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Republican Tax Reform: A Windfall If Done Right – Updated

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Tax reform will be the litmus test for Republicans and President Trump and will be decisive in determining the latter’s re-election. With repealing and replacing Obamacare now relegated to the shed and progress on the border wall looking sluggish, tax cuts across the board might become the ace in the hole.

November 2 saw the unveiling of the new tax reform bill, entitled ‘Tax Cuts and jobs Act of 2017,’ in the Congress (House of Representatives). The New York Times did a great round up of the bill and what it entails, if it were to pass through the Congress and signed into law.

In a move to streamline the tax brackets in individual income tax, the new bill sets out four easy brackets, some of which involve merger of existing brackets. The bill also revises the income ranges for the brackets. Under the new bill, the top tax rate will be applied to households making $1 million and above as compared to $480,050 under the existing structure, thus relieving the burden on six digit earners. While low income earners ($0 – $19,000) will be taxed at 12%, up 2 percentage points from the existing 10%, a larger child tax credit for low income families might make up for the earnings lost in the mark-up.

Repealing the estate tax, which might double the amount of tax exempted inherited wealth to $11 million, seems like a huge windfall for the rich. Critics of the tax reform bill will and have certainly used this giveaway to label the bill as ‘tax cuts for the rich.’

But the real bonanza lies in the bill’s proposal to double the standard deduction – fraction of income immune from taxation. This is applicable to all but married couples with multiple children.

On the other hand, the bill proposes to eliminate local and state tax deductions – a move touted to negatively affect blue state residents more than red state residents, as the former have higher taxes. Could this be an attempt to pressure blue states into reducing their state and local taxes? The next few weeks might answer this question.

Pass-through businesses (sole proprietorships, partnerships, and S corporations) will be taxed at a new single tax rate – 25%. Although a fine streamlining measure, the flat tax rate seems high given the fact that most of pass-through businesses are small and medium enterprises that operate domestically and contribute a lion’s share to the economy. Taxing them lower than the proposed flat tax rate for corporations might make it reasonable and might win over at least one Senate Republican – Sen. Ron Johnson (R-Wis). Winning Senate Republicans over is critical for the passage of the bill, as we shall see later.

The corporate tax rate, under the bill, will be slashed to 20% from the current 35% – one of the highest in the world. The 35% tax rate doesn’t include taxes imposed by the state and local councils. The existing tax burden means more and more US corporations park their money abroad in ‘tax havens.’ The only way to lure that money back and earn taxes on it is to become competitive and incentivize firms to hold their money in the US. The change will have to be coupled with closure of all possible tax loopholes to make sure that the new policy delivers the proposed goodies.

The connection between tax relief to corporations and job creation and better wages is tenuous, yet widely leveraged. But it sounds sanguine and gets the masses to rally around such proposals – an indirect measure to influence the voting patterns of the elected representatives.

On the other hand, there might be some wisdom in cutting taxes for small businesses in a bid to create jobs, as these businesses hire locally and cannot replace human labor with automation due to the high costs of the latter. That’s one more reason to lower the tax rate for pass-through businesses.

The Senate has its own version of tax reform, which if passed, will need to be reconciled with the House version. The Senate version agrees with the House version on most of the key elements. Notable differences include further lowering taxes on overseas profits, an unreasonable tax to begin with, as the profits were made elsewhere and probably have been taxed locally.

The Senate has also added a repeal of Obamacare’s individual mandate that requires everyone to get health insurance or else pay a tax penalty. This is a huge boon for those who don’t want to buy health insurance or can’t afford the ever-increasing costs of O-care. This might also save the government some money, as there will be fewer people requiring health subsidies. The Congressional Budget Office (CBO) estimates that repealing the individual mandate will earn the federal government $338 billion in revenue, which it would otherwise spend on health subsidies.

On a conspiratorial note, the Senate’s repeal of the mandate might be a cloaked attempt to gradually chip away at Obamacare.

The tax bill has passed the House and is awaiting the Senate’s consensus over its own version, following which the complicated ‘reconciliation’ process will begin. Although the tax bill made it through the House without breaking a sweat, its Senate counterpart might have to struggle, given the fact that the Democrats are unanimously opposed to it and only three Republicans need to vote ‘nay’ for the Senate version to fizzle out. Given the current mood, the Senate version seems to be hanging by a thin thread.

