Relevant and even prescient commentary on news, politics and the economy.

Republican Roadmap=No Taxes for Oprah, Pelosi, Soros

by Bruce Webb

Well I doubt that will be the slogan on the signs at the next Teabag Rally but it is an accurate summation of Rep. Paul Ryan’s Roadmap to America’s Future tax reform plan. From the website (bolding mine):

This plan discards a needlessly complex and manipulative tax code, replacing it with a simplified mechanism that promotes work, saving, and investment.

Provides individual income tax payers a choice of how to pay their taxes – through existing law, or through a highly simplified code that fits on a postcard with just two rates and virtually no special tax deductions, credits, or exclusions (except the health care tax credit).
Simplifies tax rates to 10 percent on income up to $100,000 for joint filers, and $50,000 for single filers; and 25 percent on taxable income above these amounts. Also includes a generous standard deduction and personal exemption (totaling $39,000 for a family of four).
Eliminates the alternative minimum tax [AMT].
Promotes saving by eliminating taxes on interest, capital gains, and dividends; also eliminates the death tax.
Replaces the corporate income tax – currently the second highest in the industrialized world – with a border-adjustable business consumption tax of 8.5 percent. This new rate is roughly half that of the rest of the industrialized world.

Some attention has been paid to the Roadmap’s plan to privatize Social Security and voucherize Medicare but little to this aspect. Under Ryan’s Roadmap billionaires don’t pay taxes. At all.

In our system there are multi-millionaires whose wealth came from a combination of wages and bonuses, film and sports stars come to mind, but the truly rich earned their billions from returns of capital, they own property and companies and make their money by selling them and pocketing the gains. Under the Ryan Roadmap every form of gain from capital is tax free.

They really do believe that Capitalists are Masters of the Universe, that they are so important they don’t even have to contribute to pay for the weapons systems used to protect their interests around the world or from terrorism here at home. Some of us have recognized that the end point of Republican tax policy added up to ‘No Tax for Billionaires’, it is just that no Republican dared compile that entire agenda and put it down on paper. Well here it is, it is the Roadmap to Plutocracy, that is the Republican vision of America’s Future, that ‘wage slave’ no longer be a metaphor, instead workers will pay for everything.

And you can bet that the Capitalists will still be claiming WORKERS are the Parasites.

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Swiss banking secrecy in the news again as germany seeks data

by Linda Beale

Swiss banking secrecy in the news again as Germany seeks data

The Swiss are fighting hard to maintain their edge in providing tax evasion services for the euro zone and the US. In spite of the modest changes to the US-Swiss tax convention, we can expect difficulty in acquiring information from Swiss banks that should be turned over routinely. Germany is experiencing the same problems. But, as many will have read, a whistleblower offered Germany more data on Swiss bank accounts, for a price. And Germany bought it last month for $3.5 million, gleaning the names of 1500 account holders and other information (information that may also be shared with other countries such as the US and provide additional ways to hone in on US tax evaders with secret accounts).

Now starts the internecine wrangling between the two EU countries. Before the deal was finalized, the Swiss authorities and a German Taxpayers Association complained that the German deal would reward a criminal who had engaged in industrial espionage. See Bild.com, Is It Right to Do Business with Criminals? Feb. 2, 2010.

And now that the deal is done, the Swiss are considering how to get even. See Dempsey, Battle over Tax Data Heats Up between Switzerland and Germany, NY Times Feb 15 2010. At least one Swiss lawmaker has proposed a law that would have Switzerland releasing the names of all German politicians who have secret bank accounts in Swiss banks. Hmmm. That might be a very good idea. The trifle of a breach to the wall of Swiss banking secrecy would be a good start towards a law that does away with it altogether. Having German politicians exposed for speaking out of both sides of their mouths–those who have secret Swiss accounts but are publicly making a big show about Germans who are using the accounts to escape German taxation–might provide enough Schadenfreude to help shame the system back into greater compliance. And once people realize that Swizterland is still intent on maintaining its tax evasion services no matter what it has agreed to in its newer tax treaties, maybe countries will get even tougher on the country and insist on real tax information sharing.

