Tag Archives: financial planner

Can the Country Survive Without a Strong Middle Class?

My Comments: Most of the recent talk about the Constitution comes in the wake of the tragedy in Parkland, Florida, for obvious reasons. The attention is well deserved but I’d have you think about more than just the 2nd Amendment.

At the national level, if not across the globe, society is re-evaluating itself. Are the values we hold dearly still valid? Are the roles played by the various participants serving our best interests? Are you willing to let the so called ‘elite’ change the economic and social landscape that most of us enjoy without allowing us to express our thoughts? Have we given them so much power that it now makes no difference?

If you’ve followed me for long, you’ve heard me talk about income inequality and the subtle effects it has on not just our society, but in virtually every society on the planet. I hope you will read this, regardless of your political leanings, as it will influence every aspect of the lives of your children and grandchildren. And the clowns in Washington, DC are not helping matters.

Rebecca J. Rosen / Mar 21, 2017

In a powerful new book, the legal scholar Ganesh Sitaraman argues that America’s government will fall apart as inequality deepens.

The U.S. Constitution, it is fair to say, is normally thought of as a political document. It lays out the American system of government and the relationships among the various institutions.

But in a powerful new book The Crisis of the Middle-Class Constitution, the Vanderbilt legal scholar Ganesh Sitaraman argues that the Constitution doesn’t merely require a particular political system but also a particular economic one, one characterized by a strong middle class and relatively mild inequality. A strong middle class, Sitaraman writes, inspires a sense of shared purpose and shared fate, without which the system of government will fall apart.

I spoke with Sitaraman about his book last week at The Atlantic’s offices in Washington, D.C. A transcript of our conversation, edited for clarity, follows.

Rebecca J. Rosen: Your new book, The Crisis of the Middle-Class Constitution, is premised on the idea that the American Constitution is what you call a middle-class constitution. What does that mean?

Ganesh Sitaraman: The idea of the middle-class constitution is that it’s a constitutional system that requires and is conditioned on the assumption that there is a large middle class, and no big differences between rich and poor in a society.

Prior to the American Constitution, most countries and most people who thought about designing governments were very concerned about the problem of inequality, and the fear was that, in a society that was deeply unequal, the rich would oppress the poor and the poor would revolt and confiscate the wealth of the rich.

The answer to this problem, the way to create stability out of what would have been revolution and strife, was to build economic class right into the structure of government. In England, you have the House of Lords for the wealthy, the House of Commons for everyone else. Our Constitution isn’t like that. We don’t have a House of Lords, we don’t have a House of Commons, we don’t have a tribune of the plebs like they had in ancient Rome.

At the time, people debated having a wealth requirement for entry into the Senate, but that didn’t happen. That would have been a common thing in the generations and centuries prior to the creation of the U.S. Constitution. So there’s actually a radical change in our Constitution that we don’t build economic class directly into these institutions. The purpose of the Senate, with its longer terms, is to allow representatives to deliberate in the longer-term interest of the republic, and that’s the goal of the Senate.

What we have is a constitutional system that doesn’t build class in at all, and the reason why is that America was shockingly equal at the time in ways that seem really surprising to us today.

Rosen: Of course, the point here isn’t only that class is ignored, or left out of the Constitution, but that the Constitution actually relies on a kind of equal society in order to function. Could you explain the premise there?

Sitaraman: That’s exactly right. The idea is that the Constitution relies on a relatively equal society for it to work. In societies that are deeply unequal, the way you prevent strife between rich and poor is you build class right into the structure of government—the House of Lords, House of Commons idea. Everyone has a share in government, but they also have a check on each other.

In a country that doesn’t have a lot of inequality by wealth, you don’t need that kind of check. There’s no extreme wealth, there’s no extreme poverty, so you don’t expect there to be strife, to be instability based on wealth. And so there’s no need to put in some sort of check like that into the Constitution.