(The story is developing and so will the commentary. Check back periodically for updates.)

(Update: December 18, 2017)

President Trump must come through on his promises on tax, economic growth, jobs, and employment and the tax reform bill seems like the ace card. If nothing else, this bill upon passage will grant him the much-needed brownie points.

The bill sailed safe through the House and recently, the Senate voted on it. Here’s a brief, yet comprehensive, outline of the bill that passed the Senate.

The individual income tax remains tiered and progressive, but the brackets have been adjusted such that the highest rate (37%) is applicable to those earning half a million or above. Whether middle and upper middle-income families save the extra income, spend it, or invest it depends on a host of factors, including interest rates, stock market, and real estate. Nonetheless, it’s a significant tax cut for the middle class and a re-definition of the middle class through re-sizing of tax brackets.

A similar trend is seen in the alternative minimum tax (AMT) – a provision to ensure that individuals contribute their fair share – depending on how you define fair share. The trigger point for AMT and the threshold for phase-out have been scaled up significantly to move this burden to higher income individuals/couples, while lessening the burden on middle-income earners.

The bill is also a giant tax cut for corporations of all sizes – a point that has been used to malign the proposal as a ‘tax cut for the wealthy.’ Corporate tax will be diminished to 21% beginning 2018 and corporate AMT will be repealed. Repatriation of earnings will attract a modest 15.5% tax, which seems like an effort to not only lure businesses to keep their domestic earnings in the US, but to also move their overseas revenues stateside. Whether this move will deliver the proposed outcome depends on not just the tax rate, but also cost of compliance and scrutiny and any other regulations that may or may not burden the corporations. As I have said before, whether this influx of money will translate into more jobs is a highly questionable premise.

Business owners will have another means to increase their tax-free income – the pass through deduction of 20% applicable until $315,000 for joint filers and half that for single filers.

Repeal of Obamacare individual mandate, i.e. the unconstitutional requirement and the resultant penalty, stays.

The Senate version has left in state and local tax deductions, but has capped their net value at $10,000. This is a departure from the House version that proposed a complete repeal. A complete repeal could adversely affect the lives of mostly blue state residents and might perhaps, put pressure on state and local governments to reduce spending/taxation. If the House provision in this regard is rolled back to make way for the Senate provision, the chances of blue states controlling the growth of their governments seem fewer.

Mortgage interest deductible has been reduced to loans of $750,000. Upon researching into this scheme, I am not entirely convinced about its prudence. The deductible is just a means by which the government fiddles with the real estate market, contributing to a bubble. A total repeal of this deductible will be in line with free market principles.

The threshold for medical expense deduction has been brought down to 7.5%, which is a relief for the elderly and those with chronic illnesses. Additional measures to moving towards a free-market for healthcare hold the promise of making healthcare affordable for all.

The tax brackets for estate tax have been re-sized to re-define middle income families and to also provide relief to upper middle class. In addition, a sunset date has been put on this provision leaving room for amend.

The bill is currently being looked over for resolution of differences, following which it will reach the President’s desk. Trump has signaled his support for the bill and it is certain it will receive his assent.

Overall, although Republicans in Congress and representatives of Trump administration have skirted being quizzed about the windfalls the bill brings for the wealthy, it is increasingly clear that that tax reform bill is a tax cut for almost all.

The coming few weeks will be critical in deciding the direction of the economy for the next few years.

(Update: December 20, 2017)

The tax-reform bill passed the Senate 51-48 in a party-line vote. Sen. John McCain of Arizona was absent during the vote on account of medical circumstances. The cost of the bill is estimated to be $1.5 trillion over the next 10 years, i.e. individuals and corporations, in total, will save about one and a half trillion dollars over the next decade.

