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This week on the way home from work, I caught part of an interview with the Chairman of the House Ways and Means committee, Kevin Brady. He was talking about tax reform, and how the Republicans were planning a large tax cut. I heard something on the radio that I thought sounded ridiculous, so I went back and read the transcript.

Chairman Brady was proposing a tax cut and referred to it as paying for itself, that is, the lower revenues caused by reduced rates would be made up increased wages of 8%, and increased economic growth of 9%. If you increase the size of the economy, then a smaller rate on a larger share results in the same amount of tax revenue and that’s supposed to keep the deficit from getting out of control.

I thought that a GDP growth rate was completely ridiculous! The only countries in the world that have that high rates are developing economies – because their economies are in such a shambles, they overheat when they get an influx of new capital. Developed economies like the United States simply don’t see that type of growth anymore. If he meant 9% GDP growth per year, I threw up my hands in exasperation because he wasn’t serious.

I decided to read the Tax Foundation’s analysis of the Republican tax plan (Trump’s is similar).

Their analysis must be the one that Brady is referring to because their wage growth and GDP growth numbers are the same. They estimate the plan would lead to 0.7% after-tax income increases for the entire population (oh, gee, thanks) but would go up 5.3% for the top 1% (surprise, surprise). However, when accounting for the extra GDP growth, everyone’s income would go up by an extra 8%.

The economic impact is calculated at 9% by mostly capital investment, and some wage rate increases, and new employment.

Does this make sense?

The Tax Foundation’s estimate is based upon a super-crucial, critical factor. Everything in their analysis hinges around this one fact – that lower taxes can create economic growth by spurring investment, which increases production.

In other words, if a person pays $25,000 in taxes and gets a tax break of $3000, and now only pays $22,000, they will take that extra income and invest it or spend it in the economy. Businesses will take that extra revenue to grow their business, or take that extra investment to similarly grow their business. Our economy is built on capital allocation and consumer spending.

The assumption that people will spend money they get from a tax break is correct if it goes to the lower income people (the bottom 80%). The average person spends nearly all of their income on basic things like food, shelter, transportation, maintenance of their stuff, family, and so forth. Additional incomes goes to projects they were previously putting off.

For wealthier people, they don’t spend all the money from tax breaks. Instead, they spend some of it, or they invest it. Businesses that receive money expand – they can increase productivity or hire more workers.

But here’s the thing, tax cuts can increase economic growth if the money ends up in the economy. Yet wealthy people don’t spend or invest 100% of their rebates; instead, they save it. They don’t invest it, nor do they spend. They just save it.

There’s nothing wrong with people saving money. I save plenty of money. But the problem is that saving money doesn’t grow the economy as much as either spending or investing.

So, the assumption that tax breaks lead to capital investment is incorrect, it is an overstatement.

Capital needs to be absorbed by someone

A tax break makes the economy get bigger by capital investment if a business can expand and make more stuff if there is someone to buy it. Supply without demand doesn’t increase the economy.

If wealthy people are saving money, and businesses are producing more stuff but the people who are most likely to buy (the bottom 80%) aren’t seeing much additional income and therefore aren’t buying enough stuff, then there isn’t that much revenue growth based upon internal demand within the country.

This means that a corporation must export in order to make larger revenue based upon the capital investment. But most US companies sell locally, it’s only the large corporations that sell internationally. But those international customers need additional income, too.

The point I am making here is that capital investment needs to result in increased supply and demand. The reason why the US economy grew so much in the 1950’s and 1960’s is because of Baby Boomers; the large bulge in population resulted in increased consumers and increased demand. Business couldn’t keep up, and that led to inflation.

The US population isn’t increasing as much as it used to, so to say that economic growth can increase without a proportional increase in consumers doesn’t make sense.

That’s why developing economies can rapidly increase GDP – as their child mortality rates plummeted over the past 40 years, their populations increased. And with investment in technology, it led to more wealth for the population by turning poor people into consumers.

Tax cuts need to result in more consumers to achieve economic growth, but they mostly go to the upper classes who don’t spend or reinvest as much as the lower classes.

And the one final assumption is the last problem

The last assumption that is problematic is that the estimates go out for 10 years.

When I read that, I said “Well, this is useless as a prediction.” I recently read Nassim Taleb’s book Antifragile and he makes the case that making predictions more than 6 months to a year out is useless because there are so many variables that can change.

