An Analysis Of The OBBBA

Leading up to the congressional votes in both the House & Senate it was obvious that Trump had a vested interest in getting the One Big Beautiful Bill Act (OBBBA) signed into law.  Trump wasn't picky about what the OBBBA included as long as it permanently extended the individual income tax provisions of the Tax Cuts & Jobs Act (TCJA) that he signed into law on December 22, 2017 & kept his campaign promises of no tax on tips, overtime, or Social Security benefits.

The urgency of the matter was that the individual income tax rates were set to expire after December 31, 2025 which would have resulted in the tax code reverting back to the law pre-TCJA which would mean a $4.5 trillion income tax increase in 2026 which very well could have triggered a recession thereby effectively ending Trump's 2nd term presidency & marking Trump as a failed president - an idea Trump was very aware of according to his close personal friend Bill O'Reilly.

Trump worked the phones & called GOP elected reps to the White House so that the OBBBA wound up with only 5 Republicans in total voting against it - In the House: Thomas Massie (KY) & Brian Fitzpatrick (PA); & in the Senate Rand Paul (KY), Thom Tillis (NC), & Susan Collins (ME).  The vote was 218 to 214 in the House & 51 to 50 in the Senate with the Vice President needed to break the tie.  Every Democrat in both chambers voted against the OBBBA which could be interpreted to mean that they were fine with the $4.5 trillion income tax increase in 2026.

Massie & Paul voted against the OBBBA because it would increase the debt, inflation, federal spending, & interest rates while Fitzpatrick, Tillis, & Collins voted against the OBBBA because it would result in reductions to projected federal Medicaid funding they regarded as too deep - Medicaid funding actually increased under the OBBBA but the rate of growth slowed.  In Washington this is regarded as a cut even though actual funding increases.  Almost nothing is ever actually cut in Washington & this is why the national debt keeps increasing.  The OBBBA, with Republicans holding the House, Senate, & presidency gave us a chance to do better. 

Like many, if not most of the major laws passed in the past 45 years the OBBBA was passed under a special legislative process known as reconciliation which expedites legislation limited to the fiscal budget - i.e., tax, spending, & the debt limit.  Reconciliation was created by the Congressional Budget Act of 1974.  President Reagan's two major tax & spending bills (The Economic Recovery Tax Act of 1981 & the Tax Reform Act of 1986) as well as Trump's TCJA of 2017 were passed using reconciliation.  More recently Biden's American Rescue Plan Act of 2021 & the Inflation Reduction Act of 2022 were passed under reconciliation.

The reconciliation process starts with the House & Senate initiating instructions (reconciliation directives) in a jointly agreed upon budget resolution that sets overall spending & revenue targets from which lawmakers work in finalizing appropriations & revenue legislation that is specifically intended to change existing law to align spending & revenue levels with the targets outlined in the budget resolution.

Under reconciliation the House & Senate must agree on a joint bill & there is no filibustering in the Senate & no changes to Social Security are allowed.  Amendments are limited in scope with the Senate parliamentarian ruling on the appropriateness of amendments.  All of this streamlines budgetary matters from standard congressional procedures.

The budget resolution set a $2 trillion minimum deficit reduction target for mandatory spending cuts over the ten years, 2025 through 2034, while maximizing tax cuts to $4.5 trillion over the same ten year period.  The time frame specified in the budget resolution for the OBBBA is ten years, often referred to as the budget window.  Very important, under reconciliation rules the budget targets adopted in the reconciliation process cannot intentionally increase the deficit beyond the ten year budget window - this rule played a big role in passing the TCJA in 2017 & the OBBBA.

The above provides the background for the process that produced the OBBBA.  Below are some specifics of the final bill that are enlightening.

1.  Medicaid reductions - not actual cuts in total spending but reductions slowing the rate of growth

The OBBBA did reduce the rate of growth of Medicaid by $1 trillion over the next ten years.  The problem is that Medicaid was scheduled to increase by more than $1 trillion over this period so in the end the program continues to grow.  This is a part of the OBBBA that Thomas Massie, Rand Paul, & I have a problem with.  But neither the congressman or senator's votes or my opinion was able to stop the OBBBA from passing.  

Under the OBBBA federal Medicaid spending is scheduled to increase by 26% from 2025 levels which equates to a 15% reduction compared to what was previously projected for 2034.  See graphic below.

click on graphic to enlarge

The budget directive to the House Energy & Commerce committee to cut $880 billion over ten years was the catalyst that led to $1 trillion being cut from Medicaid's projected federal spending from 2025 to 2034 despite Trump's promises to never cut Medicaid & threat to veto the OBBBA if Congress did.  No matter how hard Democrats protested over the months prior to the passing of the OBBBA, Republicans & conservative pundits on TV said they would not cut Medicaid despite it being obvious that no other program but Medicaid was large enough to meet the budget directive's target for the House E&C committee who has sole jurisdiction over Medicaid. 

The biggest reduction to Medicaid's projected federal spending comes from almost 9 million able bodied people 19 to 64 who are eligible for Medicaid through the ObamaCare expansion losing coverage for failure to meet work requirements (exemptions for those with dependent children & medical conditions).  People in this category will have to prove their incomes are below state thresholds semiannually rather than annually, plus prove they have spent 80 hours a month working, volunteering, or attending school.  Does this seem too much to ask?  Similar requirements pertain to receiving food stamps - people in the lowest income decile stand to lose food stamps.  

Another big reduction to Medicaid's projected federal spending involves restricting the cash flow gimmick that states & hospitals use in gaming the system.  States charge hospitals provider taxes.  Once this tax money is received the state can use these same funds to increase Medicaid payments to the hospitals thereby reimbursing the hospitals for paying the provider tax.  The states' Medicaid payments that use the provider tax adds to the states' costs that generate federal matching funds that end up with the hospitals receiving back more money than they paid in provider taxes.  A sorry exercise for the real taxpayers.

Democrats plan on making cuts (not reductions to projected federal spending) to Medicaid in the OBBBA one of the main issues of the 2026 midterms.  See below for how Republicans should counter these claims. 

Medicaid should completely be a state function with no federal involvement.