An ex-dentist and a business graduate who is greatly influenced by American conservatism and western values. Having born and brought up in a non-western, third world country, he provides an ‘outside-in’ view on western values. As a budding writer and analyst, he is very much stoked about western culture and looks forward to expound and learn more. Mr. Malkar receives correspondence at saurabh.malkar[at]gmail.com. To read his 140-character commentary on Twitter, follow him at @saurabh_malkar

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America’s Exceptionalism in Mass-Shooting and Its Culture of Rugged Individualism

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Amid an unrelenting surge of gun massacres, many have wondered why the United States- the world’s leading country in mass shootings over the last century, is more prone to mass shootings than any other country. Gun violence, though, is prevalent in many parts of the world, for instance in most parts of Latin America. But in America, no form of violence is seen as more uniquely American than public mass shootings by “lone-wolf” gunmen. According to Gun Violence Archive, 39 mass shootings have already taken place across the country in just the first three weeks of 2023. Last year the country witnessed around 647 cases of mass shooting with the consequence of more than 44,000 death tolls due to gun violence overall.

Like its political establishment, American public discourse has long firmly been divided over what causes this epidemic. The critics of this national sickness focus their fire on the second amendment of the American constitution and the nefarious political influence of the National Rifles Association (NRF). But here comes down to the question: will a mere constitutional amendment and the neutralization of special interest groups like the NRF lead to the solution to the endemic prevalence of lone-wolf mass shootings? The answer is: not likely, as the problem is deeply rooted in America’s culture itself: the culture of rugged individualism built on its deep-seated historical myth.

According to the National Bureau of Economic Research, rugged individualism is defined as “the combination of individualism and anti-statism … a prominent feature of American culture with deep roots in the country’s history of frontier settlement.” While individualism, as noted, may be conducive to innovation and resource mobilization, it can also undermine collective action, with potentially adverse social consequences. During the early days of the COVID-19 pandemic, it was seen how America’s rugged individualistic mindset fomented by its frontier culture hampered the state responses to the pandemic, with many Americans having defied mandatory mask-wearing and vaccination programs.

Likewise, the gun is a great emblem and lethal offspring of American individualism. The nation has long valorized masculine heroes –violent frontiersmen or Hollywoodized American Archetype “White Loners” – who impose their will on the community’s enemies with violence. Added to that deep-seated historical ideal and cultural sickness are the deteriorating trend in kinship traditions and ever-declining “rational mobility”- a condition that helps establish bonds of support beyond immediate families on the basis of socially engaging emotions such as empathy warmth, trust, affection, etc.

Self-serving politicians and gun advocates often ridiculously propose giving more arms into the hands of “the good guys” to thwart “the bad guys with guns.” The Americans’ dire wishes for gun possession, however, stem less from their sense of personal or communal security rather more from an egocentric individualistic cultural reasoning that lacks the prioritization of collective communal safety. The unshakeable emotional and individualistic values Americans attach to guns frequently override concerns about the nation’s collective health and safety.          

The exercise of unfettered individualism is also seen in many parts of the western world, like in Europe; but nowhere in the world is this so infested by historical myth and pathological strains as in America- what the prominent criminologist Adam Lankford called “the uniquely American quality.” And where the United States is stunningly divergent from the rest of the world is the confluence of individualistic culture and the easiest access to guns. In no other part of the world gun access and rugged individualistic culture interact in the same way.

Although many European countries share the same cultural forces that produce aggrieved social outcasts. But those countries erect formidable hurdles on the way of purchasing guns legally that are quite unheard of in the United States: longer waiting periods, higher insurance costs, full-blown psychiatric evaluations, gun safety courses, etc. Resultantly, the country has more weapons than people: one in three adults possesses at least one firearm, and almost one in two adults resides in a home with a firearm.

But the prevalence of guns alone does not account for U.S. exceptionalism in mass shootings. For example, like the United States, much of Latin America is saturated with firearms but, despite high rates of gun violence, mass shootings there by a “lone wolf” gunman are exceedingly rare. And experts pointed to the cultural difference as a powerful factor playing out in creating a huge disparity in the number of mass shooting cases between the two regions.      

In America, ever-increasing personal and economic struggles combined with the inherent state structural tension and identity crisis continue to produce aggrieved social outcasts. On top of this, the ever-exacerbating political climate plagued by partisan divide, racial toxicity, and xenophobic bigotry has also been influencing socially and politically aggrieved outcasts, due to the absence of alternative social redressing mechanisms, to seek recourse by resorting to mass violence. Here, rugged individualism works in creating the very roots of virile fantasy to violence, a toxic political milieu in fueling grievances, and finally easy access to guns in triggering off those grievances in the form of mass shooting.      

