Current legislative efforts to close the “caregiver gap”—specifically the Improving Retirement Security for Family Caregivers Act and the Catching Up Family Caregivers Act—rely on a fundamental misunderstanding of household economics. By focusing on increasing contributions to managed retirement accounts, Congress provides a windfall for investment firms while ignoring the practical needs of families.

• The Savings Paradox: It is fundamentally illogical to “motivate” additional retirement savings at the exact moment a caregiver’s income has dropped or disappeared. Policy should instead focus on increasing general IRA contribution limits during high-earning years and creating parity between IRA contributions and 401(k) contributions.

• The “SECURE” Playbook: Like the SECURE Acts 1.0 and 2.0, these new bills prioritize keeping assets locked in high-fee, firm-sponsored plans rather than facilitating debt reduction or flexible liquidity.

• The Liquidity Penalty: Caregivers are often forced to raid retirement accounts for survival, yet the tax code continues to punish them with penalties. A superior approach would replace tax penalties with a cap on allowable pre-retirement distributions to protect core balances while allowing emergency access.

• The Mortgage Priority: For many households, mortgage elimination provides far greater retirement security and tax-free cash flow than a marginally larger, volatile, and fully taxable retirement account.

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Current Legislative Proposals

Two primary bipartisan bills, reintroduced in April 2026 by Senators Mark Warner (D-VA) and Susan Collins (R-ME) along with Representatives Brittany Pettersen (D-CO) and Maria Elvira Salazar (R-FL), represent the latest attempt to fix the retirement gap through asset accumulation:

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This is not just a platform of ideals; it is a pragmatic legislative strategy. By securing a “kingmaker” block of 20 to 30 House seats, we can force Congress to select a consensus Speaker and bypass partisan gridlock to pass meaningful reform with a simple majority.

Our work begins with healthcare. We have developed a rigorous draft of a new program that replaces inefficient subsidies with federal catastrophic protection, universal portability through the merger of employer and marketplace insurance, and a national pediatric foundation through universal CHIP. The plan further expands Medicaid to 200% FPL while introducing fiscally optimized Premium Tax Credits designed to eliminate the “subsidy cliff” and protect taxpayers from over-spending. Finally, it ensures equal tax treatment via above-the-line deductions for the individual market and the modernization of flexible savings accounts.

This proposal will be less expensive than many realize because these new subsidies and reforms are fundamentally more efficient than the legacy systems they replace. Comprehensive reform is a structural necessity; it addresses not only the immediate hardships of the uninsured and underinsured but also the systemic impact of medical debt. By depleting household liquidity, medical debt prevents families from building the private savings required for retirement. Solving this crisis is a prerequisite for stabilizing and reforming Social Security, which currently faces an insolvency crisis.

This is the first of several modules in a total tax code overhaul aimed at addressing student debt, retirement adequacy, energy supply, and environmental sustainability while stabilizing the national debt.

A Third-Party Tax Reconciliation Approach to Health Care

Introduction

Democrats and Republicans have long been divided by fundamentally different economic philosophies, leaving the American family caught in the crossfire. Republican policymaking has traditionally centered on tax cuts and a smaller federal government, often prioritizing market-based solutions even when they impose significant financial risk on households. Conversely, Democratic policymakers have focused on expanded federal spending, with a progressive wing often unwilling to consider trade-offs and a centrist wing struggling to craft permanent reforms that survive changes in administration.

The result is a “one step forward, two steps back” cycle. The Trump Administration and Republican Congress dismantled Biden-era expansions, while progressives continue to champion an economically unrealistic “Medicare-for-All” model.

The current political situation does not address major market imperfections impacting health care and insurance.

• Insurance is tied to a specific employer resulting in either loss of all insurance or loss of access to current medical provider with every job transition.

• The employer-based tax subsidy is more generous for more affluent individuals.

• People with state exchange coverage lose all subsidies if income exceeds 400 percent FPL.

• Private markets are distorted by the “catastrophic risk” of the most expensive 1% of cases.

• Family plan premiums are extremely high and could be reduced through increased use of the Children’s Health Insurance Program (CHIP)

• Restrictions on the use of Medicaid increase the number of the uninsured and costs to both low-income households and taxpayers subsidizing private insurance.

• Health care subsidies are too low for self-employed and gig workers.

• Many people with comprehensive health insurance coverage still have high out-of-pocket health care costs.

The following seven provisions establish a fiscally responsible, market-oriented framework to modernize American health care. By utilizing the tax reconciliation process, we can integrate these reforms into a single, cohesive “Health Care Clearinghouse” model.

This shift represents a fundamental pivot in federal policy: we are systematically reducing our reliance on opaque, tax-code-based employer subsidies—which disproportionately benefit the affluent—and replacing them with a suite of more efficient, direct programs. By stripping away the market imperfections that drive up costs, these provisions incentivize superior market outcomes, rewarding consumer agency and fiscal transparency while ensuring a robust safety net for all Americans.

Seven Features of the third-party health care proposal:

1. A Federal Catastrophic Healthcare Subsidy

The Concept: A permanent federal program designed to absorb the “tail risk” of high-cost medical cases. While the ultimate goal is a broad-based subsidy (e.g., paying 50% of costs over $50,000), this framework is designed for a gradual phase-in. Initial versions could be more targeted—starting with a smaller reinsurance pool or a reinsurance scheme focusing specifically on high-cost chronic diseases —to ensure fiscal stability while the market adjusts.

Crucially, this benefit is applied exclusively to state exchange health insurance plans. By providing this federal “backstop” only within the exchange market, we create a powerful market incentive for employers to shift toward the new employer subsidy of state exchange insurance and away from the firm-specific employer subsidy as described in Pillar 2.

Why This is a Fairer, Smarter Way to Fund Healthcare

Employers are currently trapped in expensive, rigid, firm-specific policies. By offering a federal catastrophic subsidy only for exchange-based plans, we provide a massive financial incentive for firms to subsidize their employees’ portable state exchange coverage (created in pillar two of this proposal) instead of continuing to offer health insurance tied to the firm.

Currently, the tax break for employer-based insurance is worth more to high-income earners in high tax brackets and less to lower-income workers. This proposal provides the same level of protection to a janitor as it does to a CEO, effectively giving lower-wage workers a much-needed boost in the value of their coverage.

The state exchange premium tax credit is not applied to people with income over 400 percent FPL (around $60,000 for a single person). The catastrophic reinsurance benefit provides some support, in the form of lower premiums, to all households and reduces the need for enhanced credits.

The reinsurance subsidy by reducing premiums reduces the premium tax credit. The reduced premium tax credit offsets part of the cost of the new subsidy.

The reinsurance subsidy, because government is sharing in the cost of the riskiest cases, reduces incentives for firms to cherry pick health customers, to narrow networks, and to create high prior authorization hurdles.

The risk sharing creates incentives for more insurance firms to enter state exchange markets and to lower premiums.

A gradual increase in the reinsurance share of health insurance premiums could lead to a transition towards a single-payer system.

2. Universal Portability: Merging Employer and Marketplace Insurance

The Concept: This reform merges the “Work Insurance” and “State Exchange” worlds into a single unified market, allowing employer contributions for premiums, maintaining an employer mandate but tying health insurance to the individual or family not the job.

The Framework

• The tax code is modified to allow for tax free contributions to state exchange health insurance rather than firm-specific policies.

• Large employers (50+ workers) are required to pay at least 60 or 70 percent of premiums but they don’t have to manage the plan. (This is a revised employer mandate.)

• People without an employer subsidy or people who could not afford state exchange insurance would have access to a modified premium tax credit.

Why This is Fairer and Better

People maintain access to the same insurance policy regardless of their employment status as long as they maintain premium payments. (Subsidies in the form of an increased premium tax credit kick in for people who lose employer-based subsidies)

The maintenance of continuous coverage allows people to keep their insurance providers if they change jobs, ends job lock (a situation where people don’t switch jobs to maintain insurance coverage) and prevents immediate loss of insurance from layoffs.

The use of employer subsides for state exchange health coverage increases options for many employees who often have only one option from their employer plan.

The reliance on state exchanges reduces costs and paperwork and may incentivize smaller firms to offer health subsidies. The approach also creates a predictable benchmark premium for small employers.

3. Universal CHIP: A National Pediatric Foundation

The Concept: We expand the Children’s Health Insurance Program (CHIP) to act as the primary insurer for all children, in households with state exchange health insurance regardless of their parents’ employment. For affluent families, CHIP becomes a high-quality, “buy-in” option. They pay an income-adjusted premium that is often lower than private insurance but higher than what lower-income families pay, ensuring the program is self-sustaining and fair across all tax brackets.

Why This is Fairer and Better

It is significantly cheaper for the government to cover a child through CHIP than to subsidize that same child on a private Marketplace plan. By moving dependents into CHIP, we drastically reduce the total cost of Premium Tax Credits (PTC), making the entire healthcare system more fiscally sustainable.

CHIP is designed specifically for kids, covering essential developmental screenings, dental, and vision that private plans often skimp on. This ensures a “CEO’s child” and a “janitor’s child” both have access to the same gold-standard pediatric network.

Appropriate regulations would guarantee that the CHIP network is very broad. (Regulations could in fact mandate that all doctors accept CHIP coverage.)

4. Expanding Medicaid for more lower income households throughout the country.

The Concept: Expand Medicaid coverage to 200 percent FPL and provide a permanent more generous federal match in all states. Have the reinsurance program pay costs for a percent of all Medicaid costs above the threshold.

Why This is Fairer and Better

In economics, a Pareto improvement makes at least one person better off without making anyone worse off. This proposed reform is potentially Pareto improving.

The government could save money because the cost of Medicaid is lower than the cost of the premium tax credit for state exchange health insurance.

The expansion of the Medicaid program would allow for a new higher floor on the state exchange health insurance premium tax credit equal to the current reimbursement rate for people at 200 percent FPL.

Medicaid is more suitable than private insurance for most lower-income households, who cannot afford high deductibles and who frequently lose eligibility for Medicaid due to changes in income.

Opposing this expansion is fiscally irrational. Using private tax credits to cover this income group is like using a luxury sedan to haul gravel—it’s the wrong tool for the job. Medicaid is built for this specific demographic, offering the comprehensive benefits and low cost-sharing they need to stay in the workforce.

5. Right-Sizing the Premium Tax Credit (PTC)

The Concept: The Premium Tax Credit is redesigned to account for the new subsidies -- the new reinsurance program, the expanded CHIP program, and expanded Medicaid. The new subsidy is a sliding scale of income for households between 200 % FPL and 600 % FPL.

Why This is Fairer and Better

Households under 200% FPL transition to Medicaid. The expensive “cost-sharing reductions” and high PTCs currently spent on this group are redirected toward the more efficient Medicaid expansion.

Because the Federal Catastrophic Subsidy (Pillar 1) lowers the underlying cost of insurance for the entire market, the “gap” the PTC needs to fill is much smaller for every household.

The current 400% FPL subsidy cliff is moved to 600% FPL. This provides a safety net for the “squeezed” middle class while maintaining a clear endpoint for federal assistance. A cliff still exists but it hits at a higher income level and leads to a less drastic fall than the current cliff.

6. Equal Tax Treatment: Above-the-Line Deduction for the Individual Market

The Concept: We introduce a universal Above-the-Line” deduction for all health insurance premiums paid in the individual market to disparities in health insurance subsidies between people with and without employer based subsidies.

Why This is Fairer and Better

Currently, if an employer pays $1,000 for your insurance, it’s tax-free. If a freelancer earns $1,000 and buys the exact same plan, they must pay income and self-employment taxes on that money first. This is a structural bias that punishes entrepreneurship. This reform reduces that inequity.

With over one-third of the American workforce now engaged in independent work, our tax code is stuck in 1950. This deduction is tied to the individual, not a specific business entity, allowing workers with multiple income streams (e.g., a part-time job plus consulting) to easily claim the benefit.

Many independent contractors earn too much for PTC subsidies but are still crushed by high premiums. This deduction provides them with meaningful relief, recognizing that a $15,000 premium is a legitimate “cost of doing business” for a self-employed person.

By making the deduction “Above-the-Line,” we remove the need for complex “S-Corp” workarounds or expensive tax professionals. It makes the “cheapest” way to buy insurance also the “easiest.”

By lowering the “effective cost” of insurance for the self-employed, we encourage more healthy, young entrepreneurs to enter the individual market. This creates a more stable and diverse risk pool, which helps lower premiums for everyone.

Critics of previous proposals (like those seen in early versions of the Tax Cuts and Jobs Act) warned that a deduction could be less valuable than a credit for low-income earners. Our plan solves this by using the deduction as a complement to the PTC, not a replacement.

Deductions naturally offer more value to those in higher tax brackets. However, in our unified framework, lower-income workers are already protected by Medicaid (Pillar 4) and enhanced PTCs (Pillar 5). The deduction serves as the specific “fairness tool” for the middle and upper-middle class who currently receive the least help.

7. Modernizing and Expanding Flexible Savings (FSAs) and Health Savings Accounts (HSAs)

The Concept We transform FSAs and HSAs from passive storage accounts into active, consumer-driven Health Wallets. This includes eliminating use-or-lose rules, allowing accounts to directly pay for insurance premiums and Direct Primary Care (DPC), and introducing a Feldstein-Gruber Major Risk tier. In this tier, higher-income individuals opt for higher deductibles in exchange for significantly expanded tax-free contribution limits, shifting the focus from routine small-claim processing to protection against major financial shocks.

The provision restricting FSAs to employer-based plans is removed from the tax code allowing their use in state-exchange health insurance plans, which will become the new baseline venue for the provision of health insurance to working-age people and their households.

The Framework

• Legislative language will establish new regulatory authority allowing HSA and FSA trustees to act as fiduciary agents. These accounts would be empowered to directly shop and pay for health plans that offer the lowest cost for a user’s specific prescriptions or chronic care needs, and to automate monthly Direct Primary Care (DPC) membership fees.

• Following the Feldstein-Gruber model, high-income earners can opt into Major Risk plans with higher deductibles and a corresponding 7.5%–10% of AGI contribution cap for their HSA/FSA. This encourages healthy, high-earners to self-insure for routine care while maintaining a robust tax-advantaged backstop for catastrophic events.

• A new rule allows people to either keep unused FSA balances forever or rollover funds into a non-deductible conventional IRA, ending the year-end panic spending on unneeded supplies.

• Modify IRS rules to allow for the use of FSA/HSA funds for all health insurance premiums, including state exchange plans. Current law largely restricts this to COBRA or unemployment periods.

• Lower-to-middle income households receive an annual government seed contribution of $500 to $1,000 to their account to ensure they have liquidity for immediate out-of-pocket needs.

Why This is Fairer and Better

The use-or-lose FSA stipulation currently incentivizes people to buy unneeded procedures at year-end. These changes allow the worker to keep funds for future health or retirement needs, reducing the tradeoff between current health and future security.

The ability to roll over funds into a retirement account makes these plans highly attractive to younger individuals, keeping them in the risk pool and stabilizing premiums for everyone.

As highlighted by recent trends in DIY healthcare, more Americans are finding success by negotiating cash prices and using DPC. This reform legitimizes and scales that model by making those payments tax-free automated, and managed by professional agents employed by FSAs or HSAs.

Current law links FSAs to employer-based plans, making work insurance artificially superior to the individual market. This reform levels that playing field, making state exchange plans more attractive.

The Feldstein-Gruber framework incentivizes higher-income individuals to be more judicious with routine healthcare spending, which exerts downward pressure on prices across the entire system.

Feldstein, Martin, and Jonathan Gruber. “A Major Risk Approach to Health Insurance Reform.” NBER Working Paper No. 4852, September 1994.

Link: nber.org/papers/w4852

Direct PDF: Download Full Text

Conclusion

The current American healthcare landscape is a byproduct of decades of ideological gridlock, leaving families to navigate a fragmented system where coverage is tied to employment, subsidies are inequitably distributed, and catastrophic costs remain a constant threat.

This proposal addresses these systemic failures by solving the “job lock” dilemma through universal portability, eliminating the “subsidy cliff” for the middle class, and providing a robust federal safety net for high-cost medical cases. By integrating employer contributions with state exchanges, expanding the role of CHIP and Medicaid, and modernizing FSAs, we create a market-oriented framework that prioritizes the patient’s needs.

This proposal moves beyond the “one step forward, two steps back” cycle of partisan healthcare debates. By replacing the regressive structure of employer-based tax breaks with a targeted, multi-pillar subsidy model, we eliminate the distortions that have plagued the private market. This transition incentivizes insurers to compete on value rather than risk-avoidance and empowers individuals to navigate their own care, aligning federal spending with health outcomes rather than institutional inertia.

The path to enacting these reforms is more realistic than the current political climate might suggest. These provisions primarily involve adjustments to tax credits, deductions, and federal outlays, which can be enacted through the tax reconciliation process. A third party could force the issue by obtaining 20 or 30 seats in the House of Representatives creating a situation where they could force the election of a consensus Speaker.

Democrats would prefer a third-party Speaker over a Republican, and Republicans would prefer a third-party Speaker over a Democrat. This leverage allows us to bypass partisan obstruction and bring this common-sense legislation to the floor in the House. The Senate could, under its rules, pass a tax reconciliation vote with a simple majority.

However, significant work remains. We must move beyond the conceptual phase to consider various policy alternatives, conduct rigorous cost estimations, and draft the precise legislative language required for a reconciliation bill. Furthermore, this initiative is not limited to healthcare; it is the first step in crafting a comprehensive tax reconciliation bill that addresses the entire tax code.

Our goal is to ensure that federal revenue is adequate to tackle the defining challenges of our era—including student debt relief, retirement security, and environmental protection—while simultaneously reigning in deficit spending to stabilize the national debt trajectory.

To turn this vision into a reality, I need your direct support. Building a movement that can challenge the political duopoly and perform the complex policy work described above requires resources. Your paid annual subscription of $48 (with coupon) is not just a fee for information; it is a strategic investment in the future of your country. It is a far more effective use of your capital than a contribution to any individual candidate, as it funds the structural reform necessary to fix the system itself. Together, we can move past the cycle of “one step forward, two steps back” and build a healthcare system that works for every American.

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This memo analyzes the limitations of current military outcomes, proposes a transition toward covert support for a “Balkanized” Iran to disrupt regional threats, critiques the domestic political calculations of Western liberal governments, and advocates for the Board of Peace as a technocratic vehicle for long-term regional stability.

I am amazed by lack of objectivity of war commentators with critics not that concerned with the pre-war status quo and proponents arguing the war is a great success. The actual situation and the potential path forward is far more complicated. Truth is there are and never were great diplomatic options and a quick settlement to this war would create an even more precarious situation.

The war did not lead to regime change because regime change is difficult and there was no support for resistance groups. Going forward, the CIA and Mossad should work with resistance groups in Iran. This effort is not likely to lead to complete regime change but could lead to the Balkanization of Iran, a risky outcome which is probably better than the current situation.