That’s how our Constitution works. The reason why it works this way is that when the founders looked around, they thought America was uniquely equal in the history of the world. And I know that seems crazy to say, but when you think about it, it makes sense. If you imagine in the late 18th century, America is a sparsely populated area, just on the coast of the Atlantic, with some small towns and cities, and lots of agrarian lands, and it’s really at the edge of the world, because the center is western Europe. It’s London, it’s Paris, and when Americans look across the ocean at those countries, what they see is how different it is. They see that there’s a hereditary aristocracy, something that doesn’t exist in America. There’s feudalism, which doesn’t exist in America. There’s extreme wealth, there’s extreme poverty, neither of which really exists in America. As a result they don’t need to design a House of Lords and a House of Commons, they don’t need a tribune of the plebs in order to make their constitution work.

“The assumption of our original Constitution was that society would be relatively equal.”

Rosen: Of course, there was slavery at the time—and it was built directly into the Constitution.

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What’s Happening This Week In The Markets?

My Comments: Somewhere in the news cycle there is always a story about what’s happening in the stock and bond market and whether or not there’s a reason to get freaked out.

Media companies these days are overwhelmed with crisis after crisis and spending much time on this issue is a waste of energy and limited resources. Only a retirement planning junkie like me is willing to pay attention. It’s a miracle you’ve read this far…

Anyway, from time to time I find in my inbox a report from J. P. Morgan, a global asset management firm with solid information. At the bottom is a link to their two page report that appeared this morning.

Here are two excerpts if a quick summary is all you have time for:

January’s inflation
report confirms that deflationary fears are
easing, and that an aggressive rise in
inflation is not materializing.

…risks stemming from rising (interest) rates and higher
wages will build as the economy moves
later into the business cycle…

What I infer from the report is that the recent volatility was healthy in the short term but that long term, all bets are off. Here’s the link to their report: https://goo.gl/By6P5E

A Time for Courage

My Comments: In past blog posts I’ve shared the words, and wisdom, of Scott Minerd. He’s one of the principal brains at Guggenheim Partners, a major player on the world stage when it comes to investing money. (BTW, this pic of Scott is from 12/21/2015)

Right now many of you are rightly worried by the fall in equity prices on Wall Street, if not across the planet. Don’t equate a crash on Wall Street with the American economy. What it means is there are strong feelings about the high valuations that we see in the DOW and the S&P500.

Is it time to bail out and wait for the bottom to appear? Probably not. But don’t take my word for it. Read below what Scott is saying and then sit back. From a strategic perspective, you need to decide how much of your overall portfolio is exposed to the markets and how much of it should be protected against severe downside movements. There are insurance policies available that make this possible and the price is reasonable.

By Scott Minerd, Chairman of Investments and Global CIO – 02/06/2018

In what otherwise might have been another quiet Monday with investors lulled to sleep by the low volatility world of the past year, I was surprised to be suddenly overwhelmed with a deluge of calls late in the day from clients and the media asking for an explanation of the collapse in equity prices. My answer in a word was simply “rates.”

The backup in bond yields has been significant, with the 10-year Treasury rising 23 basis points in the last month, and hitting a recent peak of 2.88 percent. The tax cut euphoria drove stocks up at an unsustainable pace, but concerns have been building about bond market supply congestion following the Treasury Department’s refunding announcement, and Friday’s employment report has increased speculation that the Fed may need to become more aggressive to head off potential inflationary concerns.

Contributing to inflation worries is impressive wage growth. Hourly earnings were up 0.3 percent in January and upwardly revised for December to 0.4 percent, supporting the concept of wage growth of 4 percent or more for 2018. These data are trending up even before we fully digest changes to the minimum wage and the effect of wage increases and bonuses related to the new tax plan. These are likely to give a lift to consumption, which will reinforce more labor demand, and thus drive unemployment lower.

Dare I say that some in the market are becoming concerned that the Federal Reserve may be falling behind the curve, especially as evidenced by the recent steepening in bond yields? This is also a possibility. The consensus for future rate hikes, was moving to four rate increases in 2018, and possibly more.