2.  Reinstatement of the SALT (State & Local Tax) deduction

The reinstatement of the SALT deduction in the OBBBA after it was severely restricted in the TCJA of 2017 is the most inexplicable part of the OBBBA based on the merits.  But Trump wanted it included for political reasons - to help the reelection of blue state GOP congressmen who think it behooves them to have states where they're from like New York & New Jersey receive federal tax money from people in Tennessee & Florida to help pay for the high NY & NJ state & local taxes that used to be 100% deductible prior to the TCJA.  The OBBBA reinstates what are actually subsidies from well run states to states like NY, NJ, & CA.  High tax blue states had no incentive @ all to control state spending until the TCJA & even then states found workarounds for some, but not all, people.  With the OBBBA the door has @ least been put ajar.  And who thinks this issue will help GOP congressmen win reelection in NY or NJ?

The OBBBA allows SALT deductions this year of up to $40,000 per income tax return, not per person, so it starts with a marriage penalty for couples who file joint returns.  The SALT deduction lapses in 2029 & has a phase out that begins @ an annual modified adjusted gross income (MAGI) of $500,000 & reverts back to the current TCJA SALT limit of $10,000 once MAGI reaches $600,000 so it is a boon to people making several hundred thousand dollars per year who have property tax & state income tax (or state sales tax) that total $40,000.  It is no benefit for people with MAGI of more than $600,000 per return in 2025.  To use the SALT deduction you have to itemise deductions on Schedule A so you have to compare the SALT deduction benefit to using the quite generous indexed to inflation standard deduction that has to be exceeded for any of this to be beneficial.  Both the $40,000 cap & the $500,000 & $600,000 income thresholds increase 1% each year from 2026 through 2029 before the cap resets to $10,000 starting in 2030. 

In addition, taxpayers are required to check the interplay between the Alternative Minimum Tax (AMT) parallel income tax system with the SALT deductions under the OBBBA & pay the higher tax prompting Steve Moore, decades ago, to call the AMT the MMT for Mandatory Maximum Tax.    Since the new increased SALT deduction could lead to some people having significant incomes with small tax liabilities, more people could be subject to the AMT.

Accordingly, for all the reasons given above, the increased SALT deduction may be a disappointment to many well off taxpayers.

The SALT deduction should be zero.

3.  No tax on tips, overtime, Social Security, & car loans

What the OBBBA provides is a far cry from Trump's absolute statement that there will be no tax on tips, overtime, & Social Security.  Under the OBBBA there is no general elimination of taxes on tips, overtime, or Social Security - tips & overtime are still considered taxable income subject to federal income taxes as well as payroll taxes of Social Security & Medicare.  The OBBBA provides deductions for both qualified tip & overtime income.  Social Security cannot be changed by reconciliation so a special senior deduction is available for qualified taxpayers.  These topics are ripe for disappointment because they come with significant limitations.

No tax on tips, overtime, & Social Security are taken right out of Death Of Democracy principles regarding buying votes by Trump, namely, voters effectively voting themselves seemingly generous gifts from the public treasury by voting for the candidate who promises the most benefits.  

Favoring tips, overtime, & Social Security from taxes through special deductions benefits certain targeted groups.  None of this is pro-growth in that each erodes tax fairness (why should a janitor or truck driver making the same income as a tipped worker be taxed @ a different rate or someone working overtime pay less tax than a salaried worker logging in the same number of hours?), jeopardizing government revenue (Social Security trust funds are depleted faster), & distorting labor markets & benefit programs (incentivizing employers to rely on tipped workers or overtime leading to lower base wages & a tipping economy where, for example, consumers tip cashiers for handing the consumer a bag @ a takeout restaurant).  Also, many tipped workers already pay little or no federal income tax due to low earnings so no tax on tips would have limited benefits for these people in the first place.

The tip deduction isn't for all workers & is limited to $25,000 per person for tax years 2025 through 2028 for tipped income that qualifies, defined as voluntarily paid by the customer who determines the amount, & which are received in occupations that customarily receive tips on or before December 31, 2024.  The tip deduction starts to phase out with MAGI of $150,000 ($300,000 if married filing jointly) @ a rate of $100 per $1,000 of income above these limits.  To claim the tip deduction workers are required to report their tips as income & pay payroll taxes throughout the year.  How to claim the deduction will be in the line by line instructions for Form 1040.

The overtime deduction runs from 2025 through 2028 & is capped annually @ $12,500 per individual & $25,000 for joint filers with a phase out range of $150,000 to $275,000 for single filers & $300,000 to $550,000 for joint filers.  An example best shows how the overtime deduction works: if you work M-F eight hours each day & then work 8 hours on Saturday making time & a half you can deduct the half portion of Saturday's pay meaning Trump would have been clearer saying no income tax on the premium portion of overtime pay.  To be eligible for the deduction the overtime must be paid as required by the Fair Labor Standards Act which applies to employees working 40 hours per week.  Withholding will not change in 2025 so people who qualify will receive credit for overtime pay which in turn could lead to a refund next April.

The OBBBA does not eliminate income taxes on Social Security - for tax years 2025 through 2028 it offers a new senior deduction of $6,000 for single filers & $12,000 for joint filers for people 65 & over.  These deductions phase out starting @ a MAGI of $75,000 for single filers & $150,000 for joint filers but here again comes a marriage penalty - the deduction is phased out @ a MAGI of $175,000 for single filers & $250,000 for joint filers.  Without the marriage penalty the joint filers deduction would extend to $350,000.

The new senior deduction reduces taxable income including Social Security benefits subject to taxation, but it does not exempt those benefits which still come under the specific line rules of the Form 1040 instructions.

Currently nine states tax Social Security benefits - Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, & West Virginia.  The OBBBA does not affect these state taxes.

From 2025 through 2028 there is an annual $10,000 taxable income deduction for interest paid on the purchase of new passenger autos for personal use if final assembly was in the U.S.  This deduction phases out between $100,000 to $150,000 of MAGI for single filers & $200,000 to $250,000 of MAGI for joint filers.  If the vehicle weighs less than 14,000 pounds there is a good chance it qualifies but check all the rules with the dealer before purchase.  Most imported cars subject to the new 25% tariff won't meet the U.S. assembly requirement making such vehicles ineligible for the deduction.

