The Truth About the Trump Budget

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The Democrats are up in arms about the Trump budget. Cruel, Barbaric, Mean are some of the nicest words they have used to describe it and it just goes downhill from there. As usual the spokespeople of the Trump administration have not been able to defend the budget effectively so it falls upon independent bloggers like me to get the truth out the best I can. On a side note I am convinced Trump would be better served if he outsourced his messaging to independents , 4chan, and reddit. We would do a better job than his current team.

The primary line of attack the democrats are using is that President Trump is cutting 800 billion dollars from Medicaid therefore he is throwing grandma off a cliff. This is not true. The budget actually adds more money to medicaid and other entitlements every year. This is what is actually happening. There is a projection of how many people would be enrolled for Medicaid in the future and that medicaid would need a certain amount of money in the future. If you allocate less than that then the democrats deem it as a cut. If you are on medicaid this year and next this will not affect you.

Philosophy

The philosophy behind the budget plays a major part in the conflict here. When democrats and republicans make a budget they expect that the amount of people seeking entitlements will increase or stay at the same pace that they are now. When Trump and sane republicans make a budget they expect that this budget will help people earn more money and therefore this will reduce the number of people who rely on entitlements or at the very least slows the growth of the enrollees.

The budget is the blueprint of your plan for the economy. It is what you would like the economy to achieve. With the plans they present if the democrats are successful then you would have more people enrolled via welfare than ever. If the Trump plan is succesful then you would have fewer people enrolled for entitlements. Remember the budget is only supposed to be for one year. If it turns out the projections are not working then you can always add more money in the future. In essence the democrats want people mired in poverty and living of entitlements while Trump and sane republicans are taking a risk to lift them out of it.

Debt

At this point in the conversation it is usually the Republicans that cry out. What about the debt? If the plans to remove more people from entitlements fail then the deficit will be higher than ever. This is true, but then so what?

One thing that republicans don’t like to admit is that if Romney had won the debt would still have gone up. It may not have doubled like it did under Obama but it would still have gone up. If you put the most committed deficit hawk in power during the time of Obama the debt would have still gone up. At the end of the day any meaningful attempts to tackle the debt and deficits will have to go through entitlement reform. That is only possible if people are earning enough that they get out of it and are able to look at it objectively. Presiding over 8 years of supposedly massive growth while ordinary people have the same income they did when your massive growth started will not help it. If we have budgets that promote the status quo where we add more and more people to welfare then nothing will change and the problem will get worse. At some point we have to take the risk and try to lift people off poverty so they no longer need entitlements. Only then will they agree to change it.

Stimulus vs Tax Cut

Everyone democrat who was wildly applauding the stimulus by Obama is now staunchly opposed to the tax cuts by President Trump. The tax cuts and stimulus achieve the same thing. They stimulate the economy by making more money available to people. In the stimulus companies were able to stay open and keep paying their employees while others were able to expand and with tax cuts the same results are achieved.

There is one major difference that has to be pointed out. With the stimulus you gave all the benefits up front. Each company was handed a sack of money from the Obama administration. If the companies did not live up to their end of the deal then there was nothing Obama could do. Incidentally this is also the problem a lot of people have with the Iran deal. Tax cuts are different. They are not sacks of money to be handed out but rather promises that we will not take as much of their income in the future. It is implied that we are doing this so they can employ more Americans and offer higher wages. If this does not materialize then we can always remove the tax cuts.

In the past tax cuts were given but America was not a competitive place to invest in. Companies instead invested in India, China, and other countries. In effect our tax cuts funded their growth. To be completely fair with the corporations it is very hard to invest in a place that says on paper it will take 39.1% of your profits when other places say they will only take 15-20% sometimes less. It is time we used tax cuts to fund our growth.

The Trump budget is good enough. Something needs to be done to attempt to lift people up from poverty. If we keep doing what we have done before we will only achieve the same results.

Debunking the Myths on the Trump Tax Plan

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There have been plenty of attacks against the tax plan proposed by President Trump. I personally love the tax plan as it is everything you could want. Realistic taxes for the rich and corporations. Lower taxes on the poor and middle class. Best of all the new tax code is simple and easy to use as it pushes everyone to use standardized deductions. It’s no wonder tax attorneys and accountants are against it. They would lose a lot of business as people begin using standardized deductions.