I think that the setback (the largest one-day point decline in history) is not over but we are approaching a bottom. This correction is a healthy development for the markets in the long run, and the equity bull market, while bloodied, is not broken. The lower bond yields will help but the curve steepening speaks more of flight to safety in times of market turmoil than concerns over the economy.

Ultimately, my previously held market views are intact. I still hold the opinion that the favorable economic fundamentals that are in place, where we are in the business cycle, the breadth of the market, and levels of current valuations are supportive of equities. Buying here will probably make investors happy campers later in the year, but the tug of war between stocks and bonds is just getting under way. This may be the big investment story for 2018.

Trump’s Looming Bust-up with China is Bad News for 2018

My Comments: Having more money to spend in retirement requires a delicate balance between living cautiously and making sure your funds are growing properly. If you stay alive, the money to pay your bills has to come from somewhere.

All that is to say that global economics is going to play a role in your future financial affairs, whether you understand it, like it, or don’t give a hoot about it. My efforts to help my friends and clients is to try and provide insights to help you get it right and have more money rather than less money.

Trump has already conceded economic hegemony to China on the global stage by refusing to participate in the Trans-Pacific Partnership. That alone is going to limit your financial future over the next several decades. Don’t say I didn’t warn you.

by Edward Luce / January 3, 2018

Flattery gets you everywhere with Donald Trump. But only while it lasts. Like any addiction, it needs regular boosts in higher doses. Amid fierce bidding, China’s Xi Jinping won first prize as 2017’s most effective Trump flatterer. All it took was a lavish banquet in the Great Hall of the People. In return, Mr Trump forgot to raise America’s trade complaints or human rights. Mr Xi easily outflanked the US at the Asian summits following Mr Trump’s China visit. If the key to seducing him is a dish of Kung Pao chicken, what’s not to like?

The problem is that Mr Xi must continually feed Mr Trump. At a certain point, the ratio of Trump flattery to loss of self-respect will be too high. Would another flurry of trademark approvals for Ivanka Trump break China’s bank? Probably not. What about giving the go-ahead for a Trump Tower in Shanghai? Possibly. Another red carpet reception is unlikely to cut it. The law of diminishing returns applies to favors already bestowed. In 2018, it is likely to turn negative. China has always been in Mr Trump’s sights. Massaging his ego buys only brief respite.

The other ego is Mr Xi himself. China has acted with caution for more than a generation. For Washington’s “never Trumpers”, Beijing’s restraint gave it honorary membership of the axis of adults that would curb Mr Trump’s instincts. If Mr Trump was a loose cannon, China could be counted on to behave responsibly. In the opening months of Mr Trump’s presidency, Mr Xi did just that. China, not the US, is now the darling of the Davos economic elites. Mr Xi can lecture on Ricardian trade theory with the best of them.

But China’s age of forbearance is over. In October, Mr Xi opened a bolder chapter in China’s foreign ambitions. Deng Xiaoping, China’s great moderniser, spent his last years with no official role other than chairman of China’s bridge association. Hu Jintao, Mr Xi’s predecessor, was happy with just being president. Mr Xi, by contrast, has grabbed every title going and immortalized his own thought in the party’s constitution. Mr Trump has competition, in other words. For the first time since Mao Zedong, China has a living personality cult. US-China relations are now in the hands of two gargantuan egos.

That is bad news for 2018. Added to this are two bigger clouds. For the first time since the cold war, the US has an explicit competitor. Mr Xi’s China has set itself the target of becoming the world’s top dog within a generation. Unlike the Soviet Union, China can sustain technological rivalry with the US. America’s dominance in the Asia Pacific is no longer a given. Mr Xi’s aim is to achieve military parity. Second, America’s president thinks in hourly increments. China’s leader plans in decades. The battle between these two egos is one-sided. Mr Xi holds a telescope. Mr Trump stares at the mirror.

The scope for misunderstanding is growing. Too much attention has been paid to the spectre of a nuclear conflict between the US and North Korea — too little to the looming fallout in US-China relations. That is in spite of Mr Trump’s latest tweet boasting that he had a bigger nuclear button than Mr Kim.