4.  Debt & Deficits 

The TCJA of 2017 was passed under a reconciliation budget window of ten years but because the individual income tax provisions of the TCJA increased the debt if they were in place for more than eight years the individual income tax provisions were designed to expire (sunset) after December 31, 2025.  Senate reconciliation rules do not allow the debt to increase outside of the budget window.  It was well known that the individual income tax provisions of the TCJA were temporary & that this matter would require attention in 2025.  If the individual income tax provisions of the TCJA were not extended it was clearly understood that the tax code would revert to its pre-TCJA rates for individuals after 2025 (i.e., under the current law baseline) meaning a $4.5 trillion tax increase for 2026.  Since Trump thought in 2017 that he would be out of office after 2024 this matter only became important to him after being reelected.

In passing the OBBBA last month Republicans resorted to budget deficit gimmickry by changing the basis of the analysis to a current policy baseline instead of the current law baseline that was used to sunset the individual income tax provisions of the TCJA after 2025.  Under the current policy approach Republicans claimed extending expiring individual provision tax cuts would reduce the deficit by $500 billion which is very disingenuous regarding the way the individual provision tax cuts were passed to begin with.  If the tax cuts are extended beyond 2025 the $4.5 trillion in revenue is never realized thereby resulting in a deficit hole that must be closed through spending cuts per the reconciliation process - & of course Republicans are no more capable of reducing spending than Democrats.

In this case an honest gimmick-free attempt to pass the OBBBA would have found $3.3 trillion more in spending cuts over the ten year reconciliation budget window ($3.3 T is the amount of additional spending cuts that would result in the OBBBA having more spending cuts than tax cuts) which would have allowed the bill to pass without chicanery.   It is this chicanery that only Congressman Massie & Senator Paul stood up to.

The national debt held by the public was already projected to be over $50 trillion by 2034 & the OBBBA doesn't cut into this but adds to it.  Rand Paul asked why does the OBBBA increase the debt ceiling by $5 trillion if Congress claims the bill will reduce the debt?  This turned him & Thomas Massie off from the beginning.

During the legislative process Republicans faced two choices: 1) voting against the OBBBA & having Trump find a primary challenger to run against the disloyal Member in the 2026 midterms, or 2) voting for the bill & chance losing the 2026 midterm election anyway.  At one point the OBBBA passed the House by one vote with Freedom Caucus President Andy Harris having the chance to make the entire process restart by voting "No" but instead he voted "Present" & the bill continued.  No leadership by any except Trump.

Poll after poll shows the OBBBA to be unpopular - because the hostile anti-American media continues to present the bill as throwing poor people off of Medicaid in order to give tax cuts to Republican billionaires.  In the runup to the 2026 midterms expect Democrats to present a handful of people with gut wrenching stories who have been thrown off of Medicaid & are devastated by the work requirements described above.  The insidious feature of the OBBBA that has the Medicaid spending reductions go into effect after the 2026 midterms while the tax cuts are retroactive to January 1 will only help portray the Republicans as weasels. And of course Dems will milk the tax cuts for the wealthy for all its worth juxtaposing billionaires with tax cuts against poor people thrown off  Medicaid.  The American people will empathise with those thrown off Medicaid & Republican politicians will shrink from the debate.  

Disgustingly, you can @ best expect Republicans to offer pitiful responses to these charges, never mentioning the number of able-bodied people collecting Medicaid, that Medicaid spending actually increases under the OBBBA (see graphic above), or  that Medicaid began as a state welfare program sixty years ago almost to the date of this post & now covers nearly 100,000 million Americans (more than one in four) & that the OBBBA gave us the best chance ever to return Medicaid to being a state only program thereby eliminating one of the three large federal entitlement liabilities that threaten the country's well being.

Republicans will shy away from saying that the bottom 70% of taxpayers don't receive large tax cuts because they don't pay much in taxes to begin with.  It is too much to expect that defensive Republicans could explain supply-side economic principles: namely, that the reduction in the size of government & its claims on earned income is what fuels economic growth, & hence our standard of living, when coupled with sound-money policies & lower marginal tax rates for the highest income earners who are the job creators.

If we can't win with these arguments we have lost anyway.  That we can only find two out of five hundred thirty five elected politicians to make these arguments is even worse.

Congress & the president (either of the last two) keep spending @ record levels.  Fiscal year 2025 outlays were projected to be 58% greater than the pre-pandemic levels of FY 2019 based on May 2025 data.  It was necessary to pass the OBBBA permanently extending the TCJA individual income tax provisions but unnecessary to include all the gingerbread described hereinbefore, especially using the budget gimmickry of changing baselines when Congress found themselves right back in the same exact spot of December 2017 - namely, how to account for the deficit caused by the TCJA going into 2026.

What We Need To Know & Understand About Tariffs & Their Effects On Our Lives & Country

A tariff is a tax levied on a product when it crosses national boundaries.  Accordingly, tariffs are antigrowth in that someone has to pay this added tax cost - either the manufacturer, the exporter, the importer, the retailer, or the consumer, but most of the tariff is paid by the consumer because the other four parties cannot stay in business long if they are forced to absorb the additional deadweight loss of the tariff.

This post shows the impact tariffs have on prices, competitiveness, costs, jobs, currencies, the trade deficit (imports of goods & services are greater than exports or we buy more than we sell), the budget deficit (government's spending exceeds its revenue typically for a fiscal year), savings (the portion of disposable income not spent on consumption), & surplus savings (the excess money left over after all expenses & debts have been paid).

During the period 1500 to 1800 mercantilists sought to promote their own interests by invoking high tariff protectionist barriers on imports & relying on net payments from the rest of the world in the form of gold & silver to pay for their exports.  This protectionist strategy was carried to the extreme when mercantilists followed the "beggar thy neighbor" policy in which the tariff imposing country's economic gain was thought to only be achieved by making other countries poorer.  The idea was that earning & hoarding trade money was where the wealth was rather than in enjoying & using the material goods & services that made life easier.  Even though this theory had been proven to be wrong, many countries during the Great Depression adopted beggar thy neighbor policies leading to a collapse of international trade.  Today mercantilist policies like Trump's don't look to hoard gold & silver like in the earlier period - their beggar thy neighbor policy emphasizes the growth of the domestic worker labor force @ the expense of foreign countries.  This post also addresses the problem with this.

When the Constitution took effect in 1789 with the unanimous electoral college victory of George Washington as President & the Senate's unanimous confirmation of Alexander Hamilton as Treasury Secretary in literally "just minutes" Hamilton's work of establishing the nation's financial system began.  Hamilton's first report to Congress concerned government expenses & the need for strong national credit.