Liberal governments in France and other western nations are more concerned about maintaining a domestic political coalition than the actual facts in the Mideast. The United States has to work closely with Israel on ways to contain violence in Gaza and Lebanon at lower collateral damage to civilians. (This can be done with drone technology.) I am hopeful the newly established Board of Peace can facilitate needed dialogue between Israel and Muslim nations through its business-led, technocratic framework.

Status of the war in week six:

· The Iranian military has been significantly degraded.

· The ability to assemble a nuclear weapon has likely been delayed but Iran still has the plutonium which it could hand off to a terror group.

· Regime change seems highly unlikely, and the regime will continue to hang and massacre its own citizens

· The Gulf of Hormuz is closed, and the world economy will likely shrink

· Most nations are applying pressure to end the war quickly to open the straits.

· The agreement would allow Iran to continue funding Hezbollah and proxy groups in Iran.

· Israel is being pressured to enter a cease fire which would allow Hezbollah and other terror groups to rearm and again attack Israel.

So, what could have been done differently and, more importantly, going forward how do we proceed.

Comments:

Comment One: The pre-war status quo was not an option. Can’t expect a regime that kills 40,000 of its own citizens in a couple of weekends to not massacre foreigners. Diplomacy had run its course.

Comment Two: A clean regime change did not happen because there was no support for resistance groups like Arab separatists, Kurds and protestors in Tehran and other cities.

Comment Three: It appears likely that the Trump administration will seek a deal to reopen the Strait of Hormuz. This would involve monitoring nuclear material but potentially offering sanctions relief—funding that Iran will use to rearm, rebuild its military, and fund proxies while continuing to suppress its own citizens. The nuclear monitoring might not prevent Iran from giving nuclear material to proxy groups and allow them to build a nuclear device.

Israel is being pressured to allow for a ceasefire that would allow Hezbollah to rearm in southern Israel. This puts Israel in a difficult position because Hezbollah attacks after October 7 resulted in the near complete evacuation of northern Israel.

This approach could lead to a complete loss of American credibility with Arab allies in the Gulf (Saudi Arabia, Qatar, Kuwait, and the UAE) who have also been bombed by Iran and expected the U.S. to “finish the job.”

Comment Four: Iran is a huge country with many groups. Right now, the IRGC has all the weapons in Iran. A complete regime change is not imminent, but a well-funded (CIA and Mossad) covert resistance effort could lead to a Balkanized and partially-free Iran similar to what now exists in Iraq and Syria. Regardless, Israel may respond to Iranian funding of attacks against Israel with the funding of resistance groups inside Iran.

Comment Five: The Balkanization of Iran is a risky strategy but a friendly government near the strait would open the strait, allow for the seizure of the nuclear material and prevent the creation of a dirty bomb, and there would be a safe zone for Iranian citizens. There would be a lot of violence but that already exists in Iran.

Comment Six: Israel needs to find ways to attack Hezbollah with lower collateral damage to Lebanese civilians. The expansion and deployment of drone technology, with American assistance, could serve as a “carrot” to incentivize Israel to alter its current tactical approach in Lebanon. Of course, this approach requires continued close ties between Israel and the United States.

Comment Seven: The war has intensified a trend in France, Britain, Canada, and Australia where liberal governments distance themselves from Israel because to maintain shaky domestic political coalitions. The trend is also evident in the Democratic party in the United States where politicians increasingly cater to the “progressive” base.

Israel must pivot and build support in nations that understand its position, such as Taiwan, Singapore, Vietnam, Thailand, Germany, Ukraine, India, and Argentina. It must also invest heavily in its own arms industry to brace for the potential success of BDS movements in Western nations.

Comment Eight: Israel should remain open to international groups including the Board of Peace taking the lead in Gaza and Lebanon, provided the West agrees to play a larger role in directly taking on Hamas and Hezbollah. The advantage of the Board of Peace approach is that it leads to dialogue between Israeli and Arab businesspeople technicians and officials domiciled in nations that do not recognize the state of Israel. In my view membership in the Board should be expanded to include members of the Palestinian Authority but not Hezbollah, Hamas or the current government of Iran. The Board, which has been denigrated by liberal critics, is a backdoor to dialogue and eventual peace.

Concluding Thoughts: I am amazed that observers on both sides of this conflict are incapable of analyzing the mixed outcomes. The war has not been a success on any measure but the situation prior to the war was much worse than the political left realizes. Continued diplomacy was not an option, and covert activities would have worked better than open war. The view from France and many other countries in the West -- that Israel should be a passive participant in a ceasefire while Hezbollah rebuilds – is disturbing. Israel, with the help of the U.S. and Lebanon, can do a better job protecting the Lebanese people. Israel is in a precarious position, and the global left may not like the outcomes of their attempts to isolate the state.

Authors Note: www.economicmemos.com is a blog about policy, personal finance and finance. I greatly appreciated when readers take out either the free subscription or the paid one, the choice is entirely yours and my goal is to keep most material free of charge.

The personal finance section of the blog consistently points to many of the issues impacting household finances which are often not the primary focus of financial advisors. The policy portion of the blog recommends approaches to health care, student debt, and savings incentives which differ from those offered by the two major political parties.

This coupon gives you 20 percent off and the right to renew at $48 as long as you maintain the subscription.

· Subscribe now to lock in 20% off—just $48 per year.

· Early supporters secure a discounted annual rate that continues at renewal.

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#BoardOfPeace #IranConflict2026 #GeopoliticalRisk #StrategicBalkanization #EnergySecurity

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The recent Wall Street Journal report detailing a growing “catch me if you can” attitude toward the IRS reflects a tempting, yet deeply flawed, trend. As audit rates have dipped, some taxpayers are treating tax law as a suggestion rather than a requirement, betting that a depleted agency won’t have the bandwidth to flag their “aggressive” deductions. However, this strategy isn’t just risky -- it’s a ticking financial time bomb built on a misunderstanding of how tax enforcement actually works.

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The most critical oversight in this “mantra” is the timeline of liability. Many taxpayers mistakenly believe that if they make it through the initial filing season unscathed, they are in the clear. In reality, the IRS generally has a three-year window to audit, but that expands to six or seven years if there is a “substantial omission” of income. Thinking you’ve “won” because your 2023 return wasn’t flagged by 2025 is a dangerous delusion; the IRS often waits until the tail end of the statute of limitations to strike, allowing interest and penalties to compound into life-altering sums.

Furthermore, if the IRS suspects “possible fraud,” the statute of limitations disappears entirely—the window stays open forever. It is a common misconception that fraud requires a complex criminal conspiracy; in practice, the evidentiary bar for “willful intent” can be surprisingly low. If a taxpayer consistently “errs” in their own favor or fails to maintain basic documentation, the IRS can argue fraud, stripping away your legal shield and leaving every return you’ve ever filed open to microscopic scrutiny.

Finally, the current “resource drought” at the IRS is a temporary political climate, not a permanent law of nature. Betting your financial future on the agency remaining underfunded is a poor gamble. Eventually, the mounting national deficit will create a bipartisan mandate to close the “tax gap.” Whether through a change in administration or a shift in fiscal priorities, the IRS will eventually be helmed by leadership focused on efficiency and “flying the plane in a straight line.”

When that reinvestment happens, the agency won’t just look at new returns—they will use their upgraded technology to look backward at the years you thought they were too distracted to notice. On this April 13, as the filing deadline looms, remember: the IRS doesn’t need to catch you today to ruin your tomorrow. Compliance is expensive, but a decade of back taxes, compounded interest, and fraud penalties is a price no one can afford.

Authors Note: www.economicmemos.com is a blog about policy, personal finance and finance. I greatly appreciated when readers take out either the free subscription or the paid one, the choice is entirely yours and my goal is to keep most material free of charge.

The personal finance section of the blog consistently points to many of the issues impacting household finances which are often not the primary focus of financial advisors. The policy portion of the blog recommends approaches to health care, student debt, and savings incentives which differ from those offered by the two major political parties.

This coupon gives you 20 percent off and the right to renew at $48 as long as you maintain the subscription.

· Subscribe now to lock in 20% off—just $48 per year.

· Early supporters secure a discounted annual rate that continues at renewal.

· This limited-time offer allows founding subscribers to keep the reduced price as long as their subscription remains active.

#TaxDay #IRS #AuditRoulette #FinancialStrategy #TaxCompliance #WSJ #PersonalFinance

Introduction

Ezra Klein’s latest column is a defense of Hasan Piker as a credible participant in democratic discourse and a broader assertion that anti-Zionism should not be conflated with antisemitism. He argues that Piker could be the Democrats’ Joe Rogan. Hasan Piker is no Joe Rogan.

Klein rejects the characterization of Piker as a “Jew hater,” acknowledging his offensive and objectionable remarks while arguing that such a label oversimplifies and distorts his views. Instead, Klein presents Piker as an anti-Zionist whose rhetoric reflects a growing ideological current within segments of the progressive movement. He underscores Piker’s denunciations of antisemitism and support for Jewish political figures as evidence that criticism of Israel does not inherently equate to hostility toward Jews.

Comment One: On Klein’s Claim That Anti-Zionism Is Not Antisemitism

Ezra Klein argues that anti-Zionism is not inherently antisemitic—a claim that is both defensible and incomplete. In practice, anti-Zionism often crosses into antisemitism, particularly when it targets Jewish individuals, targets any Jew or non-Jew who supports Israel, applies double standards to Israel, or denies Jews the same right to national self-determination afforded to other peoples.

A clear example of this troubling convergence has emerged on American college campuses. When Jewish students—whether Zionist or not—are harassed, intimidated, or excluded because of their perceived support for Israel, the line between political criticism and religious or ethnic discrimination is crossed. Such incidents constitute antisemitism, not legitimate political dissent. Reports of harassment, exclusion from student organizations, vandalism, and threats directed at Jewish students have been widely documented in recent years.

These concerns have also been substantiated through legal action and federal investigations. Numerous lawsuits and Title VI complaints have alleged antisemitic discrimination on campuses. Prominent examples include:

• Harvard University: Students Against Antisemitism v. Harvard (2024), alleging that the university failed to protect Jewish students from harassment and discrimination.

• Columbia University: Lawsuits and federal scrutiny accusing the institution of permitting a hostile environment for Jewish students amid campus protests.

• New York University: A federal lawsuit alleging intimidation and exclusion of Jewish students tied to anti-Zionist activism.

• University of California, Los Angeles (UCLA): Legal action following allegations that Jewish students were denied equal access to campus spaces unless they disavowed Zionism.

Congressional hearings and investigations by the U.S. Department of Education’s Office for Civil Rights have further underscored concerns about antisemitism in higher education.

Another warning sign arises when criticism of Israel is applied selectively. When Israel is singled out for condemnation while comparable or more severe actions by other nations are ignored, anti-Zionism risks devolving into antisemitism through the application of a double standard. This principle is reflected in widely cited frameworks such as the International Holocaust Remembrance Alliance’s working definition of antisemitism.

This concern also raises questions about consistency among prominent anti-Zionist commentators. Hasan Piker, for example, has stated that he opposes ethnonationalist states but to the best of my knowledge he has not spoken out against the Islamic Republic of Iran.

Comment Two: On Hasan Piker’s Record and Credibility as a Foreign Policy Commentator

Ezra Klein’s attempt to legitimize Hasan Piker as a participant in mainstream political discourse requires a broader assessment of his record.

Perhaps the most notorious example is Hasan Piker’s statement that “America deserved 9/11,” which he later framed as a critique of U.S. foreign policy but which nonetheless trivialized a mass-casualty attack. This remark, along with criticism of his comments on Uyghur persecution in China, rhetoric perceived as sympathetic toward Hezbollah, his comparison of liberal Zionists to Nazis, and inconsistencies in his opposition to ethnonationalist states, raises serious questions about his judgment and credibility as a foreign policy commentator.

Comment Three: On Klein’s Historical Framing of Israel and the Peace Process

Ezra Klein’s critique of Israel rests on an interpretation of recent events that omits critical historical context. His analysis risks portraying Israel’s current position as the product of unilateral choices rather than the cumulative result of decades of failed negotiations, rejected compromises, and persistent security threats.

· Israel has repeatedly pursued territorial compromise in exchange for peace, including the Oslo Accords in the 1990s, the Camp David negotiations in 2000, and Prime Minister Ehud Olmert’s far-reaching proposal in 2008.

· Israel’s 2005 withdrawal from Gaza did not produce stability; instead, Hamas seized control and launched repeated attacks against Israeli civilians, reinforcing fears that a similar withdrawal from the West Bank could endanger Jerusalem and Tel Aviv.

· Critiques of Israel’s conduct in Gaza often overlook the strategic risks of legitimizing Hamas, an organization openly committed to Israel’s destruction and historically resistant to durable negotiations.

· While the humanitarian tragedy in Lebanon is undeniable, Hezbollah’s sustained aggression rendered northern Israel effectively uninhabitable for years, forcing mass evacuations and underscoring Israel’s security challenges.

Klein’s lack of historical perspective presents an incomplete account of why Israel is where it is today.

Comment Four: On Klein’s Assertion That Piker Cannot Be Antisemitic Because He Supports Jewish Critics of Israel

Klein suggests that Hasan Piker cannot be antisemitic because he supports Jewish critics of Israel. This reasoning is insufficient. Supporting Jewish individuals who share one’s political views does not preclude antisemitism.

My definition of antisemitism includes two key tests:

1. The Application of a Double Standard to Israel.

2. The Failure to Vigorously Oppose Hostility Toward Jews Who Refuse to Denounce Israel.

Historical references are sometimes invoked to justify criticism of Israel, including disputes between the United States and Israel during the Reagan administration in the 1980s. Senator Jon Ossoff has cited this period to suggest precedent for conditioning U.S. arms transfers to Israel. However, this interpretation overlooks critical context. While temporary restrictions were imposed, President Reagan ultimately reaffirmed the U.S.–Israel alliance following escalating instability, including the 1983 bombing of U.S. Marines in Beirut. Using this episode to justify contemporary arms embargoes misreads history. I doubt that Ossoff, a generally well prepared Senator, would make this type of claim with regard to a country that was not Israel.

Recent controversies on American college campuses further illustrate the importance of moral clarity. Instances in which chants widely interpreted as calling for violence against Jews were defended as free speech sparked national debate.

The failure of prominent Jewish leaders within the Democratic Party to vigorously lead the fight against antisemitism has been deeply troubling to many observers. In contrast, Representative Elise Stefanik’s high-profile congressional questioning of university presidents brought national attention to the issue and underscored the urgency of institutional accountability.

Ultimately, supporting Jewish critics of Israel does not, by itself, negate the possibility of antisemitism.

Comment Five: Conclusion

Op-eds like Ezra Klein’s—and there are many like them—leave me deeply saddened. They reflect not only a disagreement over policy but also a troubling shift in priorities.

First, the essay appears more concerned with positioning the Democratic Party for electoral success in 2028 than with achieving lasting peace in the Middle East. This recalls an old political joke: “We believe in the two-state solution—Michigan and Pennsylvania.”

Second, a Democratic administration shaped by the worldview Klein advances would risk destabilizing the region. Policies perceived as distancing the United States from Israel could embolden Hamas, Hezbollah, and other extremist actors while pushing Israel further to the right, undermining prospects for peace.

Third, sustained public pressure on Israel by the Biden administration and other Western governments risked emboldening Hamas by signaling divisions within the Western alliance. Following the October 7 attacks, Israel was unwilling—and strategically constrained—to negotiate with an organization responsible for mass atrocities while it continued to hold hostages. Indeed, external pressure to engage in negotiations or accept large-scale prisoner exchanges involving convicted terrorists risked creating dangerous incentives, potentially encouraging further hostage-taking and additional acts of terrorism. A more sustainable path forward would focus on disarming terrorist groups and deploying credible international or regional peacekeeping forces, with the Arab League playing a central role. Op-eds that overlook these strategic realities risk advancing policies that inadvertently incentivize extremism rather than stability.

Fourth, such arguments reinforce a perception—both in Israel and among key Arab allies—that American support is unreliable. This perception resonates in capitals such as Abu Dhabi and Riyadh, where leaders in the United Arab Emirates and Saudi Arabia increasingly view regional stability as dependent on consistent U.S. leadership.

Ultimately, durable progress in the Middle East requires historical perspective, moral clarity, and strategic realism. Essays that overlook these complexities do little to advance peace. That is why op-eds like Klein’s are not merely unpersuasive—they are disheartening.

Authors Note: I am doing a lot of work on health care most recently on the impacts of the failure to renew the enhanced ACA premium tax credit. My most recent work on this topic is this assessment of a WSJ editorial stating that the new policy was not disruptive. See my article The ACA is Not Stable: A Rebuttal to the Wall Street Journal.

Most of the material at www.economicmemos.com is free. I would very much appreciate all readers who take out the free or paid subscription, your choice of course.

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In the April 3, 2026, editorial “The ObamaCare Crisis That Isn’t,” the Wall Street Journal Editorial Board argues that Democratic warnings regarding the end of enhanced subsidies have proven unfounded. The Board claims:

· The 1.2 million person decline in number of ACA enrollees was smaller than anticipated and enrollment remains high at 23.1 million nearly twice the 2021 level.

· The decline of 1.2 million enrollees was largely result of removing people who were enrolled in both Medicaid and in state exchanges or had committed fraud.

· Average monthly premiums $137 or $73 for subsidized enrollees remained manageable and had not in fact risen.

· The most significant cost increase were limited to blue states with expensive mandates.

The objective of this essay is to systematically go through and evaluate these WSJ claims against broader economic data, state-level premium comparisons, and the clinical realities of coverage loss.

Concern One: The Omission of Medicaid-to-Exchange Transitions

The WSJ Claim: The 1.2 million decline in Exchange enrollment is a minor correction caused by the removal of “ineligible” enrollees and the curbing of “fraud.” This suggests the expiration of pandemic-era subsidies did not cause a meaningful loss of coverage.

The Counter-Analysis: Viewing Exchange data in isolation ignores the movement between Medicaid and the ACA Marketplace. Under the 2025 Tax Act, Medicaid eligibility was significantly tightened through 6-month redetermination cycles and stricter work requirements.

The Exchange acts as a safety valve for those losing Medicaid. If 2 million people were removed from Medicaid due to the 2025 tax bill, a healthy system would see those individuals transition to the Exchange.

If the Exchange lost 1.7 million previous members and only gained 500,000 “refugees” from Medicaid, the total number of people losing ACA-style coverage is significantly higher than the “1.2 million” headline suggests.

The 2026 CMS report shows a 13% drop in “New Consumer” sign-ups. In a year where Medicaid rolls were being cut, new sign-ups should have spiked.

Concern Two: The missing context of the 6.8 million growth

The WSJ Claim: There are 6.8 million more enrollees today than in 2023 and nearly twice as many as in 2021, implying the system remains robust despite the reduction in subsidies.

The Counter Analysis: This growth actually suggests the enhanced credits were a successful way to expand coverage. In addition, the WSJ does not account for other factors behind the growth of state exchange enrollment.