Basing an economic analysis 10 years out and assuming stable conditions is a recipe for disaster. Since I started working full time, I’ve lived through two recessions (2001, and 2008). I will probably experience two or three more in my working time. Every time, these recessions reduce government income and put strains on the economy.

These economic models never account for this, they are always on the happy path.

We’ve never had a happy path.

The conclusion

Ten years ago I was writing blog posts that reduced tax revenue can lead to increased economic activity. That’s somewhat true, but behavioral psychology proves that it isn’t as effective as what some economists believe, including myself (at the time).

I don’t have good answers either, as I am not an economist. But what I do know is that capital investment needs to result in increased production, or increased efficiency, and it needs to be combined with increased consumption.

That’s oversimplified, but I think it’s more accurate, too.

Recently, the White House unveiled its tax plan which President Trump said would be the largest tax cut in history. Here’s a quick screenshot of the changes:

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I’ve been quasi-doing my own taxes for two years, and each time I’ve almost hit exactly the refund that H&R Block comes up with. So, I did the math on my own taxes for 2016 to see how much more money I would end up with.

The White House’s current tax plan does not list the income brackets that the three rates (10%, 25%, and 35%) are applied at. Instead, I went with a previous document he released last year or the year before and assumed the 10% rate is up to 75,000%, and the 25% rate is all of my household income for the rest; the 35% rate is higher than I currently earn.

Based upon these new income and tax brackets, and adjusting for the higher standard deduction of $24,000 (for both me and the wife), and eliminating the personal exemption of $8000 (for both me and the wife), and adjusting for a new capital gains tax rate and assuming the dividend tax rate is also no higher than 15%, my tax refund would increase by $4200.

Doesn’t sound too shabby, eh?

The drawbacks

The White House has called this the largest tax cut in history.

Well, that’s kind of true… while all Americans would get a reduction in taxes, the biggest gains – by far! – go to the wealthiest Americans.

First, let’s look at how this helps wealthy Americans. The argument that this isn’t a tax cut for the rich is that it phases out all deductions except for charitable contributions, and mortgage interest; and in return, it greatly increases the standard deduction by about $12,000.

If you are in the (new) highest tax bracket of 35%, then reducing your taxable income by $12,000 is worth $4200. So there’s a freebie.

Next, by reducing the top tax bracket from 39.6% to 35%, then for every dollar you make over $300,000 (estimated top bracket for married filing jointly), your tax burden goes down by 4 cents.

That doesn’t sound like much. But if you’re making $750,000/year, then you would owe (750,000 – 450,000) x 39.6% = $118,800. Under the new Trump plan, you would owe (750,000 – 300,000) x 35% = $157,500. So here you owe more.

But let’s suppose you’re really rich and make $10 million per year. Under the old tax plan, you’d owe $3.7 million. Under the proposed plan, you’d owe $3.4 million. So here, you’d owe $400,000 less.

Under the proposed plan, the higher your income goes, the more you save under the new plan. But it seems weird that you’re better off if you’re already doing pretty well to make that much money.

(This analysis doesn’t account for the higher rates in the lower brackets leading up to the highest bracket)

Second, the wealthiest people don’t earn all their income from salaries which is taxed at the highest rate. Instead, they earn a big chunk from dividends and capital gains.

The average American – myself included – don’t make the much from dividends and capital gains. I do make some but I can’t live on it, not even close. And I have a lot of money invested.

Under the Trump tax plan, which mimics the Republican tax plan, capital gains are now taxed only 15% instead of as ordinary income if you hold for less than a year (in other words, the richest people would pay at 39.6% or even 35%). Let’s assume that dividends are taxed at the same rate, only 15% for both ordinary and qualified dividends.

Since wealthy people earn so much from dividends and capital gains, this drop of up to 24% on some of their earnings represents a huge benefit. If you bought and sold a property and flipped it for $100,000 and claimed it as personal income, whereas before you might be hit with a $39,600 tax bill you would now only have a $15,000 tax bill. That’s a big savings, and only wealthy people can actually do.

Of course, wealthy people only structure their income like this in corporations, but still.

Third, look at those eliminations. Eliminating the estate tax! Today, at the federal level, if you die and your heirs inherit money or property, it is tax free up to $5 million (states may have their own rates). Since almost none of us have almost $5 million to bequeath, this doesn’t matter.

Except to the super rich. Let’s be honest, this is a way to pass down inter-generational wealth without paying taxes on it. It’s a freebie for people who are already wealthy and probably don’t need the tax break.

 

Fourth, it eliminates the alternative minimum tax (AMT). I don’t even know what this is, all explanations of it online are like “This is complicated.”

