While You Were Working - May 15

We aren’t in Kansas anymore … thankfully

The tax reform outline put out by the Trump administration a few weeks ago was adorable. (No, we will not call it a “tax reform plan”… maybe “tax aspirational bullet points”?) With that outline in mind, I found this analysis of Kansas quite fascinating. Kansas and its Republican Governor Sam Brownback began implementing many of the principles of Trump’s tax outline a handful of years ago. The results have been … well … not good.

“Campaigning for re-election in 2014, Brownback pledged his tax plans would add 100,000 new jobs over four years. By March this year, the state had added just 12,400 private-sector jobs. Kansas isn’t even keeping up with its neighbors. Hiring in Kansas increased by 0.3% in the last year; Missouri’s growth rate over that same period was 1.4%, according to the US Bureau of Labor Statistics.”

What is most poignant about The Guardian’s coverage is that it delves into the role LLCs play in both the tax plan in Kansas and Trump’s. Tax cuts are aimed at LLCs, also known as pass-through companies, to the extent that many of them pay no taxes. The theory is that if all those LLCs use their tax break to hire more employees, everybody wins. But in the real world, that pass-through plan only spurs individuals and companies with no intention of hiring to become LLCs so they can avoid paying taxes.

“At the time [Brownback proposed the plan], Kansas had about 190,000 LLCs. Now it has about 300,000, but so far they have not spurred a new hiring drive in the state.”

Do the math: A total of 300,000 LLCs freed from the shackles of paying taxes to support things like schools only mustered enough investment to create 12,400 new jobs. Ouch.

Has the Trump administration learned from the mistakes of Kansas? At the Milken Institute Global Conference earlier this month, Treasury Secretary Steven Mnuchin was asked point blank how Trump’s tax plan would deal with the “pass-through problem.” To his credit, Mnuchin acknowledged the problem, but then he proceeded to avoid answering the question.

For the article, The Guardian talked with Arthur Laffer, whose “Laffer curve” underpins the whole Reaganomics/supply-side and now Trump economic theory. But sometimes economic theories are just that … theories that sound plausible in a classroom somewhere. If Kansas is a real world Exhibit A, then maybe the “Laffer curve” is just a laugher.

Despite evidence to the contrary…

There are people who think the taxpayer protections put in place in the aftermath of the financial crisis, in the form of liquidity requirements, are not worth the trouble. I guess I must have missed all the crises that have happened since regulators imposed liquidity requirements on America’s biggest banks.

I particularly love the quaint argument that there is some poor entrepreneur somewhere who can’t start a business because banks can’t lend him or her the money. Well, banks have managed to pay a gazillion dollars in fines and experience multi-billion dollar blowups like the London Whale and still managed to bring in record profits.

And even if you buy the argument that liquidity requirements are harming banks’ ability to lend (even though bank lending has increased!), at what point do you recognize the benefits of the trade-off? It seems like a percent here or a percent there in growth is a small price to pay to avoid another crises.

Sign me up!

Goldman Sachs has released an in-depth analysis of the state of fintech in Brazil. It sounds like Brazil is ripe for disintermediation, but that is not what I love about the report. It turns out the report from Goldman Sachs is one of the first to cover the sector by “serious” analysts. How is that possible? With all the analysts at a major firm plugging away at their desks in New York City or dreary old London, how has it taken this long for someone to say, “Hey boss, I need to book a couple months-worth of travel to Rio because I want to do a deep dive analysis on fintech in Brazil.” Well, it turns out none of those analysts bothered to think that … the report was produced by locals.

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