Trump is officially President of the United States, so what’s next? What’s been done?
January 23, 2017
By: Bobby Casey, GWP Managing Director
The Trump administration is officially at the helm, and policies are underway! Now what? Regulations, tax codes, foreign investment competition, stimulating the economy without irresponsible risk are all waiting at the door of the Oval Office waiting for their turn.
Here is just one tiny taste of how punitive and prohibitive the American regulatory regime is, and something Trump will have to cut through if he intends to keep domestic and foreign investors interested in the US.
Recently the US lost to the UK for Amazon’s unmanned drone delivery system test. The Federal Aviation Administration (FAA) is so bogged down with regulations, it’s not worth doing here in the States. These regulations go for pages and make it impossible to operate private drone. Even if you’re not doing this for profit, any violation can lead a simple hobbyist to a $55,000 fine!
But wait! There’s more! (There’s always more.) House Republicans (yes, Republicans) have prepared a protectionist bill that could devastate retailers and ultimately consumers as well! It’s called the “Border Adjustability Tax”. This is one of the major concerns I had with a Trump presidency from the start: protectionism. And when I see something like this, I have legitimate fears of him signing off on it.
Trump has been VERY vocal about his “America First” agenda, and has taken a rather adversarial stance against foreign imports and the outsourcing of jobs. Much like the short-sighted nature of Democratic policies to “tax the rich”, the Republican proposal fails to consider the side-effects of such a thing. Or maybe they did consider it, and that’s their real endgame?
Right now, if a shop keeper imports their goods, they can write off the product. So if they import a product for $20 and sell it for $30, they can write off the $20 cost of the product. Not anymore. If this passes, the shop keeper pays taxes on the entire $30.
Now imagine that same policy applied to imported crude oil. What will that do to gasoline prices at the pump? What does that do to freight costs? What does that do to the small O&O CDL drivers?
Imagine car manufacturers: “Companies like BMW, Toyota, Mercedes, Honda, Nissan and Hyundai have major manufacturing operations in the U.S. that employ tens of thousands of workers in good-paying jobs. These companies’ costs will soar because they import numerous parts for the vehicles their workers assemble.”
Here’s the kicker: exporters get a huge tax break on their export revenues.
Let me just state for the record that I’m always for tax breaks. Always. So it’s not the breaks that bother me. It’s the favoritism; the typical government picking winners and losers and rigging the game against some players and using taxes as the mechanism to broker that arrangement.
So how does this work? Let’s say Boeing is makes a plane for Germany. The plane costs $4 million to make, and they sell it for $5 million. Without this bill, Boeing would simply claim $1 million in taxable income. With this bill, Boeing doesn’t claim a $1 million profit, I claims a $4 million LOSS.
Now imagine Haliburton selling arms to foreign countries and how this would play out.
Cronyism is such a weak word for what this really is, it’s disgusting. I’m perfectly fine with people getting every deduction and credit. I don’t want ANYONE paying taxes. But I’m outraged that consumers and anyone who imports anything will suffer under harsher tax demands while exporters get to claim everything at a loss.
America can come first without favoring some Americans over others.
Just south of the United States, Mexico instituted a new tax regime of its own, specifically to repatriate wealth. Mexico’s top income tax rate is 35%… it’s offering an 8% repatriation tax instead if that money goes into investments such as fixed assets and real estate for at least 2 years. As we’ve discussed before, the US is ironically one of the best tax havens in the world… to non-Americans. For Americans, it’s a perpetual game of cat and mouse to keep what’s ours. But for foreigners, the US is much more forgiving. I’m not sure if 8% is enough or worthwhile, but it could be enough to lure funds out of the US and back to Mexico. This is clearly targeting wealthy Mexican foreign investors, but Mexico anticipates as much as a $10 billion return.
As I mentioned in last week’s installment, Trump is walking into quite a thick economic situation, and he’s certainly not without options.
So far he’s signed a couple executive orders. The MAIN one having to do with Obamacare.
To be clear here: Obamacare has NOT been repealed yet.
There’s been a budgetary order to come up with a bill to repeal by January 27th. And Trump signed an executive order:
“The executive order addressing the Affordable Care Act (ACA) seeks to allow relevant agency heads to waive or defer provisions that ‘impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.’”
So while it hasn’t been repealed, it’s been declawed. Once you take all the mandates out that “impose a fiscal burden”, you got nothing. From a constitutional perspective, the executive should NOT have this power; but Obama set this precedent when he offered so many exemptions and exceptions to the application and enforcement of the ACA via Executive Order himself.
You see, the outcry from the left isn’t that Donald Trump is president. It’s that the left allowed so much power to the executive when Obama was in office, that they never considered what that power would look like in the hands of someone like Trump. They are fearful of his power, and rightly so! But this is the inherent problem with having a system that relies on only “good people” assuming office: they never do.
Other orders were signed as well, including one that had to do with private mortgage insurance. Private mortgage insurance is required for those who put less than 18% down on a home purchase. Former HUD Secretary, Julian Castro, wanted to cut the PMI fees by one basis point (¼ of a percentage point) to offset the rising interest rates.
It’s being made out to be some assault on the working class, but the truth is, it stands to add less than $50 per month to their house payment, and it only applies to people of a certain credit standing and threshold of equity. In truth there should be no incentives for people with inadequate down payments or weak credit to get huge lines of credit like a mortgage. The incentive should be to save up and not be a liability. By disincentivizing risk, you are less likely to get another housing bubble or crisis. That’s a GOOD thing!
The plot thickens. It at least appears that Trump is ready to get to work immediately. What is not so clear is what that “work” entails and where that “work” will lead us economically. 2017 is going to be incredibly interesting, if nothing else.
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