What I do know is that in 2005, President Trump earned $150 million and paid $38 million in taxes. But, that was because of the AMT. Had he not had the AMT, he only would have paid $6 million (4%).

Under his plan, he’d have paid (10% x 75,000) + (25% x [300,000 – 75,000 + 1]) + (35% x [150,000,000 – 300,000 + 1 – 24,000]) = $52 million. I’m assuming he is not writing off mortgage interest nor charitable contributions.

So, Trump would end up paying $14 million more. I’m not sure he realizes this.

Fifth, President Trump isn’t going to pass a tax increase on himself. Another part of his plan is to lower the tax rate on corporations from 35% to 15%, and also make that apply to pass-through entities… like President Trump’s real estate partnerships.

If he’s smart enough to shelter all his income in that matter (and let’s face it, I’m sure he is), then he would owe 15% x $150,000,000 = $22,500,000. That’s about $16 million less than he would have paid in 2005.

So there you have it, that’s what’s in it for him.

Conclusion

I don’t see how this tax plan helps the average American. According to the analysis I’ve seen at those two links in this post, these tax cuts only add about 1-2% to 90% of the population’s after tax income, barely anything. The largest earners in the top 1%) see their income go up by 5%, and that’s 5% on a much larger amount (I think the cut-off is around $400,000; so $20,000 at a minimum on the low end of the wealthiest people and way more for the top of that bracket). For the average person, you’ll get a few hundred… maybe.

So yes, it’s the biggest tax cut in history but it basically goes to people who already are well off.

Doesn’t seem like it helps the people who need it the most.

When at the office using Microsoft Outlook, when you are going to be away for a while, there’s a neat feature you can do to let others know that you are going to be gone.

First, you set up a meeting request and invite people to it but you have to do three things:

1. Make sure you uncheck the response options (that is, make sure “Request Responses” and “Allow New Time Proposals” are deselected).

Those are useful when sending a normal meeting request so you can know whose coming, and if they can’t come they can propose a new time for the meeting. But, they are not useful when you are sending a notice that you will be out of the office.

2. Next, make sure that the time shows up as “Free” because since you’ll be adding it to people’s calendars, you don’t want their time blocked

3. Finally, make sure that there is no reminder. You don’t need to annoy people that you’re going to be on vacation

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You then send it to your coworkers so that your out-of-office shows up on their calendars.

 

Second, you create a second appointment (not a meeting) that overlaps with the one from above, but make sure that the time shows up as Busy:

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You don’t invite anyone to this, and then save it. Whenever anyone tries to look at your calendar to schedule a meeting, they’ll see the time is not available. This lets others know that that time slot is blocked, and it’s also color coded.

That’s how you let others know you’ll be away.

 

But what other people do is treat their vacation meeting notices like regular meetings. They’ll send one meeting per the first one above where the time shows up as free, but they allow responses, and also let you propose a new time.

So, every time someone sends me a meeting request that refers to their vacation, I decline it and propose a new time, usually a week or two later. I edit the response before sending, saying “Proposing a new time for your vacation.”

The first time I do this to someone, they universally react with confusion. They say “Did you just decline my vacation and say a new time would be better?”

I say “Yes. Yes I did.”

The confusion gives way to amusement. Everyone always laughs.

And now you know why I send two meeting requests. The one I send to others prevents others from doing the same thing to me (declining and proposing a new time) that I do to them. I suppress the “Decline and propose a new time” option.

A couple of co-workers have learned that I always do that, and changed their behavior.

I consider that a personal victory.

Tonight, from Blue Apron, I made shiitake mushroom burgers. The ingredients were simple: some ground beef, shiitake mushrooms, garlic, hoison sauce, and onion greens. That’s it, I mushed them together and then sautéed them on the stove. They turned out really well. I mean, really medium.

While I was doing that, I was reminded of a time when I was living back in Winnipeg when I had a mushroom burger.

For you see, myself and some co-workers one time went for lunch at a place called the Liberty Grill. I had been there several times in the past and never ordered food that was particularly healthy. I was in my mid-20’s at the time so it didn’t matter.

Anyhow, I decided to try the portobello burger. I roughly knew that a portobello was a type of mushroom, so I figured that I’d get a burger with a bunch of fried (or grilled) mushrooms on it.

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I’m not as big a fan of mushrooms as the wife, but I figured it’d be fine since burgers usually have all sorts of tasty (i.e., sweet or salty) sauces on them.