Between 2021 and 2025, many small businesses dropped coverage because heavily subsidized ACA plans were more affordable for their employees. This “crowd-out” means many of the 6.8 million were simply shifted from private employer budgets to the federal budget. One of the impacts of this substitution was lower costs for some small businesses, not a bad outcome.

This KFF article shows that a lot of the expansion of state exchange enrollment during the Biden years came in conservative states including Texas, Mississippi, Georgia, Tennessee and South Carolina that had higher uninsured rates.

Concern Three: The “Paperwork Barrier” vs. Actual Fraud

The WSJ Claim: The removal of 1.5 million people from the rolls is a victory for “program integrity” and a necessary step to stop subsidies going to those who “didn’t submit income records.”

The Counter-Analysis: The editorial conflates procedural ineligibility (paperwork errors) with intentional fraud. Data suggests this aggressive “cleaning of the rolls” creates a high-cost burden on the healthcare system.

Audits show that roughly 77% of Medicaid “improper payments” are due to “insufficient documentation”—meaning the person may legally qualify but failed to navigate new, stricter 6-month filing windows.

Double Counting of Medicaid and state exchange enrollments is often a timing issue caused by state data lags. Cutting these people instantly results in a coverage gap where the individual has no insurance for 30–60 days.

As depicted in medical literature (and dramatized in series like The Pitt), losing access to maintenance medications for chronic conditions like asthma leads to a massive spike in Emergency Room visits. Basically, a monthly subsidy of ~$500 for Symbicort is significantly cheaper for the taxpayer than a single $2,000 ER visit. See Emergency Department Visits for Acute Asthma by Adults Who Ran Out of Their Inhaled Medications (published in Allergy and Asthma Proceedings and indexed via NIH/PubMed) or The Lancet: Asthma Commission Report or Episode 13 Season Two of the Pitt.

Concern Four: The Statistical Illusion of “Average” Premiums

The WSJ Claim: Average monthly payments of $137 ($73) for subsidized consumers) are “hardly a great hardship reduction” as they mirror 2022 levels.

The Counter-Analysis: These averages are a classic example of survivor bias. The “stability” in the price is caused by the mass exit of the population from some of the more expensive cases.

People earning over 400% FPL faced 100%+ price hikes. They have largely fled the system. When the people with the highest premiums leave the data set, the mathematical “average” of those who remain stays low.

Many who stayed “bought down” from Silver to Bronze plans. They pay the “low” $73 premium but have seen deductibles spike from $5,300 to $7,500+. They are severely under-insured. This problem is about to get a lot worse because of the proposed HHS regulations, which I recently reviewed.

The increase in state exchange health insurance costs for some people over age 60 may have delayed retirements prior to the age of Medicare eligibility. The decision to retain employer based insurance rather than retire and switch to state exchange may lower premiums because state exchange premiums are age rated.

Concern Six: The “Blue State Mandate” Myth

The WSJ Claim: Premiums in “Blue” states are double those in the rest of the country due to mandates for social care, such as gender-affirming care and IVF.

The Counter-Analysis: The claim that blue states are more expensive is not consistent with other data See this KFF table for state cost estimates.

· Standard Silver Plan, premiums in “Red” Texas ($661) are actually higher than in “Blue” California ($570).

· The disparity is even more pronounced in the mid-Atlantic, where West Virginia ($1,073) is roughly 75% more expensive than its neighbor Virginia ($612).

West Virginia’s premiums are among the highest in the nation primarily because of the “double whammy” of an uncompetitive hospital market dominated by a few consolidated systems and a high-risk patient pool with the country’s highest rates of chronic diseases like diabetes and heart disease.

Actuarial data shows that “social” mandates like IVF or gender-affirming care typically account for only 1% to 3% of total premium costs. These are marginal “carve-outs” in a framework where 75% to 85% of a premium is dictated by provider prices and chronic disease management.

Blue states are not a burden to red state taxpayers because on net they pay more to the Treasury than the receive while red state get more than they give.

Conclusion

The “stability” celebrated by the Wall Street Journal editorial board is a snapshot of a shrinking market rather than a sustainable system. By pricing out the middle class and forcing the near-elderly to choose between their health and their retirement, the expiration of enhanced subsidies hasn’t solved a crisis—it has simply moved it from the federal balance sheet to the kitchen tables of American families.

A Note on the Limits of Editorial Discourse

The complexity of healthcare economics—where variables like hospital consolidation, regional risk pools, and federal subsidy structures intersect—rarely lends itself to the brief, high-level format of an op-ed or editorial. While the Wall Street Journal provides a valuable platform for policy debate, the board’s recent reliance on selective statistics to support a “Blue State Mandate” narrative serves as a reminder that opinion pieces are often an insufficient mechanism for exploring such intricate issues.

When data is curated to fit a specific ideological lens—such as focusing on marginal social mandates while ignoring the massive cost impacts of provider monopolies—the resulting commentary risks being more misleading than informative. For a framework as vital as the ACA, a commitment fact-based analysis is a prerequisite for any meaningful discussion on reform.

Deep Dive: Expert Video Analysis For a visual breakdown of how the 2026 subsidy expiration is reshaping the health insurance landscape, I highly recommend this KFF briefing: KFF Expert Briefing: The 2026 Coverage Gap and the Subsidy Cliff

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This memorandum provides a comprehensive analysis of the 2026 Senate landscape, evaluating the structural and ideological factors that will define the upcoming midterm elections; a separate analysis focusing on the House map will follow.

In a field crowded with partisan prognosticators, this report is grounded in a commitment to objectivity -- explicitly acknowledging personal political preferences to ensure they do not dictate or distort the resulting data. By identifying these biases upfront, we can more clearly navigate the competing narratives that define this cycle.

Key Results

• Divergent Narratives: The 2026 political cycle is defined by a paradox: a macro-environment heavily favoring a “Blue Wave” is being countered by a Democratic shift toward extreme positions on healthcare, taxes, and Middle East policy that risks alienating moderate voters.

• Candidate & Policy Liabilities: Georgia and Maine are two states where a drift to the left and specific problems with Democratic nominees may derail prospects in these essential defensive contests, turning winnable races into significant vulnerabilities.

• The Michigan Friction: Deep intra-party divisions regarding Middle East foreign policy have created a significant vulnerability in Michigan, potentially fracturing the coalition necessary for Democrats to hold the seat.

• The Need for a New Approach: If Democrats fail to win in states like Texas, Montana, Ohio, Alaska, and Iowa during a favorable “Blue Wave” environment, it will signal that the party brand is irreparably damaged in these regions. Such an outcome would confirm a state of de facto one-party rule and the urgent need for a new political approach or a third party to restore genuine choice.

• The Pickup Map: North Carolina remains the most likely state to flip in favor of Democrats. New Hampshire and Michigan have emerged as premier GOP targets following the retirement of Democratic incumbents.

Introduction: Perspective vs. Analysis

In a world defined by hyper partisanship, the line between independent observation and partisan advocacy has dangerously blurred. As Gerard Baker noted in the Wall Street Journal (March 30, 2026), many commentators now prioritize “instantaneous certitude” over objective uncertainty, allowing their ideological preferences to dictate their forecasts. Baker argues that such “metaphysical certainty” is a hallmark of political engagement, but it is fatal to honest analysis.

I hold distinct worldviews on the Mideast and domestic economic policy. The reader must understand my perspectival biases and my commitment to not having these biases shape my analysis.

My strategic foreign policy outlook aligns with John Bolton’s viewpoint. The underlying objective in Iran must be regime change. A government that killed 40,000 of its own citizens in a couple of weekends and publicly executes its own youth -- such as the recent hanging of 19-year-old wrestling champion Saleh Mohammadi -- is not a credible partner for diplomacy. I believe that true diplomacy in 2026 is not a substitute for military victory, but a dividend of it.

However, an analyst’s preference for a policy must not be confused with its success. While I support concept of the war in Iran, I must objectively note that the administration failed to adequately prepare for the regime’s stranglehold on the Strait of Hormuz. Furthermore, successful regime change, the only real justifiable goal of this war, depends on coordination with the Kurds and Iranian opposition -- a synchronization that is currently not evident.

My views on domestic reform also diverge from the current binary choices offered by two major parties. I reject the policy adopted by both parties of delaying necessary implementation of Social Security reform, a policy which can only increase costs and the pain of the adjustment process. I reject both the Republican erosion of ACA subsidies and the Democratic push for Medicare for All.

In my view, the Democratic party is more interested in making grand overtures towards its base than in sponsoring realist economic reforms. It is against this backdrop -- acknowledging my biases while ruthlessly prioritizing data over dogma -- that I assess the current political, economic, and policy environment.

An evaluation of the 2026 political environment:

This evaluation of the upcoming November election balances two approaches -- an assessment of the broad political-economic “mood” versus a granular analysis of policy positions and individual matchups.

Historically, midterm elections serve as a referendum on the party in power. Currently, the “political environment” strongly favors a Democratic surge. The war in Iran remains broadly unpopular, and the domestic economy is reeling from rising interest rates and inflation (with headline CPI projected to hit 3.5%–3.8% by Q3). My view is that inflation and interest rates can go much higher than headline projections.

Policies championed by the Trump Administration and the Republican congress -- including the phase-out of enhanced ACA subsidies and aggressive deportation strategies have impacted some people directly and have been witnessed by many friends and neighbors of affected people.

These factors suggest a significant “blue wave” is structurally possible.

The 2026 blue wave is not a certain outcome. Increasingly, the Democratic party has moved to the left with many candidates taken extreme positions on health care, taxes and the middle east to mollify the base of the party.

Despite a major opening created by Republicans eliminating ACA subsidies, Democrats are doubling down on Medicare for All. This unworkable model risks the insurance of 160 million people, turning a Republican fumble into a Democratic liability, as explained in the essay Should Democrats Adopt Medicare for All in 2028?

Similarly, the progressive fixation on wealth tax, an unrealistic approach risks alienating high-income voters who are open to paying more but are terrified of structural wealth destruction.

Vehement criticism of Israel, and in some cases actual support of Hamas, Iran and Hezbollah, from the Democratic base allow Republicans to classify some Democrat candidates as soft on terror.

Mainstream voices including the IOC and Bob Costas, the legendary sportscaster, are pushing back on the progressive view that transgender people should be allowed to compete against women in sports.

Candidate views and quality can influence election outcomes even in a wave election. Candidate quality is especially important in Senate elections where major party nominees tend to have a long resume and reputation to defend.

The remainder of this memo analyzes key 2026 Senate races to evaluate the likely outcome of the contest for control of the Senate. I attempt to control and point out the perspectival biases which impact the analysis.

A subsequent memo will do the same for the contest for control of the House.

Senate elections:

Competitive Senate candidates typically have defined resumes, governing records, and policy histories. Statewide contests tend to expose gaps in credibility quickly, hence candidates in competitive states – states that are neither deep blue nor deep red – cannot rely on party coattails.

Many states have sorted into safely red or blue categories. The number of potentially competitive Senate races is, in the current political map, fairly small. At this time, Senate races in 10 states -- Maine, Georgia, Texas, Michigan, Montana, Ohio, Alaska, North Carolina, Iowa, and New Hampshire -- are potentially in play. (Although, I would argue Democrat victories in five of the states Texas, Montana, Ohio, Alaska, Iowa -- require a substantial blue wave.)

Maine Senate:

The Maine Democratic primary has devolved into a bitter choice between Governor Janet Mills, who at 78 would become the oldest freshman senator ever elected to a full term, and frontrunner Graham Platner, a 41-year-old oyster farmer with no governing resume. Platner has out-raised the Governor nearly three-to-one, fueled by a populist message and high-profile endorsements from Senators Bernie Sanders and Elizabeth Warren.

The support for Platner is astonishing given his history of disqualifying rhetoric and personal baggage. His past social media comments -- including Reddit posts that critics condemn as victim-blaming regarding sexual assault -- and a controversial chest tattoo resembling the Nazi SS Totenkopf symbol make him a massive liability.

This primary dynamic is a gift to Susan Collins who crushed a far more robust, capable Sara Gideon, in 2020. Collins won that race by nine points even though the party’s presidential nominee lost the state. The only way Democrats flip this seat is a total collapse of the Trump and Republican brands and if Platner is the nominee they could lose the race even if there was a huge blue wave.

Georgia Senate: Ossoff’s Strategic “Reagan” Blunder

Jon Ossoff enters 2026 with a massive $25 million war chest, but his re-election is complicated by a significant historical and policy error. In justifying his recent votes to halt arms shipments to Israel, Ossoff cited Ronald Reagan’s 1982 pause on munitions as a successful precedent for using “leverage.”

Reagan’s 1982 pause created a security vacuum that led directly to the 1983 Marine Barracks bombing in Beirut, which killed 241 American service members. Far from a success, that catastrophe -- orchestrated by the Iranian-backed nascent Hezbollah --forced Reagan to reverse course and deepen strategic cooperation with Israel. By sanitizing this history, Ossoff risks promoting a policy that has historically invited disaster for U.S. peacekeepers.

Israel is not the top issue for most Georgians, but it is visceral for many of the state’s 130,000 Jewish voters and for a large number of voters in Georgia with ties to the military. Ossoff, the first Jewish senator from the Deep South won’t do well in a group where typically 70 percent of voters go to the Democrat and given the closeness of Geogia elections even a small shift in a small part of the electorate could be decisive.

The Republican primary on May 19 will determine if the GOP can capitalize on this “security gap.” The field currently includes two current members of Congress, Mike Collins and Buddy Carter and an outsider Derek Dooley, a former coach with the backing of the governor Brain Kemp. The primary contest will likely be determined in a runoff.

My bias in this election is clear. I am a Zionist, who can tolerate some but not much criticism of Israel. I find Ossoff’s use of the Reagan analogy to be historically flawed and dishonest. I am not a citizen of Georgia, but, if I was, I could not vote for Ossoff.

Texas Senate: The Grudge Match and the Seminarian

Democrats have pinned their 2026 hopes on State Representative James Talarico, a former middle school teacher and Presbyterian seminarian who defeated U.S. Rep. Jasmine Crockett in the primary. Talarico is an articulate, faith-forward candidate without much economic expertise. His mantra is

“We follow a barefoot rabbi who gave only two commandments: love God and love your neighbor.”

The real spectacle is the Republican runoff race between incumbent Senator John Cornyn and the impeached but acquitted Attorney General Ken Paxton. Hands down this is the most entertaining race in the country.

Cornyn’s campaign has focused heavily on Paxton’s legal “baggage,” including his 2023 impeachment and long-standing securities fraud charges, using a “Thou Shalt Not” ad to highlight Paxton’s violation of several of the ten commandments. Paxton has retaliated with the “Love Boat” theme song to highlight Cornyn’s years in Washington. (I might have gone with the B 52s Love Shack, if I was running Paxton’s campaign.)

Democrats have not won a statewide race in Texas since Ann Richards in the 1990s. They are hoping that this time will be difficult. If it is not different, someone should think about organizing a third-party in Texas because, a loss by the Democrat this year would verify that in statewide races Texas only has one choice in the current two-party system.

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Michigan Senate: A Primary “Shit Show”

The Michigan Democratic primary is a battleground for a party deeply fractured between constituencies with different views of the Mideast. Two of the candidates Haley Steven and Mallory McMorrow have fairly conventional views while Abdul El-Sayed is a vocal critic of U.S. Mideast policy.

A recent leaked recording revealed El-Sayed was not willing to say anything about the death of Khamenei because a lot of people in Dearborn are sad today. Here is a partial list of Iranian backed terror initiatives. The world is better off with the precedent set that terror has consequences.

Republican Mike Rogers, a former congressman who lost a close Senate contest in 2024, will be the Republican nominee. The Cook report lists the race as a toss-up. I suspect the state would easily flip to the republicans if El-Sayed is nominated, a possibility in a three-way Democratic primary.

Montana Senate: The “Tester Strategy” and the Independent Gamble

The Montana Senate race was upended when incumbent Senator Steve Daines withdrew from the race at the last minute and his choice for his successor, former U.S. attorney Kurt Aimes filed paperwork to enter the race.

This maneuver was designed to freeze the field and prevent Democrats from recruiting a heavyweight contender like Jon Tester or a former governor. Alme is not yet the nominee “for certain” as he faces two primary challengers on June 2, but with the immediate and dual endorsements of Daines and President Trump, he is the overwhelming favorite.

Seth Bodnar, a West Point graduate, Green Beret, and former University of Montana President, is running as an Independent. Bodner has Tester’s endorsement and is raising funds through Act Blue. This approach, which was used unsuccessfully in the 2024 Nebraska Senate race, assumes that the Democratic brand is dead in rural America.

Whether an Independent can announce a desire to caucus with Democrats and win in a red state is the cycle’s experimental gamble.

Ohio Senate: The return of Sherrod Brown

The Ohio Senate special election is shaping up to be a clash of statewide titans, as former Senator Sherrod Brown, the former Senator who lost his reelection race in 2024 is the favorite for the nomination in 2026.

Following the resignation of J.D. Vance to become Vice President, Governor Mike DeWine appointed then-Lieutenant Governor Jon Husted to the vacancy. Husted will be the Republican nominee.

The polls have this election as a dead heat in November. Ohio has been trending sharply Republican. Obama was the last Democrat to win the state at the presidential level. This race should be close and could flip to the Democrat if the national mood and events turn against the Republicans.

Alaska Senate: Ranked Choice and the Peltola Surge

Alaska is likely to remain a toss-up election the entire year because of its unique rank-choice voting system and the existence of four candidates on the ballot. The two top candidates, current Senator Dan Sullivan and former Representative Mary Peltola have both won statewide races. It is highly likely that neither candidate will initially have 50 percent of the vote and the outcome will be determined by the second choice of people who vote for the minor candidates.

North Carolina Senate: The Battle of the Heavyweights

North Carolina represents the Democrats’ premier pickup opportunity, as the retirement of Republican Thom Tillis has transformed this into a high-stakes open-seat contest between two seasoned veterans. Former Governor Roy Cooper, who never lost a statewide race during his eight-year tenure (2017–2025), enters the general election with a formidable $14 million war chest and a consistent 8-to-10 point lead in post-primary polling.

Governor Cooper faces Republican Michael Whatley, the former RNC Chairman and Trump-backed operative who consolidated the GOP base with a dominant 65% primary victory. Whatley is a disciplined campaigner, but Cooper’s brand of moderate politics combined with a favorable environment of Democrats should flip North Carolina.

2026 Iowa Senate Outlook

Ashley Hinson, a current congresswoman is the likely Republican nominee for Senate. Iowa Democrats have a competitive primary between State Senator Zach Wahls, the candidate with local support and State Representative Josh Turek, the candidate with a lot of endorsements from national leaders.

The Republicans control all major offices in Iowa today including all four Congressional seats. In 2018, Democrats had 3 of 4 House seats. Hinson is the heavy favorite even if there is a blue wave.

