Tax Reform

Jones Act Protectionism Is Why Tax Reform Is Probably Doomed to Fail (UPDATE: It's Waived!)

If you can't change a single lousy law in the face of humanitarian crisis, how are you going to take on the tax code's thousands of special-interest blocs?

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(See the UPDATE at the bottom of this post for some welcome good news, and analysis thereof.)

You've heard of Economics in One Lesson? Well, here's economic policy in one quote:

It's hard to imagine a more vivid example of the notion of concentrated benefits and dispersed costs than the Jones Act, a 97-year-old Mercantilist garbage-law that requires all ships traveling between U.S. ports to be totally American, which in practice means everything on U.S. islands (including hurricane relief) is way more expensive than it should be. As free-trader Scott Lincicome quickly tabulated, "At best, it's 1400 workers in Jones Act shipping in/around PR (GAO 2013) vs 3.4 MILLION suffering Puerto Ricans." The moral calculus is hideous.

It's easy to blame Trump, because those words did tumble out of his protectionist mouth, and his Department of Homeland Security has already announced its opposition to waiving the Act after Hurricane Maria (though there are reports the White House is wavering). But the lure and/or sway of concentrated benefits does not require politicians to have 19th century notions of trade. Sen. Marco Rubio (R-Fla.), an ardent free-trader in rhetoric, is a grubby protectionist in practice when it comes to the all-powerful sugar lobby in Florida. Politicians are incentivized to please local constituents, and avoid getting on the wrong side of heavily motivated lobbies with deep pockets.

If Rubio can't stare down Big Sugar, and Trump can't translate his version of populism into helping an actual population of suffering people instead of a withering industry, how on earth will they locate the courage to overhaul the tax code?

"This is a revolutionary change," Trump crowed today, when unveiling the administration's framework for tax reform. I'll take the under.

As was the case in the White House's previous big heave on taxes, this reform proposal mixes 1981-style tax cuts with 1986-style simplification of the tax code. In other words, everyone would pay at lower rates, but most deductions for individuals and corporations would disappear. For instance, the state-and-local-tax deduction. Here's how I described that in April:

This idea, which makes intuitive sense, would nonetheless be heavily disruptive to those of us who live in high-tax states. And not just in those Democratic-bubble strongholds like New York, California, and Illinois—according to this WalletHub analysis, vying for worst American state/local tax burden are the deep red states of Nebraska and Iowa (ranked 50th and 43rd out of 51, respectively), plus the Trump swing states of Michigan (44th) and Ohio (45th). That's five Republican senators right there, at a time when the GOP advantage in the Senate is just 52-48. If this provision passes, I'll eat my baseball glove. (And then move to Nevada.)

The New York Post points out that A) "Manhattan leads the way nationally in taking the deduction, with residents writing off an average of $24,898 on their federal returns," B) "More than 3.2 million people in New York—or about 35 percent of the state's tax filers—claim their state and local taxes as deductions on their federal returns," and therefore C)

New York congressional Republicans had pleaded with Trump to retain the tax breakover concerns it would hit New Yorkers hard and amount to an unfair double tax.

Republicans from New Jersey and California have also cried foul, and together with New York Republicans like Reps. Dan Donovan and Peter King, they could amass enough opposition to sink the proposal in the House.

So much for that.

Those benefits, comparatively speaking, are dispersed; it's on the corporate side where concentrated blocs are going to fight like cornered wolverines to keep their special treatment intact. The New York Times reports that the White House plan "calls on the tax committees to eliminate most of the tax credits that businesses currently use." Here's a report from 2015 showing $68 billion in federal subsidies and tax breaks from the prior 15 years; let's pull a paragraph at random:

A small number of companies have obtained large subsidies at all levels of government. Eleven parent companies among the 50 largest recipients of federal grants and allocated tax credits are also among the top 50 recipients of state and local subsidies. Six of the 50 largest recipients of federal loans, loan guarantees and bailout assistance are also on that state/local list. Five companies appear on both federal lists and the state/local list: Boeing, Ford Motor, General Electric, General Motors and JPMorgan Chase.

So a Republican Party that can't even close down the crony-capitalist Export-Import Bank thinks it's going to take on that bank's biggest customer, as well as G.E. and G.M.?

