I got a surprise this week. We received a package which I assumed was something my wife had ordered. I left it unopened until she returned from her long weekend. When she returned home she saw the package and inquired what it was.

When we opened it I was surprised to learn that it was from American Express and even more surprised to learn that it was a present from American Express in recognition of my 50th anniversary in having an American Express Gold Card.

My dad never had a credit card. My mom never did until after I had a credit card for years. As I’ve mentioned before they operated with a bank line of credit secured by various financial assets they owned.

I got my first credit card when I started traveling for work. I’ll tell you the whole story of that some other time. Fifty years ago having a credit card made international travel much easier and an American Express card was the card to have. Outside the U. S. most hotels, restaurants, etc., if they accepted credit cards at all, accepted American Express and Diners Club and that was it.

Here’s a telling quote from this piece by Catherine Baab at Quartz:

Since the start of 2023, more than half-a-million tech workers have been laid off, according to industry tallies. Headlines have blamed over-hiring during the pandemic and, more recently, AI. But beneath the surface was a hidden accelerant: a change to what’s known as Section 174 that helped gut in-house software and product development teams everywhere from tech giants such as Microsoft (MSFT) and Meta (META) to much smaller, private, direct-to-consumer and other internet-first companies.

Now, as a bipartisan effort to repeal the Section 174 change moves through Congress, bigger questions are surfacing: How did a single line in the tax code help trigger a tsunami of mass layoffs? And why did no one see it coming?

For almost 70 years, American companies could deduct 100% of qualified research and development spending in the year they incurred the costs. Salaries, software, contractor payments — if it contributed to creating or improving a product, it came off the top of a firm’s taxable income.

The deduction was guaranteed by Section 174 of the IRS Code of 1954, and under the provision, R&D flourished in the U.S.

Microsoft was founded in 1975. Apple (AAPL) launched its first computer in 1976. Google (GOOGL) incorporated in 1998. Facebook opened to the general public in 2006. All these companies, now among the most valuable in the world, developed their earliest products — programming tools, hardware, search engines — under a tax system that rewarded building now, not later.

The subsequent rise of smartphones, cloud computing, and mobile apps also happened in an America where companies could immediately write off their investments in engineering, infrastructure, and experimentation. It was a baseline assumption — innovation and risk-taking subsidized by the tax code — that shaped how founders operated and how investors made decisions.

In turn, tech companies largely built their products in the U.S.

Microsoft’s operating systems were coded in Washington state. Apple’s early hardware and software teams were in California. Google’s search engine was born at Stanford and scaled from Mountain View. Facebook’s entire social architecture was developed in Menlo Park. The deduction directly incentivized keeping R&D close to home, rewarding companies for investing in American workers, engineers, and infrastructure.

That’s what makes the politics of Section 174 so revealing. For all the rhetoric about bringing jobs back and making things in America, the first Trump administration’s major tax bill arguably helped accomplish the opposite.

When Congress passed the Tax Cuts and Jobs Act (TCJA), the signature legislative achievement of President Donald Trump’s first term, it slashed the corporate tax rate from 35% to 21% — a massive revenue loss on paper for the federal government.

To make the 2017 bill comply with Senate budget rules, lawmakers needed to offset the cost. So they added future tax hikes that wouldn’t kick in right away, wouldn’t provoke immediate backlash from businesses, and could, in theory, be quietly repealed later.

The delayed change to Section 174 — from immediate expensing of R&D to mandatory amortization, meaning that companies must spread the deduction out in smaller chunks over five or even 15-year periods — was that kind of provision. It didn’t start affecting the budget until 2022, but it helped the TCJA appear “deficit neutral” over the 10-year window used for legislative scoring.

The delay wasn’t a technical necessity. It was a political tactic.

There are many conclusions that might be drawn from that. One is that our tax code is so complex that there is, effectively, no way of determining what it is actually doing. Modify at risk.

IMO the ideal solution is to stop taxing income at all and start taxing consumption but the implications of that would be so devastating I can’t imagine it happening. That’s why I recommend tweaking our tax code rather than taking a meat axe to it.

I’ve never been that much of an Elon Musk fan. I’ve basically thought he made his fortune through rent-seeking.

The editors of the Wall Street Journal have noticed that, too, and produced an amusing retort to Mr. Musk’s bitter complaints about the House’s budget bill:

Elon Musk’s work at the Department of Government Efficiency made him persona non grata in the Beltway, and most criticism was nasty and unfair. That’s what Washington does to outsiders who want to shrink its power. But that makes it all the more unfortunate that Mr. Musk is now joining the Beltway crowd in trying to kill the House tax bill.