Open Seat in New Hampshire:

The New Hampshire Senate race is a high-stakes battle for the open seat of retiring Democrat Jeanne Shaheen, where former Senator John E. Sununu currently dominates the Republican primary field with a 29-point lead over Scott Brown. The Democratic nominee will be Representative Chris Pappas. Polls show the race to be close. Political analysts rate the race as tilt or leans Democratic.

Ultimately, the state is a “must-hold” for Democrats to maintain Senate control. The race is currently rated a “Tilt” or “Lean” Democratic in a traditionally swing state,

Conclusion:

Amidst a crowded field of 2026 political prognosticators, my analysis deliberately prioritizes an honest accounting of my own biases to ensure they do not cloud the objective data.

The current landscape is defined by sharply competing narratives, starting with the undeniable structural tilt of the political environment, which suggests a massive “blue wave” is possible. However, momentum for the Democrats faces a significant counter-narrative: a party drifting toward symbolic, unpractical, and extreme positions on healthcare, taxes, and Middle East policy that risk alienating the very voters required to sustain a national mandate.

This ideological drift, combined with specific candidate liabilities, creates a precarious map for the Democratic caucus. In key battlegrounds like Georgia and Maine, the combination of extreme policy platforms and weak candidate profiles could doom what should otherwise be winnable seats. Furthermore, deep internal divisions regarding the Middle East threaten to cripple the party’s coalition in Michigan, potentially handing a crucial swing state to the opposition through sheer intra-party friction.

Finally, the Democratic brand has deteriorated so significantly in deep-red states like Texas, Montana, Iowa, Ohio, and even Alaska, that voters appear to be experiencing de facto one-party rule. In these environments, the absence of a competitive opposition highlights a growing necessity for a viable third party to challenge the current status quo. Ultimately, while the national environment favors a Democratic surge, the party’s insistence on “far-left” positioning and its failure to compete in rural strongholds may prevent them from fully capitalizing on a favorable 2026 cycle.

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Introduction:

A Wall Street Journal article announced the introduction of a new token-backed mortgage program, a joint initiative by Better Home & Finance and Coinbase Global. The program allows homebuyers to secure a Fannie Mae-conforming mortgage by using a second lien backed by substantial crypto currency collateral instead of making a traditional cash downpayment.

In theory, there is no inherent problem with a lender using a financial asset as additional collateral in a real estate transaction or as a different form of collateral than a cash down payment. If structured correctly, financial collateral allows the borrower to maintain a more diversified portfolio and creates critical diversification for the mortgage holder. This “collateral cushion” can protect the lender in a default scenario where housing prices collapse and traditional equity turns negative. In fact, I argued for this exact type of structural diversification in a paper I wrote and presented in the early 1990s.

This note looks at the terms and conditions of the new financial product, provides an example comparing a house purchase with a traditional mortgage to one with the new product and provides some comments.

Summary of Terms and Conditions

The full text of the terms and conditions of the new financial product are at: Better.com - Token-Backed Mortgage Program Terms and Conditions

• The Advance Rate (Defined): In lending, the Advance Rate is the maximum percentage of an asset’s value a lender will provide as a loan. Bitcoin (BTC) has a 40% Advance Rate for this transaction. This means that to get a $100,000 loan for the downpayment, you must pledge $250,000 in BTC—effectively a 250% collateralization ratio.

• Dual-Loan Structure: Qualified customers obtain a “Downpayment Loan” (secondary) to fund the cash required for a “Token-Backed Mortgage Loan” (primary).

• The Second Lien: The Downpayment Loan is secured by both the pledged digital tokens and a second lien on the residential property.

• The “Lock” Period: Pledged tokens are moved to a custodial account and cannot be sold, transferred, or re-pledged without prior written consent.

• Liquidation Rights: If a default occurs, the lender has the immediate right to sell or liquidate the pledged tokens to satisfy the debt.

Financial Comparison: The $500,000 Purchase

The $500,000 home can be purchased with either a traditional loan or the new token-backed program.

The Traditional Approach involves the buyer selling approximately $115,000 in Bitcoin to cover the down payment and the associated capital gains tax. This results in a $400,000 mortgage (80% LTV), with monthly payments based only on that balance and a single lien on the home. The borrower maintains 20% home equity from day one and full control over any remaining Bitcoin.

The Token-Backed Program (Pledging Assets) involves the buyer pledging $250,000 in Bitcoin to secure a $100,000 loan. This results in a $500,000 total debt load (100% LTV), monthly interest payments on the full purchase price, and a high-risk “double lien” on both the home and the crypto. The borrower is legally barred from selling their Bitcoin to lock in gains and is exposed to a $750,000 total collateral risk (house + crypto) in case of default.

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IV. Critical Analysis & Comments

1. Substantial Increase in Monthly Payments

The Downpayment Loan carries the same interest rate as the primary mortgage. In a traditional purchase, a down payment is equity that reduces your debt. In this program, that down payment is debt. You are paying interest on 100% of the home’s value, increasing your monthly obligation by roughly 25%.

2. The Most Alarming Risk: The Second Lien

The Downpayment Loan is secured by a second lien on the residential property. If you fail to pay the crypto-backed portion, the lender has a legal claim to your house. You aren’t just pledging your Bitcoin; you are pledging your home twice.

3. Massive Collateral Exposure

In the $500k example, you have pledged a $500,000 home and $250,000 in Bitcoin. A 60-day delinquency allows the lender to liquidate your tokens and potentially foreclose. For a $100,000 loan benefit, you are exposing $750,000 in total collateral.

4. Circumventing Tax Policy Goals

The rationale behind the policy of maintaining a capital gains tax rate lower than the tax rate on ordinary income is to motivate investors to realize capital gains. This product encourages borrowers to avoid a one-time 20% tax hit by taking on up to 30 years of interest on a new loan. This is probably a bad deal for investors. More importantly, this type of financial gimmickry undermines incentives for people to take gains and ultimately could erode support for the preferential rate on capital gains.

5. The “Locked Upside” Constraint

If Bitcoin’s price surges, the borrower cannot easily “take chips off the table.” The pledged assets remain encumbered and cannot be sold or reallocated without repaying or refinancing the associated loan. While exit is possible—through refinancing, partial repayment, or other sources of liquidity—it requires introducing new capital or leverage. In practice, this structure limits the borrower’s ability to actively manage or diversify their crypto exposure during the life of the loan.

6. Policy does not address broad affordability concerns

The main problem with the housing market right now is a vast number of young buyers cannot afford a new home. A person with $250,000 in crypto assets who does not want to sell the assets because of a potential capital gains is not a person with an affordability constraint.

Why is this program even being considered right now?

Conclusion

A fairer way to diversify collateral and prevent lender losses is to use stable, high-quality financial assets to provide a liquidity buffer that doesn’t rely on a second lien on the home. As I argued in my early 1990s research, the conceptual goal of using financial assets as collateral is sound: it allows for a more diversified portfolio for the borrower and provides the lender with protection against the “negative equity” scenarios that devastated the market in 2008.

However, the 2026 crypto-pledge model fails the test of financial sanity. It insulates the lender from loss at a lopsided and ultimately punitive cost to the homeowner. This product remains a bad deal because it replaces equity with debt, traps liquidity in a volatile “lock,” and circumvents logical tax policy.

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New York’s Climate Leadership and Community Protection Act (CLCPA) represents one of the most ambitious state-level climate frameworks in the United States, but its implementation is increasingly constrained by economic, institutional, and political realities. Governor Kathy Hochul’s proposed revisions—delaying enforcement timelines and modifying key targets -- highlight a broader dilemma: how to reconcile aggressive statutory targets with rising concerns about affordability, grid readiness, and deployment bottlenecks. This challenge is compounded by an emerging political divide, with progressive Democrats opposing delays and more moderate stakeholders supporting greater flexibility.

This paper argues that New York’s experience reflects a broader pattern across U.S. states and internationally, where ambitious climate policies are being recalibrated as they expand beyond the power sector into transportation and buildings. While cap-and-trade systems, subsidies, and regulatory mandates have achieved partial success, they represent second-best approaches shaped by political constraints that limit the use of more efficient, transparent carbon pricing. The analysis highlights the central role of utility structure, market access, and incentive design in determining outcomes, and suggests that aligning implementation reforms with adjusted targets may be necessary to sustain both political support and policy effectiveness.

Key Results

• Governor Kathy Hochul’s proposed rollback exposes a growing intra-Democratic divide, with progressives opposing delays and moderates aligning with Republican support for flexibility.

• Scaling back climate policy is becoming the norm as economy-wide programs face cost, complexity, and political constraints.

• New York’s subsidies function as both implementation tools and political cover for softening rigid climate targets.

• The main barrier to clean energy deployment is conflict between utilities and solar and battery developers, which results in slow approvals, unclear costs, and uncertain payments.

• Both cap-and-invest and mandate-driven approaches are second-best policies shaped by political limits on direct carbon pricing.

• Building mandates illustrate the core tradeoff: efficient fuel pricing is avoided because it raises visible costs for households, leading to more complex alternatives.

Introduction:

Governor Kathy Hochul faces a defining policy dilemma in New York’s implementation of its climate law: how to reconcile some of the most aggressive statutory emissions targets in the country with rising concerns about affordability, grid readiness, and economic competitiveness. Recent reporting highlights an unusual political alignment, with Republicans supporting efforts to delay or soften key mandates while progressive Democrats oppose any perceived rollback of the state’s climate commitments (See Hochul wants a climate reprieve, WSJ.)

This tension reflects a broader reality: the transition from ambitious legislative targets to practical implementation is proving far more complex than originally anticipated, particularly as costs become more visible and timelines more binding.

New York’s experience is not unique. Across the United States and internationally, governments are recalibrating climate policies that were initially designed under more optimistic assumptions about cost, technology, and political tolerance for higher energy prices. While cap-and-trade and related systems have delivered measurable emissions reductions in certain sectors, their expansion to economy-wide frameworks—especially in transportation and buildings—has encountered increasing resistance. The result is a growing pattern of delays, modifications, and policy adjustments, suggesting that scaling ambitious climate initiatives requires not only technical feasibility but sustained political and economic alignment.

Description of the New York Climate Law (CLPA)

The CLCPA is the most aggressive state-level climate mandate in the U.S. due to its unique “Real Zero” requirements rather than “Net Zero” goals.

· Unlike “Net Zero” targets in California or Europe, New York mandates an 85% absolute reduction in gross greenhouse gas emissions by 2050. Only 15% can be offset, effectively forcing the removal of fossil fuel infrastructure.

· A legally binding 40% reduction by 2030. As of March 2026, New York has achieved only a 9% reduction, leaving a massive gap to close in just four years.

· The original law requires a 20-year timeframe for methane, weighting its warming impact significantly higher than the 100-year standard used globally.

The CLCPA serves as a “framework law,” delegating specific enforcement to state agencies, primarily the Department of Environmental Conservation (DEC).

Affected Sectors

• Electric Power: 70% renewable by 2030; 100% zero-emission by 2040.

• Transportation: Economy-wide caps on fuel suppliers and distributors.

• Buildings: Large buildings face strict emissions limits; new construction under seven stories must be all-electric as of January 1, 2026.

• Waste/Heavy Industry: New “Part 253” regulations (effective 2026) require industrial sources to monitor and report all emissions data.

If the DEC fails to meet targets, it faces litigation, Article 78 proceedings. Under Environmental Conservation Law Article 71, violations of reporting rules carry fines of up to $18,000 for initial violations and $15,000 per day for continued non-compliance. Under Cap-and-Invest, firms exceeding their cap must buy allowances. Failure to do so triggers a “penalty multiple” (typically 3x the market price).

“Cap-and-Invest” was not written into the 2019 law. It was adopted as the “preferred mechanism” through administrative action: The Climate Action Council’s “Scoping Plan” recommended Cap-and-Invest as the primary enforcement tool. Governor Hochul formally endorsed the mechanism.

The implementation of the law has been stalled by executive caution and judicial intervention. The Hochul administration failed to meet a January 1, 2024, deadline to finalize regulations citing economic infeasibility and inflation.

An Ulster County Supreme Court judge ruled that the state could not ignore statutory deadlines. The judge ordered the DEC to finalize regulations by February 6, 2026.

In November 2025, the state appealed, triggering an automatic stay that paused the court’s deadline. As of March 25, 2026, the case is pending in the Appellate Division.

Governor Hochul is now attempting to rewrite the law through the April 1, 2026 budget: Her proposed revisions include:

· Moving mandatory enforcement to the end of 2030.

· Shifting to 100-year methane accounting to make natural gas look 25% “cleaner” on paper.

· Adding a midpoint milestone to stretch out the compliance timeline.

Comments:

Comment One: Scaling back ambitious climate initiatives is basically the new normal both by states in the United States and among nations.

Cap-and-trade and cap-and-invest programs have demonstrated measurable success in reducing emissions, particularly in the power sector where compliance is concentrated and alternatives are readily available. However, their expansion to economy-wide systems—especially in transportation and buildings—has proven more difficult, with a growing number of jurisdictions delaying implementation, scaling back requirements, or modifying timelines in response to cost, complexity, and political constraints.

U.S. State Climate Policy Status (March 2026)

· New York: Following a 2025 court ruling that found the state in violation of its own deadlines, Governor Kathy Hochulis now seeking to use the April 2026 budget to legally delay enforcement until 2030 and weaken methane accounting standards.

· Massachusetts: The Healey administration officially delayed the Clean Heat Standard (a tax on fossil heating fuels) from 2026 to 2028, citing the need to protect residents from projected annual heating bill increases of up to $425.

· California: While emissions reporting (SB 253) is moving forward for late 2026, a Ninth Circuit injunction has paused the Climate-Related Financial Risk Act (SB 261), making reporting voluntary until the court issues a final ruling.

· Washington: Lawmakers are currently fighting to protect Climate Commitment Act (CCA) revenues from being diverted to general budget gaps, while linkage with California’s carbon market has been pushed to 2027 to help stabilize record-high gas prices.

· Pennsylvania: The state officially exited the Regional Greenhouse Gas Initiative (RGGI) in late 2025 after a multi-year budget impasse, with Governor Shapiro signing a repeal that permanently blocks the state’s carbon-cap participation.

· Maryland: The legislature is currently debating a moratorium (SB 834) on the EmPOWER program, which would pause greenhouse gas reduction targets for utilities until at least 2027 to curb rising electricity surcharges.

· Oregon: After a “defend-and-deliver” 2026 legislative session, several major climate investments were sidelined due to a looming budget gap for 2027, leaving the Climate Resilience Superfund in a holding pattern.

· Illinois: While the state continues its fossil fuel phase-out, new 2026 legislation (SB 3664) has been introduced to create an Energy Choice Commission to re-evaluate the economic impact of current mandates on industrial competitiveness.

International Climate Policy Status (March 2026)

· China: The newly adopted 15th Five-Year Plan sets a slightly lower carbon reduction target, includes a data revision that lowers required emissions, and allows for the use of coal as a strategic stabilizer.

· European Union: On March 10, 2026, the EU formally postponed the launch of ETS2 (the carbon cap on home heating and vehicle fuels) until January 1, 2028, to prevent a populist backlash over rising energy costs and allow more time for “social buffer” funding.

· Canada: New changes transition to a purely industrial pricing model, this shift is projected by the Canadian Climate Institute to create a 15–20% shortfall in meeting 2030 targets due to the loss of consumer price signals.

· United Kingdom: In late 2025, the government issued a “Pragmatic Realignment” of its Carbon Budget after court rulings found previous plans unachievable; the 2026 strategy prioritizes energy security and nuclear expansion over immediate emissions cuts in transport.

· Australia: As of March 2026, the government is moving to exempt approximately 1,500 medium-sized firms from mandatory climate disclosure laws, citing regulatory burden concerns.

· India: The Ministry of Power announced it will revisit and likely approve several new coal-fired power projects originally sidelined in 2024, citing the need to ensure grid stability for a rapidly expanding industrial base.

Comment Two: Incentives as Political and Economic Justification for Target Modification

New York’s extensive financial incentives for heat pumps, distributed solar, and other clean energy technologies are not just implementation tools -- they are increasingly central to the political viability of modifying the state’s rigid climate targets.

New York offers some of the most generous energy subsidies in the country, including upfront rebates for air- and ground-source heat pumps, income-tiered subsidies for rooftop and community solar, and performance-based incentives for energy storage -- often exceeding comparable offerings in states such as California and Massachusetts in both scope and direct consumer support. As Governor Kathy Hochul seeks to delay enforcement timelines and introduce more flexible compliance mechanisms, reaffirming and possibly expanding these subsidies may be necessary to maintain credibility with stakeholders who supported the original CLCPA framework.

Comment Three: Linking Target Flexibility to Utility Reform and Market Access

Governor Kathy Hochul’s effort to relax or delay certain climate mandates could be more effectively paired with structural reforms in utility behavior, particularly around interconnection, grid access, and support for distributed energy resources such as battery storage. Despite ambitious targets for storage and distributed generation, New York’s interconnection system remains slower and more utility-controlled than more market-oriented regions such as Texas or more streamlined operators in parts of the Midwest and New England.

Recent experience with battery storage projects highlights how utility processes can become a binding constraint on clean energy deployment in New York. In New York City, interconnection requirements imposed by Consolidated Edison have added roughly $21 million in upgrade costs per project, leading to multiple cancellations and placing significant planned investment at risk.

In addition, the state’s shift from full net metering to the more complex VDER system, along with new fees and changing credit rules, has made it harder for developers and consumers to predict the value of selling excess solar power back to the grid.

Developers continue to encounter uncertainty over upgrade charges, shifting compensation frameworks, and utility-controlled approval processes, all of which slow deployment of clean energy projects even where policy support exists. Addressing these issues would reduce structural barriers and improve system efficiency and would have political value in demonstrating to the governor’s critics that the state was moving forward on environmental goals despite the proposed rollback to the climate law.

Comment Four: The Limits of Second-Best Climate Policy

New York and California have adopted different policy tools to reduce transportation emissions, but both reflect departures from the economically efficient approach of directly pricing carbon. New York’s cap-and-invest system applies an upstream constraint on fuel suppliers, generating revenue that is recycled into subsidies while indirectly embedding emissions costs into fuel prices. California, by contrast, relies more heavily on regulatory mandates, including zero-emission vehicle requirements and a planned phase-out of internal combustion engine sales. While these approaches differ in design, both seek to achieve emissions reductions without imposing a transparent, economy-wide price on carbon consumption.

Most economists view such systems as second-best alternatives to direct carbon pricing, such as fuel taxes or emissions-based vehicle fees. These more direct approaches would impose costs transparently on higher-emitting behavior while allowing markets to determine the most efficient path to decarbonization.

By comparison, upstream cap systems and technology mandates introduce complexity, obscure price signals, and require ongoing policy adjustments. New York’s cap-and-invest framework, in particular, can be understood as a politically feasible substitute for a carbon tax—one that generates similar revenue but with less transparency and greater administrative burden.

