Goldman Pours Cold Water On Trump’s Fiscal Stimulus Plan

Goldman Sachs' Chief US Political Economist Alec Phillips writes that tax reform faces a risk of failure, but tax cuts remain likely… in 2018 and investors need to stay realistic about the impact of fiscal stimulus.

President Trump’s campaign proposals initially raised expectations of several forms of fiscal stimulus, driving investor optimism on both infrastructure spending and various elements of tax reform. However, we expect only tax cuts to have a meaningful effect on growth over the next couple of years. Three risks are behind this view: tax reform failure, fiscal constraints, and delayed enactment.

Debates, delays, distractions

First, tax reform faces a real risk of failure. If Republicans pursue revenue-neutral tax reform, they are likely to encounter the same challenges they encountered in passing their health legislation. Inclusion of controversial proposals like the border-adjusted tax (BAT) or even the repeal of corporate interest expense deductibility, for example, could sink the effort. Views on these issues do not follow traditional party lines, which could easily lead to some Republican opposition (we have already seen significant opposition to the BAT, for example). With few if any Democratic lawmakers likely to vote for the tax bill, Republicans would need nearly unanimous support from their own party. Thus, while revenue-neutral tax reform might be preferable from a policy perspective, imposing this restriction would lower the odds of enactment by next year.

In light of the challenges tax reform faces, we believe that President Trump, who did not emphasize revenue-neutrality during the campaign, is likely to eventually endorse more limited reforms that result in a net tax cut. However, the size of such a cut would be limited by fiscal constraints; centrist Republican lawmakers seem especially likely to balk at large tax cuts that would eventually require deep spending cuts to maintain fiscal sustainability. Dynamic scoring and other budget accounting strategies might provide several hundred billion dollars’ worth of room for a tax cut in 10-year budget projections, but alone would allow for only a very modest cut. Our current expectation is a tax cut of $1.75tn over ten years, taking effect in 2018.

While Republican leaders have prognosticated that they might take the first vote on tax legislation as soon as May and enact a bill by August, the risk is skewed toward delays, in our view. Enactment of simple tax cuts should not take long—it took the Bush administration until only May to enact the 2001 cuts—but a lengthy debate over complex tax reform that ultimately fails could cause delays. Likewise, an effort to revive health legislation could also push the start of the tax debate to mid-year or later. And, while not directly related, fiscal deadlines such as the April 28 and September 30 expiration of spending authority and the debt limit deadline we expect between August and October are likely to distract from tax legislation.

A peek at the fiscal impact

We expect Congress to pass tax legislation sometime between 4Q2017 and 1Q2018. However, the potential fiscal impact is likely to become clear in the next couple of months, for two reasons. First, the White House is expected to submit a budget proposal to Congress in mid-May, and will need to clarify its intentions on the size of a tax cut at that point. Second, in order to pass tax legislation via the “reconciliation” process, Congress must first agree on a budget resolution providing instructions for the tax-writing committees to do so. These instructions must include a specific amount by which revenues should be reduced; once this figure is finalized, which we expect in May or June, a larger tax cut would not be possible without bipartisan support.

Holding out hope

While we expect the outlook for fiscal stimulus to become much clearer in the next couple of months, the consensus view is harder to discern. Our basket of high-tax stocks has given up all of its post-election relative gains (see pg. 10). That said, we believe the market consensus view is still for some tax legislation to pass. Prediction markets, for example, suggest around 60-70% odds of individual and corporate tax cuts being enacted this year. And the equity market continues to react negatively to perceived setbacks on tax reform, indicating that hopes of tax reform continue to be at least partly priced in.

A tax, not a spending story

Other forms of fiscal stimulus are likely to be fairly minor. The outlook on infrastructure is uncertain, and we expect changes to consist mainly of tax policies aimed at boosting private-sector activity rather than public spending. President Trump has also proposed a $54bn (0.3% of GDP) per year increase in defense spending, but we expect a smaller increase in overall net spending. One potential offset to the stimulus we expect is a reduction in subsidies under the Affordable Care Act (ACA), but our estimates assume no change in subsidies at this point.

The economic upshot

If fiscal policy plays out as we expect, the boost to growth would be worth around 0.3pp each in 2018 and 2019. The effects will likely be concentrated in 2018 but extend into 2019, as the policy changes will likely take more than one year to be fully reflected in the level of spending and tax receipts. All told, market participants anticipating fiscal stimulus will need to look farther out for the positive impact they expect.