The US president still believes China can disarm Kim Jong Un on America’s behalf. No one else thinks that is likely. Last week, Mr Trump said his patience with China was running out. Mr Trump’s advisers have so far curbed his protectionist impulses. But Mr Trump is rarely muzzled for long. His one consistent belief is that the US is being ripped off. China, whom he has repeatedly accused of raping America, tops the list. “If they don’t help us with North Korea, then I do what I’ve always said I want to do,” he told The New York Times. We should expect 2018 to produce US trade actions against China and Beijing to fight them at the World Trade Organization. There will also be more nuclear tweets.

But the US-China fog extends far beyond the Korean peninsula. As does the potential theatre of confusion. Last year China opened its first overseas base, in Djibouti. A Chinese aircraft carrier made its first visit to the Mediterranean. Mr Xi also stepped up China’s installations in the South China Sea — a subject on which Mr Trump has yet to comment.

Mr Trump has not uttered the word “Taiwan” since he spoke to its leader after his election. His first tweet of 2018 was to accuse Pakistan of “lies and deceit”. China rushed to Pakistan’s defense. “China and Pakistan are all-weather partners,” said Beijing after praising Islamabad’s “outstanding contribution” to fighting terrorism. Mr Trump was far closer to the truth. But there are few gulfs of perception wider than that.

In a stand off between Mr Trump and Mr Xi, who would blink first? There is no way of knowing. However, China is giving hints of over-confidence. From the Iraq war to Mr Trump’s election, China has been reaping one windfall after another. His disdain for democratically elected leaders plays straight into Beijing’s hands. But its luck cannot last for ever. Mr Xi should remember that Mr Trump launched missile attacks on Syria when the two were having dinner in Mar-a-Lago. Many in China believe Mr Trump is a paper tiger. They may be right. But it would be rash to test that theory.

Finding the Best Social Security Claiming Strategy – 3 Questions

My Comments: As you’ve heard me say many times, Social Security benefits have become an absolutely critical piece of the retirement income puzzle for most of us. If it’s not there to pay critical monthly bills, it’s there to allow us freedom of movement as we transition from the retirement go-go years to the slow-go years and ultimately the no-go years. What follows here are good insights for you.

Sean Williams | Nov 27, 2017

Here’s how you can get the most out of Social Security.

Many Americans will lean on Social Security pretty heavily during retirement. Data from the Social Security Administration finds that more than three out of five seniors currently rely on their benefits for at least half of their monthly income. Separately, a study from the Urban Institute estimates that an average-earning male ($47,800 in 2015 dollars) will net about $304,000 in lifetime benefits from Social Security if he turns 65 in 2020. That’s about $82,000 more in lifetime benefits than Medicare will provide for this same individual.

Yet in spite of the clear importance placed on Social Security income during retirement, deciding when is the best time to file for benefits is perhaps the greatest mystery for most workers.

Your retirement benefit from Social Security, assuming you’ve earned the prerequisite 40 lifetime work credits, is derived from four factors — three of which you can control. It’s based on your earnings history, length of work history, claiming age, and your birth year. This latter factor is what determines your full retirement age, or the age at which you’re entitled to receive 100% of your retirement benefit.

In its simplest form, if you sign up before your full retirement age, you’ll accept a permanent reduction in your payout of up to 30%, depending on your claiming age and birth year. Similarly, waiting until after your full retirement age to enroll could boost your payout by up to 32%, depending on your claiming age and birth year. You can begin receiving retired worker benefits at age 62, or any point thereafter, but be aware that your benefits grow by approximately 8% for each year you hold off on enrolling.

This is the dilemma that retired workers commonly face: Take the money now and accept a permanent reduction to your monthly payout, or wait and allow your benefit to grow.

Answering these questions will maximize your claiming strategy

The easiest way to figure out what the best Social Security claiming strategy will be for you is to answer the following three questions.