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American Democracy Remains Under Peril

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The democratic system of government in the United States underwent an unprecedented test two years ago when supporters of President Donald Trump attempted to reverse his election loss—some through illegal schemes, others through a violent assault on the U.S. Capitol. American democracy has started to function better and its prospects have improved since that moment in history.

Extreme election deniers suffered defeats in crucial swing states like Arizona and Pennsylvania in the 2022 elections, which were successfully performed. The riots that attempted to overturn the results of the 2020 election and the role that former US President Donald J. Trump played in inciting them were thoroughly documented by the House Select Committee to Investigate the January 6th Attack on the US Capitol. Elections for president were held peacefully in Colombia while candidates with questionable commitments to democracy were rejected in Brazil and France.

The most powerful authoritarian governments in the world are currently having difficulties. The idea of a resurgent Moscow was dispelled by Russian President Vladimir Putin’s disastrously planned and carried out war in Ukraine. China’s attempt to overtake the United States as the world’s greatest economy and most powerful nation has failed due to President Xi Jinping’s poor mismanagement of the COVID-19 outbreak. Xi’s domestic popularity has been further weakened by China’s real estate boom, a 20 percent young unemployment rate, a politically motivated crackdown on the private sector, and soaring local government debt.

However, despite their diminished power, Beijing and Moscow continue to constitute a significant threat to democracy. They will need to disparage other forms of administration and criticize their democratic rivals more and more as their domestic issues get worse. Beijing and Moscow are launching a campaign of deception that targets and amplifies the vulnerability of American democracy as a result of this. Russia and China both, This propaganda campaign tries to delegitimize Western-style democracy in order to quell calls for democratic reforms. In the long run, it aims to establish a new, fragmented international order that prioritizes “national sovereignty” over human rights. It also aims to oust and support friendly governments, as well as combat the growing perception that cooperating with Beijing and Moscow has negative effects on local citizens.

Because Western democracies are weak, Beijing and Moscow are supported in this endeavour. Trump keeps questioning the validity of the 2020 election, and he might soon be charged with a crime. Gridlock, partisan investigations and impeachment attempts, as well as cynical new initiatives to erode rather than restore confidence in the American voting system, may well dominate Capitol Hill for the next two years. Conspiracy theories and misinformation continue to abound on social media, and corporate content moderation attempts have fallen short. With the quick development of generative AI software, which can create deep fakes in which famous personalities appear to be talking and doing things they never said or did, the assault on reality is likely to get exponentially worse. For the two superpowers of disinformation in the world, China and Russia, all of this is a blessing. The propaganda is more effective the more reliable the content.

The decline of democracy in the US aids in the delegitimization of democracy by Beijing and Moscow. American democracy must be strengthened at home if it is to once again serve as a model that may inspire others. The fight for global soft power can only be won by Washington at that point.

Both domestic and foreign security issues are raised by the state of the American democracy. Principal authoritarian rivals of the United States, China and Russia, have taken advantage of (and made worse) America’s democratic divides and struggles in the race for world leadership. In order to recover the upper hand, the United States must simultaneously strengthen its own democracy and raise its profile as an advocate for democracy abroad. The democratic movement needs to attack.

A significant investment in American soft power will be needed for this. Public diplomacy spending in the United States peaked at $2.5 billion in 1994 (inflation-adjusted) and nearly surpassed that amount in 2010 and 2011. However, since then, as new problems have emerged, American efforts have remained unchanged, with total expenditures only amounting to $2.23 billion in 2020.

Washington must reenter the struggle for international soft power in a way that upholds American ideals. It must convey the truth in ways that appeal to and influence people around the world. The objective must be to advance democratic values, concepts, and movements in addition to effectively combating misinformation with the truth. Multiple trustworthy streams of information are required to combat misinformation and report the truth that autocracies repress. Additionally, they must be independent; even though the US government may give them financial support, they must run without editorial oversight. They will appear independent, which they are, in this manner.

One option would be to change the Voice of America to resemble the British Broadcasting Corporation more closely. Its goal should be to serve as a role model for the values of the American democratic experiment by offering completely unbiased news on all nations, including the United States. Truth, independence, and expertise in reporting are necessary, but they are not sufficient to win the information battle. A decentralised, pluralistic web of high-quality media is also necessary. In autocracies, local media are ideally situated to collect and distribute evidence of corruption,

Serious policy mistakes and violations of human rights. In order to report the news and provide critical commentary in the absence of media freedom, the United States and its democratic allies must elevate and strengthen the underfunded local media. Funding for public interest media will be needed in the billions of dollars, much of which should go through the nongovernmental International Fund for Public Interest Media (including media operating in exile). The fund is a nonpartisan alliance of multinational foundations that can provide funding for regional independent media while preserving their independence.