Run For Your Life: The American Police State Is Coming To Get You

Authored by John Whitehead via The Rutherford Institute,

“We’ve reached the point where state actors can penetrate rectums and vaginas, where judges can order forced catheterizations, and where police and medical personnel can perform scans, enemas and colonoscopies without the suspect’s consent. And these procedures aren’t to nab kingpins or cartels, but people who at worst are hiding an amount of drugs that can fit into a body cavity. In most of these cases, they were suspected only of possession or ingestion. Many of them were innocent… But these tactics aren’t about getting drugs off the street… These tactics are instead about degrading and humiliating a class of people that politicians and law enforcement have deemed the enemy.”—Radley Balko, The Washington Post

Daily, all across America, individuals who dare to resist—or even question—a police order are being subjected to all sorts of government-sanctioned abuse ranging from forced catheterization, forced blood draws, roadside strip searches and cavity searches, and other foul and debasing acts that degrade their bodily integrity and leave them bloodied and bruised.

Americans as young as 4 years old are being leg shackled, handcuffed, tasered and held at gun point for not being quiet, not being orderly and just being childlike—i.e., not being compliant enough.

Government social workers actually subjected a 3-year-old boy to a forced catheterization after he was unable to provide them with a urine sample on demand (the boy still wasn’t potty trained). The boy was held down, screaming in pain, while nurses forcibly inserted a tube into his penis to drain his bladder—all of this done because the boy’s mother’s boyfriend had failed a urine analysis for drugs.

Americans as old as 95 are being beaten, shot and killed for questioning an order, hesitating in the face of a directive, and mistaking a policeman crashing through their door for a criminal breaking into their home—i.e., not being submissive enough.

Consider what happened to David Dao, the United Airlines passenger who was accosted by three police, forcibly wrenched from his seat across the armrest, bloodying his face in the process, and dragged down the aisle by the arms merely for refusing to relinquish his paid seat after the airline chose him randomly to be bumped from the flight—after being checked in and allowed to board—so that airline workers could make a connecting flight.

Those with ADHD, autism, hearing impairments, dementia or some other disability that can hinder communication in the slightest way are in even greater danger of having their actions misconstrued by police. Police shot a 73-year-old-man with dementia seven times after he allegedly failed to respond to orders to stop approaching and remove his hands from his jacket. The man was unarmed and had been holding a crucifix.

Clearly, it no longer matters where you live.

Big city or small town: it’s the same scenario being played out over and over again in which government agents, hyped up on their own authority and the power of their uniform, ride roughshod over the citizenry who—in the eyes of the government—are viewed as having no rights.

Our freedoms—especially the Fourth Amendment—continue to be torn asunder by the prevailing view among government bureaucrats that they have the right to search, seize, strip, scan, spy on, probe, pat down, taser, and arrest any individual at any time and for the slightest provocation.

Forced cavity searches, forced colonoscopies, forced blood draws, forced breath-alcohol tests, forced DNA extractions, forced eye scans, forced inclusion in biometric databases—these are just a few ways in which Americans continue to be reminded that we have no control over what happens to our bodies during an encounter with government officials.

For instance, during a “routine” traffic stop for allegedly “rolling” through a stop sign, Charnesia Corley was thrown to the ground, stripped of her clothes, and forced to spread her legs while Texas police officers subjected her to a roadside cavity probe, all because they claimed to have smelled marijuana in her car.

Angel Dobbs and her 24-year-old niece, Ashley, were pulled over by a Texas state trooper for allegedly flicking cigarette butts out of the car window. Insisting that he smelled marijuana, the trooper proceeded to interrogate them and search the car. Despite the fact that both women denied smoking or possessing any marijuana, the police officer then called in a female trooper, who carried out a roadside cavity search, sticking her fingers into the older woman’s anus and vagina, then performing the same procedure on the younger woman, wearing the same pair of gloves. No marijuana was found.

Leila Tarantino was subjected to two roadside strip searches in plain view of passing traffic during a routine traffic stop, while her two children—ages 1 and 4—waited inside her car. During the second strip search, presumably in an effort to ferret out drugs, a female officer “forcibly removed” a tampon from Tarantino. Nothing illegal was found.

David Eckert was forced to undergo an anal cavity search, three enemas, and a colonoscopy after allegedly failing to yield to a stop sign at a Wal-Mart parking lot. Cops justified the searches on the grounds that they suspected Eckert was carrying drugs because his “posture [was] erect” and “he kept his legs together.” No drugs were found.

Meanwhile, four Milwaukee police officers were charged with carrying out rectal searches of suspects on the street and in police district stations over the course of several years. One of the officers was accused of conducting searches of men’s anal and scrotal areas, often inserting his fingers into their rectums and leaving some of his victims with bleeding rectums.

Incidents like these – sanctioned by the courts and conveniently overlooked by the legislatures – teach Americans of every age and skin color the painful lesson that there are no limits to what the government can do in its so-called “pursuit” of law and order.