Comment Five: Building Electrification Mandates and the Shift Toward Flexibility
New York’s building sector strategy relies heavily on regulatory mandates, including emissions caps on large buildings and requirements that most new construction under seven stories be all-electric as of 2026. This framework is broadly similar to approaches adopted in jurisdictions such as California and cities like Boston, which use building codes to accelerate electrification. However, Governor Kathy Hochul has moved to soften implementation by delaying enforcement, emphasizing affordability and grid readiness, and placing greater weight on subsidies and phased adoption. This does not eliminate the mandate-based framework, but it does shift New York away from the more rigid, front-loaded versions seen elsewhere.

From an economic perspective, these mandate-driven approaches are generally viewed as second-best instruments relative to directly pricing emissions from building energy use. A first-best approach would impose a transparent carbon price directly on heating fuels such as natural gas or heating oil, allowing property owners to respond by choosing the most cost-effective combination of electrification, efficiency improvements, or alternative technologies.

The primary political challenge with such an approach is that it would directly raise heating costs for households, making it more visible and broadly distributed than building-specific mandates.

One potential alternative would combine a broad carbon price on heating fuels with targeted rebates to households and smaller building owners, offsetting the distributional impact while preserving incentives for efficiency and electrification. While such systems can address equity concerns and improve economic efficiency, they remain politically challenging due to the visibility of higher energy costs and the need for sustained, credible rebate mechanisms.

Conclusion

New York and numerous other jurisdictions are increasingly relying on second-best environmental policies as ambitious climate goals encounter the realities of cost. Rollbacks and delays are occurring not because objectives have changed, but because the economic and institutional challenges of implementation become more apparent as policies move from design to execution.

The next phase of climate policy should focus less on expanding targets and more on improving policy design. More direct, transparent approaches -- combined with reforms that reduce institutional bottlenecks and better align incentives -- may offer a more durable path forward. Without such adjustments, further delays and incremental rollbacks are likely.

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Since the outbreak of the Iran war on March 2, the traditional correlation between gold and oil has collapsed. While oil has surged 50%, gold has plunged 18%. This memo identifies a systemic liquidity squeeze in which interest rate concerns and a resurgent dollar have become paramount much sooner than in previous cycles.

Key Findings

• Unlike the stagflation era, the Fed quickly became hawkish, and the public rapidly shifted focus to inflation expectations.

• Real interest rates have moved into positive territory (~1.0%) just weeks into the conflict, stripping gold of its competitive edge.

• With $2 trillion in private credit funds restricting withdrawals and the MAG7 somewhat sluggish, institutional investors are selling their most liquid winner: gold.

• The U.S. is a net exporter of oil. This allows the dollar to rise alongside oil, creating additional pressure on gold.

• These factors have created sustained selling pressure on gold, even though it has traditionally served as a safe haven during geopolitical and macroeconomic turmoil.

• Gold’s decline is not necessarily a short-term dislocation; elevated starting valuations and rising real rates suggest continued downside risk rather than a clear “buy the dip” opportunity.

The Four Major Oil Shocks

Until now, gold was the “safe-haven” destination. In 2026, it has become the “source of cash.”

• 1973 Arab Oil Embargo: Gold rose 65% as the unanchored dollar weakened following the end of Bretton Woods.

• 1979 Iranian Revolution: Gold peaked at $850 (Jan 1980), only falling after Volcker pushed real rates deeply positive to restore monetary credibility.

• 1990 Gulf War: Gold saw a 12% tactical “fear spike” that faded quickly as the conflict appeared limited.

• 2026 War with Iran: Oil is up 50%, but gold has fallen 22% from its January highs near $5,600.

2026 is the first time a major oil shock has triggered a bear market in gold. In the 20th century, gold was an accumulation asset. In 2026, it is a distribution asset.

Why the 2026 Oil Shock Differs

First, both the Federal Reserve and investors quickly became focused on inflation expectations and interest rates. Support for rate cuts has evaporated as policymakers recognize they cannot risk a resurgence of inflation after misjudging it in 2022. The market has reached the same conclusion. Between March 2 and March 24, the 10-year Treasury yield surged from 4.05% to 4.38%.

Second, previous oil shocks typically coincided with a weaker dollar, which made gold more attractive as a safe haven. This time, the United States is a net exporter of energy, and both the dollar and real interest rates have risen. Despite political turmoil, the U.S. and the dollar appear to be the safest investment options.

Third, gold entered this period at elevated levels. Investors facing liquidity needs—due to weak tech performance and restrictions in private credit—are realizing gains in gold, their most liquid outperformer.

Conclusions

The relationship between gold and oil in this shock differs fundamentally from previous episodes.

In 2026, gold is declining because it is the most attractive asset to sell in a crisis where interest rates, the dollar, and oil are moving in lockstep, while other parts of the portfolio—primarily tech and private credit—are under pressure.

This does not appear to be a “buy the dip” opportunity for gold. Prices remain historically elevated, while real interest rates and the U.S. dollar continue to rise. In this environment, gold is likely to remain under pressure as monetary conditions tighten, and liquidity constraints persist.

Authors Note: www.economicmemos.com is a source of information on policy, politics, personal finance and investment. If you liked this post, and want additional advice on how to navigate the current market downturn go here. This blog consistently recognizes that investment and wealth accumulation are not the only factors impacting financial security.

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Introduction: The Gaza Precedent: Testing the Diplomatic Model

In “The Four Most Dangerous Words in the Middle East,” Thomas L. Friedman argues from a familiar premise: that military force is a hollow tool without a pre-negotiated political “landing zone.” His worldview treats diplomacy as the primary engine of security. His fear is that the current U.S.-Israeli kinetic operations against Iran lack a sustainable exit ramp. To Friedman, seeking a “once and for all” military victory is a dangerous illusion that risks regional chaos.

However, Friedman’s approach suffers from a fundamental incentive problem familiar to any economic analyst. By demanding political concessions before achieving military clarity, he inadvertently subsidizes the “Generation Four” militants he hopes to replace. In both economics and war, incentives matter: if a terror state is offered a diplomatic “out” before its infrastructure is dismantled, the incentive is to regroup and rearm, not to reform.

Furthermore, the “diplomatic primary” worldview ignores the moral character of the adversary. Mainstream critics and prominent Democrats called for continued diplomacy at the beginning of the war against the backdrop of a regime that was actively massacring its own citizens.

The March 19 public hanging of 19-year-old wrestling champion Saleh Mohammadi and two others for “enmity against God” serves as a grim reminder: a regime that treats its own youth as disposable targets for execution is not a regime that can be “incentivized” into a stable nuclear or regional settlement. If they are willing to hang a national athlete to suppress dissent, there can be little doubt they would be willing to use a first-strike nuclear capability.

Friedman views diplomacy as a prerequisite for peace; a realist understands that in 2026, diplomacy is the dividend of overwhelming military success. As Iranian missiles strike Arad and Dimona, it is clear that “containment” and “political horizons” have failed because they were built on the false hope that the IRGC could be bargained with.

Claim One: The Fallacy of “Once and For All” Friedman argues that the most dangerous belief in Middle Eastern strategy is that a military threat can be ended “once and for all” through force alone. He asserts that decapitation strategies are rarely permanent fixes, noting that Israel has killed three generations of Hamas leaders only to face a fourth. As proof, he notes that the fourth generation of Hamas currently controls the areas of Gaza where the vast majority of Palestinians live outside the Israeli-controlled zones:

Analysis of Claim One: Friedman’s critique of the “once and for all” mentality ignores the historical reality that Hamas only reached its peak lethality after Israel pursued his advice, by withdrawing entirely from Gaza in 2005 and later engaging in political compromises—such as the 2011 prisoner exchange that released Yahya Sinwar. The evidence suggests that the current crisis isn’t a result of pursuing a “once and for all” military solution. Rather it was the result of attempts to pursue a peace deal with a party that did not one.

A critical analysis of Friedman’s call for “politics” must consider the alternative reality of a negotiated settlement immediately following October 7. A political settlement with Hamas immediately after October 7 would have left Hamas in total control of Gaza right up to the Israeli border and would have left tunnels and smuggling routes intact allowing Hamas to gain weapons for the next war.

There is no evidence to suggest Hamas would have modified its foundational goal of destroying Israel; instead, a ceasefire without a military defeat would have been framed as a “divine victory,” exponentially increasing Hamas’s ability to recruit new members globally.

The reason Hamas survives as “Generation Four” today is arguably not the failure of military force, but the fact that the international community pressured Israel to stop or slow its operations and that the hostages were used as human shields preventing successful military maneuvers.

Claim Two: The Necessity of Political Alternatives Friedman claims that Israel’s failure to finish Hamas in Gaza is partly due to the Netanyahu government’s refusal to work with the Palestinian Authority (PA). He argues that by delegitimizing the PA, Netanyahu is effectively helping Hamas stay in power. Furthermore, Friedman asserts that Netanyahu’s true objective is the permanent control and eventual annexation of the West Bank, using the war and the dismissal of the PA to make a two-state solution impossible. Finally, he warns that depriving Palestinians of a contiguous state will eventually force Israel to choose between being a non-Jewish binational state or an apartheid state.

Analysis of Claim Two: The Gaza Precedent: Testing the Diplomatic Model. I acknowledge that Israeli treatment and violence in the west bank is disturbing and inconsistent with Jewish values.

Friedman’s argument that a political alternative is the missing piece for peace overlooks a consistent historical pattern of Palestinian leadership rejecting the very “contiguous state” he advocates for. Between the Oslo Accords in 1993 and the Olmert offer in 2008, Palestinians were presented with several deals that would have granted them the vast majority of the West Bank; in every instance, the Palestinian leadership turned these deals down. This suggests the obstacle to peace is not merely a lack of Israeli “political compromise,” but a fundamental Palestinian refusal to move the peace process partially forward while deferring discussion of harder issues.

Friedman critiques the “ugliness” of the settler movement, but he fails to address the strategic lesson of the 2005 Gaza pullout. Israel removed every settler and soldier from Gaza, yet instead of a peaceful “political alternative” emerging, the vacuum allowed Hamas to seize power and launch the October 7 massacre.

Had a similar pullout occurred in the West Bank, there is a high probability that Hamas would have seized power there as well, launching attacks from a much more strategic and elevated territory.

Friedman characterizes the Palestinian Authority (PA) as a viable alternative, yet the reality on the ground contradicts view that a moderate PA could effectively govern a Palestinian state on the west bank.

While the PA ostensibly controls the West Bank, Hamas groups operate within it. According to October 2025 PCPSR polling, Hamas continues to outpoll Fatah in the West Bank (32% to 20%), with 80% of residents explicitly opposing the group’s disarmament.

This popular mandate effectively prevents the PA from acting against Hamas cells without risking its own collapse. Any deal that allows Hamas to operate freely under a PA umbrella is a recipe for renewed terror, not a peace deal. The PA is currently prevented from being overthrown by Hamas largely because of the Israeli military’s presence.

The PA continues its “Pay for Slay” policy, providing financial aid to the families of terrorists. This is not evidence of moderation inside the PA.

The evidence suggests that rather than the PA being a solution that Netanyahu is blocking, the PA is a fragile and ideologically compromised entity that has shown neither the will nor the capacity to be the “self-sustaining” peaceful leadership Friedman envisions.

Claim Three: Issues in Lebanon and the Risk of Ungovernability

Friedman argues that destroying the infrastructure and economies of Lebanon and Iran could backfire by making these countries ungovernable. He claims this would leave Israel trapped in a “permanent occupation” because no local authority would have the “institutional cohesion” left to negotiate or rule. Furthermore, he asserts that Hezbollah can only be eliminated if their own domestic base—specifically Lebanese Shiites—generates a political alternative. He warns that excessive bombing and occupation only make it harder for these local populations to turn against militant regimes.

Analysis: The Hierarchy of Threats and the “Head of the Snake” Strategy

The focus of the Israeli and U.S. command must remain fixed on the primary actor, Iran not Lebanon. Having entered the fourth week of direct war with Iran, the coalition cannot afford to be diverted by the secondary goal of nation-building in Beirut or managing the “institutional cohesion” of Lebanon.

Hezbollah is totally dependent on Iran. Once the Iranian regime is neutralized, the international community and the Arab League will have a strong incentive and the means to assist Lebanon with the task of disarming Hezbollah. This objective is not possible as long as the IRGC is funneling advanced weaponry and “suitcases of cash” into Beirut.

I understand the need Israel has to immediately secure its norther border. I don’t have insider information about the extent of the immediate threat from Lebanon and as an economist trained to understand incentives, I am not in a position to evaluate Israel’s immediate military moves.

At this time the threats are from missile attacks appear paramount and a credible argument could be made that the Israeli focus should be on Iran not Lebanon.

There is actually a real opportunity for diplomatic solutions once the war end and the Iranian regime is replaced.

Conclusion: The Limits of Diplomacy and the “Natural Experiment”

Typically, the political left leads on human rights while the right adopts a more pragmatic, Realpolitik stance—Henry Kissinger being the quintessential example. However, the current crisis has inverted this dynamic. In this instance, two issues stand out that expose the terminal limits of the diplomatic path advocated by Friedman and other critics.

First, one must look at the Iranian regime’s internal conduct as its primary diplomatic signal. On March 19, 2026, the regime publicly hanged 19-year-old wrestling champion Saleh Mohammadi and two others for “enmity against God.” This was the regime’s true “overture” to the international community. When a government treats its own national athletes as disposable targets for execution to suppress dissent, it signals that its survival is untethered from international norms.

How does one negotiate a reliable nuclear or missile limit with a regime that views a public hanging as a domestic necessity? A state willing to massacre its own youth to maintain power would undoubtedly view a first-strike nuclear capability as a legitimate action.

Second, the history of the last two decades has inadvertently created a “natural experiment” that tests Friedman’s thesis.

In 2005, Israel pursued the ultimate territorial compromise: a total withdrawal from Gaza, removing every soldier and settler. Conversely, a peace deal was offered but not reached for the West Bank in 2008.

The results of this experiment are devastating for the pro-diplomacy camp. The “clean break” in Gaza did not produce a peaceful Palestinian alternative; it produced a terror state and the atrocities of October 7. Meanwhile, the PA-controlled West Bank remains a fragile entity where Hamas’s popularity—currently outpolling Fatah—suggests that “politics first” is a recipe for a second front, not a solution.

Diplomacy will be possible and will be necessary after a decisive win by the United States and Israel in this war. Both Palestinians and Israelis have proven that forward progress is impossible without a framework that addresses all the root causes of Middle Eastern instability and all parties involved in this long conflict.

However, this diplomacy cannot be the failed bilateral model of the past. Effective post-war diplomacy must involve the Arab League and perhaps the Trump Peace Board, moving toward an international presence capable of addressing the total regional landscape.

The evidence suggests that while diplomacy may be possible and even necessary after a decisive military victory, pursuing it as a prerequisite is a dangerous delusion. Once the “head of the snake” in Tehran is neutralized and the IRGC’s financial and military oxygen is cut off, we will indeed need a robust diplomatic architecture to manage the aftermath.

However, this diplomacy cannot be the failed bilateral model of the past. Effective post-war diplomacy must move toward an international “Trustee” framework led by the Arab League and the Trump Peace Board. This recipe for future stability should focus on three specific pillars:

Replacing the hollow “security cooperation” of the PA with a multilateral Arab-led force capable of enforcing the total demilitarization of Gaza and South Lebanon.

Reforming Palestinian and Lebanese civil services by stripping away the “resistance” curricula and welfare-for-terror structures.

Tying reconstruction aid and sovereignty directly to the “Abrahamic” model of collective defense and trade.

Progress is only possible when the international community provides the guardrails that neither the Palestinians nor the Israelis have been able to maintain in a vacuum.

Authors Note: The blog www.economicmemos.com covers policy, politics and personal finance. Go to this post for my overview of Domestic Economic Policy and this post for an overview of some personal finance work.

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This brief synthesizes insights from the academic literature on market microstructure, limit order execution, and exchange-traded funds to examine trading strategies during systematic selloffs. The literature and this review is specifically tailored to help investors navigate the current market environment. It highlights how flow-driven selloffs reshape execution risk, compress the role of firm-specific information, and complicate the tradeoff between early entry and waiting for stabilization. Building on these insights, the brief introduces the concept of contingent exposure through limit orders, in which market exposure increases only as prices decline and orders are executed. This framework helps clarify how staged, price-dependent entry strategies can balance adverse selection, continuation risk, and timing uncertainty across both individual securities and index-based instruments.

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Introduction

This brief synthesizes insights from the academic literature on market microstructure, limit order execution, and the growing role of exchange-traded funds in modern equity markets.

The objective is to clarify how these strands of research jointly inform trading decisions in periods of broad market decline, particularly those driven by macroeconomic or supply shocks, the conditions defining the current market environment.

The Q&A format is designed to answer a set of practical questions:

• How do limit orders behave in falling markets?

• How has the rise of ETFs changed the transmission of price movements?

• Why do both high- and low-quality stocks often fall together in stress?

• How should limit orders be deployed in such environments?

• What are the risks of waiting for a market bottom?

The discussion draws on a well-established body of financial economics research but avoids technical exposition in favor of direct application to trading decisions.

1) What does the academic literature say about using limit orders in falling markets?

The literature consistently characterizes limit orders as a tradeoff between price improvement and adverse selection. Limit orders will result in the buyer getting a stock below the current market price but selling pressure is greatest when prices are continuing downward often due to information not available to the buyer.

Research on order book dynamics also shows that liquidity does not immediately recover after a shock. Price pressure tends to persist, meaning that an initial fill is not evidence of stabilization or reversal.

2) How has the rise of ETFs changed market behavior during systematic declines?

The modern literature on ETFs finds that they have fundamentally altered how shocks propagate through equity markets.

ETF trading increases co-movement across stocks by allowing investors to trade entire baskets of securities simultaneously. During periods of stress, flows into or out of ETFs transmit price changes across many stocks at once, regardless of firm-specific fundamentals.

Because ETFs are highly liquid and easy to trade, they often serve as the primary vehicle for expressing macroeconomic views. As a result, they can incorporate new information more quickly than individual securities and effectively lead price adjustments during volatile periods.

3) In an ETF-driven selloff, are both good and bad stocks likely to fall?

Yes, particularly in the early stages of a market-wide supply shock.

When selling is driven by macro factors such as commodity shocks, deleveraging, or portfolio outflows, securities are traded as part of baskets rather than on the basis of firm-specific information. This leads to a temporary compression of dispersion across stocks.

In such environments, high-quality firms can decline alongside weaker firms because prices are being driven by liquidity and flow rather than by fundamentals.

4) Should limit orders be placed on individual stocks, or ETFs?

Each approach carries distinct risks.

Adverse selection issues are more pronounced on Limit orders on individual stocks. Limit orders on ETFs remain exposed to continued selling pressure but are less vulnerable to firm-specific informational disadvantages. Diversification reduces idiosyncratic risk, and arbitrage mechanisms create some tendency toward price alignment with underlying value.

When a broad economic shock is driving declines across both high- and low-quality stocks, and the investor has strong conviction about which firms are fundamentally sound, it may be reasonable to place limit orders on those perceived higher-quality names.

5) What is the risk of waiting for the bottom?