But note the result mentioned for one of the German account holders identified in the earlier LIchtenstein bank information. A court awarded the holder millions of euros, on a finding that the bank should have warned him about the release of his information so that he could have voluntarily come forward to the German authorities. The account holder obviously knew that he had created a secret account and that he was evading German tax lawyers. The bank, of course, must have known that it was facilitating such evasion. The court apparently assumes that the bank owed its co-conspirator notice that its role in the conspiracy had been compromised. That’s a pretty strong dose of due process protection, when an aider of your tax evasion is required to inform you when it can no longer perform as expected, so that you can call short your tax evasion with the least possible damage to yourself! Ends up rewarding the tax evader with the damages. I must admit that seems to challenge common sense. Tax evasion is one “venture” where the co-venturers should all be at risk if one of them falters…..

Switzerland has facilitated tax evasion for decades. It’s time to end this farce and force the Swiss to close down their tax sheltering business.

[editorial comment: sorry for being offline most of the last week, folks; I’ve been ill but now am much better so hopefully can return to regular postings.]
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crossposted with ataxingmatter

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How to Build an Economic Model

Let us see if we can translate my previous post on job selection into an economic model.  Start with a basic formula:

(1) AcceptOffer = a(1) + a(2)*w + a(3)*b + a(4)*oa + a(5)*t

where a is a constant, w is wages, b is benefits, oa is “opportunity for advancement” and t is treatment received in the workplace.

The first observation we make is that several of these variables are difficult to quantify—and even more difficult to objectify. So let’s start with the easy ones.

w is very identifiable: reported (on a per capita aggregate basis), subject to enforcement penalties (e.g., minimum wage laws), and used in “downstream applications” (e.g., tax filings) and therefore relatively verifiable.

b is (1) known to be non-negative and (2) often variable within, let alone between, organizations. (Vacation time, sick days, insurances offered and costs to the employee all may vary depending on level, time of service, location of office, etc.)

This could present a problem, but here we can use standard economic theory to our advantage. We do not know the amount of b, but we can assume that the employer is rational, and is offering a total compensation to the worker that s/he expects will be less than or equal to the marginal product of that person’s labor. We therefore can reasonably assume that b is related to w. If we then review the available aggregate data we can approximate that benefits offered will be approximately a certain percentage of w—and that workers will assume that assumption (and, in most cases, verify that assumption within a margin of error) before accepting the job.

We then restate the equation as

(2a) AcceptOffer = a(1) + a(2’)*w’ + a(4)*oa + a(5)*t

where w’ is the weighted combination of w and b above, and a(2’) is the restated coefficient.

If we then assume that all parties have full information of the ratio of wages to benefits, then a(2’) = a(2)=a(3), so we simplify to:

(2b) AcceptOffer = a(1) + a(2)*w’ + a(4)*oa + a(5)*t

We now have to consider opportunities for advancement and treatment. Here, we have two problems that are difficult, possibly insurmountable, for modeling.

The first is a lack of measurability. There are no public records for “didn’t get promoted.” Nor, except in extreme cases, is there a way to measure treatment by supervisors. The data that might be available&mdassh;lawsuits, official complaints, even Human Resources files (for which there are significant privacy considerations)—is all negative and, accordingly, skewed (biased). This is because (a) ninety percent or so of all workers and/or bosses will never have a complaint filed against them and (b) the ability to file a complaint may be present because the general work atmosphere is more amenable to filing one than not, so the presence of a complaint is not in itself a good or bad thing for the overall measure.

The second is that tolerances vary by person. To use an absurd example, people who use “Every Breath You Take” for their wedding may be more likely to tolerate attentions that others view as harassment. Similarly, forcing people to clock out for a “smoke break” will be viewed differently depending upon whether one is a smoker or not. General policies are just that—general.

So, if we are building an economic model, we must come up with a reasonable approximation of these last two variables. The most direct way to do this is the standard method: assume each individual has their own Utility Curve, and “prices” accordingly.

Based on their preferences and options, then, we map the compensation required to offset negative consequences from oa and t. While the variables still are not directly observable, we can make a simplifying assumption:

Assume that the compensation required to do the work is a factor of w’.

