophole closings; Republicans are intent on deep corporate and upper income individual tax cuts, with little reforms to pay for them. The nonpartisan Tax Policy Center indicates the Trump plan could add over $3 trillion to the deficit in the first 10 years alone, and that 40 percent of the cuts would go to the top 1 percent of earners.

But still, as in 1986, there is broad, bipartisan recognition that:

  • our tax system is too complex and unfair;
  • that reducing high marginal tax rates can encourage taxpayers to lessen reliance on tax shelters;
  • that our corporate tax system in the globalized world economy leaves U.S. corporations at a competitive disadvantage, with the highest marginal tax rates among OECD countries — although far lower actual rates, with all the special tax breaks — encouraging them to invest in low tax states abroad;
  • that U.S. corporations should be encouraged to bring back the more than $2.5 trillion they have parked abroad and make job-creating investments rather than use them for stock dividends and share buybacks;
  • that individual tax brackets should be narrowed; and
  • that the tax code favors debt over equity, by allowing deductions for interest but double-taxing corporate equity income.

The most important lesson from 1986 is that Ronald Reagan showed consistent leadership at key points when the bill seemed doomed, going to Capitol Hill, writing letters to wary Republican members, and using his bully pulpit to stay on message about its importance to audiences around the country. This will be a major test for President Trump, to see if he has absorbed Reagan’s lessons. By indicating to Democrats that he does not want to focus his tax cuts on the wealthy, he is sending a powerful signal. The tax debate is also a test for the Democratic leadership to rise to the occasion, as they did in reaching agreement with Ronald Reagan three decades ago.

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The U.S. Should Take a Lesson from Hungary

September 7, 2017

April H. Foley (U.S. Ambassador to Hungary, 2006-2009)

This Letter to the Editor originally appeared in

The Wall Street Journal

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The US should take a lesson from Hungary when it comes to unwanted statues. After the fall of communism, Hungarians were angrily destroying Soviet statues. The government wisely decided to move them all to a museum/park called Memento Park. Students of history can now visit these haunting symbols of fallen communism and a most despised era and value system.

Mexico: Off to the Races

June 2, 2017

Antonio O. Garza (U.S. Ambassador to Mexico, 2002-2009)

Cross posted from Ambassador Garza’s website

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The U.S.-Mexico relationship is once again back in the headlines and this time it’s not just changing, it could be completely redefined. After months of anticipation, U.S. Trade Representative Robert Lighthizer submitted a two-page letter to Congress on May 18th, which announced the Trump administration’s intent to renegotiate NAFTA. The letter spurred the U.S. government into action, triggering the start of a consultation process—where businesses, industry groups, and private citizens can submit comments—and public hearings scheduled for later this summer. By early fall, negotiators from all three countries will begin sitting down together to hash out the details, with the goal of wrapping up the negotiations in early 2018.

To put it simply, reshaping NAFTA—an agreement that underpins over a trillion dollars in trade and that touches every major sector of the three countries’ economies—in only a few months is remarkably ambitious. While Mexican officials would like to end the process before the start of their presidential campaign cycle in early 2018, delays seem not just likely but inevitable. Throughout the process, expect to see a renewed focus on the trilateral relationship, which we are already witnessing through cross-border events and publications, as civil society groups and businesses seek to share their opinions and insert them into the negotiations.

However, while the upcoming NAFTA negotiations might be tough, the even more game-changing process in Mexico is going to be tackling the country’s rule of law challenges. On this front, 2017 has been a grim year, with setbacks for the recent anti-corruption reforms, fugitive corrupt governors, and the highest homicide rate for a first-quarter in the last two decades. Among those killed since January were six journalists, a particularly dark stain on an already bleak record. As I wrote for USA Today earlier this week, making improvements in protecting journalists and human rights defenders is not just going to be good policy, it will be the substance of strong leadership and presidential legacy.