Waiting reduces exposure to adverse selection but introduces timing risk. Markets can rebound quickly, and delayed entry may result in higher purchase prices.

The literature on market timing shows that returns are highly concentrated in a small number of trading days. Missing these periods can significantly reduce realized performance.

Because reversals are often abrupt and difficult to predict, waiting for clear confirmation of a bottom can result in missed opportunities. At the same time, entering too early exposes the trader to continued declines.

6) How do professionals reconcile these tradeoffs?

Rather than making binary decisions, professional investors typically use sequencing strategies.

These include:

• spreading purchases across multiple price levels,

• starting with smaller allocations and increasing exposure over time,

• conditioning additional purchases on signs that selling pressure is subsiding.

In ETF-driven environments, this often involves establishing initial exposure through diversified instruments and shifting toward individual securities once dispersion returns.

7) What does this imply in a supply-shock scenario such as an oil-driven selloff?

In supply-driven market declines, macro forces dominate price formation.

ETF flows transmit selling pressure broadly, correlations increase, and individual fundamentals become less influential in the short run. This environment increases the likelihood that both strong and weak firms will decline together.

Implications for limit orders:

• early-stage limit orders in individual stocks are particularly exposed to adverse selection,

• ETF-based exposure may better align with the macro nature of the shock,

• waiting for stabilization reduces risk but may forgo early entry.

8) Bottom line and practical implications

The combined literature supports three core conclusions:

1. Limit orders in falling markets are inherently exposed to adverse selection and continuation risk.

2. ETFs increase co-movement across stocks, making individual fundamentals temporarily less relevant during broad selloffs.

3. The central tradeoff is between acting early and risking further downside or waiting and risking missed recovery.

There is no single optimal strategy, but the evidence favors structured, staged approaches and caution in interpreting early executions as signals of a bottom.

These conclusions have several practical implications for investors operating in broad market downturns.

First, in market environments dominated by exogenous macro shocks, short-run price movements are often driven more by common flows than by firm-specific information. In such settings, selective limit orders in high-quality companies may be more defensible than in idiosyncratic selloffs, because price dislocations are more likely to reflect liquidity pressure rather than new negative information about individual firms. This does not eliminate adverse selection risk, but it can reduce the relative importance of firm-specific informational disadvantage in the initial stages of a broad decline.

Second, limit orders should be understood as contingent long positions rather than precise entry tools. A standing limit buy order represents a commitment to acquire exposure if prices reach a specified level, while preserving cash otherwise. This framing implies that such orders should generally be placed only in securities that the investor would be willing to hold even if prices continue to decline after execution.

Third, investors should not expect to identify the exact bottom of a market decline. The literature on return concentration and market timing shows that a significant portion of long-run returns is realized in a small number of trading periods, which are difficult to predict in advance. As a result, execution strategies should be evaluated relative to reasonable entry benchmarks rather than ex post trough prices, which are typically unknowable in real time.

Fourth, both theory and experience suggest that staggered or sequenced order placement is more robust than reliance on a single price level. Optimal execution models emphasize trade splitting as a way to manage uncertainty and market impact. In practice, this translates into placing multiple limit orders across a range of prices rather than attempting to concentrate exposure at a single, precisely defined level. Investors may be directionally correct about valuation while being imprecise about timing, and staged execution helps accommodate this reality.

One practical illustration is the case of placing a single large limit order in a high-growth technology stock (e.g., NVIDIA) during a period in which the stock was in a process of a substantial correction during its upward trend. The order was set meaningfully below the prevailing price, reflecting a view that further downside was likely. The stock subsequently declined close to that level—within a narrow margin—but did not reach the specified price before reversing higher. As a result, no position was established despite the general directional view proving correct. In such situations, a ladder of smaller orders across adjacent price levels would likely have resulted in at least partial execution, highlighting the advantage of sequencing over precision.

Finally, maintaining available liquidity is an important component of this approach. The ability to place additional limit orders at lower prices—if declines continue—provides flexibility and reduces the cost of initial timing errors. In this sense, a portfolio of staggered limit orders can be viewed as a structured method of gradually increasing exposure in response to evolving market conditions.

Taken together, the objective is not to eliminate risk, but to choose how risk is taken. A staged, selective approach to limit order placement allows investors to balance adverse selection, flow-driven continuation, and timing uncertainty in a disciplined manner. This approach also creates contingent exposure: initial market exposure remains limited, with risk increasing only if prices decline and orders are executed, allowing investors to take on more exposure precisely as the market moves lower.

Author’s Note

Additional finance articles on this blog rethink financial security by focusing on debt elimination, inflation hedging, and tax-efficient 401(k) disbursement strategies in retirement. Most posts including this one are free, some are behind a paywall.

Special Offer: Get 20% off an annual membership, $48, for a limited time. Claim Your Discount: https://www.economicmemos.com/56428713

These insights are designed to provide practical financial value that far outweighs the cost of the subscription.

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References:

Limit Order Markets and Adverse Selection

• Goettler, Parlour, Rajan (2009): “Informed Traders and Limit Order Markets,” Review of Financial Studies, Vol. 22(5).

• Lehalle, Mounjid, Rosenbaum (2018): “Limit Order Strategic Placement with Adverse Selection Risk,” arXiv:1610.00261.

• Ranaldo (2004): “Order Aggressiveness in Limit Order Book Markets,” Journal of Financial Markets, Vol. 7(1).

• Degryse, de Jong, van Ravenswaaij, Wuyts (2005): “Aggressive Orders and the Resiliency of a Limit Order Market,” European Finance Association (Working Paper).

• Foucault (1999): “Order Flow Composition and Trading Costs in a Dynamic Limit Order Market,” Journal of Financial Markets, Vol. 2(2).

• Liu (2009): “Dynamics of Limit Order Submission and Cancellation,” Journal of Financial Markets, Vol. 12(1).

ETFs and Market Structure

• Ben-David, Franzoni, Moussawi (2018): “Do ETFs Increase Volatility?” Journal of Finance, Vol. 73(6).

• Madhavan (2012): “Exchange-Traded Funds and the New Dynamics of Investing,” Financial Analysts Journal, Vol. 68(5).

• Da, Shive (2018): “Exchange Traded Funds and Asset Return Correlations,” European Financial Management, Vol. 24(1).

• Israeli, Lee, Sridharan (2017): “Is There a Dark Side to Exchange Traded Funds?” Review of Accounting Studies, Vol. 22(3).

Price Discovery and Cross-Asset Dynamics

• Hasbrouck (1995): “One Security, Many Markets,” Journal of Finance, Vol. 50(4).

Market Timing and Return Concentration

• Bessembinder (2018): “Do Stocks Outperform Treasury Bills?” Journal of Financial Economics, Vol. 129(3).

• Barber, Odean (2000): “Trading Is Hazardous to Your Wealth,” Journal of Finance, Vol. 55(2).

Execution Strategy and Trade Sequencing

• Bertsimas, Lo (1998): “Optimal Control of Execution Costs,” Journal of Financial Markets, Vol. 1(1).

• Almgren, Chriss (2000): “Optimal Execution of Portfolio Transactions,” Journal of Risk, Vol. 3(2).

• Obizhaeva, Wang (2013): “Optimal Trading Strategy and Supply/Demand Dynamics,” Journal of Financial Markets, Vol. 16(1).

This memo investigates why the recent surge in oil prices has failed to trigger a rally in “green” alternatives like heat pumps and solar power. While the long-term economic case for electrification strengthens as fossil fuels become more expensive, these sectors remain tethered to interest rate cycles and construction activity. We analyze the performance of key players like Carrier, Enphase, and First Solar to determine how and when these sectors will ultimately capitalize on the energy crisis.

Key Takeaways

• Most heat pump leaders are diversified industrial conglomerates, diluting their exposure to specific energy price shocks.

• Solar and HVAC stocks currently behave like long-duration growth assets, making them more sensitive to interest rates than to the price of a barrel of oil.

• Data center cooling requirements are creating a high-margin, non-discretionary “cushion” for diversified HVAC firms that residential markets lack.

• Investors should look for a stabilization in Treasury yields, which are linked to oil prices and inflation expectations, prior to entering these sectors.

Author’s Note

The analysis of the heat pump sector is available to all readers. Detailed research on the solar sector and specific investment entry points is reserved for paid subscribers. You can upgrade to a full subscription for just $48 per year (a 20% discount) using this link: https://www.economicmemos.com/56428713. The blog www.economicmemos.com has a mix of articles on policy politics, personal finance and investment opportunities. Readers will likely earn back the subscription fee from the personal finance section alone.

Geopolitical Shocks and Electrification: An Investor’s Dilemma

The escalation of the conflict in Iran has sent ripples through global energy markets, pushing Brent crude toward the $100–$120 range and causing localized spikes in diesel and LNG prices. For many retail investors, the intuitive reaction is to seek “green” alternatives—specifically heat pumps and solar power—as natural beneficiaries of expensive fossil fuels.

However, a closer analysis reveals a paradox: while high energy prices are a long-term structural tailwind, they are currently being overwhelmed by immediate macroeconomic headwinds. The following analysis explores why these sectors have struggled to act as “safe havens” during the 2026 energy shock.

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Heat Pump Companies

This memo evaluates whether higher oil and natural gas prices create a meaningful tactical opportunity in publicly traded heat pump and HVAC companies.

There is no “pure-play” publicly traded heat pump company. The leaders—Carrier Global (CARR), Trane Technologies (TT), and Lennox International (LII)—are diversified industrial conglomerates. High energy prices make heat pumps more competitive, but these firms are deeply tied to broader construction and interest rate cycles and higher oil prices do not lead to immediate gains in stock prices in this sector.

• Rising energy costs act as a tax on consumers, increasing recession risk. Households often defer high-capex purchases like heat pumps when the outlook is uncertain.

• HVAC demand tracks housing and commercial building. High interest rates raise financing costs for both installers and homeowners.

• Adoption cycles are governed by replacement needs and policy timelines, not daily oil price fluctuations.

Stock Performance (Feb 27 – March 19, 2026):

The market reaction has been “risk-off” rather than “energy-pivot”:

• Carrier (CARR): Fell ~8% (from $64.40 to $58.97).

• Lennox (LII): Saw significant drawdowns consistent with housing sensitivity.

• International Plays: Daikin and NIBE moved in lockstep with global growth concerns rather than energy pricing.

These stocks behave like cyclical industrials with a long-duration electrification overlay. Sector-specific tailwinds have not been sufficient to overcome generalized market downward trends.

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Solar Power Companies

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Key Results:

· Financial advice is systematically biased toward asset accumulation, often neglecting the structural factors—debt, taxes, inflation, and withdrawal design—that determine actual retirement security.

· Prioritizing debt reduction (especially student loans and mortgages) can materially improve lifetime financial outcomes through lower interest costs, better credit conditions, and reduced retirement drawdown pressure.

· Carrying a mortgage into retirement significantly accelerates asset depletion, particularly when withdrawals from conventional retirement accounts increase taxable income and expose Social Security benefits to taxation.

· Series I Savings Bonds provide superior inflation protection and based on long-term evidence, can outperform traditional bond allocations, suggesting they should be a standard component of household portfolios.

· The Roth vs. traditional retirement tradeoff is more complex than commonly presented; while Roth assets are essential in retirement—especially for households carrying debt due to their tax-free withdrawal advantages—AGI-linked programs (e.g., ACA subsidies, student loan repayment plans) can create liquidity constraints and hidden tax penalties during working years that discourage or limit Roth contributions.

· Standard withdrawal frameworks (e.g., 4% rule, Guyton-Klinger) fail to ensure adequate consumption in retirement, highlighting the need to consider both consumption adequacy and portfolio longevity when arranging distributions from retirement plans.

Introduction:

The modern financial advisory industry is largely optimized for the accumulation phase—the decades spent building a portfolio. However, this narrow focus often ignores the structural risks that determine whether that wealth actually translates into a stable, lifelong standard of living. Recent articles at the personal finance section of www.economicmemos.com, have focused on four other pivotal decisions.

1. Strategic Debt Management: Prioritizing the elimination of student and mortgage debt to improve cash flow and credit quality.

2. Inflation Immunization: Utilizing non-marketable assets like Series I Bonds to protect purchasing power without price risk.

3. The Tax-Efficiency Tradeoff: Navigating the complex interplay between Roth and conventional accounts in the context of AGI-linked federal subsidies.

4. Sustainable Disbursement Architecture: Moving beyond simplistic withdrawal “rules” to ensure consumption remains adequate throughout retirement.

By addressing these four levers with empirical rigor rather than industry dogma, investors can build a financial life that is resilient to market volatility and policy shifts alike.

Analysis:

Most financial advisors emphasize the need to save in investment accounts for retirement over debt reduction. The work on this blog consistently prioritizes debt reduction.

Many smart financial advisors including advisors at Northwestern Mutual tell young adults with student debt to prioritize saving for retirement over quick reductions of student debt. The analysis on this blog recommends prioritizing debt reduction over saving for retirement.to obtain massive direct reductions in interest payments, improved credit quality leading to lower interest payments on future loans, mortgages and car insurance, a reduced need to raid retirement accounts prior to retirement, and the increased possibility of eliminating a mortgage prior to retirement.

Financial experts often favor maximizing retirement savings through catch-up contributions to retirement plans over aggressive mortgage elimination for older workers. See this article by Hillary Stalker and this article by Pete Grieve.

The analysis on my blog cautions against taking any mortgage debt into retirement, especially by people with most assets tied up in a conventional retirement plan. People with a mortgage must spend more in retirement than people without a retirement plan and these spending obligations do not fall if the market falls. Furthermore, all disbursements from a conventional retirement plan are included in AGI, subject to federal income tax, and count towards the amount of Social Security subject to income tax. All of these factors substantially increase the depletion rate of financial assets for retirees with mortgage debt, especially in periods where the market does not perform well.

One way to mitigate tax problems in retirement, as correctly noted by Ed Slott, is to maximize use of Roth IRAs over conventional retirement accounts. However, new AGI linked programs and loans, the Affordable Care Act (ACA) premium tax credits and the new Repayment Assistance Plan (RAP) for student loans create substantial liquidity problems for people choosing Roth contributions over conventional retirement plan contributions as documented in the blog post the lifecycle inconsistency at the center of U.S. Saving Policy.

A recurring theme at Economic Memos is the systemic failure of the financial advisory community to protect clients from inflation. Most current financial advisors were not active in the 1970s and 1980s.

A memo on Series I Bonds describes this important asset and makes a strong case for its use in every portfolio. The study Series I Bonds vs. Bond Funds: 27 Years of Head-to-Head Results provides evidence indicating that inclusion of Series I bonds in portfolios would lead to outcomes superior to the traditional 60/40 portfolio model.

The bottom line of these memos for households preparing for retirement is that investors should purchase some Series I Savings bonds every year. The bottom line of the memos for economic advisors and policy makers is that household financial positions and the adequacy of savings would be substantially improved by a rule change allowing workers to purchase Savings I Bonds inside retirement accounts.

Most investment advice focuses on the “accumulation phase” and the maximization of investment returns while controlling risk. The issue of how to best maintain wealth while disbursing funds in retirement is often overlooked.

My blog so far has posts on distribution rules in retirement, the four percent rule and the Guyton-Klinger rule and the impact of both rules on both whether the retiree will outlive her financial resources and on the adequacy of retirement wealth to support an adequate level of consumption.

The four percent rule is a process by which the retiree sets his or her initial disbursement at 4 percent of the retirement balance and adjusts future disbursements for inflation. The Guyton-Klinger approach to retirement plan distributions is touted as a way to allow retirees to adopt an initial distribution over 4 percent with the understanding that the retiree will cut disbursements when portfolio returns are low.

These rules and simulations do not provide any real information about whether a person has saved enough for a comfortable or even basic level of consumption in retirement.

Under strict adherence to a 4 percent rule, a person with $1,000,000 in assets would deplete resources after the same number of years as a person with $2,000,000 in assets. Similarly, asset depletion dates would not be affected by the existence of resources in a Roth rather than a conventional retirement account. The person with more assets or more tax-advantaged assets could consume more but the asset depletion date is entirely determined by distribution rates, inflation and stock returns and is unaffected by initial wealth.

Some studies have found that the Guyton-Klinger rule will extend portfolio life compared to the 4 percent rule. However, the studies do not show that whether the Guyton rule allows for an adequate level of consumption when forced reductions occur. Also, the result of longer portfolio life under Guyton-Klinger will often not hold when returns are low in the first few years of retirement.

Several studies in this post have examined the impact of timing on the risk of outliving resources in retirement. The post on the sequence of return puzzle explains why bad returns at the beginning of a career are less harmful than bad returns at the beginning of retirement. The post on the retirement date lottery show that workers who retired in 2000 and lived through two economic shocks early in retirement had quicker retirement wealth depletion than workers who retired in 2007 who experienced only one (admittedly a severe one) early retirement shock.

So, there is an element of luck impacting financial outcomes but as discussed here and throughout my blog making good decisions can drastically improve outcomes.

Conclusion:

The disconnect between traditional financial advice and the strategies outlined in this memo is often a matter of incentives. The advisory industry—and the fee-based models that sustain it—is naturally biased toward marketable assets that stay under management. There is no commission for a client who pays off a student loan, eliminates a mortgage, or moves liquid cash into a zero-fee Series I Savings Bond. Consequently, the critical “distribution phase” of retirement remains under-researched and over-simplified.

This blog provides an alternative framework: one that prioritizes the adequacy of consumption over the mere longevity of a portfolio. By focusing on debt elimination, inflation hedging, and the real-world impact of AGI on taxes and subsidies, readers can move beyond “market-only” thinking. True financial security is found not just in the size of an investment account, but in the structural integrity of the entire household balance sheet.

Further Reading from Economic Memos

To delve deeper into the data and logic behind these strategies, you can access the full technical analyses through the following themed links:

Debt Management & Early Career Strategy

· Younger workers need to prioritize debt reduction over investments: An analysis of how direct interest reduction and credit quality improvements outweigh early-career investing.

· Elimination of mortgage debt prior to retirement: Why carrying a mortgage into your 60s creates a dangerous “liquidity squeeze” when paired with conventional retirement accounts.

The Series I Bond Framework

· Series I Bonds: Practical Guidance A comprehensive look at the mechanics, tax advantages, and strategic “stability reserve” applications of I Bonds.

· Series I Bonds vs Bond ETFs: 27 years of head-to-head Results The empirical 27-year study proving the superior hedging power of I Bonds during inflationary and rising-rate regimes.

Tax Policy & Retirement Allocations

· The Lifecycle Inconsistency at the center of U.S. Saving Policy: A critique of how AGI-linked programs like ACA subsidies and RAP student loans create hidden “tax traps” for Roth contributors.

Advanced Disbursement & Withdrawal Strategies

· Limitations of the four percent rule: Why standard withdrawal models fail to account for consumption adequacy and the real-world impact of AGI.

· When higher withdrawal rates backfire: A technical evaluation of “flexible” withdrawal rules and their risks during early-retirement sequence risk.