To pay for government expenses including the debt incurred financing the Revolutionary War Hamilton prepared a schedule of tariffs & excise taxes on such commodities as alcohol, carriages, sugar, & tobacco.  These were the only sources of revenue in 1789 (90% came from tariffs) - but this tax system did follow supply-side economic principles that fuel economic growth in that both government expenses & taxes were kept low thereby minimizing government's claims on earned income with the country working under the sound money policy of the Gold Standard.  The Tariff Act Of 1789 was the first national source of revenue for the United States passed by Congress - it taxed imports to America @ 5% to 15%.

Tariffs can be used to 1) raise revenue, 2) protect domestic industries from foreign competition, & 3) make reciprocal agreements between nations to lower tariffs when they have gotten totally out of hand.  Hamilton's purpose was solely to raise revenue because other than shipbuilding there was little domestic industry to protect, & American tariffs were so low there was nothing to negotiate with other countries (i.e., 2 & 3 above did not apply to America in 1789).  The use of tariffs to raise revenue spanned the years 1789 to 1861 (start of the Civil War) followed by the period of the Civil War to the Great Depression that used tariffs to restrict imports to protect domestic producers.  The reciprocal agreements use of tariffs followed the Great Depression & includes such things as the North American Free Trade Agreement (NAFTA) & its successor the United States-Mexico-Canada Agreement (USMCA) as well as the World Trade Organization (WTO) founded on January 1, 1995 being evolved from the General Agreement on Tariffs & Trade that had been established in 1947 in Geneva when 23 countries met & recognized how counterproductive the trade & tariff policies of the 1930s had been.

Budget deficits (i.e., debt) are used to move production ahead which is most beneficial to countries in times of war (through the selling of bonds to pay for the cost of the war) & to people in buying a house through the terms of a mortgage.  Check out the following graphic (the curve traces debt as a % of GDP) that shows Hamilton's intention to pay down the initial debt thereby establishing excellent credit for the new nation.  All of the Founders followed suit & the graphic below shows that following the plan of James Monroe (our best president), in 1835 the national debt was extinguished in absolute dollar terms, not just as a % of GDP, for the one & only time in the nation's history or for that matter the only time in world history that a major country was without interest paying debt.  America lost its top-tier triple-A credit rating first in 2011 by S&P, then by Fitch in 2023, & finally by Moody's on May 16, 2025.  Our Founders would be very sad. 

click on graphic to enlarge

After the War of 1812 industry increased very rapidly in the North, & northern voters began to lobby Congress for higher tariffs to protect their industries & manufacturing jobs.   The South remained almost entirely agricultural & southern voters preferred low tariffs to keep the cost of their imports down.  See graphic below (click on it to enlarge) that shows the U.S. Average Tariff Rates (1821 - 2016).

In the northern states industries became ever more efficient in their use of labor so that productivity (output per man hour) increased leading to economic growth & higher standards of living.  Accordingly, tariff protection became less necessary & tariffs trended down until the start of the Civil War.  This 30 year period of decreasing tariffs was one of high economic growth. 

Following the Civil War there was another strong demand to return to protective tariffs to ward off foreign competition eliminating American jobs & to pay down the enormous war debt.  Accordingly, tariffs stayed elevated for the next 40 years.  But tariffs are a regressive tax that affects the poor the most (i.e., their first dollar is taxed buying necessities) & by 1900 the poor got relief by the lowering of tariffs from above 50% in 1900 to under 20% by 1920.

The "roaring twenties" roared for the American economy but not the agricultural sector which had been very prosperous during World War I but weakened when European farmhands, who had been soldiers during the war, returned to farming after the war thereby raising the worldwide food supply.  A severe Midwest drought exacerbated a declining agricultural sector & rural banks failed @ a rate of 500 per year during the 1920s.  Mechanical technology advancements in automobiles & tractors also helped increase the food supply, sending farmers' prices even lower.

Once again protective tariffs were thought to be the answer to the farmers' problems.  But before President Herbert Hoover (presidents were inaugurated in March in those days) could work out tariff details with Congress the stock market crashed & the economy was moving into a recession.  Over the course of four business days - Black Thursday (October 24) through Black Tuesday (October 29) - the DJIA dropped 25% from 305.85 to 230.07.

The causes of the stock market crash were many - the farmers' price & supply problem itself as well as overinflated shares, growing bank loans, panic selling (note that nobody really jumped out of windows of tall buildings), stocks purchased on margin, higher interest rates (always the adversary of the stock market), & a negative media industry.  (The DJIA hit its bottom on July 8, 1932 just a few days after FDR won the Democrat primary on an anti-tariff platform.  The DJIA had dropped from its high of 381 in September, 1929 to 41 in July, 1932.)

The 1929 stock market crash in turn caused virtually every industry & entire economic sectors, not just agricultural, to call for protective tariffs & on June 17, 1930 Hoover signed the Smoot-Hawley Tariff Act into law that dramatically raised tariffs on 20,000 imported goods with the highest tariffs on imported agricultural products.

Both the farmers' problems & stock market crash described above were the start of an economic downturn that was exacerbated into the Great Depression by the enactment of the Smoot-Hawley tariffs coupled with the high reciprocal tariffs imposed by foreign countries plus the woeful mishandling of monetary matters by the Federal Reserve System that had only come into existence in 1913.  Another negative was Hoover, trying to balance the budget, signing the Revenue Act of 1932 that raised the top individual income tax rate from 25% to 63% while broadening the base, & raised the estate tax from 20% to 45%, & the corporate income tax from 12 to 13.75%.  The resulting Depression proved that a government cannot tax or tariff its way to prosperity. 

In response to Smoot-Hawley foreign countries reciprocated with their own high tariffs & world trade collapsed falling 67% by 1932 while American exports fell 78% during this same time.   See graphic below - click on it to enlarge.

Professor Friedman determined that from July 1929 to March 1933 that the money stock fell by one third & that two thirds of that decline came after England went off the gold standard in September 1931 (an act that preceded & followed gold withdrawals from the U.S.).  After more than two years of economic contraction starting in 1929 the Fed raised the discount rate - the rate it charges to Member banks - to arrest the gold drain.  Money income declined by over half & prices by over one third during this period meaning that even with price deflation there was a real decline in purchasing power for many workers - which in turn caused companies to produce less, raising the unemployment level.  Thanks to the trade war foreign countries were having similar problems & could not bail America out by buying our products even @ these reduced prices.  Unemployment in America reached 24.9% (12,830,000 people) @ its peak in 1933 meaning a large portion of the workforce had no income @ all.  By 1940 the unemployment rate was still 14.6% - what a period of misery.  See graphic below - click on it to enlarge.