Finally, for those of you keeping an eye on Mexican politics, this Sunday, June 4th marks the governor races in the State of Mexico, Coahuila, and Nayarit. Of the three, the State of Mexico race is the one to watch, as President Enrique Peña Nieto’s PRI party has not lost the state in a century. The latest polls, however, show the PRI candidate Alfredo del Mazo to be neck and neck with the leftist Morena candidate Delfina Gómez. While the PRI’s success at holding the state and Morena’s ability to pull in voters with its anti-corruption, populist message is expected to provide a sneak-peek for next year’s presidential elections, the fact that the race is so close (after the PRI won this governorship by 20+ percent in previous years) is already a strong indicator of the state and country’s political mood.

‘Mr. Apprentice’ Can Look To Switzerland For A Model To Help Close U.S. Youth Skills Gap

January 27, 2017

Faith Whittlesey (Switzerland, 1981-1983 and 1985-1988)

Patrick Gleason (Director of State Affairs at Americans for Tax Reform)

Cross-posted from the January 26, 2017 issue of Forbes

Chief among the problems facing Donald Trump as he takes presidential office is the youth skills gap between what the U.S. education system currently produces and what employers actually need to compete nationally and globally in the 21st century.

Around 2008, German carmaker Porsche invested about $2.12 million in its Leipzig apprenticeship training center.

It’s no secret it has become all too easy to get a college degree today without having learned much of marketable value, which helps explain unacceptably high levels of both youth unemployment (above 10%) and youth underemployment (estimated at 40% for recent college graduates).

The President might look to Switzerland, with youth unemployment at 3% and its global gold standard apprentice system, as a possible model for the U.S. in closing the skills gap. The good news is that Trump already has. As we recently learned, Switzerland’s apprentice system was very much a subject of discussion of a Dec. 21 phone call between Trump, who praised the Swiss education system, and Swiss President Johann Schneider-Ammann, who called to offer congratulations to the President-elect.

Nancy Hoffman—who co-leads the Pathways to Prosperity Network program involving Harvard Graduate School of Education and a number of states working to ensure more young people complete high school and attain a postsecondary credential—explains how the Swiss apprentice program works:

“Seventy percent of teenagers [16 and older] in Switzerland spend their week moving between a workplace, a sector organization [such as the machine tools industry], and school. … They do everything an entry-level employee would do, albeit under the wings of credentialed teachers within the company. They are paid a monthly starting wage of around $800, rising to around $1,000 by the time they are in their third year.”

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Be proud of state, nation: Register and vote

August 31, 2016

George Bruno (Ambassador to Belize, 1994-1997)

Cross-posted from the August 21, 2016 opinion column as published in the Shelbyville Times-Gazette

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Being a guest columnist, so far editor Sadie Fowler allows me to select my own topics. The rub comes when I must select a single topic and then energize my creative juices to produce the column.

I had settled on my next subject before Sunday morning when I read the T-G front page article about our state having the worst voter turnout at elections. Our registration of eligible voters isn’t much better. Thank you, John Carney, for selecting my topic.

The decisions our Founding Fathers made over 200 years ago regarding the form of government for our new nation were truly revolutionary in world history. (In Ancient Greece, democracy appeared in cities rather than in national government but was unable to survive.)

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Summer Doldrums. Not Quite.

August 3, 2016

Antonio O. Garza (Ambassador to Mexico, 2002-2009)

Cross-posted from Ambassador Garza’s August 2016 newsletter.

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It should be the summer doldrums, but the news out of Mexico hasn’t quite slowed down.

One of Mexico’s biggest stories was the debate, passage, veto, and then re-passage of the country’s anti-corruption package. These seven bills were designed to put legislative meat on the bones of the 2015 anti-corruption reform, and will greatly assist in coordinating corruption fighting across government institutions. The final package stopped short of embracing every part of the civil society written and backed Ley 3de3 (which would have forced government officials to publicly declare their assets, conflicts of interest, and tax records), but it did create what has been called “the most encompassing system to identify and sanction corruption that the country has ever had.”