Together with its democratic allies, Washington should explore fresh geopolitical and technological avenues for assisting closed regimes to overcome Internet censorship and social media surveillance. Autocracies will be less stable when those living in them have easier access to unbiased information and more secure means of communication with one another. In order to prevent autocracies from seizing control of international Internet standards and protocols, democracies must engage in active and coordinated diplomacy. The biggest flagrantly false and dangerous content must be removed. Social media companies must also take more action to combat the malicious manipulation of their platforms by foreign governments. And by tightening social media regulation, the US and other democracies should support these initiatives. TikTok should be removed from American devices as a first step.

But the democracy in America is not secure. The last Congress failed to pass legislation aimed at reducing the influence of money, strengthening and expanding voting rights, ending gerrymandering, ensuring ethical standards for elected officials, and enhancing election security, and there is little chance that it will succeed in the following one. Even worse, numerous states have taken action to limit voting rights and make it more challenging for minorities to cast ballots. Most concerning, several state legislatures with Republican control, led by North Carolina, are attempting to construct a doctrine of “independent state legislatures,” which would allow these bodies to rig election results and even draw partisan gerrymandered voting districts.without being subject to judicial, executive, or redistricting commission oversight. If domestic politics in the United Nations turn into a collection of one-party states, the country will be unable to confront autocracies on a global scale. The revival of American democracy and domestic achievement will be key to countering autocratic deception.

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Friction Between United States & Iran: The Tension and Its Impact

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Background Study

The relationship between the United States (US) and Iran has a long and complex history. In the early 20th century, the United States (US) played a key role in the overthrow of Iran’s democratically elected government and the installation of a pro-Western monarchy under the rule of Mohammad Reza Shah Pahlavi. This led to a deep mistrust of the United States by many Iranians. In the 1970s, the Shah’s regime was overthrown in the Iranian Revolution, led by Ayatollah Ruhollah Khomeini. The new Islamic Republic of Iran was deeply anti-American and took 52 American hostages in the US embassy in Tehran. The hostage crisis lasted for 444 days and severely damaged US-Iran relations. In the following decades, the US has had a policy of economic sanctions and diplomatic isolation towards Iran, citing its support for terrorism and pursuit of nuclear weapons. Iran has also been known to support groups like Hezbollah, Hamas and Islamic Jihad, which are designated as terrorist groups by the US.

In recent years, there have been some attempts at improving relations between the two countries. The Obama Administration negotiated a nuclear deal with Iran in 2015, which lifted some sanctions in exchange for limits on Iran’s nuclear program. However, the Trump Administration withdrew from the deal in 2018 and re-imposed sanctions on Iran. Currently, the US and Iran are in a situation of high tension, with both sides engaging in a series of hostile actions against each other, such as the killing of Iranian General Qasem Soleimani in Baghdad by a US drone in 2020. The US has continued to put sanctions on Iran and labelled several Iranian organisations as terrorist organisations. In summary, the relationship between the United States and Iran has been characterized by a long history of mistrust, hostility and mutual accusations, with both sides engaging in actions that have escalated the tensions between them.

The Tension:

There are several accusations and actions that have contributed to the high tension conflict between the United States and Iran.

From the perspective of the United States, the main accusations against Iran include:

Supporting terrorism: The US government has long accused Iran of providing financial and military support to groups like Hezbollah, Hamas, and Islamic Jihad, which the US has designated as terrorist organizations.

Pursuit of nuclear weapons: The US has accused Iran of seeking to develop nuclear weapons, despite Iran’s claim that its nuclear program is solely for peaceful purposes.

Human rights abuses: The US has also accused Iran of widespread human rights abuses, including the repression of political dissidents and minorities, and the use of torture and execution.

Threat to regional stability: The US has accused Iran of destabilizing the Middle East through its support for groups like the Houthi rebels in Yemen and the Assad regime in Syria.