Have to work in the sewer system? Change w’ to compensate. Need to work the night shift and/or weekends? Same type of adjustment. Boss clearly favors buxom blondes and you’re a petite redhead? Adjust current salary requirements to compensate for lowered opportunity for advancement/promotion. You’re a b.b. who will have trouble getting work done because the boss will harass you? Adjust accordingly.

We assume—due to the constraint: a lack of available data—that we can reduce “a(4)*oa + a(5)*t” to some proportion of w that will compensate the worker for the environment into which they are being placed. If we further assume that the worker has complete information as to hisser preferences, the worker will not accept a job that does not offer that level of compensation.

So we can restate equation 2(b) using the Utility Curve assumption. Assume

(3a) a(6)*w” =a(4)*oa + a(5)*t

such that w” also proportionate to w(and therefore w’ as well) and a(6) is the coefficient selected by the individual that makes the offered wage compensatory to the opportunities for advancement and expected treatment on a Present Value basis.

We can then reduce equation (2b) to

(3b) AcceptOffer = a(1) + a(2)*w’ + a(6)*w”

or, given that (a) w” is proportionate to w and w’ and (b) that the multiplier in most cases is 1, and (c) the constant (e.g., signing bonus) can be assumed without loss of generality to be 0,

(3b) AcceptOffer = clip_image002[10]

to indicate that the value varies with individuals.

To concretize the example, assume that a redhead and a blonde, as above, are both offered a job. Assume further that the redhead’s compensation requirement—lower-but-still-positive opportunity for advancement—is lower than the blonde’s for will-be-harassed-and-work-will-be-impeded. That is

clip_image002(r) < clip_image002[4](b)

There are four possibilities:

  1. The offered wage will be belowclip_image002[12](r), in which case neither will accept the job
  2. The offered wage will be below clip_image002[14](b) but above clip_image002[16](r), in which case one of the two positions will be filled
  3. The offered wage will be above clip_image002[18](b), in which case both will accept the offer and the company will have offered a higher wage than was required to fill both positions. (That the offer is what the company believes will be the employees’ s marginal product of labor [MPL] is a collateral issue.), or
  4. The company will negotiate with each, offering the redhead clip_image002[20](r) and the blonde clip_image002[22](b), and everyone will be happy—so long as initial expectations were accurate (or, if you prefer, the new employees both had full information).

Note also that there is a learning process for both the applicant and the employer. Offers and demands will be adjusted based on historic data (if both decline the offer, the next candidates of similar background will be offered more, and perceptions of growth (improvements in experience and/or education by the worker).

If we generalize this, we note that there is a distribution of clip_image002[24] (due to Individual Preferences). If we further make simplifying assumptions—e.g., a normal distribution of clip_image002[26] among the population—we come to the conceit of the “reservation wage,” and all the economic literature that is attendant upon it.

So that is how you build an economic model.  The question then becomes: how do you use it? A relatively short (though it does incorporate a micro model) discussion of that continues below the fold.


The problem—if it is one (I’m inclined to argue it is; YMMV)—is that, having built a model in which all the proxying assumptions are “simplified” into a single variable, we lose some granularity, having made a trade-off for the sake of measurement.

Accordingly, a change in the “reservation wage” may not in itself tell us whether the real wage has gone up or the work environment has become, on balance, more or less acceptable.

Again, an example, one that will be familiar to students of microeconomics. You are given two choices: (1) you can receive $100 right here and now or (2) you can travel a known distance (say, five miles)—with a finite chance of death or injury—and receive $1,000,000 on completion.

Surroundings, at this point, matter. If the five miles traveled is as an American soldier in full uniform walking outside of the Green Zone, you might well choose $100. Even when you are native to the area, the choice may vary: walking five miles through one gang’s territory is a different option than traveling that distance through different territories. Or even a pure environmental matter may have an effect: Walking five miles through a desert with no canteen, or having to swim five miles from shore in a dangerous waters, is not the same risk as walking five miles down an unpaved dirt road in the middle of the day. Even if you would be required “only” to walk down a heavily-used interstate highway with no shoulder or sidewalks, discretion may be the better part of valor.