If this is a war, then “we the people” are the enemy.

As Radley Balko notes in The Washington Post, “When you’re at war, it’s important to dehumanize your enemy. And there’s nothing more dehumanizing than forcibly and painfully invading someone’s body — all the better if you can involve the sex organs.”

The message being beaten, shot, tasered, probed and slammed into our collective consciousness is simply this: it doesn’t matter if you’re in the right, it doesn’t matter if a cop is in the wrong, it doesn’t matter if you’re being treated with less than the respect you deserve or the law demands.

The only thing that matters to the American police state is that you comply, submit, respect authority and generally obey without question whatever a government official (anyone who wears a government uniform, be it a police officer, social worker, petty bureaucrat or zoning official) tells you to do.

This is what happens when you allow the government to call the shots: it becomes a bully.

As history shows, this recipe for disaster works every time: take police officers hyped up on their own authority and the power of the badge, throw in a few court rulings suggesting that security takes precedence over individual rights, set it against a backdrop of endless wars and militarized law enforcement, and then add to the mix a populace distracted by entertainment, out of touch with the workings of their government, and more inclined to let a few sorry souls suffer injustice than to challenge the status quo.

“It is not only under Nazi rule that police excesses are inimical to freedom,” warned former Supreme Court justice Felix Frankfurter in a 1946 ruling in Davis v. United States: “It is easy to make light of insistence on scrupulous regard for the safeguards of civil liberties when invoked on behalf of the unworthy. It is too easy. History bears testimony that by such disregard are the rights of liberty extinguished, heedlessly at first, then stealthily, and brazenly in the end.”

In other words, if it could happen in Nazi Germany, it can just as easily happen here.

It is happening here.

Unfortunately, we’ve been marching in lockstep with the police state for so long that we’ve forgotten how to march to the tune of our own revolutionary drummer. In fact, we’ve even forgotten the words to the tune.

We’ve learned the lessons of compliance too well.

For too long, “we the people” have allowed the government to ride roughshod over the Constitution, equating patriotism with blind obedience to the government’s dictates, no matter how unconstitutional or immoral those actions might be.

As historian Howard Zinn recognized:

Our problem is civil obedience. Our problem is the numbers of people all over the world who have obeyed the dictates of the leaders of their government and have gone to war, and millions have been killed because of this obedience… Our problem is that people are obedient all over the world, in the face of poverty and starvation and stupidity, and war and cruelty. Our problem is that people are obedient while the jails are full of petty thieves, and all the while the grand thieves are running the country. That's our problem… people are obedient, all these herdlike people.

What can you do?

It’s simple but as I detail in my book Battlefield America: The War on the American People, the consequences may be deadly.

Stop being so obedient. Stop being so compliant and herdlike. Stop kowtowing to anyone and everyone in uniform. Stop perpetuating the false notion that those who work for the government—the president, Congress, the courts, the military, the police—are in any way superior to the rest of the citizenry. Stop playing politics with your principles. Stop making excuses for the government’s growing list of human rights abuses and crimes. Stop turning a blind eye to the government’s corruption and wrongdoing and theft and murder. Stop tolerating ineptitude and incompetence by government workers. Stop allowing the government to treat you like a second-class citizen. Stop censoring what you say and do for fear that you might be labeled an extremist or worse, unpatriotic. Stop sitting silently on the sidelines while the police state kills, plunders and maims your fellow citizens.

Stop being a slave.

As anti-war activist Rosa Luxemburg concluded, “Those who do not move, do not notice their chains.”

You may not realize it yet, but you are not free.

If you believe otherwise, it is only because you have made no real attempt to exercise your freedoms.

Had you attempted to exercise your freedoms before now by questioning a police officer’s authority, challenging an unjust tax or fine, protesting the government’s endless wars, defending your right to privacy against the intrusion of surveillance cameras, or any other effort that challenges the government’s power grabs and the generally lopsided status quo, you would have already learned the hard way that the police state has no appetite for freedom and it does not tolerate resistance.

This is called authoritarianism, a.k.a. totalitarianism, a.k.a. oppression.

As Glenn Greenwald notes for the Guardian:

Oppression is designed to compel obedience and submission to authority. Those who voluntarily put themselves in that state – by believing that their institutions of authority are just and good and should be followed rather than subverted – render oppression redundant, unnecessary. Of course people who think and behave this way encounter no oppression. That's their reward for good, submissive behavior. They are left alone by institutions of power because they comport with the desired behavior of complacency and obedience without further compulsion. But the fact that good, obedient citizens do not themselves perceive oppression does not mean that oppression does not exist.

Get ready to stand your ground or run for your life, because the American police state is coming to get you.