1. Am I in good health?

The first thing you’ll want to do is assess your long-term health outlook to the best of your ability. Admittedly, trying to guess our own expiration date is nothing any of us can do with accuracy. We can, however, factor in our own medical history, and that of our immediate family, to determine whether or not we’re in poor, good, or excellent health. Your overall health and longevity outlook will help determine whether claiming early, late, or somewhere in the middle makes sense.

People with chronic health conditions and/or those with immediate family members who haven’t reached the average U.S. life expectancy of 78.8 years, according to the Centers for Disease Control and Prevention, are often best served claiming benefits earlier. While waiting would boost your monthly payout, claiming early and immediately receiving a payout will usually maximize what you’ll receive over your lifetime.

Conversely, waiting until ages 68 to 70 and boosting your payout well above your full retirement age benefit can be worthwhile for seniors in excellent health who’ve had parents or grandparents live into their 80s, 90s, or even 100s. Waiting can produce a significantly higher lifetime payout by ages 85 and up.

If you’re in good, but not great, health, then claiming around your full retirement age might be a wise decision. Again, it’s something of a crap shoot, but the smartest thing to do is take the information we have about our health and apply it as best as possible to our claiming decision.

2. Will this claiming decision affect anyone other than me?

The second question you’ll want to answer to ensure you’re making the best Social Security claiming decision possible is: How will this claiming decision affect those around me?

For instance, if you’re an unmarried elderly individual with no dependents, then your claiming decision really is your own to make. What you do should affect you alone.

On the other hand, if you’re married, your claiming decision could have implications on your spouse. As an example, if you’re the higher-earning spouse and file for benefits before reaching full retirement age, and you wind up passing away before your lower-earning spouse, the maximum survivor benefit that your lower-earning spouse may be eligible for will be reduced.

Elderly couples should also work on coordinating claiming strategies to maximize what they receive while they’re alive. Higher-earning spouses often benefit by waiting until their full retirement age or later to sign up for Social Security. Letting this larger benefit appreciate makes sense given that it’ll have the biggest positive impact on the couples’ household income later in life. Meanwhile, couples can sometimes gain by having the lower-income spouse claim early in order to generate some income for the household while the larger benefit grows.

Long story short, understand how your claiming decision will affect those around you.

3. How reliant will I be on Social Security income?

Perhaps the most important question you’ll want to ask yourself is this: How reliant will you be on Social Security? Generally speaking, the more reliant you’ll be, the greater incentive you’ll have to wait before signing up.

One of the bigger mistakes made by enrollees is filing for benefits early if you have little or nothing saved for retirement. If your nest egg is practically nonexistent, then you’re probably going to lean very heavily on Social Security during your golden years. If this is the case, the last thing you’d want to do is file for benefits early and permanently reduce your monthly payout. Instead, you should be working during your 60s, assuming you’re in good enough health to do so, and allowing your wages to cover your living expenses. This way your Social Security payout can keep growing, thus allowing you to maximize your monthly payout.

How reliant should you be on Social Security? I believe the ultimate goal should be to have no reliance on Social Security income whatsoever. In other words, your ability to save and invest for the future allows your Social Security payout to be nothing more than icing on the cake. But for the average American, it’s designed to replace about 40% of working wages. As long as you have a primary source of income, and Social Security isn’t it, you’re doing something right and should be in decent shape during retirement.

If you take your health, your marital/dependent situation, and your expected reliance on Social Security income, into question when making your claiming decision, you’re liable to find the best claiming strategy for you.

10 Social Security Terms To Know And Understand

My Comments: Happy Thanksgiving everyone!

For those of you still not signed up and receiving monthly benefits, here’s some useful things to know.

For those of you who attended my Social Security workshops, you’ll recall the acronyms that appear on every page. There’s even a couple more here for you to learn.

Maurie Backman – The Motley Fool – Nov. 10, 2017

Social Security serves as a key source of income for countless retirees and disabled individuals.

It’s also an extremely complex program loaded with rules and terminology. If you’re attempting to learn about Social Security (which is something you should do, regardless of how old you happen to be), here are a few key terms you’ll need to understand.