I calculate that relative to July 1929 that prices stayed in a deflationary state until March-April 1943.

So what ended the great depression?  One thing for sure, it was not World War ll.  To produce wealth a country needs to make things of value.  At the end of the war there was nothing but destruction for much of the world & the United States was @ a record debt level.  See graphic below - click on it to enlarge.

Following the Japanese surprise military strikes on the U.S. naval base @ Pearl Harbor on Oahu, Hawaii in 1941 defense spending (i.e. government spending) tripled in 1942 & the U3 unemployment rate fell from 9.9% in 1941 to 4.7% in 1942.  It stayed below 2% throughout the war.  But America was not in a jobs program that you would find in a normal free market economy - we were in an all-out wartime economy that was being financed by the tremendous debt shown on the graphic above.  Had we continued in the same way as before the war we would have gone back to the misery of the 14.6% unemployment rate of 1940 but now even worse we would have been in debt up to our eyeballs.

The Great Depression ended by reversing the man-made economic mistakes of 1929 to 1933.  Please look @ the above graphic showing the historical U.S. average tariff rates.  Following the high Smoot Hawley tariffs in 1930 the tariffs on dutiable imports had dropped from near 60% in 1930 to just over 30% by 1942 & to 13% by 1950.  Following a one third contraction during the worst years of the Depression the Fed increased the money supply from $31 billion in 1933 to 70 billion in 1942.  See graphic below.

click on graphic to enlarge

Following the war the federal government reduced government spending from its peak in 1944 by 75% by 1948 thereby bringing federal spending to 8.9% of GNP in 1948 from 44% of GNP in 1944.  With government spending reduced, investors had more savings & surplus savings to put into peacetime production industries & consumer goods factories resulting in private investment increasing by 28.6% by 1946.  As America shifted from a wartime economy of rationing & restrictions to a peacetime production economy Americans were eager to purchase consumer goods using either money they had earned & saved from their deficit financed wartime employment or establishing their own credit.  Between 1945 & 1949 Americans purchased 20 million refrigerators, 21.4 million cars, & 5.5 million stoves - a period of tremendous personal consumption growth.  Americans were now back in the ball game of living.

This period of economic growth has now extended about 80 years from the 1940s to today.  Robert Rector of the Heritage Foundation sums up America's standing in the world as follows: "Current poverty has little resemblance to poverty 50 years ago. According to a variety of government sources, including census data and surveys by federal agencies, the typical American living below the poverty level in 2013 lives in a house or apartment that is in good repair, equipped with air conditioning and cable TV. His home is larger than the home of the average non-poor French, German or English man. He has a car, multiple color TVs and a DVD player. More than half the poor have computers and a third have wide, flat-screen TVs. The overwhelming majority of poor Americans are not undernourished and did not suffer from hunger for even one day of the previous year."

So much of our misery started in 1913 with both the enactment of the income tax system & the creation of the Fed.  Long time readers of this blog know that I would like to replace the income tax system with the FairTax plan & have the Fed adopt a market-based approach for setting interest rates - i.e., The Fed should allow interest rates to be determined by supply & demand market forces rather than through their direct intervention & control.  Currently the Fed sets interest rates that really is a form of price control that impedes the natural price discovery in the market.  I am for a return to the Gold Standard & the sound money it ensures.  And like Professor Friedman taught, a country that sets high tariffs only gets poorer - if someone is willing to sell you something cheaper than you can make it yourself buy it with the most stable dollar possible.  Following these points would have avoided the Great Depression as well as much of our problems the past 96 years.

One of the main takeaways hereinbefore is that tariffs coupled with possible foreign country retaliatory tariffs are dangerous - @ a minimum tariffs exacerbated an economic downturn into the Great Depression.  Congress is irresponsibly & unconstitutionally letting Trump play with fire by imposing tariffs on virtually every country in the world for dubious & suspect reasons - an unchecked power never authorized to any one man by the Constitution.  A president does not have the unilateral authority to impose the volume of tariffs Trump is considering based on arbitrary & controversial interpretations of laws that he is relying on like the International Emergency Economic Powers Act of 1977 (IEEPA) that allows the president to impose sanctions, embargoes, & other economic measures to address threats to national security during a declared emergency.  Trump has abused this limited authority under IEEPA by imposing reciprocal tariffs on a wide range of imports because he thinks both allies & enemies participate in perceived unfair trade practices that result in trade deficits - yet America has run trade deficits for the past 50 consecutive years while becoming the wealthiest country in the history of the world.  What emergency?  The Court of International Trade (CIT) has struck down many of Trump's tariffs, seeing them as an unconstitutional stretch that the law never intended.  The CIT decisions were stayed pending Trump's appeal to the Supreme Court - if the CIT rulings are ultimately upheld, importers have a strong claim for refunds for tariff duties paid under the IEEPA-based tariffs.

See graphic below of tariff schedule Trump presented on what he termed "Liberation Day," April 2, 2025.

click on graphic to enlarge

Upon presentation of the above graphics on April 2 the S&P 500 fell 19% (within 1% of the definition of a bear market) from its previous high in February to its 2025 low on April 8.  Similar moves with the DJIA & the NASDAQ were registered.  All of the indexes recovered every time Trump paused the tariffs or reduced some of them to the point that the markets believed that Trump would not go ahead with them.  The Financial Times' columnist Robert Armstrong referred to this observation as TACO meaning "Trump Always Chickens Out."  The idea is that Trump will back off when his tariffs cause the American people pain either through higher consumer prices or lower 401(k)s.