In more welcome anti-corruption news, the Peña Nieto administration filed legal challenges this month against the governments of Veracruz, Quintana Roo, and Chihuahua for reforms that would have shielded outgoing governors from corruption investigations. These states are facing federal inquiries over financial irregularities under the governors’ tenures. And in the case of Veracruz, for at least twenty-six phantom companies that received some US$1 billion in unaccounted funds. (more…)

More Uncertainty but Message Clear: “Fix It”

July 5, 2016

Antonio O. Garza (Ambassador to Mexico, 2002-2009)

Cross-posted from Ambassador Garza’s July 2016 newsletter.

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This past January, I wrote that the coming year would be one characterized by our “Living with Uncertainty”. Looking back, while it was clear that this year would be tumultuous, I certainly misunderestimated what was to come.

It’s hard not to start with Brexit, when 52 percent of the United Kingdom’s voters chose to break with the European Union.  The vote marks the first departure from the grand European project, tacking an uncharted course for the United Kingdom and for the continent. But the contentious vote was really the easy part. The next two years will be filled with the tougher steps—sitting through painful negotiations, designing a brand new state framework, and calming jittery markets that are concerned with the future of both the United Kingdom and a strong and peaceful Europe.

The anger is not just a United Kingdom and United States phenomenon; voters around the world are frustrated. And Mexico is no exception.

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How did Trump learn to love ‘the bomb’?

May 5, 2016

Thomas A. Loftus (Ambassador to Norway, 1993-1997)

Cross-posted from Ambassador Loftus’ May 4, 2016 op-ed in the Cap Times.

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In the film “Dr. Strangelove: Or How I Learned to Stop Worrying and Love the Bomb,” there is a scene near the end as bombs have been launched and Armageddon is looming where U.S. President Merkin Muffley, in a meeting with Russian Ambassador de Sadesky, learns that Russia has been building a “doomsday machine.”

The Russian ambassador says: “Our doomsday scheme cost us just a small fraction of what we’ve been spending on defense in a single year. … We learned that your country was working along similar lines and were afraid of a doomsday gap.” The U.S. president incredulously responds: “This is preposterous. I’ve never approved anything like that.” Ambassador de Sadesky says: “Our source was The New York Times.”

In an interview on foreign policy with the NYT in March, Republican presidential candidate Donald Trump suggested that in order for the U.S. to save money on defense, perhaps Japan and South Korea should become nuclear powers and defend themselves.

In his recent foreign policy speech Trump elaborated: “The countries we are defending must pay for the cost of this defense — and if not, the U.S. must be prepared to let these countries defend themselves.”

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Trump Is Right to Propose NATO Reassessment

April 13, 2016

Faith Whittlesey (Ambassador to Switzerland, 1981-1983; 1985-1989)

This piece first appeared in the Daily Caller.

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Americans ought to welcome Donald Trump’s willingness to assess critically the many time-sanctioned sacred cows and clichés in which U.S. foreign policy abounds and to determine anew which, if any, no longer serve our national interests adequately and are even perhaps leading us in the wrong direction. This process, I suggest, is akin to “zero-based budgeting” in fiscal matters, i.e., reevaluating every old line item from point zero – and is a good thing.

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We Can no Longer Ignore This Crisis

March 24, 2016

Suzan Johnson Cook (Ambassador-at-Large, International Religious Freedom, 2011 – 2013)

Cross-posted from Ambassador Cook’s March 23, 2016 special to the Huffington Post.

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We can no longer ignore this crisis: religious radicalism.

Now, more than ever, religious tolerance in all corners of the world is important. Where religious tolerance is not celebrated, radicalism breeds. That radicalism spread to Brussels this week, and has seen itself manifested in other corners of the world before that — even in our hometown, New York City.

I express my condolences to those who suffered loss and pain in the terrorist attacks.

Today, we must stand with the president in his call for unity and tolerance. We must absolutely stand with Brussels and bring those responsible for this attack, and others, to justice.

But, we must work to grow diplomacy between nations and between religions. Foreign policy is important now more than ever and an answer to ISIS cannot be solely boots on the ground. We are fighting an ideology of violence and other-ism. So, we must work to grow tolerance, too.

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