From the perspective of Iran, the main accusations against the United States include: –

Interference in Iranian internal affairs: Iran has long accused the United States of attempting to overthrow its government and interfere in its internal affairs.

Supporting Iran’s enemies: Iran has accused the United States of supporting its regional rivals, such as Saudi Arabia and Israel, and of providing military and financial support to groups that seek to overthrow the Iranian government.

Violation of human rights: Iran has also accused the US of violating human rights, pointing to actions such as the use of drone strikes and the detention of prisoners at Guantanamo Bay.

Economic sanctions: Iran has accused the US of imposing economic sanctions on Iran, which it claims have caused significant harm to its economy and people.

In terms of actions that have escalated tensions, from the US side:

  • The killing of Iranian General Qasem Soleimani in Baghdad by a US drone in 2020.
  • The US has continued to put sanctions on Iran and labelled several Iranian organisations as terrorist organisations.
  • Increasing military presence in the Gulf region.

From the Iranian side:

  • Continuing to develop its nuclear program, in spite of the US sanctions.
  • Seizing of foreign oil tankers and ships.
  • Attacks on oil facilities in Saudi Arabia that were blamed on Iran.
  • Shooting down of a US drone in 2019

It’s worth noting that the situation is complex and multifaceted and both sides have taken actions that have escalated the tensions between them.

Its Impact.

The tension between the United States and Iran has had a significant impact on the international community. It has led to increased instability and uncertainty in the Middle East, with both sides engaging in actions that have the potential to escalate into a larger conflict. This can disrupt the oil supplies and lead to an economic crisis. The tension has also had an impact on the security of other countries in the region, as many of them are allied with the United States or Iran and could be caught in the middle of any potential conflict. This has also affected global oil prices due to the potential disruption of supplies from the Middle East. This has also had an impact on the ongoing negotiations and agreements between other countries and Iran, such as the Nuclear Deal. The US withdrawal from the deal and imposition of sanctions has affected other countries’ ability to do business with Iran and has also affected the ongoing negotiations regarding Iran’s nuclear program.

Moreover, many countries have had to navigate the delicate balance between maintaining good relations with both the United States and Iran, as both countries are major powers with significant economic and military influence. This has led to some countries, particularly those in the Middle East, to align more closely with one side or the other, potentially damaging their relationships with the other. Secondly, the tension between the US and Iran has also affected the ability of countries to engage in business and trade with Iran, as the US has imposed economic sanctions on Iran. This has led to some countries to scale back their trade and investment with Iran, or to find ways to circumvent the sanctions. Thirdly, the tension has also affected the efforts of countries to mediate and resolve the conflict. Many countries have tried to act as intermediaries to de-escalate the tensions and find a peaceful resolution, but the deep mistrust and hostility between the US and Iran have made this a difficult task. Fourthly, the tension has also affected the security of other countries in the region, as many of them are allied with the United States or Iran, and they could be caught in the middle of any potential conflict.

Overall, the tension between the United States and Iran has had a significant impact on the formulation of foreign policies in the international borders, as many countries have had to navigate the delicate balance between maintaining good relations with both countries, while also addressing the economic stability and security implications of the tension.

Conclusion.

The tension between the United States and Iran is a complex and longstanding issue, and there is no easy solution to melting down the tension. However, some steps that could potentially help to alleviate the tension include:

Diplomatic negotiations: Direct talks between the United States and Iran could be an important step in resolving the tension, provided that both sides are willing to come to the table with open minds and a willingness to compromise.

Support from the international community: Other countries could play a role in mediating talks between the United States and Iran and in putting pressure on both sides to de-escalate the tension. The support of other countries in the region would be particularly important.

Lifting of economic sanctions: The lifting of economic sanctions on Iran could help to improve the country’s economy and reduce the impact of the sanctions on the Iranian people, which may reduce some of the hostility towards the United States.

Addressing mutual concerns: The United States and Iran have many concerns about each other’s actions, such as human rights abuses, support for terrorism, and destabilizing activities in the Middle East. Addressing these concerns in a direct and honest way could help to build trust between the two countries.

De-escalation of military activities: Both sides should avoid any action that could escalate the situation into a military conflict.

Evidently, these steps would likely be difficult to achieve, but they could help to reduce the tension between the United States and Iran, and provide some relief to the international community.

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