There are two main arguments people use when they claim they are against the tax reform proposed by Trump. First that it would blow up the deficit. Second only the very wealthy would benefit from the tax cut.

The Tax Cut Will Increase the Deficit

When discussing how the tax cut will affect the deficit we have to take a look at how the taxes collected are calculated. Whenever any analysis is done on this point people assume that the figures presented are gospel truth and base everything on that. There are two main problems with how the figures are calculated.

The first major problem is it assumes there are no deductions and other loopholes and that everyone paid the statutory tax rates. Whenever business leaders on the left discuss the tax cuts they always say that the tax rate is not as high as you would think like Warren Buffet for example in his recent interview. The document detailing the differences in tax collection are almost always prepared by tax attorneys and accountants as well. People who make a living finding and maximizing these deductions. According to the Wall Street Journal the actual tax rate is 24%. The GAO says around 12-16%. The amount should be in the middle of that. Calculating your collection based on 35% is dishonest and does not present a clear picture. If companies actually paid that there would be none left registered in the US.

The second major problem with their numbers is that it takes income tax by itself. Economists have a phrase called “ceteris paribus” to hand wave away all variables they do not want to deal with. In the report by the Tax Policy Center they specifically mention that they do not take any other macroeconomic effects into consideration. The concept may have some uses but it distorts what is actually happening with this tax cut. When you are given a tax cut you do not use it to swim around in a pool of Trump bucks like Scrooge Mcduck. You would use the money. It would most likely be used to buy other things which would generate sales or other local taxes. You could invest it if you have nothing to buy which would then generate capital gains tax. You could deposit it into a bank allowing them to lend out more money. Almost everything you can do with the money that is not taken from you would be taxed after you use it in some shape, way, or form. This would make up for any shortfall in collection from income taxes. After all nothing states that all the funds of the government must come from income taxes. If you have ever heard anyone argue for giving a stimulus to boost the economy the exact same arguments would apply.

The Tax Cut is For the Rich

There are two things people refer to when they state this. First the tax brackets for the rich when it comes to personal income taxes and next the corporate income taxes dropping down from 35 to 15%.

I will go with the corporate tax argument first as it is easier to explain. As I explained earlier numerous sources respected by the left from Warren Buffet to various publications have stated that the actual tax rate is not 35%. Moving the tax bracket from 12% to 15% or 20% to 15% does not sound as controversial does it? That is not the entire picture though. When companies pay taxes the companies that can scale to afford excellent tax lawyers invariably end up paying lower taxes while those who can only afford turbotax or do their own pay higher taxes. Aside from the tax rates not being what is advertised it ends up being higher for smaller companies than it is for larger ones. Reducing the rate and then removing deductions means that all companies pay the same rate. This actually hurts the rich companies and helps the poor ones.

On to personal income taxes. The defining characteristic of the tax plan is that it pushes almost everyone to take standardized deductions. If you wanted a tax plan to benefit the poor and middle class this would be how you do it. As a general rule the poorer someone is the better standardized deductions are for him. Those with lower incomes would not have the disposable income necessary to have plenty of deductions nor would they be able to avail of services of an accountant to find all the deductions that they could benefit from.

In 2016 75% of people filing income taxes decided to use the standardized deduction because it is more than what they would by itemizing. President Trump would more than double this deduction in his tax plan which means everyone gets more than double the deductions. In contrast the highest earners rely almost exclusively on deductions to get their taxes down. Most of the deductions are going away under the Trump tax plan. Just removing the SALT (state and local tax) deduction alone would remove a lot of the deductions high income earners use. Add the fact that President Trump is also proposing a limit on the amount of deductions of 100000 on single and 200000 on jointly filed taxes and the case that the tax cut is favorable to the rich is harder to make. Of course this will never get discussed as the media will only discuss the changes to the raw tax rates. My personal fear is the reverse might be true. Removing the deductions and placing a hard limit on the amount that can be claimed may cause the wealthy to flee the country like that French actor who took Belgian citizenship to avoid a tax hike.