· The Sequence of Returns Puzzle: Why bad returns at beginning of career have little financial impact but bad returns at beginning of retirement can be fatal to finances in retirement.

· The Retirement Date Lottery: Why the retiree in year 2000 had worse outcomes than the retiree in year 2007.

Authors Note: The blog www.economicmemos.com is a place for readers with diverse interests. It covers, politics, policy, and personal finance. The personal finance perspective is described in this memo. The political/policy perspectives are described here. For a limited time, use this coupon for 20 percent off. The price of the annual membership is $48. I suspect many readers will make money off the financial advice and will appreciate the policy analysis.

Coupon Here:

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The Guyton–Klinger Rule and the Problem of Consumption Adequacy

The Guyton–Klinger (GK) withdrawal rule is widely presented as a way to increase retirement withdrawals beyond the traditional 4 percent rule while preserving portfolio longevity. By allowing spending to adjust in response to market performance, the rule appears to offer a solution to sequence-of-returns risk.

However, this characterization is incomplete. The GK framework combines spending flexibility with higher initial withdrawals, and these two features work in opposite directions. While the adjustment mechanism mitigates the impact of adverse returns, higher withdrawals increase exposure to early losses. When severe declines occur at the start of retirement, the adjustment process may not fully offset this risk, and outcomes can be worse than under more conservative fixed withdrawal strategies.

This paper analyzes that interaction and shows that the Guyton–Klinger rule does not eliminate sequence risk but instead reshapes it in ways that are not always favorable to retirees.

The Guyton–Klinger Framework

The GK rule, formalized in Guyton and Klinger (2006), consists of a set of decision rules governing withdrawal adjustments. Retirees begin with an initial withdrawal rate, typically higher than that implied by fixed real withdrawal rules, and adjust spending based on the evolution of the portfolio’s withdrawal rate.

Spending adjustments under the Guyton–Klinger rule are triggered by changes in the withdrawal rate, defined as withdrawals relative to total portfolio value. The withdrawal rate can rise either because the portfolio declines or because withdrawals increase through inflation adjustments. When the rate rises sufficiently above its initial level, the capital preservation rule triggers a reduction in spending. If it falls sufficiently below, the prosperity rule allows an increase. Additional provisions, such as suspending inflation adjustments following negative return years, further limit increases in the withdrawal rate.

This structure creates a feedback mechanism linking spending directly to overall portfolio health. When portfolio values fall, the withdrawal rate rises, prompting spending cuts that reduce pressure on the portfolio. When portfolio values recover, the withdrawal rate declines, allowing spending to stabilize or increase.

All decision rules are defined at the level of the aggregate portfolio rather than individual asset classes. In particular, the suspension of inflation adjustments is triggered by negative total portfolio returns, not by the performance of specific components such as equities. Similarly, guardrail adjustments depend on the overall withdrawal rate relative to total portfolio value. Withdrawals are therefore modeled as coming from a pooled portfolio, and the framework does not differentiate across asset classes in determining either the level or timing of spending changes. As a result, strong performance in one asset class can offset weakness in another for purposes of triggering adjustments, even if individual components experience significant drawdowns.

Literature

Guyton (2004) introduced the decision-rule framework using historical simulations centered on adverse sequences, particularly the 1970s. The study showed that modest flexibility, such as skipping inflation adjustments after poor returns, could materially increase sustainable withdrawal rates relative to fixed real spending.

Guyton and Klinger (2006) extended this analysis using Monte Carlo simulations calibrated to historical return data. The study evaluated portfolios with varying equity allocations and found that initial withdrawal rates of approximately 5.2–5.6 percent could be sustained with high confidence for portfolios with at least 65 percent equities, while lower equity allocations produced materially lower sustainable rates. The analysis was limited to portfolios with at least 50 percent equity exposure, leaving the performance of the rule under more conservative allocations less well established.

Subsequent research extends this analysis by examining a broader range of portfolio allocations and withdrawal frameworks. For example, David Blanchett, Kowara, and Chen (2012) analyze dynamic withdrawal strategies that adjust spending based on remaining life expectancy and portfolio performance. These strategies differ from the Guyton–Klinger rule in that adjustments are continuous and formula-based, rather than discrete responses to threshold breaches in withdrawal rates.

Studies by Wade Pfau and David Blanchett include more conservative portfolios, often in the 30 to 50 percent equity range, and confirm that lower equity exposure reduces sustainable withdrawal rates and limits the ability of portfolios to recover from early losses. These studies do not implement the Guyton–Klinger framework in its original form but are examples of dynamic withdrawal strategies.

Lower equity portfolios reduce the frequency and severity of negative returns, but also reduce expected returns, limiting recovery capacity. As a result, while spending adjustments may be triggered less often, they may be more persistent when they occur.

Objectives, Limitations, and Extensions of the Guyton–Klinger Framework

The Guyton–Klinger rule is best understood as a heuristic for controlling the probability of portfolio depletion. By linking spending adjustments to the withdrawal rate, it maintains sustainability without requiring a fixed spending path. In this sense, the rule treats spending as an adjustment variable whose primary function is to stabilize the portfolio.

In the original Guyton–Klinger studies, “failure” is defined narrowly as portfolio depletion prior to the end of the retirement horizon. A strategy is considered successful if the portfolio remains solvent throughout the period, regardless of the path of consumption. As a result, substantial reductions in real spending are not treated as failures within the framework.

This design implies a fundamental limitation. The rule does not explicitly incorporate preferences over consumption or optimize consumption smoothing, and it does not impose a lower bound on real spending. In contrast to lifecycle models derived from utility maximization under uncertainty (Merton 1969; Yaari 1965), the framework prioritizes financial solvency over consumption stability.

The absence of a consumption constraint creates a clear implication: in adverse return sequences, the rule preserves portfolio viability by allowing consumption to adjust downward as needed. Repeated application of the capital preservation rule can therefore generate large cumulative reductions in real spending. Empirical analyses of guardrail-based strategies applied to historical stress periods show that spending can decline substantially and remain depressed for extended periods (Kitces 2024), and more generally, dynamic withdrawal strategies imply that retirees will experience periods of reduced consumption relative to initial levels (Blanchett et al. 2012).

Practitioner analyses make this tradeoff more explicit. For example, Michael Kitces shows that guardrail-based approaches such as Guyton–Klinger can support higher initial withdrawals than fixed real strategies but may require substantial and sustained reductions in spending in adverse market sequences. This framing highlights the central distinction between the two approaches: greater spending stability under fixed rules versus higher initial consumption coupled with variability under dynamic rules.

The implicit assumption is that retirees can absorb such reductions. However, this assumption is not embedded in the model and may not hold in practice, particularly when a large share of spending is non-discretionary. More broadly, the rule converts the risk of portfolio depletion into the risk of declining consumption.

Subsequent research and practice have increasingly addressed this limitation by introducing explicit consumption constraints. One approach separates spending into essential and discretionary components, funding essential consumption through stable income sources while applying flexible withdrawal rules only to discretionary spending (Pfau 2015). Another approach modifies guardrail systems to include explicit spending floors, trading greater consumption stability for a higher probability of depletion. More recent work shifts toward risk-based or utility-based frameworks that explicitly penalize low consumption states, aligning more closely with economic theory.

Sequence-of-returns risk illustrates this distinction clearly. Under fixed withdrawal strategies, adverse returns early in retirement can irreversibly damage portfolio sustainability, as withdrawals remain constant while asset values decline. Under the Guyton–Klinger framework, similar early losses instead trigger reductions in spending, preserving portfolio viability. While this mitigates the financial consequences of early sequence risk, it does so by shifting the burden onto consumption, particularly at the beginning of retirement when spending needs and preferences may be highest.

The spending flexibility embedded in the Guyton–Klinger rule mitigates the financial impact of adverse return sequences. However, when the framework is used to support higher initial withdrawals, this benefit may be insufficient to offset the increased exposure to early losses. In such cases, both portfolio outcomes and consumption paths can be worse than under a more conservative fixed withdrawal rule.

Conclusion: The Fundamental Tradeoff

The Guyton–Klinger rule demonstrates that flexible spending can materially increase sustainable withdrawal rates relative to fixed rules. The core studies and subsequent literature show that dynamic adjustment improves the tradeoff between initial consumption and portfolio longevity.

However, when higher initial withdrawals coincide with severe early losses, the adjustment mechanism may not fully offset the increased exposure to sequence risk, leading to outcomes that are worse than those produced by more conservative fixed withdrawal strategies.

Three objectives cannot be simultaneously maximized: high initial withdrawal rates, a low probability of portfolio depletion, and a guaranteed minimum level of consumption. Retirement withdrawal strategies must therefore be assessed in terms of both portfolio sustainability and the maintenance of an acceptable standard of living.

Bibliography (with links)

Guyton, Jonathan T. (2004). “Decision Rules and Maximum Initial Withdrawal Rates.” Journal of Financial Planning.
(PDF: https://www.financialplanningassociation.org/sites/default/files/2021-10/OCT04%20JFP%20Guyton%20PDF.pdf)

Guyton, Jonathan T., and William J. Klinger (2006). “Decision Rules and Maximum Initial Withdrawal Rates.” Journal of Financial Planning.
(PDF: https://www.financialplanningassociation.org/sites/default/files/2021-11/2006%20-%20Guyton%20and%20Klinger%20-%20Decision%20Rules%20and%20SWR%20%281%29.PDF)

Blanchett, David, Maciej Kowara, and Peng Chen (2012). “Optimal Withdrawal Strategy for Retirement Income Portfolios.” https://www.morningstar.com/content/dam/marketing/shared/research/methodology/677951-Optimal_Withdrawal_Strategy_for_Retirement_Income_Portfolios.pdf

Pfau, Wade D. (2015). Retirement Researcher’s Guide to Sustainable Withdrawals.

https://retirementresearcher.com

Kitces, Michael (2024). “Reconsidering Guyton-Klinger Guardrails and Spending Volatility.”
https://www.kitces.com/blog/guyton-klinger-guardrails-retirement-income-rules-risk-based/

Merton, Robert C. (1969). “Lifetime Portfolio Selection under Uncertainty.”
https://www.jstor.org/stable/1926560

Yaari, Menahem E. (1965). “Uncertain Lifetime, Life Insurance, and the Theory of the Consumer.”
https://www.jstor.org/stable/2296058

Appendix: Implementation and Conceptual Issues in the Guyton–Klinger Framework

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Author’s Note: The appendix (behind the paywall) lists 15 issues related to retirement withdrawal rules and includes examples comparing Guyton–Klinger and the 4 percent rule under poor initial returns and varying withdrawal rates.

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Oher posts on this blog, related to disbursement strategy in retirement include:

The Retirement Date Lottery: Why 2000 and 2007 Retirees Lived Different Financial Realities

The Lifecycle Inconsistency at the Center of U.S. Saving Policy

How Best to Save for College

Issue 1: Portfolio-Level Trigger Definition

Paywall Here:

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Newsom on Israel: Substance or Political Signaling?

California Governor Gavin Newsom referred to Israel as an “apartheid state,” a characterization motivated more by his view of the 2028 primaries than reality. Within Israel’s recognized borders, roughly 1.7–2 million Muslim citizens live in the country—about 20% of the population. They vote in national elections, hold seats in the Knesset, worship in over 400 mosques, and can and do volunteer to serve in the IDF. (They are not subject to the draft.)

The more serious debate concerns Israel’s control of the West Bank and Gaza and the repeated failure of a two-state settlement. Since the 1993 Oslo Accords, negotiations tried to move forward incremental creating a Palestinian state while delaying harder issues for future negotiations. The failure of these negotiations and the current situation in Israel had more to do with the Palestinian leadership positions than the Israeli leadership positions.

https://www.jns.org/bill-clinton-reflects-on-oslos-failure-and-the-current-gaza-war/

Newsom is not well positioned to move the ball forward on a two-state solution, unless it involves Michigan and Arizona.

Newsom on Emissions: Environmental Policy or Political Signaling?

California is in the news this week after the Trump administration filed a lawsuit challenging the state’s aggressive vehicle-emission rules and electric-vehicle mandates. California has historically relied on a special provision in the Clean Air Act allowing it to seek federal waivers to set stricter vehicle standards than national rules. The waiver pathway is now uncertain because of the 2025 Congressional Review Act.

If the goal is to reduce gasoline car ownership, why rely on federal waivers and regulatory mandates at all? California has clear authority over its own taxes and vehicle registration fees. A gradually rising annual registration fee on gasoline-powered cars—phased in over five or ten years—could push the market in the same direction while avoiding a federal preemption battle.

This approach was successfully used by Norway which imposed steep registration fees and taxes on gasoline powered vehicles only. Only seven petrol-powered cars were sold in Norway in January 2026.

https://www.whichcar.com.au/news/just-seven-traditional-petrol-powered-cars-sold-norway-last-month

The policy worked in Norway not because drivers were ordered to buy EVs, but because the economics made them the obvious choice. If the objective is to move the market rather than fight regulatory battles with Washington, that model suggests California may be pursuing the more complicated path.

Housing Affordability: Is Student Debt the Real Problem?

The Trump administration also issued executive orders this week aimed at improving housing affordability. The directives focus largely on supply—reviewing federal regulations that slow housing construction, encouraging faster permitting, and expanding access to federally backed mortgage credit through agencies such as Fannie Mae and Freddie Mac. These steps address long-standing bottlenecks in housing supply.

But they do not address the largest financial constraint facing many younger households considering a home purchase: unaffordable student-debt obligations tied to the Trump administration’s Repayment Assistance Plan (RAP). Mortgage underwriting treats required student-loan payments as fixed obligations, directly reducing how much first-time buyers can borrow.

The Trump RAP program will kill housing opportunities for many young adults with student debt as discussed extensively on this web page.

· Payment brackets apply to total AGI, not just marginal income, creating abrupt jumps in required payments when borrowers, cross thresholds.

· Payment thresholds are not indexed to inflation, meaning normal wage increases can push borrowers into higher payment tiers even when real purchasing power is unchanged.

· Combined household income can create a marriage penalty, sharply increasing required payments once two borrowers marry.

· Repayment periods can extend up to 30 years, keeping loan obligations on household balance sheets through the years when families typically buy homes.

· Interactions with retirement-saving decisions (such as tax-deferred contributions that reduce AGI) can reduce payments initially but lengthen repayment and increase total lifetime cost.

Texas Reality Check for the Democratic Party

Another signal about the national political landscape comes from Texas’ 23rd Congressional District, where the Republican nominee will almost certainly be firearms-industry YouTuber Brandon Herrera after incumbent Rep.

Tony Gonzales dropped his reelection bid after the close first-round result amid a major personal scandal. Gonzales admitted to an affair with a staff member who later died by suicide.

Herrera himself has generated controversy after videos resurfaced showing him discussing owning Nazi memorabilia and joking about Holocaust themes, which he has said were intended as satire.

The broader strategic question for Democrats is simple: if the party cannot compete even in a race defined by scandal and a controversial opponent in a majority-Hispanic district long viewed as competitive, they have a problem and should like the main character on the show Silicon Valley “Look Inward.”

Democratic Party Reality Check in Montana:

Another interesting political development comes from Montana, where an independent candidate is entering the Senate race, raising the possibility that Democrats could finish third behind both the Republican nominee and the independent.

Political reality can be uncomfortable, but it should not be ignored. If Democrats cannot compete in a state at the Senate level, the strategic question becomes whether staying in the race helps or simply splits the non-Republican vote.

The challenge for any third-party candidate is that success cannot be built merely as a proxy for “not Republican”—it must stand for something distinct. The actual path to durable third-party influence likely runs through the House of Representatives, where smaller races, lower fixed costs, and the closely contested votes for Speaker of the House make coalition plausible.

Authors Note: This is a very busy and productive time at www.economicmemos.com.

I wrote several papers this week on how two AGI linked programs – the ACA premium tax credit and the RAP student loan program impact marriage incentives through implicit marginal tax rates. Start with either of these papers.

I wrote an article on how private credit markets are imploding for investors while Washington considers deregulations which would expand their use to more retail brokerage accounts and retirement accounts.

I wrote a articles on wealth tax proposals. Here is one.

Most of the material is free but some is behind a paywall. Free subscribers get one post behind the paywall free.

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The “Goldilocks” era of private credit is officially over with Jamie Dimon’s observation that the cockroaches are beginning to emerge from the walls.

With the primary stock index for private lending hitting its lowest point of the year and major funds like Morgan Stanley and BlackRock blocking investors from withdrawing their cash, a critical question has emerged: Is this a temporary liquidity hiccup, or the first sign of a systemic credit event?

Key Issues:

· The Liquidity Mirage: Many private credit funds are blocking promised withdrawals of up to 5% of their investment each quarter, leaving investors with no choice but to sell their shares at a 30% loss in unofficial secondary markets.

· The Shadow Default Wave: Lenders are reporting a “safe” 2% default rate by quietly restructuring failing loans behind closed doors, masking a “true” distress rate of 9% that is only visible when you look at how many companies can no longer pay their original terms.

· The PIK Snowball: Struggling companies are skipping cash interest payments and instead adding that debt to their total loan balance (Payment-in-Kind), creating a mountain of compound interest that they will never realistically be able to repay.

· The EBITDA Fiction: Lenders approved massive loans based on “projected” future earnings that never actually happened, leaving companies without the real-world cash flow needed to pay today’s 12% interest rates.

· The Software & AI Displacement: Approximately 25% of all private credit is now concentrated in the software sector, but these loans are under immense stress as Generative AI allows customers to build their own tools rather than paying for “sticky” subscriptions, gutting the collateral lenders relied on.

· The Insurance Contagion: Life insurance companies have shifted billions into these private loans to chase higher returns, meaning a crash in private credit could directly threaten the safety of annuities and insurance policies held by regular families.

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Unlock the full analysis below, featuring our exclusive 11 Questions and Answers on problems in this industry and the continuing deregulation push which would expand access to retirement accounts and less sophisticated investors. The blog is relatively inexpensive, and free subscribers are offered one free post under the paywall.

The continued growth and deregulation of private credit markets

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At a $120,000 household income, the 2026 “marriage penalty” is no longer just a tax issue—it is a $635 monthly surge in mandatory expenses driven by the intersection of RAP loan brackets and ACA subsidy cliffs.

Introduction:

Historically, the Republican party has been extremely concerned about the possibility that the federal tax code and federal programs discouraging marriage and family formation.

Many years ago, the primary incentive discouraging marriage involved a marriage penalty inherent to the federal tax code. Two recent posts on this blog -- Not your Father’s Marriage Penalty and Student Loans and the Marriage Incentive Problem show that adverse financial incentives discouraging marriage and family formation today stem from AGI linked subsidies and loan payments, not the tax code.

The first case study of these financial incentives involved two recent graduates with similar income and different debt levels.

This post, a second case study, involves two slightly older people Henry and Mary, each with one kid. We consider the impact the financial implications of these two people marrying and forming a single household.

The Scenario:

• Profiles: Two single individuals, age 30, filing as Head of Household (HoH).