1. OASDI

OASDI stands for old age, survivors, and disability insurance, and in the context of your paycheck, it’s the tax used to fund the Social Security program. The current OASDI tax rate is 12.4%. If you work for an outside company, you’ll lose half that amount of your earnings up to a certain income limit, while your employer will pay the remaining 6.2%. If you’re self-employed, however, you’ll pay the full 12.4% up front.

2. SSI

SSI stands for supplemental security income, and it’s different from OASDI in that it’s a program funded by general tax revenues, not Social Security taxes. SSI is designed to help those who are over 65, blind, or disabled with limited financial resources keep up with their basic needs.

3. FICA Tax

FICA stands for the Federal Insurance Contributions Act. It’s the tax that’s withheld from your salary or self-employment income that funds both Social Security and Medicare. For the current year, FICA tax equals 15.3% of earned income up to $127,200 (12.4% for Social Security and 2.9% for Medicare), but those making above $127,200 will continue to pay 2.9% FICA tax on income exceeding that threshold. In 2018, the earnings cap will rise to $128,700.

4. Social Security credits

In order to collect Social Security benefits, you must earn enough credits during your working years. In 2017, you’ll receive one credit for every $1,300 in earnings, up to a maximum of four credits per year. For 2018, the value of a single credit will rise to $1,320 of earnings. Those born in 1929 or later need 40 credits to qualify for benefits in retirement.

5. AIME

AIME stands for average indexed monthly earnings, and it’s used to calculate your personal Social Security benefit. The amount you receive from Social Security is based on your highest 35 years of earnings. To arrive at your AIME, your past earnings are adjusted for inflation so that they don’t lose value.

6. Full retirement age

Your full retirement age, or FRA, is the age at which you’re eligible to collect your Social Security benefits in full. FRA is based on your year of birth, and for today’s older workers, it’s 66, 67, or 66 and a number of months. Though you’re allowed to claim benefits prior to reaching FRA (the earliest age is 62), doing so will cause you to collect a reduced benefit amount — permanently.

7. Delayed retirement credits

Though waiting until full retirement age will ensure that you collect your benefits in full, if you hold off on filing for Social Security past FRA, you’ll rack up delayed retirement credits that will boost your benefits. Specifically, for each year you wait, you’ll get an 8% increase in your payments. Delayed retirement credits stop accruing at age 70, so that’s typically considered the latest age to file for Social Security (even though you can technically wait even longer than that).

8. Trust Fund

The Social Security Trust Fund was established in the early 1980s to cover any future shortfalls the program might face. If Social Security has a year in which it collects more taxes than it needs to use, that money is placed in the Trust Fund and invested in special Treasury bonds. Once Social Security’s incoming tax revenue fails to cover its scheduled benefits, the Trust Fund will be tapped to make up the difference. Come 2034, however, the Trust Fund is expected to run out of money, at which time future recipients might face a reduction in benefits.

9. COLA

No, we’re not talking about a soft drink. In the context of Social Security, it stands for cost-of-living adjustment, and it’s designed to help beneficiaries retain their purchasing power in the face of inflation. Back in the day, those who collected Social Security received the same benefit amount year after year. But beginning in 1975, beneficiaries have been eligible for automatic COLAs based heavily on fluctuations in the Consumer Price Index. COLAs are not guaranteed, however. If consumer prices don’t climb in a given year, benefits can remain stagnant. Such was the case as recently as 2016.

10. Survivors benefits

Survivors benefits are designed to provide income for your beneficiaries once you pass. Those benefits are based on your earnings records and the age at which you first file for Social Security. Surviving spouses, children, and even parents of deceased workers are eligible for survivors benefits.
Clearly, there’s a lot to learn about Social Security, but familiarizing yourself with these key terms will help you better understand how the program works. It also pays to read up on ways to maximize your benefits so that you end up getting the best possible payout you’re entitled to.

President Trump and Tribalism

My Comments: Some of you will see this as a political statement by me and perhaps recoil from it. I hope not.

We are in the midst of a national, if not global, re-evaluation of the values that underly society. On a personal level, I’m very troubled by Trump and how his values about life, about other people, about truthfulness, about the rule of law differ so greatly from my values. I’m less troubled by the political direction he’s pushing us.