Once you take a look at the entire plan it is both very fair and remarkably simple. I encourage everyone to take a look at the tax code themselves instead of relying on media or “the experts”. Remember they need the tax code to be complex or they would not be able to charge a high amount for their services.

Lowering Taxes is Moral

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President Trump has come out with his proposal regarding corporate taxes. He wants to lower it to 15% while closing all the loopholes. There will be a lot of discussion on both sides on the effectivity of this act. One side will say that it will generate new business and the other will say there is no use to it and it is a payoff to the rich. Neither side will discuss the morality of the act.

Lowering corporate taxes is the only moral choice in this scenario. As it stands right now our corporate taxes are 35-39%. It varies slightly depending on the actual state you are in. The amazing thing about this rate is that when you ask any politician whether they are from the right like Ted Cruz or from the left like Bernie Sanders they will all say the same thing. Corporations do not pay this as it is. They pay an average of 15% to 20%. Some corporations pay lower and some higher depending on how aggressively they are willing to exploit loopholes and the talent of their lawyers and accountants. There is a consensus that if corporation were to actually pay this tax rate which is the highest in the world they would leave or go under. We are in effect operating under laws we expect no one to follow.

Laws

Since I am discussing morality it will be useful to first discuss what a law is. A politician will give you one answer, a law student will give you another, and a layman will give you a third. The best description I have found comes from a thinker in the Qin dynasty. A law is a wish. It is the physical incarnation of the ideal society of the lawmaker. In simple terms if you make laws penalizing rape and murder it is because you do not want rape and murder in your society. If you make laws protecting dolphins it is because you want the environment and that animal protected. If you make laws attracting business it is because you want your people employed. The laws you make define the type of society to live in. If you make laws that you expect people to break then you get a society of lawbreakers.

Should be Followed

Ayn Rand got a lot of things wrong in her philosophy but one of the things she got absolutely correct is that the most evil thing you can do is to design laws so people have no choice but to break them. Once you do that you have turned your entire society into criminals and have control over them. Take the tax rate for example. If you have a group of moral companies who paid the 39% as mandated by law and another group of companies who cheated and paid only 15% the companies who made the moral choice would cease to exist. What is worse the officials tasked with enforcing the law would not care as no one expected the law to be followed anyway.

Once you have created your society of lawbreakers then all the power rests in the hands of those who enforce and make the laws as opposed to the citizens. Your success or failure does not depend on the skill of labor or management but on the grace of the officials who choose which laws they would like to enforce. After all the easiest way to actually kill your company would be to enforce the laws that are already there. You have basically institutionalized corruption.

The Moral Choice

Laws should be made with the expectation that they be followed. If you want companies to pay 40% tax then make then declare that they will pay 40% tax. If you want them to pay 100% tax then make a law that compels them to do it. If your system does anything else then it must be changed.

Deconstructing the Argument for Illegal Immigration

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When people defend illegal immigration they do so by saying it is beneficial to the economy. They point out that the illegal immigrants contribute more to the society than they take out. First because they pay sales taxes on the things they buy and second because the products they buy with their salary create demand for products and services which then creates more jobs. They also argue if the jobs were given to the citizens it would raise the prices of goods as they get paid more. If you don’t think about it too hard it does sound plausible. As always when the left makes an argument it only looks good on the surface.

Jobs

The first flaw in the argument comes with the jobs the illegals take. These jobs exist independent of the illegals. In fact the reason why the illegals come here is that these jobs exist in the first place. Whether the illegals are here or not these jobs still need to be done. Fruit still need to be picked, tables need to be waited on, and buildings still need to be constructed. All that would happen is you have American citizens employed in these jobs instead most likely earning higher wages. At the end of the day the defining characteristic of the illegal is that he is willing to work less than the citizen. In most cases there is no special skill set that he alone possesses.

Illegals Spend

Now that we have established that the jobs would be there whether illegals are here or not we move on to the next point. The money will get spend on the economy whether a citizen or an illegal earns it. In fact the results are worse when an illegal spends the money. The illegal alien would have family in Guatemala, Malaysia, or whatever his home country is which he would have to send money to. This usually results in around 50% of his salary getting sent abroad. The citizen would most likely spend most of his money in the country. True they would not spend their entire salary in the economy as they may buy products from other countries from time to time but that is true for both illegal and citizen. The citizen would also earn more than the illegal which means he has more money to spend than the illegal. Giving the money to the citizen means that there is more of it to spend and that a greater percentage makes it into the economy.