“This massive, outrageous, pork-filled Congressional spending bill is a disgusting abomination,” the Tesla CEO tweeted Tuesday, as the Senate begins considering its version of budget reconciliation. “Shame on those who voted for it: you know you did wrong. You know it.”

[…]

But the House bill does avoid a $4.5 trillion tax hike next year and cuts spending by some $1.5 trillion over 10 years by making some useful reforms to Medicaid, student loans and food stamps. It also ends most of the Inflation Reduction Act’s green-energy subsidies.

Ah, but Mr. Musk doesn’t want to eliminate that pork. “There is no change to tax incentives for oil & gas, just EV/solar,” he said on X.com last week, retweeting another user post that said “slashing solar energy credits is unjust.”

For my part I did not support either Bush II’s or Mr. Trump’s tax cuts. It’s not that I oppose tax cuts on principle but that I thought that they would be more effective in producing economic growth had they been more targeted. I do think that we should limit our spending to what we’re willing to pay for plus the increase in aggregate product. And that’s our problem. We don’t produce enough of what we consume.

But preservation of Trump’s tax cuts come as no surprise—cutting taxes is practically the only thing on which Republicans can agree.

A big chunk of our budget problem is one that has been festering for three-quarters of a century: the Baby Boomers are retiring and those IOUs that fill the Social Security “trust fund” are being redeemed. Government spending has been paid for with Social Security withholding for some time. I see the federal cuts in employment as the federal government engaging in the belt-tightening that private companies have been doing for 40 years.

We have no idea how many U. S. jobs are offshored, i.e. performed by people who are sitting in other countries performing them. None. It could be the 300,000 that is the guesstimate sometimes provided. That’s guesswork based on the belief that 60% of businesses offshore at least one department.

It’s unlikely to be less than 300,000. It could be 3,000,000. It could be 30,000,000. We really don’t know.

There are no U. S. specifically governing jobs offshored. There is no reporting requirement other than a requirement to report what you’re spending and the balance sheet requirements.

Once upon a time news stories were written using what was called the “4Ws”—who, what, where when. Nearly 50 years ago that began to be replaced by the point-of-view style of reporting. One of the implications of the point-of-view style is, obviously, having a point-of-view and, increasingly, major media outlets have settled on one point of view.

The weakness of that is that if something is outside that point of view, it does not get reported on. Is the United States actually becoming increasingly antisemitic? Or are we admitting an increasing number of people who are antisemitic? Both? Neither? How do you know?

Like many others I was saddened by the attack with what’s being described as an “improvised flamethrower” on people demonstrating peacefully in Boulder, Colorado. From Jasper Ward, Kristina Cooke and Mark Makela at Reuters:

BOULDER, Colorado, June 1 (Reuters) – Eight people were injured on Sunday when a 45-year-old man yelled “Free Palestine” and threw incendiary devices into a crowd in Boulder, Colorado where a demonstration to remember the Israeli hostages who remain in Gaza was taking place, authorities said.

Four women and four men between 52 and 88 years old were transported to hospitals, Boulder police said. Authorities had earlier put the count of the injured at six and said at least one of them was in a critical condition.

“As a result of these preliminary facts, it is clear that this is a targeted act of violence and the FBI is investigating this as an act of terrorism,” the FBI special agent in charge of the Denver Field Office, Mark Michalek, said.

Michalek named the suspect as Mohamed Soliman, who was hospitalized shortly after the attack. Reuters could not immediately locate contact information for him or his family.

Hopefully, Mr. Soliman is a “loon wolf terrorist”. If there’s more to the story than that, we have some serious questions before us. In particular we should ask ourselves whether we care to allow people to pursue their ethnic or sectarian grievances here rather than in their countries of origin?

When I first read the reports of the Ukrainian drone attack on Russian airfields, destroying dozens of Russian bombers, I had a number of reactions. Here’s Paul Adams’s and Jaroslav Lukiv’s report at the BBC:

Ukraine says it has completed its biggest long-range attack of the war with Russia on Sunday, after using smuggled drones to launch a series of major strikes on at least 40 Russian warplanes at four military bases.

President Volodymyr Zelensky said 117 drones were used in the so-called “Spider’s Web” operation by the SBU security service, striking “34% of [Russia’s] strategic cruise missile carriers”.

SBU sources told BBC News it took a year and a half to organise the strikes.

Russia confirmed Ukrainian attacks in five regions, calling them a “terrorist act”.

The attacks come as Russian and Ukrainian negotiators head to Istanbul, Turkey, for a second round of peace talks on Monday.