On again, off again, on again tariffs include products like cars, chemicals, pharmaceuticals, machinery, steel imports (25% of U.S. steel consumption is imported) & aluminum imports (50% of aluminum consumption is imported).  Note from the above graphic that some of the poorest countries in the world have the highest tariffs on imports - Vietnam 90%, Cambodia 97%, Laos 95%, Madagascar 93%, Sri Lanka 88%, Burma 88%, & all @ 74% Bangladesh, Serbia, & Botswana.  Conversely, for the past 75 years the U.S. has had some of the world's lowest tariffs while simultaneously being the top-ranked global economy.  Trump has an enduring belief that even poor countries rip us off - like Guatemala with a $6,000 per capita GDP & duty free exports of bananas, coffee, & T-shirts will now be charged a 10% tariff.  We're not just fooling around with bananas & coffee but with peanuts & all the aggravation that comes with it.

The above table shows Trump plans a 46% tariff for Vietnam imports to America to balance trade between the two countries.  Vietnam has an annual real GDP per capita of $4,000 in 2023 dollars.  The average hourly wage is less than $2 per hour & the minimum wage is less than $1 per hour.  Just what of any significance does Trump think Vietnam is going to buy from us?

In 2018 Trump provided two narrow illustrative examples of the effects of foisting tariffs when he imposed a 25% tariff on steel & a 20% to 50% tariff on washing machines.

In the case of the steel tariffs of 2018 there was an increase of 8,700 jobs in the U.S. steel industry accompanied by higher wages in the metals industry.  But there was a loss of 75,000 jobs in the downstream manufacturing industries that used steel as a raw material in their production processes as these industries became less competitive due to higher costs - steel prices increased nearly 9% costing the steel users in downstream industries $5.6 billion.  The Peterson Institute for Applied Economics calculates that each steel job created cost $650,000. 

In the case of the washing machine tariffs of 2018 Trump, @ the request of Whirlpool who was looking for protection from foreign competition, imposed a 20% tariff on the first 1.2 million foreign washing machines & 50% on subsequent imports the first year with gradual reductions the next two years (18/45% & 16/40% respectively).  The tariffs resulted in the creation of about 1,800 jobs, mostly @ Whirlpool's facility in Ohio & new factories built by Samsung in South Carolina & LG in Tennessee.  But the tariffs increased consumer costs by about 12% ($86 to $92 per machine, sometimes including dryers which were sold as a pair by some dealers) that totaled $1.5 billion annually.  Tariff revenues to the Treasury came to $82 million.  The American Enterprise Institute (AEI) calculates that each appliance job created cost the American consumer $820,000 or 19 times the average pay of U.S. manufacturing workers.

Note that the tariffs on washing machines led to higher prices for both imported & domestic washing machines, i.e., it didn't matter where the machines were made, prices increased as the competition was eliminated - a feature of tariffs that is true for all products & services.  It is only natural for the protected industry to raise their prices to @ least just below the tariff rate.  This is the anticompetitive feature of tariffs - once the foreign competition is removed domestic prices go up.

AEI presented the table below based on the work of Gary Clyde Hufbauer of the Peterson Institute that provides a more comprehensive summary of 26 different case studies of trade protection in the U.S. that all confirmed the results of the steel & washing machine examples detailed above.  The average annual cost to consumers per job saved in the table below was over $500,000 in 2016 dollars.  In addition, a study by Scott Lincicome of the libertarian Cato Institute found that the average annual cost to American consumers per job saved or created by tariffs from 1950 to 1990 was nearly $810,000 in 2025 dollars.

click on table to enlarge

In addition to the above please recall Trump's first foray in his first term into an agricultural products trade war that resulted in more than $27 billion in losses of agricultural exports in which China started buying more soybeans from Brazil.  Trump reimbursed farmers $23 billion but farmers have yet to regain their market share.

So with America's terrible experience with tariffs what are we doing toying with them again.  

Trump's reasoning is conflicted - he says his tariffs will generate enough revenue to replace the income tax but tariffs were used most effectively before there was an income tax system & the federal government was much smaller than today's (in 1900 the total federal budget was about 2% of GDP & today's budget deficit is between 2 & 3 times as big as the entire budget was then); next he says that high tariffs will protect American workers meaning that revenue from tariffs will decrease thereby thwarting the income tax replacement idea; & finally he says he is using tariffs only as a negotiating tool to get foreigners to lower their tariffs which could have just the opposite effect like it did in the 1930s.

Note that Trump is using tariffs for more than trying to balance trade matters - the most recent case in point is Trump threatening Brazil with 50% tariffs if it doesn't stop the trial of former president Jair Bolsonaro.  Other non-trade tariff threats have been made against Columbia, Canada, Mexico, China, Japan, South Korea, & countries that buy oil from Venezuela.  In the case of Brazil the United States runs a $7 billion trade surplus.

But do we want these manufacturing jobs returning to America in the first place?  These jobs represent our past, not our future.  Call center jobs are done in the Philippines, Jamaica, & India.  The buggy whip business is extinct other than in Amish country. 

The purpose of Industrial Engineers & time study experts is to simplify & streamline manufacturing processes so that productivity increases are realized that result in real wage gains for employees who add value to their jobs & companies so that real GDP per capita - currently $68,833 in 2017 dollars, a good measure of our standard of living - can keep increasing.  

To understand how value producing jobs are created, think of the world economy as a ladder - a metaphor presented to me several years ago by Professor Robert Carbaugh of Central Washington University.  The U.S. is currently on the top rung & developing nations with low tech labor intensive jobs are on the bottom rungs. The other countries are in between.  All countries try to climb to the next rung. This works well if the topmost countries create new industries & products, thus adding another rung to the ladder like when we replaced horse drawn carriages that used buggy whips with cars.  Older industries can move overseas while new jobs are generated @ home.  It is when innovation stalls @ the highest rung that the portion of Americans near the bottom of the income distribution must compete with workers in developing countries. This is what many of the people - the unemployed & underemployed, the discouraged, & the marginally attached to the labor force - are facing today being  poorly educated with skills so limited that no employer can use them.  It is only through constant brainwashing that the government will take care of you that would allow someone to become so ill-prepared to support themselves that they are now competing with third world people who make pennies a day.

But who is going to do these manufacturing jobs?  Where will the people come from?  Forty-three percent of U.S. manufacturers can't find people to fill existing job openings now according to the results of the National Federation of Independent Business Questionnaire.  It is not the dream job of American youth to work in a factory or field - only 8% of American workers are now employed in manufacturing, down from 22% in 1975 when it was far less efficient & much less mechanized.  I have presented several posts the past few years detailing the worker shortages, both current & future, in America in fields like medical, pharmacy, accounting, & engineering - now add shortages of manufacturing workers to the list.  Mass deportations of employed illegal immigrants does not help the shortage - but that's another matter.  And on a very personal note - our local pool closed one day over the Independence Day holiday weekend because there was a shortage of lifeguards.  We are not returning to excellence - we are coasting uphill after losing much of our prior momentum.