More money spent in the economy means more jobs created as demand rises. The citizen getting the job boosts the economy by a greater amount.

High Prices

When confronted by this argument the first thing you should do is take a deep breath and smell the hypocrisy. The very people who argue for minimum wage increases and say that it will somehow all work out are saying that raising the wages of some workers will cause economic Armageddon. Let us think about this first. The common argument is that businesses can pass on whatever costs they want to the consumers. Is that assumption true? If Pepsi were to suddenly charge you 100$ per bottle would you still drink Pepsi? Or would drink Coke instead? What if both Pepsi and Coke raised their price would you still buy? Or would you buy Juice instead?

The reality is there are numerous reasons why a company cannot just raise prices. Competition, similar products, marketing strategies for market share, and more. Sometimes companies do have to eat the cost. For example some credit cards don’t charge foreign transaction fees. That is not because the bank does not have to pay those fees it is because they choose to eat those fees to be able to offer something that other credit cards don’t. This all means that it is not true that prices are going to skyrocket if you pay people more. The increased demand caused by the higher wages may even allow some companies to lower prices and make up the profit in volume sold.

Once you begin to look at things objectively you find there is no rational economic justification for illegal immigrants.

Why Russia?

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Since the campaign President Trump has been going out of his way to repair relations with Russia. He has faced intense criticism from both Republicans and Democrats who prefer that we maintain an adversarial relationship with this country. Russia as a country presents several problems as they have their own national interests that they are trying to pursue which is sometimes at odds with ours. It is a very fair question to ask Why Russia? Why should we bother pursuing warmer relations with this country?

By itself Russia is not important. Taken on their own there is not much value in forming better relations with them. The value of Russia lies not with them but with their proximity and historical relationship with another country, China.

Worldview

To understand the importance of Russia you first have to understand how the President looks at the world. Trump looks at the world thru the lens of the economy. That is his primary consideration. Military, diplomacy, human rights, climate, and everything else you can think of is only a distant second. From this standpoint the primary competitor of the US is China. It is the only country worldwide that is capable of overtaking the country in global dominance. By this standard Russia, with an economy the size of Italy, is barely a secondary power. In fact the military of Russia would be a burden to them in this case as they would not be able to afford it long term.

This worldview might be different from other people but it is not wrong. In a micro sense we see richer people being afforded better interest rates than poorer ones. We also see that when they default on their obligations the banks are more willing to work with the richer customers while taking the collateral of poorer ones. Trump has taken advantage of this himself. You would be foolish to think he is the only one to have done so. This also holds true in a macro sense. Debts of countries with weak economies like Greece do not get renegotiated and its people are forced into austerity while everything is done to make sure that countries with stronger economies are not inconvenienced by paying their debt.

In this world view everything flows from a stronger economy. Economy leads to military success as you are able to afford a bigger army and pay to keep it deployed longer and in more areas. Economy leads to diplomatic success as you have more leverage in dealings with other countries. Economy even leads to domestic tranquility as the populace is more content.

Military

Every simulation done by the Chinese general staff on a potential conflict with the US assumes that Russia is a friendly nation or at worse a neutral one. A Russia that has a chance to be friendly to the US in a conflict with China is the worst nightmare for the Chinese. First off you have the massive border between Russia and China. There is just no real way to defend a border of that size while still keeping your coasts adequately protected. Second you have the type of military the US has and the type Russia has. At the end of the day the US is and always will be a naval power. Most of our force projection involves the navy and our carriers. Russia on the other hand is a land power. They also have the willpower to sustain casualties that the US cannot.

Trade

At first glance you would not see any great importance of Russia to China in trade. While it is true that the first priority of China in trade is the southeast region of Asia, this area is also the most easily disrupted if conflict were to arise with the US. The more China relies on this region for its wealth the more power it gives the US over it.

China knows that its navy will never equal that of the US. It is just too far behind and the US improves its navy all the time. This means that the Southeast China sea and Southeast Asia will always be at risk. Due to this the Chinese are spending trillions of dollars developing a land trade route modeled along the lines of the Silk Road used in the middle ages.

