Monday, April 17, 2017


The gossip about the BAT is swirling.  We have already covered that chaos in the White House makes the situation all the more opaque.  IMHO, the White House may ultimately be influential on taxes (duh) but does not have the political power to overcome the very negative perception of the BAT in the Senate.  No one can assure agricultural state Senators that retaliation will not be aimed at American farmers (most are Small Businesses, btw).  No one wants a trade war affecting American grains, period.  As a consequence, the White House can only be an impact player if it steers the process away from the BAT.

As such, Ryan and Brady remain at high risk.  It seems incumbent on them to blink first.  Since there is no realistic path for the BAT to become law, and if they choose to continue to push on that rope, they not only take their political careers in their hands but also squander whatever advantage comes with the White House at their back, Ryan and Brady would be well-served to have an epiphany and switch horses midstream.  I see this as their possible political salvation. This aspect of the Blueprint didn't work. Time to move on.  Guys, remember the "Sunk Cost Effect"?

Today, as if to make the point that the BAT has hopeless optics (reflecting hopeless policy and economics), Five Below and Dollar Tree warned of its ill effects.  Dollar stores are a critical part of the economy serving lower income Americans.  A "dollar" store becomes hard to imagine under the BAT.  Think of the range of voters affected. This is pretty obvious. The BAT is a regressive tax on all Americans.  This is BAD politics.

Axios reports that Ryan and Brady are now considering what they call the "candy option" (all the good stuff, but none of the costs).  In other words, a Reagan-style cut in rates with deficit spending. It's the Laffer Curve.  I don't see this as realistic in this environment.  Has no one noticed the Freedom Caucus?  Those folks won't deficit spend, so this seems like another dead letter to me.

At some point, Congress will wake up to the long suggested idea of cutting spending to go along with an adjustment in rates.  This is an old idea espoused by many, including in this space, and offers the best and most realistic chance to deliver on lower rates.  The high rates in this country are the root cause of dissatisfaction (and inversions).  So far, leadership cannot bring themselves to rally around this kind of realistic plan.

With midterms increasingly on everyone's mind, progress on such divisive and electorally explosive issues seems unlikely.  A coalition across the aisle seems inconceivable, and in the leadership vacuum that is the Republican Party today, even a Republican coalition seems out of the question.  So what's next?

Brady and Ryan seem intent to maintain the appearance of a functioning government so rumors swirl about pending Tax Policy subcommittee hearings, possibly in the next two weeks.  Everyone is vying to get a microphone.  Discussing these issues in the light of day would do some good. We are, after all, neighbors and no one has moral superiority in wanting a better outcome for America than anyone else.  We all want the home team to win.  Getting tax reform done right is important to all of us.  The employees, customers and suppliers of our company, Learning Resources, have a strong interest in it, too.  We are not simply "against" novel initiatives.  We are prepared to contribute to solutions - but the politicians must be willing to listen and to move in a more responsible and realistic direction.

Stay tuned!

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