But imagine my surprise when I got my burger. I took a bite and sunk my teeth into it, but it wasn’t a mushroom burger, it was a mushroom burger.

There was no beef patty at all, the patty was a giant portobello mushroom!

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As soon as I got it in my mouth, I said “What is this?”

I opened it up, and saw that there was no meat but instead just a giant mushroom where there ought to have been meat (at the time, I was still 7 years away from cutting back on meat and going partially vegetarian).

I realized my mistake, they really did give me a portobello burger. I hadn’t taken it literally.

I realized I was going to have to stomach it and tried to force myself to eat it. I may have been disappointed, but I was going to eat it.

I couldn’t. I removed the mushroom after only eating perhaps 1/4 to 1/3 of it, and gave up. I ate the rest of the bun + vegetables, and the salad (or fries) it came with.

I never ordered it again.

* * * * * * * * * * * * * *

Years later I would read about a football player on the Winnipeg Blue Bombers (Kamau Peterson) who had the same experience as me. He ordered a portobello burger expecting a burger with mushrooms, but realized he was getting something else instead.

He didn’t like it, either.

* * * * * * * * * * * * * *

My shiitake mushroom burger experience was not like that. In fact, it was fantastic. Shiitake mushrooms are full of umami (i.e., they are savory), they don’t taste like regular white mushrooms. They are one of the types of mushrooms that make me understand why the wife likes them so much.

It’s too bad they cost 10 times as much.

This whole Donald-Trump-Russia connection is getting weird.

Way back during the campaign, I wasn’t sure about what to make of President Donald Trump and his admiration of Russia and Vladimir Putin. At the time, I assumed that then-candidate Donald Trump was being manipulated, and obviously so – Putin would praise Trump and Trump would think it was genuine, and because he has such a need for praise, he would return it. But the praise from Putin was not real, it was false because Putin knew Trump would respond to it. Trump never figured it out. I also thought that Trump admired Putin’s way of running the country (Putin was a former mid-level FSB agent who is now rumored to be one of the richest, if not the richest, men in the world).

I never thought that Trump was indebted to Russia, I thought it was all psychological manipulation.

I heard a podcast the other day that Trump’s infatuation with Russia and Putin is an admiration for Putin that runs deep. As I said, Putin now controls a lot of wealth but keeps it all off the books. The underlying message was that Putin mixed business and government with strong arm tactics to appropriate wealth (and poison his enemies), and Trump wants to emulate this – to use government as a springboard to personal wealth and power. I kind of thought that was why he was running for President back in 2015 and 2016, and this fueled into my suspicions.

And then I read an article on Vanity Fair today: How Ex-Spy Christopher Steele compiled his explosive Trump dossier. I won’t go over the details of this, but everything is becoming uber suspicious:

– Steele had several Russian sources, a senior Russian Foreign Ministry figure; a former top level intelligence officer still active in the Kremlin; and a handful of other sources

– A bunch of different top aides to Russian politicians who were pretty good candidates for these sources have turned up dead

– The dossier said that Trump’s team and Russia co-ordinated on a strategy to undermine NATO alliances in the region which is exactly what happened during the campaign

– A Russian cyber security expert was arrested for treason

– So many of President Trump’s top nominations to positions of power, or close associates, look shady. From former NSA director Michael Flynn, to Attorney General Jeff Sessions who forgot to disclose he met with Russian diplomats, to Trump’s personal associates Carter Page and Roger Stone (who said he had a back channel to Wikileaks and then walked back the claim). Every time they talk about Russia, it gets so weird.

– Then-candidate Trump’s campaign manager, Paul Manafort, has deep ties to pro-Russian activity in the Ukraine during the past 5 years

– Even Roger Stone, who predicted that John Podesta would be exposed soon enough, just a little while before the Podesta email leaks, had an interview on NPR. I listened to it and he denied everything. But he said some weird things, like “I never used #wikileaks” when I said the leaks from Podesta were coming.”

Huh? Why would you offer up that? It’s like he was trying to say things that he didn’t say in order to distract away from things he wanted to hide.

He sounded, to me, like he was hiding something.

* * * * * * * * *

And now I’ve become suspicious. At first I thought it was just Putin manipulating President Trump. But now I think there was some collusion.

There’s simply too many weird things going on.

You may remember that last month I mentioned that I am taking an online course in art appreciation.

Well, at the same time I purchased that course, I also signed up for an online class about cooking called The Everyday Gourmet: Rediscovering the Lost Art of Cooking.