Look, I hate to be a Matty Morose on this stuff—I would love-love-love to see the elimination of basically every subsidy and almost every tax break, including the untouchable mortgage interest-rate deduction, in return for a lot of across-the-board reductions and some of the stuff the Trump administration is advocating today (like no longer taxing the overseas profits of U.S. corporations). But this White House has not been very impressive on either policy detail or legislative wrangling, and this Congress has shown precious little in the way of courage, let alone results.

Stay tuned to this space for more analysis of the tax reform rollout!

UPDATE: Hey, some welcome good news from Donald Trump!

So, in addition to the much-needed relief this will provide for Puerto Ricans, what does Trump's reversal do to my tax reform thesis? It depends on what comes next. A temporary executive-branch waiver is a good deal better than nothing, but only a full congressional repeal, with votes on the record against a motivated industry, would be a comp for the many hundreds of fights that would break out over ending breaks and subsidies in the tax code.

Sen. John McCain (R-Arizona) is trying for a fourth time to at least partially repeal law that almost no honest analyst even tries to defend, and accordinng to this Lexology analysis from a month ago,

Like his prior attempts, the new McCain campaign seems unlikely to gather sufficient support to pass either the Senate or House, or to stir much debate leading to other legislation or policy changes….Despite strong support from much of corporate America and traditional Republican interests, including the oil majors and Heritage Foundation, and continuous pressure from U.S. jurisdictions heavily reliant upon ocean shipping trade with other states – such as Alaska, Hawaii and Puerto Rico – historical efforts to reduce the scope of the Jones Act materially have failed outright or been heavily diluted. The current political landscape is no more favorable. Weakening the Jones Act in any way would appear to run directly counter to the protectionist themes of the Trump Administration.

As with deregulation, the executive branch can only do so much. In a long season of congressional deference to executive action, you generally won't lose too much money betting against courage.

UPDATE 2: The waiver is good for all of 10 days.

NEXT: A.M. Links: Hugh Hefner Dead at 91, Trump Waives Jones Act for Puerto Rico, North Korea Again Denies Torturing Otto Warmbier

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  1. “A lot of people who are in the shipping industry don’t want

    I must say, I found the straightforwardness of that very appealing. Glad he just said it outright.

      1. Supposedly it will be balanced out by lower rates, which I’ll believe only when I see.
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  2. Stay tuned to this space for more analysis of the tax reform rollout!

    I keep waiting for “tax reform” to mandate nano-print so congresscritters can claim their code is now only three pages long.

  3. The twitter people are (rightly) blasting Trump for not waiving the law (is that legal?), but none of them seem to be blasting Congress for not repealing it.

    1. I will make it legal

    2. He shouldn’t wave it. Too much shit nowadays falls upon the President. People just expect him to do what they want by fiat. It’s not his goddamn job. I’m not saying that makes Trump not a jerk or something, but we need to put pressure on Congress more.

      1. I’d be more sympathetic to that line of reasoning if 1) that was Trump’s stated reason for not granting the waiver and 2) he immediately called for an emergency vote in Congress to repeal or modify the law. As it is, this is a total dick move for explicitly cronyist purposes that may actually get people killed.

      2. “I’m not saying that makes Trump not a jerk”

        I’m going to use this from now on.

  4. Jonesin’ for some protectionism, am I right?

    You’ve heard of Economics in One Lesson?

    Fact: Mises has a free pdf copy available on their website.

    1. Sorry, I refuse to read anything that isn’t in comment form.

      1. I agree. “Mises Institute”? Sounds like fake news to me.

        1. Supposedly it will be balanced out by lower rates, which I’ll believe only when I see.
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          1. Still a step up from Tony.

  5. I get the libertarian position on removing the Jones Any permanently, but I don’t understand how it makes hurricane relief more expensive. AFAIK, FEMA and the federal government are funding relief efforts and there’s more than enough shipping tonnage in the US to take care of it. Plus nothing in the Act prevents a foreign country from shipping relief material directly to Puerto Rico from foreign soil. Jamaica is close, right? They can ship all they want directly to Puerto Rico and nothing in the Jones Act prevents it.

    Can you please explain how waiving the Act would actually help now? I’m not asking for long term economic impact post-recovery, which I agree with. I’m taking about right now.

    1. Jones Act. Not Jones Any. Autocorrect will be the death of us all.

      1. My autocorrect remembers my misspellings, thinks they’re new words, stores them and autocorrects to them….it’s looking at me.