• Dependents: Two children total (one per household, age 5).

• Income: Each earns $60,000 AGI (Household Total: $120,000).

• Student Debt: Each holds $25,000 in federal loans (Total: $50,000) on the Repayment Assistance Plan (RAP).

• Health Insurance: Both are currently enrolled in Silver-level ACA Marketplace plans.

Analysis:

Financial status when single

As single individuals, Henry and Mary benefit from being measured against a smaller household size. With one adult and one child, the 2026 Federal Poverty Level (FPL) for their household is $21,640. Their $60,000 income places them at 277 percent of the FPL. This positioning keeps them in a favorable subsidy bracket for health insurance and a lower repayment tier for their student loans.

In this individual bracket, each qualifies for the 5 percent RAP repayment rate. The base monthly obligation for each is approximately $250. After applying the $50 dependent discount, each pays a net of $200 per month, resulting in a combined monthly total of $400 for both households.

At 277 percent of the FPL, the 2026 rules require a contribution of approximately 8.5 percent of income toward a benchmark Silver plan. This results in an expected monthly premium of $425 per person. Given a national average market price of $1,112 for one adult and one child, the federal government provides a monthly subsidy of $687 to each. Combined, they pay $850 per month out of pocket.

Because their income exceeds 250 percent of the FPL, they do not qualify for cost-sharing reductions. Each faces the national average silver deductible of $5,304, leading to a combined household risk of $10,608.

Financial status when married

Upon marrying and filing jointly, the household income of $120,000 is measured against a family-of-four poverty line of $33,000, placing them at 364 percent of the FPL. While they remain below the 400 percent subsidy cliff, the compounding effect of the 2026 tax and loan rules creates a significant financial penalty.

The RAP Spike: The joint income level triggers the maximum 10 percent RAP bracket for the entire $120,000. The new base payment is $1,000 per month. Even with two dependent discounts totaling $100, the final payment is $900 per month. This represents a $500 monthly increase over their status as single filers.

Because the $900 RAP payment is now more than double the cost of a standard private loan, the couple is effectively forced out of the federal assistance program to protect their monthly cash flow. By switching to a conventional 15-year fixed loan for the $50,000 balance at the 2026 average interest rate of 6.39%, their monthly obligation drops to $432. This strategic shift results in a monthly savings of $468, allowing the household to reclaim $5,616 per year that would otherwise be lost to the RAP marriage penalty.

The ACA Squeeze: At 364 percent of the FPL, the required contribution rate for health insurance rises to 9.85 percent of household income. Their new expected monthly premium is $985. Although they technically receive a larger total subsidy because the children are now part of a single family plan, their out-of-pocket costs rise by $135 per month compared to their combined single premiums.

The transition from single to married status results in a total increase in mandatory monthly expenses (both ACA subsidy change and RAP loan change) of $635, which amounts to a $7,620 annual loss in disposable income for the household.

To mitigate this penalty, the couple can choose to exit the federal program for a conventional 15-year fixed loan, which reduces their monthly debt obligation from $900 to $432. This conversion allows the family to reclaim $468 per month, resulting in a total annual savings of $5,616 compared to remaining on the married RAP rate.

In 2026, the combined impact of the ACA and RAP shifts makes this conversion a mechanical necessity for maintaining middle-income stability. However, this transition may not occur automatically or smoothly if the borrower is currently delinquent, as loan servicers often require accounts to be in good standing before allowing a move to conventional financing. This administrative hurdle can effectively trap struggling borrowers in the more expensive married RAP rate until their past-due balances are resolved.

Conclusion:

The structural design of federal benefit programs in 2026 creates a profound disincentive for dual-earner households to marry. It is critical to note that while the $7,620 annual penalty identified in this study is severe, it does not represent a worst-case scenario.

If one spouse had a significantly lower income, the couple would likely lose access to valuable ACA cost-sharing reductions available only at lower poverty levels.

If the combined household income exceeded 400 percent of the Federal Poverty Level, the family would hit the hard subsidy cliff and lose all Premium Tax Credits entirely—a catastrophic outcome documented in previous case studies.

The RAP loan rules allow a married couple to reduce their student loan payments by filing separate returns. In cases, like this one where the spouses have identical income the decision to file separate returns results in a higher tax liability. Moreover, married households must file a joint return if they are to claim the PTC subsidy. (See Q5 in IRS FAQ.)

The way to mitigate the marriage penalty for Mary and Henry is to get employer-based health insurance, something that is not always available, and to convert to a conventional student loan, which is hopefully affordable.

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Author’s Note: The marriage penalty identified here is a symptom of the structural dysfunction I analyze in my foundational post, A Third-Party Economic Policy Platform. There, I argue that the two-party system’s focus on reversing the previous administration’s wins makes durable, pro-family economic reform nearly impossible.

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Introduction:

The Make Billionaires Pay Their Fair Share Act (March 2026), sponsored by Senator Sanders and Congressman Khann applies a 5 percent tax on household net worth exceeding $1 billion. It is projected to impact 938 billionaires in the United States. The objective of this memo is to evaluate the impact of this bill on the world’s richest person, Elon Musk, and his ventures.

Background on Elon Musk and his ventures and possible wealth tax effects:

Elon Musk, the world’s richest person, has an estimated net worth of $840 billion with $3 billion in liquid assets. Based on his current net worth estimate Elon Musk would have a $42 billion annual tax bill under the Sanders-Khanna proposal.

Elon Musk’s massive net worth is primarily distributed across four major ventures: Tesla, a public leader in electric vehicles and robotics; SpaceX, a private aerospace giant that now includes the xAI artificial intelligence division and the X social media platform; The Boring Company, a startup focused on underground tunnel infrastructure; Neuralink, a biotech firm developing high-bandwidth brain-machine interfaces. He also has personal holdings in various cryptocurrencies and smaller investments.

Most of the funds for the annual tax bill would come from sales of shares in Tesla and SpaceX. EV sales are now rapidly dropping because of the expiration of the EV tax credit and other financial incentives impacting EVs. The high valuation of Tesla stock stems from expectations that this firm will become a leader in autonomous driving and robotics, activities that require additional capital expenditures.

Annual mandatory selling of Tesla stock to raise funds to cover the tax bill would depress the stock price and increase the cost of capital at a time when Tesla needs more funds for capital expenditures and research and development.

Under the tax bill Elon Musk would owe $27 billion annually on Space X alone. SpaceX is private, Musk cannot simply sell a few thousand shares on an app to cover the bill; he would have to find massive institutional buyers or sovereign wealth funds willing to participate in private rounds every single year, potentially at a discount to the official valuation.

In high-risk ventures like SpaceX, founder control is what allows the company to prioritize multi-decade goals over short-term dividends. If Musk is forced by the tax code to dilute his ownership by 5% every year, he would eventually be outvoted by institutional investors who would likely pivot the company to maximize Starlink’s satellite internet profits while cutting the expensive, non-profitable development of the Starship Mars colony.

There are significant rumors that SpaceX will go public through an IPO. The wealth tax would likely reduce the incentive for Space X to go public because in the absence of a publicly traded price Musk could argue for a lower valuation.

Using Tesla as a “piggy bank” to pay the multi-billion dollar annual tax on SpaceX’s valuation would rapidly deplete Musk’s 12–20% stake in the carmaker. Within a few years, he would lose his voting majority at Tesla, potentially leading to a change in leadership that might move away from his long-term bets on robotics and AI.

This forced liquidation is particularly hazardous given Tesla’s current 2026 pivot. To maintain its lead in the global AI race, Tesla has signaled it will double its capital expenditures to over $20 billion this year, funding massive new data centers for FSD (Full Self-Driving) training and the transition of its Fremont facility into a dedicated production line for the Optimus Gen 3 humanoid robot.

· Watch: “The Humanoid Robot Revolution: What’s Coming in 2026”

o This video breaks down how Tesla Optimus and FSD are moving from demos to factory deployment in early 2026, providing visual context for why Musk views this as a $25 trillion opportunity that he cannot afford to lose control of.

Critically, this tax arrives as Tesla navigates its most vulnerable period since the Model 3 ramp. The domestic EV market has cooled into a ‘structural winter’ following the September 2025 repeal of the $7,500 federal tax credit and the rollback of state-level purchase incentives. With Tesla’s U.S. sales dropping 7% in 2025 and inventory levels hitting a record 149-day supply, the company has been forced to cannibalize its own margins to remain competitive against cheaper imports.

Forcing Musk to offload billions in stock during this downturn would be a ‘double-hit’: it would dry up the company’s internal cash reserves while simultaneously crushing investor confidence at a time when the stock’s premium is no longer supported by car sales, but solely by the promise of future AI breakthroughs.

Using Tesla as a source of tax liquidity would not only dilute Musk’s voting power but also signal to the market a lack of ‘founder conviction’ during the company’s most capital-intensive phase. Such large-scale, mandatory sales would likely depress the stock valuation, creating a feedback loop that increases the cost of capital and potentially starves these high-risk robotics projects of the very cash they need to survive.

Simultaneously, the tax bill for SpaceX would continue to rise as the company succeeds, eventually forcing him to sell SpaceX shares anyway once the Tesla reserves are exhausted.

Neuralink and the Boring company are smaller, but Musk might be forced to sell shares an act that leads to a higher cost of capital for these startups also.

The bill does contain a clause, initiated by Ro Khanna, to protect startups in a building phase with little or no cash. Under this rule, a founder can postpone their tax payments until a “liquidity event,” such as an IPO or a total sale of the company. This prevents a visionary from being forced to sell off pieces of a fragile, young company just to satisfy the IRS, which would otherwise dilute their control before the business is even off the ground.

The deferral clause would currently apply to Neuralink and The Boring Company but not to SpaceX, which is very profitable. SpaceX might be able to lose a lot of money on Starship and become eligible for deferral.

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Elon Musk is currently backed into a $42 billion corner—but he isn’t out of moves yet. Below the fold, we dive into the three ‘nuclear options’ Musk’s legal team is likely prepping for 2026, including the specific Supreme Court precedent that could strike down the Sanders-Khanna Act entirely. Upgrade to paid to unlock the full strategic breakdown and the ‘Exit Tax’ warning that changes everything.

Elon Musk’s potential responses to wealth tax:

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The wave of wealth tax proposals started in California and has moved to Washington DC. What follows is a description of key proposals and my assessment.

California’s “One-Time” Lever: The 2026 Billionaire Tax Act

California is currently navigating a high-stakes local experiment, known as the 2026 Billionaire Tax Act, a proposed statewide ballot measure for November 2026 that would impose a one-time 5% excise tax on individuals with a net worth exceeding $1 billion.

• The Retroactive Snapshot: The tax applies to individuals residing in California as of January 1, 2026. This retroactive “snapshot” is a deliberate attempt to prevent capital flight, though it has already sparked legal challenges and a notable exodus of ultra-high-net-worth residents prior to the deadline.

• The Liquidity Compromise: Acknowledging the “Illiquidity Trap” mentioned earlier, the act allows billionaires to pay the 5% bill in annual installments of 1% over five years, though these deferrals come with a 7.5% annual charge.

• Allocation: 90% of the projected $100 billion in revenue is earmarked for the Billionaire Tax Health Account to shore up Medi-Cal and public health services following federal funding shifts, with the remaining 10% designated for food assistance and K-14 education.

See my previous memo on the California initiative.

The Sanders-Khanna “Make Billionaires Pay Their Fair Share” Act

Introduced in March 2026, this is the most aggressive and direct redistribution model we have seen to date.

• The Mechanism: A 5% annual wealth tax on net worth exceeding $1 billion.

• The “Social Dividend”: Unlike previous versions, this bill specifically earmarks revenue to fund $3,000 direct annual payments to individuals in households earning $150,000 or less. For a family of four, this is effectively a $12,000 “wealth rebate.”

· Enforcement: To prevent a billionaire exodus, the bill includes a 60% “Exit Tax” on the total wealth of any billionaire who renounces their U.S. citizenship. Just like Hotel California, you can check out anytime you like, but we’re keeping more than half your luggage.

The Warren “Ultra-Millionaire Tax” Act

Senator Warren’s model remains the benchmark for “broad-base” wealth taxation, targeting the top 0.05% of households.

• The Mechanism: A 2% annual tax on net worth between $50 million and $1 billion, with a surtax bringing the rate to 6% for everything above $1 billion.

• Objective: The focus here is on structural social investment -- funding universal childcare, canceling student debt, and expanding Medicare—rather than direct cash transfers.

• Auditing: The bill mandates a 30% minimum audit rate for the affected group and provides $100 billion in new funding for the IRS to develop specialized valuation tools.

The Biden “Billionaire Minimum Income Tax” (BMIT)

The Biden BMIT: A ‘Billionaire’ tax that somehow manages to find its way into the pockets of anyone with $100 million. Apparently, in D.C., ‘Billionaire’ is now a flexible term.

The BMIT is the most technically nuanced of the three, framed as an income tax expansion to survive potential 16th Amendment challenges in the Supreme Court.

• The Mechanism: A 25% minimum tax on the “total income” of households worth over $100 million.

• The Critical Pivot: It redefines “income” to include unrealized capital gains. If your stock portfolio grows by $100 million, you owe tax on that growth even if you haven’t sold a single share.

• Prepayment Logic: This tax functions as a prepayment. When the asset is eventually sold, the taxpayer receives a credit for the BMIT already paid, effectively ending the “buy-borrow-die” strategy where the wealthy live off loans against untaxed assets.

Comments:

Comment One: Lack of liquidity and implications

· The 5% Cash Ceiling: According to the 2026 High-Net-Worth Asset Allocation Study, the average ultra-wealthy portfolio has compressed its cash and currency holdings to just 5% of net worth. This is driven by a “growth-first” shift into private equity and alternative assets (now 28-34% of total wealth).

· The Inherent Conflict: In a scenario like the proposed 5% annual Sanders tax, a billionaire with average liquidity would be forced to exhaust 100% of their available cash just to cover the first year’s tax bill.

· Forced Liquidation Spiral: Because “liquid” buffers are also required for operational costs -- such as interest on debt, capital calls for private ventures, and business reinvestment—any tax exceeding 1-2% of net worth would likely lead to the “fire sale” of core holdings.

· The “Paper Wealth” Paradox: Since over 50% of billionaire wealth is typically held in public equities (often concentrated founder shares), large-scale selling to meet tax obligations risks “market signaling” issues, potentially driving down the stock price and further eroding the tax base itself.

Lawmakers seem to think a billion-dollar valuation is a giant swimming pool of gold coins but you can’t pay a 5% tax bill with 5% of a factory’s roof or a fractional share of an unreleased AI algorithm.

Comment Two: The Constitutional “Apportionment” Wall

The primary legal hurdle is the 16th Amendment.

· The Direct Tax Conflict: The Constitution requires “direct taxes” to be apportioned by population. Because a wealth tax is a tax on ownership (not a transaction), it faces a likely Supreme Court strike-down. This creates “policy whiplash,” driving capital flight “just in case” the tax is enacted.

Comment Three: International Evidence (The European Exodus)

Europe has already run this experiment. In 1990, twelve European nations had wealth taxes; by 2026, almost all have been repealed (including France, Sweden, and Germany).

· The Revenue Paradox: France’s wealth tax reportedly raised €3.5 billion annually but cost the state €7 billion in lost VAT and income tax as 42,000 millionaires fled the country.

We’re desperately trying to import a European tax model that Europe itself has been frantically refunding and repealing for the last 30 years because their millionaires developed a sudden, passionate interest in moving to Switzerland.

Comment Four: The “Innovation Ceiling” (The Microsoft/Apple Test)

The most destructive impact is on the pre-revenue “Unicorn” phase.

· The Cost of Capital: A 5% wealth tax acts as a 5% “interest rate” on equity, raising the hurdle rate for every dollar of startup investment.

· Stifling the Future: If you had taxed Microsoft or Apple at 5% of their paper valuation the moment they hit $1 billion -- long before they were profitable -- the capital siphoned away would have drastically slowed the infrastructure they built. For today’s AI startups, this is a “penalty for success” that incentivizes selling out to incumbents just to pay the IRS.

Comment Five: The Philanthropy Paradox

By taxing wealth out of existence, the state effectively dismantles the engine of private philanthropy, replacing surgical, long-term capital with the broad, often inefficient spending of a centralized bureaucracy.

The Gilded Age: Giving “Everything” Away

The tradition of radical distribution is a fundamental pillar of American capital. In the early 20th century, the titans of industry shifted from accumulation to near-total liquidation for the public good:

· Andrew Carnegie: Living by the mantra, “The man who dies rich, dies disgraced,” Carnegie distributed over 90% of his fortune (nearly $14 billion in today’s dollars). His wealth built over 2,500 libraries and anchored institutions like Carnegie Mellon that still drive innovation a century later.

· The Rockefeller Legacy: John D. Rockefeller distributed over $500 million—creating the modern school of public health. When wealth is taxed at the source, the “seed corn” for these multi-generational engines is consumed before it can ever be planted.

Interesting video on the Gilded Age:

https://daily.jstor.org/philanthropy-and-the-gilded-age/

Modern “Philanthro-Capitalism”

Today’s ultra-wealthy continue this tradition, though with a focus on systemic “moonshots” that political cycles often ignore:

· The Gates & Buffett Pledges: Warren Buffett has committed 99% of his wealth to be distributed during his lifetime or at death. The Gates Foundation has used this concentrated capital to move the needle on global polio eradication—a feat of logistics and funding the public sector struggled to maintain.

· The San Francisco Impact: Mark Zuckerberg and Priscilla Chan have mirrored this with the Chan Zuckerberg Initiative, pledging 99% of their Meta shares. Locally, they provided a $75 million gift—the largest private gift to a public hospital in U.S. history—to San Francisco General, funding the critical trauma technology and seismic upgrades that tax bonds alone couldn’t cover.

So, the progressives who want a wealth tax to fund their vision of government are willing to sacrifice these projects. The tradeoff exists for two reasons. First, the money reallocated to government projects can’t be given to philanthropic projects. Second and arguably more importantly, taxes that reduce capital accumulation and economic growth will impede the existence of fortunes available for any purpose.

Conclusion: The Collision of Populism and Pragmatism

The three federal frameworks and the California initiative analyzed in this memo represent a significant shift in the American fiscal narrative—moving from taxing what citizens earn to taxing what they build. While the political appeal of a “Social Dividend” is undeniable in an era of high wealth concentration, the structural impediments outlined in our six comments suggest a profound disconnect between legislative intent and economic reality.

My cynicism regarding the practicality of these proposals is rooted not in ideology, but in the mechanical failures inherent to taxing illiquid, unrealized value.

The evidence from the European exodus and the “Innovation Ceiling” suggests that a wealth tax does not simply redistribute static piles of gold. Instead, it siphons the very capital required for high-risk, long-term R&D. If we mandate the extraction of capital from the frontier to pay for the present, we stop the next Microsoft, Apple, or SpaceX before they can reach maturity.

Subsequent essays will look essay on the likely concrete impacts of these wealth tax proposals on capital formation and economic growth.

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