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This means I am making my way through two sets of online courses, and I do them in the evenings when I have time (which, for some reason, has not been that much lately).

The reason I signed up is because I’ve been cooking Blue Apron meals for about two years now and I’ve gotten better at cooking. However, I’m still very much an amateur without a “philosophy” of cooking. That is, I can follow a recipe, and I know what I like. But, I can’t predict what will taste good together if I were to put something together from scratch.

For example, in magic, I know a lot of the theory and can combine various mini-effects to make one longer routine. For beer, I know the various styles and can predict what something can and should taste like. But for cooking, I don’t know what spices should go together, how to pick between olive oil and butter, how long to cook something, at what temperature, how to pair ingredients, etc. I just know what has worked in the past.

So I signed up for cooking.

I’ve learned a couple of key things:

1. I’ve learned how to pair seasoning and other tastes

Our tongues have five basic taste receptors – sweet, sour, salty, bitter, and savory (umami). When you are cooking foods, you are not supposed to pair like-with-like. That is, if a food is sweet, you shouldn’t pair it with something else that is sweet for a double-shot of sweetness. Instead, you should combine sweet-with-bitter, or sweet-with-salty. That creates a nice mixing sensation (that’s why there is such a thing as sweet-and-sour sauce).

So, when I cook and I want to add seasoning to something, I say to myself – what does this food taste like? Is it sour, bitter, sweet, or salty? Once I answer it, I then say “What spice should I add?” If the food is bitter (like kale), I would add something salty, sweet, or sour. I wouldn’t add another bitter spice.

Or, if the food is sweet like an orange, I wouldn’t add cinnamon but instead either salt, or another non-sweet seasoning.

Speaking of which, a couple of years ago I was at a friend’s place and we were eating watermelon, and I saw him putting salt on it. My friend is a southerner, and I thought he was a crazy person for putting salt on the watermelon.

But it turns out, he’s not so crazy after all (at least not for that). Salt + sweet is a good combination of flavors with contrast to give you a different sensation. What he was doing made sense.

It turns out I was the one who was wrong!

2. There are four different types of cooking techniques

I’ve often hear of roasting, braising, baking, frying, etc. But there are just four main techniques:

i) Dry-heat cooking with fat

I used to put my food in a frying pan and heat it up, and say I was frying it. That’s not right, I was sautéeing it. To sauté something is to add a little bit of oil (e.g., olive or avocado oil) and then heat it up.

Frying it is when you have a deep pan, e.g., 6 inches, and then fill it up halfway, e.g., 3 inches, and then cook your food in it. There’s way more fat involved.

French fries in a restaurant are literally fried. I only sauté things.

ii) Dry-heat cooking without fat

This includes techniques like roasting and baking

iii) Moist-heat cooking

These are techniques like boiling or steaming

iv) Combination

This is self-explanatory, it combines the above

I still don’t know when I would use each of the above techniques, but dry-heat cooking with fat seems to be the easiest and fastest.

I’m still early on in the lesson plan, and I have not yet done any of the recipes that the chef has demonstrated, even though they look fantastic. I don’t know if I ever will.

But, I do know that when I cook Blue Apron, or do anything else, I am now more deliberate about the chopping techniques I have, the cooking technique I use, and the seasonings I add to the food.

And in that regards, the class has been worth it.

Well, this is a brutal truth I am now facing.

I’ve had some clothes in my closet for years. Shirts, shorts, pants, you name it. I’ve been proud of the fact that I can still wear clothes from years ago.

Or, rather, I used to be able to.

About a year ago, I went to buy a new pair of jeans. I discovered I had to buy 32×30, instead of 30×30.

I wasn’t sure whether or not I had put on weight or if pants sizes had changed. I understand that cuts and styles change over time, so a size small today may not be the same today as demographics shift (people get older, more immigrants, etc.) and stores can’t just important five dozen different sizes.

But today I went into my closet and tried on a few pairs of black pants that used to fit quite nicely. None of them fit.

Sure, I could get them on, but they all felt tighter around my waist.

To be honest, I knew this was coming. I’ve noticed my waist is bigger now than it was 1 or 2 years ago. I’m not sure what’s going on, I exercise my stomach every day. I measure the amount of fat on my stomach using calipers and it’s the same. And all of my shirts still fit fine. I even use a measuring tape above my belly button and write the down the results, and it’s the same from a couple of years ago.

Yet my pants require a bigger size.

No use denying it. I have to go up in size, I am officially 32×30.