My main reaction was that I thought we should wait for the other shoe to drop. Another reaction was that any who thinks that the attack will bring Russia to the bargaining table are sadly mistaken. The third was that Max Boot in his Washington Post column has the right idea:

On Sunday morning, Dec. 7, 1941, the Imperial Japanese Navy rewrote the rules of warfare. Almost no one had imagined that the Japanese could sneak across an entire ocean to attack an “impregnable fortress,” as U.S. strategists had described Hawaii. Yet that is just what they did. Japanese aircraft launched from six aircraft carriers managed to destroy or damage 328 U.S. aircraft and 19 U.S. Navy ships, including eight battleships. The Pearl Harbor attack signaled the ascendance of aircraft carriers as the dominant force in naval warfare.

The Ukrainians rewrote the rules of warfare again on Sunday. The Russian high command must have been as shocked as the Americans were in 1941 when the Ukrainians carried out a surprise attack against five Russian air bases located far from the front — two of them thousands of miles away in the Russian Far North and Siberia. The Ukrainian intelligence service, known as the SBU, managed to sneak large numbers of drones deep inside Russia in wooden cabins transported by truck, then launch them by remote control.

but that he’s asking the wrong questions:

If the Ukrainians could sneak drones so close to major air bases in a police state such as Russia, what is to prevent the Chinese from doing the same with U.S. air bases? Or the Pakistanis with Indian air bases? Or the North Koreans with South Korean air bases?

I don’t think he recognizes the implications of this sort of asymmetric warfare. The questions he should be asking are

• What if the Houthis mount a similar drone attack against U. S. air bases?
• What if some unidentified or widely dispersed terrorist organization mounts a similar drone attack against U. S. air bases?

After all if Chinese balloons can gather intelligence from U. S. military bases, a highly destructive can be mounted against our military bases by anyone with a few thousand dollars to spend and the inclination to do so. You don’t need to be a major power or even a country for that.

The Federal Reserve of New York notes that recent college graduates with Computer Sciences major have a higher rate of unemployment than many other fields of study. There are a number of reasons for that including uncertainty, coding being done by artificial intelligence (or the expectation that it will), offshore outsourcing, and just plain saturation. Believe it or not it’s actually worse than journalism. There have been quite a number of layoffs in the last few years.

Note, too, in the graphic above that the net growth in employment in healthcare and social services very nearly exceeds that of all other sectors combined.

And we don’t even have one. Sen. John Danforth has a commentary at RealClearPolitics on the importance of a “healthy two-party system” to the United States. I recognize that Sen. Danforth may be a bit out of touch due to his advanced age and I hate to break it to him but we don’t even have one healthy political party let alone two.

I hardly need to point out the problems with the Republican Party but let me provide a little précis of the Republican Party’s issues. After he announced his candidacy for the presidency in 2015 and throughout 2016 Donald Trump proceeded to trounce the entirety of the Republican Party establishment. After he was elected president the old Republican establishment was gone and what remained was a Trump party. The political party that John Danforth remembers is gone.

President Trump was impeached twice and his re-election bid in 2020 was defeated by Joe Biden, who had been rejected as a presidential candidate twice before by the Democrats. Mr. Trump has never actually acknowledged that defeat. I won’t psychoanalyze that.

Impressive as the number of executive orders issued by President Trump in his second term may be, he cannot govern by EO alone and we don’t really know what the final tally of his diktats that stand up to judicial scrutiny will be. He is engaging in all sorts of highly questionable interminglings of public business and private personal profit. He is unlikely to receive any scrutiny of those activities by the present House of Representatives. President Trump has been issuing pardons to criminals of undisputed guilt for, apparently, no reason other than he can.

The Democrats are in no healthier a state. We aren’t even halfway through the year and already this year two high-ranking Democratic officials from two different states (Illinois and New Jersey) have been convicted of corruption in office. It may be three or higher before the end of the year.

At some time during his first term as president Joe Biden became too frail and mentally impaired to execute the job for which he was elected. This was hushed up by his staff, high-ranking members of his party, and journalists working for major media outlets. We don’t know when he stopped being able to do the job. Some say June 2024. Some say February 2024. Some say January 2020 or earlier. We just don’t know and we’ll probably never know.

Democratic states are losing population rapidly. There have been articles published noting that without illegal immigration the tally of Democratic votes in the electoral college would be considerably less favorable to a Democratic presidential candidate than it already is.

The party is, effectively, leaderless. Its two primary factions, moderates and progressives, are not on particularly friendly terms. The moderates claim that if the party is to regain control of the House, Senate, or White House it will need to moderate some of its views. The progressive wing insists that the party has not been progressive enough.

You get the idea.

So, Sen. Danforth, how do you create “two healthy parties” out of that mess?