        1. There’s an app for that.

          1. Supposedly it will be balanced out by lower rates, which I’ll believe only when I see.
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    2. Its a matter of the cost of moving a not-full ship. That shit’s expensive. So either we’re going to take a few ships that sit at an American pier for weeks while cargo is moved to them so they can do it in one trip or we’re sending half-filled ships there.

      Same as for foreign ships. Either you’re holding off movement (and losing money) while waiting for the cargo to arrive so you can fill your holds and do it in one go or you’re running a partially full ship.

  6. Ah the Jones Act, also know as the reason you can’t have a halfways decent Hawaiian cruise. Everyone should care about that.

  7. Many of us in high-tax states (I live in MA) already can’t deduct state and local taxes from their federal return, it’s called the AMT.

  8. Biggest mistake Obama made was signing the law indexing the AMT brackets to inflation. If that weren’t the case, we’d get almost exactly this tax reform by stealth.

  9. RE: Jones Act Protectionism Is Why Tax Reform Is Probably Doomed to Fail
    If you can’t change a single lousy law in the face of humanitarian crisis, how are you going to take on the tax code’s thousands of special-interest blocs?

    Yeah, tax reform will be difficult, especially with the die hard socialist democrats and the gutless republicans, but find a way. I’m tired of paying for wars, needless bureaucracies, useless social programs, and cronyism. And while the feds are at it, quit spending so damn much money.

  10. BREAKING NEWS: EVERYONE STANDING AT PPG PAINTS ARENA RIGHT NOW.

  11. It’s easy to blame Trump…

    Fun, too.

  12. …it’s on the corporate side where concentrated blocs are going to fight like cornered wolverines to keep their special treatment intact.

    Everyone roots for wolverines.

    1. Blasphemy for Buckeyes fans.

  13. Girl, 11, ‘consented’ to sex with man, 28, who lured her from a park, French prosecutors declare

    The Local news outlet reported the man allegedly raped her. The girl’s family said she was “paralysed” by fear and “unable to defend herself”.

    But in a decision that’s prompted anger, prosecutors decided “there was no violence, no constraint, no threat, and no surprise” on the part of the man to justify the charge of rape.

    “Essentially they judged that she had consented to the sexual encounter because she was not physically forced into the act,” The Local reported.

    There are now calls for French legislators to introduce a legal age under which sexual consent cannot be presumed.

    I didn’t realize there was no age of consent law in France.

    This is interesting, because I think this sort of thing should be taken on a case-by-case basis and that there shouldn’t be a one-size-fits-all law.

    In this particular case, if the girl really was paralyzed by fear, then it sure seems like this was coercion and therefore rape. But, that doesn’t mean that every case is automatically rape (a word with severe connotations).

    1. “I swear she looked 13”

    2. Bullshit. You notice they don’t give any details on the man? I’ll give you five to one odds that his name is Muhammed, and is a recent immigrant, most likely a “refugee”.
      Hell, I’ll give you ten to one odds.

      1. So what if it was? Would that mean all Muslims or all refugees bear some blame for this crime?
        What if his name is “Paddy O’Brien” – should we start casting aspersions on those dirty Irish?

        1. Remember when the newspapers refused to print the names of Irish criminals so as not to give people the wrong idea about the Irish?

          You kind of had to read between the lines.

          /sarc

          1. Social problems are like Beetlejuice in the movie – they only manifest themselves if you name them.

            Therefore, if you don’t acknowledge or allude to a social problem, if will disappear.

            /sarc

        2. What if his name is “Paddy O’Brien” – should we start casting aspersions on those dirty Irish?

          Were we not doing that before? I mean, they cast so many aspersions at themselves and each other I just kinda assumed it was a thing.

    3. I didn’t realize there was no age of consent law in France.

      There is.

      1. Well then, now I’m confused.

    1. “Far too sacred to protest.”

      Gross. I lost a lot of respect today for the Lingerie Football League.

        1. At least nobody made a “kneel” joke.

  14. Stay tuned to this space for more analysis of the tax reform rollout!

    Fuck you, balance the budget.

    1. “Fuck you, balance the budget.”

      Fuck you, cut spending.

      1. Fuck you, balance the budget.

        Fuck you, cut spending.

        The situation is so fucked up that what would normally be square 1 is actually square 0 and we’d make considerable progress in getting there.