The silk road is not one straight line but rather a spiderweb of land based trade routes stretching from China all the way to Europe. These routes have to pass thru one of two major regions. The Middle East or Russia. The Middle East is the Middle East, there is no reasonable expectation for it to be a stable region anytime in the future. At any point in time any of its countries can enter a state of war. In any case the US already has significant allies in the region with Israel and Saudi Arabia. A Russia friendly to the US would mean that even these routes can be cut off.

Diplomacy

The Chinese have been trying to set up an alternative world order without the US. From Brics, to its own version of the TPP, to various bilateral relations with countries around the world. In most of these endeavors Russia is its biggest partner and helps provide stability and credibility to these alternative institutions.

A Russia that is friendly to the US would mean that one of the primary members of this new world order would be able to make decisions that is favorable to the US.

Leverage 

Trump needs Russia in order to contain the Chinese and make it harder for them to compete with the US. China has a history spanning thousands of years. The current communist government does not see themselves as a New China but rather a continuation of the Old Chinese dynasties. Even Rome the longest civilization the west has had can only claim a history of 1000 years.

This gives the Chinese a mindset that favors the long term rather than the short and favors certainty above all else. The more uncertain they are over their alliance with Russia and all the plans coming from it the more they will be willing to give up to the US in the negotiating table.

Trump Deserves Credit for the Economy

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There is a debate as to whether President Trump is to be given credit for job and wage growth that wildly exceeded expectations set by economists in his second month in office. This is of course following last months job growth which also exceeded expectations. The critics say that Presidents by themselves have very little impact on the economy and that there was not enough time for any of the policies of President Trump to be felt. First off if this is true then Obama does not deserve any credit for his economy either. Second if this would have happened under the Obama economy then it would have. During his term we saw the labor participation rate steadily decline and job growth barely outpace population growth. In the two months of Trump we have seen the labor participation rate rise and wages go up in addition to the massive increases in jobs.

Power of Optimism

When the professional economists say that the President has very little impact on the economy they are wrong. What is worse is that they are lying to our faces and they know it. One of the most important jobs of the President is creating a positive outlook for the economy. When people have confidence in the economy they spend more. If they spend more then other the companies need to hire more to produce more for them which then leads to more spending. A positive consumer outlook also factors in to companies who anticipate this and make hiring decisions based of it. Business decisions and stock values are also based on the culture of deregulation brought up by Trump. All of this is happening before any EO or law is passed. I recall W Bush once was asked how everyone could help with the economy and all he said was “Go shopping.”

Consumer confidence, optimism, and other things of this nature are so commonplace in our economy that it is impossible that economists would not know it. For almost its entire history Amazon has not made a profit, yet its shares are valued very highly. The stock market itself picks winners and losers based on nothing but projections and other non-tangible things and companies can fall because of that. Retailers hire and fire employees based on whether they think that consumers will spend. Consumers either spend or save depending on their confidence on the economy. Let me reiterate that economists are aware of these factors. We have to question their partisanship in trying to omit them.

Trump

So what has Trump actually done? First off by creating an environment where we are more certain to deport illegals he has caused border crossings to drop by 40%. This leads to the jobs that those illegals would have taken being given to American citizens instead and those jobs paying at the very least the minimum wage as opposed to the slave wages usually given to illegals. This money then gets spend inside the local economy as opposed to getting send elsewhere.

Second Trump has made it very clear to companies that if they hire American he is very willing to praise them on twitter and on tv with all the PR benefits that entails. If they do not hire American then he is also very willing to criticize them on twitter and on tv. By negotiating with the companies very publicly President Trump also elevates their role in the process and makes them more willing to invest in the country.

Third by showing that he is willing to try and save jobs on a retail level like with Carrier and other instances like that he instills confidence in workers to spend as they will be more secure in their jobs.

Whether you like Trump or not he has instilled a feeling of confidence in the country regarding the economy. Consumer spending is at its highest point in a while and confidence in the economy is as well. That more than anything drives job and wage growth and Trump deserves credit for that.