Right in line with worker shortages, is the fact that the trade deficit is the result of Americans consuming more than they produce.  Since our consumption exceeds our available funds a need for foreign capital is created. 

Just as the sound wave of thunder is always produced following the rapid expansion of air due to lightning's intense heat, a trade deficit always has a flip side known as a capital surplus.  Just as lightning is the event & thunder is the consequence a trade deficit is the event & the capital surplus is a natural consequence.

If America has a trade deficit our trading partners have a capital surplus meaning they have in their possession the dollars used by American importers to buy the foreign currency needed to complete the trade transaction.   When our foreign trading partners buy American assets (stocks, bonds, treasuries, or real estate) they are effectively financing our trade deficit.  If trade was balanced between the two trading partners the dollars would be regarded as the money the foreigner earned to buy American products if they existed, & since they don't exist there is a trade deficit.

There are many variables that go into complex calculations to see the effects on international trading such as savings rate of a country, budget deficits, interest rates, & currency fluctuations (e.g., when America imposes tariffs the dollar gets stronger because America buying fewer  foreign goods reduces demand for that foreign currency which in turn makes American exports priced in dollars more expensive.)

In summary, tariffs are additional costs of doing business that have to be paid once imposed.  Most of this burden falls on the consumer.  Trump says he is imposing tariffs for national security-emergency reasons using far fetched interpretations of laws meant for specific limited purposes - not to remake the wealthiest economy in world history.  It was only after reducing tariff rates to the lowest in the world, starting in the 1940s, did America's superior wealth status really come about.

Instead of imposing reciprocal tariffs on our trading partners & inflicting harm on our consumers, America should refrain from imposing tariffs & concentrate on importing those goods & services in which it has an absolute &/or comparative cost disadvantage & exporting those goods & services in which it has an absolute &/or comparative cost advantage.

Thomas Sowell explained on page 349 of his classic book Basic Economics that "International trade is not a zero-sum contest between nations, but a wide array of voluntary transactions between individuals living in different countries, who must all gain if these transactions are to continue.  International trade is just one more way of getting more output from scarce resources which have alternative uses."

 

Inspirational Quotes That Provide Practical Value

Several blogs & e-newsletters that I subscribe to include quotes for the day that are quite often timely & worthwhile.  Most of the people being quoted actually lived up to what they said.  I have a long list & will present some from time to time.  Below is the first set of five.

1.  "Somebody once said we never know what is enough until we know what's more than enough." - Billie Holiday

2.  "Most folks are about as happy as they make up their minds to be." - Abraham Lincoln

3.  "Just because they say it's impossible doesn't mean you can't do it." - Roger Bannister

4.  "Failure will never stand in the way of success if you learn from it." - Hank Aaron

5.  "Perfection is not attainable, but if we chase perfection we can catch excellence." - Vince Lombardi

Biden's Absurd Pretense Damages America

The release of the audio recordings from Special Counsel Robert Hur's interviews with Joe Biden in October, 2023 pertaining to Biden's mishandling of classified documents after he left the vice presidency, along with tell all books written by opportunistic journalists, confirmed what the least discerning among us knew since @ least the 2020 presidential campaign - namely, that Biden did not have the cognitive ability to be president of the United States (i.e., the mental skills & processes used for thinking, learning, reasoning, problem solving, & understanding the world around him that encompasses the functions of memory, attention, perception, & language which enables us to process information, adapt to new situations, & make decisions).

 

This post pertains to the Biden presidential scandal regarding the hiding from the public of Biden's true cognitive ability during his last two campaigns for the presidency & his four year term in office.  It does not pertain to any potential scandal regarding his being diagnosed with late stage prostate cancer only a few months after leaving office - which is a whole other matter.

***

Early on in 2020 during Biden's campaign for the presidency many people thought the degree that he stayed in his Delaware basement was strange - despite the pretense of protecting himself from the Wuhan coronavirus that causes Covid-19.  But even in the basement there were teleprompter problems & the outrageous statement Biden made to Charlemange tha God in May 2020 about black voters choosing him over Trump.  The basement episodes are the starting point & the June 27, 2024 pitiful debate performance is the ending point of a time interval where Biden's cognitive ability decline was on an ever increasing full display.

During his time in office clues kept adding up that something was wrong with Biden.  

For instance four months after the aforementioned Hur interviews the White House released the transcripts but not the audios of the interviews in which Biden's confusion was much more pronounced than revealed in a simple reading of the transcripts.  Hur's assessment of the interviews was that Biden was a "sympathetic, well meaning elderly man with a poor memory" who exhibited "diminished faculties" & "significant limitations" & that because of Biden's poor condition "no criminal charges are warranted in this matter."  

Hur's assessment infuriated Biden who around 7 PM Thursday, February 8, 2024 called a press conference for 7:45 PM in which he intended to prove to the world "I know what the hell I'm doing."

Biden looked unusually feeble going to the podium in his usual old-man shuffling gait & after giving an angry speech took questions in which his answers 1) mistakenly referred to the President of Mexico when he meant Egypt regarding human aid in Gaza,  2) absentmindedly referred to his late son Beau - “Let me tell you something.  Some of you have commented.  I wear, since the day he died every single day, the rosary he got from our Lady of …” & then was not able to finish the sentence, 3) emphatically stated that “I said I’m gonna be a president for everybody, whether you live in a red state or a green state,” & 4) finally turned to the Democrat safe issue of abortion & promptly misnamed the “Roe v. Wade” case as "Roe v. Ward" as in Montgomery Ward & Co.

Not a performance that portrayed the desired image of a strong energetic man in control but rather one of a confused "elderly man with a poor memory” who exhibited “diminished faculties” & “significant limitations” - exactly how Hur's report he was trying to undo had described him. 

In the audio of the Hur interviews Biden could be heard speaking with a weak voice struggling to express himself & remembering dates including mixing up his time as VP with his time in the Senate & being off by several years recounting the year that his son Beau died. 

Click here to hear the audio of Biden's confusion with dates & Beau.  Click here to hear Jake Tapper, one of the opportunistic journalists mentioned above, describe in detail portions of his tell-all book that is now on sale.