That’s because, short of a global nuclear war, the outcome is very likely to be a re-affirmation of the assumptions that drove our nation and our economy toward greatness. Trump represents an effort to roll back the tides, and you know how that’s likely to play out. (See King Canute above.)

From an economic perspective, it’s a non-starter. Sooner or later, his narrow focus will doom him and those around him. Personally, I refuse to live in the past. I’m concerned about the now and tomorrow.

Ronald Brownstein on Nov 2, 2017

Although in dramatically different ways, Tuesday’s terrorist attack in New York and the Republican tax plan scheduled for release Thursday raise the same jagged question: In the Donald Trump era, is it possible for a deeply divided America to sustain any shared interest or common purpose?

The country obviously faced difficult divisions long before this president was elected. But he’s operated in a uniquely tribal fashion that has ominously, and even deliberately, widened those divides. In office, he has abandoned any pretense of seeking to represent the entire country. How deep a crevice he digs may turn on how much, if at all, the Republican congressional majorities resist his divisive tendencies.

Since announcing his presidential campaign, Trump has prioritized what I’ve called the “coalition of restoration”: the primarily older, blue-collar, non-urban, and evangelical whites who combine unease about America’s demographic and cultural change with anxiety about their place in an evolving economy.

Since January, Trump has repeatedly moved to show his coalition that he will resist the changes they fear. That impulse has been evident in his serial travel bans targeting mostly Muslim countries; his attempt to bar trans soldiers from the military; his forgiving reaction to the white-supremacist violence in Charlottesville, Virginia; and his support for preserving Confederate monuments.

Trump displayed a similar instinct following the New York attack, appealing to fear of the assailant’s Muslim background. In a flurry of tweets on Tuesday evening, Trump immediately denounced, as a “Democratic” invention, the “diversity lottery” immigration program that allowed the attacker to live in the United States. Leave aside that George H.W. Bush signed the lottery program into law, or that all Senate Democrats (along with 14 Republicans) supported ending it during the 2013 debate over comprehensive immigration reform. The key is that Trump’s reaction betrayed two central components of his political identity: his instinct to view any crisis more as an opportunity to divide than to unite, and how reflexively he portrays immigrants as a threat.

Trump is far from the first Republican tugged toward that dark star. But the party has sent mixed signals about how far it will follow him. On the one hand, this year’s attacks from Virginia gubernatorial candidate Ed Gillespie on so-called “sanctuary cities” and the Central American gang MS-13 have set a template for Trump-like anti-immigrant messages that many Republicans are likely to adopt in the midterms. On the other, Trump has struggled to build momentum for a bill to cut legal immigration in half, and he’s had trouble unifying congressional Republicans behind his demand for a border wall (which faces majority public opposition).

On immigration, Republicans appear genuinely divided—mostly by geography, partly by ideology—over how closely to join Trump in targeting whites most uneasy about the new arrivals. That hesitance is understandable given that, by 2020, minorities are likely to constitute a majority of all Americans under age 18.

But on taxes, congressional Republicans are placing an equally narrow bet. With Trump’s intermittent support, the GOP is advancing a tax plan aimed at a few voters at the pinnacle of the income pyramid. Although the numbers may change somewhat in the new House plan, the most comprehensive nonpartisan analysis of the GOP’s original blueprint found that it would shower fully four-fifths of its benefits on the top 1 percent of earners by 2027.

By diverting so much federal revenue to that one group, Republicans are ensuring future conflict with others. That lopsided allocation leaves them offering only small tax cuts to working-class voters, as well as possible tax increases to many upper middle-class families already recoiling from Trump’s behavior and cultural agenda. Their plan ensures they will pursue deep cuts in domestic discretionary programs that invest in the productivity of the increasingly diverse future generations—including programs in education and scientific research. It also means they will face growing demands from their fiscal hawks to cut entitlements, which benefit the predominantly white older population whose votes underpin their electoral coalition.