Bannons Three Buckets

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In CPAC Steve Bannon provided the ideological background to the Trump administration in his three buckets. The topic has not generated much discussion which is surprising as you will rarely see the philosophy of the Trumpian wing of the GOP efficiently distilled into three bullet points as Bannon did.

Security and National Sovereignty 

When you discuss security the very first thing you go to is the defense budget and this is one of the priorities of the Trump administration. As things stand we are currently spending 4x what China is for defense, assuming that China is truthful in its public declarations which many analysts doubt. At first glance it looks like we are massively outspending our leading rival, yet this may not be true. Salaries of American personel dwarf those of their Chinese counterparts. In 2015 a US serviceman of enlisted rank would have been paid a minimum of 23k per year while a chinese leuitenant colonel would have been paid 6000 yuan a month or roughly 12k per year. Around half of the military budget is maintenance and operational costs. I don’t have any details of the chinese budget but the US military has many more comittments worldwide than China which leads to a higher portion of the budget being used for operations. While spending a fourth of the money it is very possible that China gets more men and materiel than America does.

The primary opponent for the military during the Trump administration is the terrorist states and organizations. We have already seen a remarkable paradigm shift in the way the Trump administration deals with terrorists as opposed to previous administrations. By conducting the Yemen raid the Trump administration has put terrorists on notice that they would no longer honor human shields that previous administrations did. The US has more than enough military power to defeat terrorists. The only thing lacking is the willpower to actually use it which the Trump team has shown that they have.

Lastly there will be a focus on reclaiming the independence of the United States from international institutions that chip away at our national sovereignty. The TPP withdrawal was a big first step as it had provisions which allowed for international courts to supercede the local elected representatives when the profits of the companies were in danger. A focus on bilateral trade agreements as opposed to complex multinational ones is important as well as it is far easier to suspend or cancel these argeements if they are no longer in our favor. Lastly withdrawal or reformation from international organizations that limit our options on a case to case basis of course.

Economic Nationalism

President Trump summed this point up perfectly in his speech to congress. He is the American president who works for American interest and not the global president who works for global interests.

First off no matter how much the left wants to confuse the two concepts nationalism is not isolationism and isolationism is not nationalism. Nationalism is simply doing what it best for your own countries national interest without any regard for ethics, morality , or any other artificial construct. Depending on the needs of the country the specific policies involved in this may actually change. In the time of President Reagan it was very nationalistic to pursue free trade. No other country had the industrial base to compete with America at that point in time so we had free reign to exploit the rest of the world. This is no longer the case as other countries have caught up with us so it ceases to be nationalistic.

At this point in time the Trump administration will be focusing on our various trade deals and tax reform. The way that the laws are structured makes it so that it is far more profitable to site your production facilities outside the country, not only that once those profits are realized our current laws make it more favorable to keep them outside the country than to repatriate them. Economic nationalism would make sure that the laws are set up to benefit our country and not others.

Economic nationalism also applies to employment. We currently have a system where it is far more beneficial for a company to hire illegal aliens as opposed to hiring citizens. We also have a system where it is better to replace local workers with h1-b imports while having the citizens train their replacements. Our employment system must benefit our citizens first.

Deconstruction

Bannon summarized this perfectly in CPAC. “When liberals cannot pass something they stick it in a regulation somewhere”. Out of all three buckets this is the ones liberals are actually most afraid of and why they never discuss this on its merits, instead fearmongering on the word “destruction”.

In the area of climate change Obama unilaterally entered into the Paris Accords. Under normal circumstances Obama would have had to have the senate ratify the treaty like other countries did, but since he knew they would not he entered into it as an executive agreement instead. When Cap and Trade failed to pass Obama put up the Clean power plan instead to bypass the legislature. This prompted Lawrence Tribe who actually argued for the democrats in Gore V Bush to equate this to burning the constitution. In the area of immigration reform Obama bypassed congress yet again to give lawful status to 4.3 million illegals. These are just some of the worst examples of overreach and there are dozens. Trump himself may end up passing a lot of executive orders in his term, mostly to reserve the orders of the previous administration.

Democrats are afraid to have all these taken away yet they do have the option to keep them. An option they always had but were too lazy to do. They can win elections and have them passed like Republicans do instead of relying on the courts and orders to bypass the elected branches of government.