  15. Stay tuned to this space for more analysis of the tax reform rollout!

    Well, maybe if there are some weed smoking Mexicans…

  16. Manhattan leads the way nationally in taking the deduction, with residents writing off an average of $24,898 on their federal returns,” B) “More than 3.2 million people in New York ? or about 35 percent of the state’s tax filers ? claim their state and local taxes as deductions on their federal returns

    So the rest of the country will stop subsidizing New York state’s high taxes? Waah! Unfair!

    1. Exactly – why should your federal taxes go up if your state and local taxes go down?

      1. Why should your federal taxes go down if your state and local taxes go up?

    2. Yeah the one realistic big thing that I am hoping for from this round of tax reform – other than the unrealistic “repeal it all”, of course – is that people in high-tax areas will start to pay the full freight of their own tax burden. I know it isn’t very libertarian, I know it means more tax money to feed the beast, but it is an emotional reaction from me.

      1. Supposedly it will be balanced out by lower rates, which I’ll believe only when I see.

  17. How Did Women Fare in China’s Communist Revolution?

    ‘The Communists did many terrible things,” my grandmother always says at the end of her reminiscences. “But they made women’s lives much better.”…

    “But the narrative of an across-the-board elevation of women’s status under Mao contains crucial caveats….

    “While the Communist revolution brought women more job opportunities, it also made their interests subordinate to collective goals. Stopping at the household doorstep, Mao’s words and policies did little to alleviate women’s domestic burdens like housework and child care….

    “…Unlike their counterparts in developed countries, Chinese women didn’t have labor-saving household appliances, since Mao’s economic policies prioritized heavy industry over the production of consumer products like washing machines and dishwashers….

    “For all its flaws, the Communist revolution taught Chinese women to dream big.”

  18. ‘People are using the word socialism’: Momentum activists hail a world transformed
    Thousands descended on Brighton for alternative event running alongside Labour conference. Here are some of them

    “[one participant said] ‘I got into politics since Corbyn was elected Labour leader in 2015. It just felt like for the first time there was someone in contention for a position of power who was representing things that mattered to me, like education and high living standards. It seems criminal that in a country of so much wealth, so many people are in need of food banks.'”

    1. Idiots.

      Food banks are *the same thing* as a government handout – except without the coercion.

      But for some reason going to a foodbank is seen as a problem ‘in a rich country’ while the government cutting checks for food isn’t.

      1. Because you can’t demand service from a food bank at gunpoint.

  19. Paul and Massie introduce legislation to waive Jones Act. Then publicize the shit out of any Congressmen or Senators that stand in the way by votes or refusing to bring to the floor.

  20. Only 22 hyperlinks in this piece by the way, in case you were wondering. Not his best effort!

  21. Jones had a pretty formidable act!

    https://www.youtube.com/watch?v=Bjy11XkGW94&t=330s

  22. Can we scrap the Jones Act and Davis-Bacon at the same time?

    1. Dodd-Frank too. Not because it necessarily has anything to do with Puerto Rico aid, just because it sucks.

  23. The tax reform will not pass because the republicans can’t agree on anything.
    The opening bargaining position of 15% has already been raised to 20% before the dems get involved.
    The top bracket has already been put on the table before the dems get involved.
    Why would anyone expect anything from the republicans?
    Those guys couldn’t lead a pack of hungry wolves to fresh meat.
    So we watch the street theatre comedy until 2018, the dems take over again, drop the filibuster, drop the constitution, and rule the world at last.
    Peace in our time. (again)
    And probably, this site gets shut down for hate speech.

  24. Update: the leftists and globalists cucked Trump like whoa.

  25. Weakening the Jones Act in any way would appear to run directly counter to the protectionist themes of the Trump Administration.

    So, to an extent, is waiving it. But Trump has no ideology so you can’t predict whether the administration would support a repeal or not. In fact, pack it in, Welch and company. Your prognostications are little more than masturbation, and often angry masturbation at that. Tax reform is about to explode all over everyone’s keyboard!

  26. “It’s hard to imagine a more vivid example of the notion of concentrated benefits and dispersed costs than the Jones Act,”

    Oh I don’t know about that..

    Tariffs on imported sugar and ethanol come to mind as pretty vivid examples of the same thing.

  27. The only thing is once you get the goods to the shore then it needs to be dispersed once its there and apparently that is not happening now even before the Jones act was lifted so maybe there is already enough goods there.

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