Tapper's book claims that Biden was not in charge of his presidency.  The statements Biden made several times about  "the Harris-Biden administration" & Harris referring to "a Harris administration together with Joe Biden" takes on a different perspective based on Tapper's book.  These statements were not just gaffes - they were confirmations that Biden was prepared to be a Kamala Harris progressive.

The people who covered for Biden should never hold a position of trust again.  The three people who quickly come to mind are Press Secretary Karine Jean-Pieire who regularly told people how sharp Biden was & that he ran circles around her; Kamala Harris, who after the aforementioned debate told the nation that Biden was as sharp as ever when she regularly meets with him to discuss national issues (Harris did not have time to prepare a story coming on air shortly after the conclusion of the disastrous debate); & Jill Biden who had to know all of the details from the basement to the debate but consistently led her husband everywhere they went.

And naturally there is the media cover up.  Who would want to get their news from a source that so blatantly misled you on Biden's deteriorating mental condition?

Of course you have control over this - just don't vote for any politician who so grossly misled you or get your news from any source that repeatedly says to believe them rather than your lying eyes.

Below is a list of videos I presented on RTE during the 2020 campaign that divulged the absurd pretense that Biden & all his accomplices worked under to hide his mental condition.  Best to avoid the media that did not present & address the obvious problems.  The dates appearing next to the video topics below indicate the date of the post.  If you never saw any of these videos you should ask yourself why.

Jill breaks Biden freese - March 23, 2020 

You know the thing - March 12, 2020

Biden runs for the Senate - October 25, 2020

Biden's two minute memory - October 25, 2020

But the Democrats painted themselves into the corner during the 2020 presidential campaign when it looked like Bernie Sanders could win the Democrat party nomination that year.  Biden was on the ropes after losing the first three nominating contests in Iowa, New Hampshire, & Nevada.  He needed a win in South Carolina & called on his long time friend South Carolina Congressman Jim Clyburn for help.  Clyburn endorsed Biden who went on to a major win in SC winning all 46 counties after being propelled by receiving 61% of the Black vote.  In return for Clyburn's support Biden promised to nominate a woman as his running mate & after several private meetings Biden nominated a Black woman - Clyburn's preference.  Biden won 10 of 15 contests on Super Tuesday following his win in SC & was well on his way to the Democrat nomination in 2020.

Thus the ticket of Joe Biden & Kamala Harris was formed - they were initially successful in Democrats' eyes because they defeated Trump in 2020 receiving 306 electoral votes & over 81 million popular votes - a record. 

In 2024 Biden once more called on his friend Clyburn who helped rig the 2024 primary in Biden's favor by having the Democrat National Committee (DNC) move South Carolina ahead of New Hampshire on the Democrat party primary schedule.  The excuse being that the DNC wanted to prioritize diversity & that the SC electorate was thought to be more diverse than NH's & therefore more representative of the Democrat voting base.  NH held its primary first anyway knowing full well that their convention delegates were disqualified because the state breached the party calendar.  Biden won the SC primary anew in 2024 thereby once again providing a path for this decrepit man to become president of the United States.  But Clyburn had done Democrats no favors by once again putting Democrats in the Biden-Harris box - this time it blew up in their faces after Biden's disastrous debate performance did not leave enough time for selection of a nominee other than Harris.

But the die had really been cast earlier on in the campaign of 2020 in that Biden was already @ least slightly senile in 2020 with further rapid mental deterioration to follow & when Biden could not continue with his campaign in July 2024 the Democrat party's future fell into the hands of Harris.  Trump found himself facing Harris - an abominable, feckless, vapid candidate thereby setting up Trump's comeback victory in 2024 to the horror of Democrats who acknowledge that the Biden presidency failed its intended mission to move the country past Trump & all the damage he had done & is doing to our constitutional republic once again, just like @ the end of his first term, betraying his oath of office by 1) abusing the limited authority Congress had legislatively delegated to the executive decades before to use discrete targeted tariffs in emergencies - a limited authority that Trump has used to claim unbounded, unchecked, unilateral authority to impose tariffs on virtually every country on Earth based on an arbitrary formula intended to penalize countries based on their trade imbalances with the United States that in reality will only raise American consumer prices thereby lowering economic growth & our standard of living, & 2) effectively suspending the Writ of Habeas Corpus concerning alleged illegal alien detainees - the Great Writ is an essential part of America's Due Process legal system that separates the United States from the tyranny found in North Korea, Venezuela, El Salvador, & South Sudan. 

(Note regarding Biden - those people - party bosses & voters - who thought Biden was capable of governing as a moderate & presiding over an economically successful presidency like Bill Clinton's - thanks to Gingrich - took a terrible chance lying to themselves & the rest of us by ignoring or discounting Biden's four decade public service record & the videos presented hereinbefore.)

Biden's taste of the presidential power he had wanted all of his life made it all but impossible to drag him & his wife out of the White House until the June debate showed the world on live TV how unfit he was to serve.  Harris was painted into the same corner as Biden because she could not credibly claim she would have implemented different policies after spending three & one half years never once disagreeing with anything Biden did.

So what started in 2020 as a plan to ensure Trump was not reelected turned into a dilemma in 2024 where the Democrat nominee for president was first a man who was forced to drop out after an unintelligible debate performance & then a woman who had dropped out of the 2020 Democrat primaries before the Iowa caucuses without ever receiving one single vote.  Harris's first decision as the Democrat nominee in 2024 was to pick Minnesota governor Tim Walz as her running mate - a man Mike Huckabee described as "Elmer Fudd without the shotgun."

The Democrat brass can only blame themselves for the decline in their party where only 35% of Democrats are optimistic about their future because of the uncovering of the charade that Biden was physically & mentally fit to be president - a deception built on a foundation of quicksand that by definition meant it was destined to not work out well @ some point for the perpetrators & their accomplices.

We'll find out how much of the Biden-Harris stigma sticks to Democrats in the November 2026 midterms.   Meanwhile Trump's approval rating dropped to 42% in a Reuters/Ipsos poll conducted during the week of May 19 (it's underwater by over 10 points regarding the economy in the Real Clear Politics average on May 28 @ 42.3% approve & 52.8% disapprove) but he retains strong support from the people who voted for him, including those in this readership.