Over time, through the “learning process” (op cit. Arrow, 1962, as all good op cits must), the dollars offered will be adjusted so that the payouts balance on a risk-adjusted basis. (Collaterally, there may be other reasons for the greater payouts; signaling by any other name.)

Now suppose the landscape changes. There is a canteen every half-mile in the desert. A gang is run out of its territory, or takes over another’s territory. The Green Zone becomes larger.

The balance has changed; the risk is different. The job is demonstrably different, and therefore requires lower (higher) compensation. But the difference has nothing directly to do with the base salary/benefits requirement and everything to do with the overall attractiveness and/or treatment received.

If we were to forget that, we would conclude that there is more demand for the job itself, and therefore people are willing to take a lower salary. If, on the other hand, we keep in mind that there are more factors to the reservation wage than just the salary itself, we realize that producing a more pleasant work atmosphere is beneficial to our firm, as it enables us both to present a good face to clients and to reduce our cost of labor.

The first type of economist probably should be avoided, as he adds very little value to the discussion of how to use the model.

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Japan – GDP – exports – manufacturing – autos – Toyota

Forget the Eurozone for just a minute. Japan’s problems are big: Toyota is a major exporter/employer. Last year 48% of all new standard passenger vehicles sold in Japan were Toyota (or its Lexus brand). The WSJ article describes Toyota’s status in Japan as the following:

In short, Toyota is to Japan what General Motors Corp., in its heyday, was to America. And for a beleaguered country that has suffered a series of institutional blows in recent months—the collapse of the long-ruling political party, the bankruptcy of its champion national airline, a renewed bout of deflation— the global humiliation of Toyota may be the most psychologically damaging blow of all.

Psychological blow, what about an explicit economic blow! Toyota is certain to drag the only Asian G7 economy down due since auto exports are big in aggregate export income.

Japan’s single largest export category in December was, of course, manufacturing: 22% of total exports. And a huge 14% of the total value of exports in December came from motor vehicles (auto sales, that is – separate from parts).

The Japanese economy grew 1.14% in Q4 2009 with a huge 0.67% contribution from exports. The second major contributor was private consumption, which added 0.39%. Going forward, consumption and export contributions are likely to wane from the major Toyota recall campaign that is underway.

First the direct export channel will probably crumble as demand for Toyota cars derails. Second, there will be a lagged labor market effect. Sure, workers will be needed to address the recalls; but the the loss in hours stemming from a drop is sales is likely to be much larger, and the net jobs effect negative.

Toyota is a major employer in Japan that currently has 320,808 employees and has already shuttered doors (at least temporarily) in other countries. It’s only a matter of time before the effect hits the home labor market.

This is big. I wouldn’t be surprised if the IMF downgraded their forecast of Japan based solely on Toyota’s misstep.

Rebecca Wilder

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CPI + Velocity = Trouble

by Rebecca Wilder

Beginning of the year economic blues in the US? I think so. Just looking over Spencer’s CPI post; here is an excerpt (the first paragraph):

The CPI report was encouraging. The total CPI rose 0.2% and the year over year increase is only 2.6%. Although real average hourly earnings fell, real weekly earnings were unchanged.

The core CPI actually fell for the first time since 1982, bring the year over year change in the core CPI to 1.6%. The 6 month SAAR for the core CPI is 0.8%. Despite all the worries about inflation the normal pattern is for the best cyclical reading on the core CPI to occur in the first year or two after a recession. If the economy follows the normal pattern, the core CPI should continue to moderate for another year or two.

My first thought is that I don’t think that this is encouraging at all; and I’m not alone. Core prices fell; these prices are typically very, very sticky. For example, shelter prices are biased upwards in their calculations, but have been declining or unchanged for every month since August 2009. I know that the output gap is not directly observed, except by proxy in the capacity utilization numbers or the unemployment rate; but it must be huge to do this to housing costs.

Look at it differently: the velocity of money improved in October and November of 2009…

… but then took a step back in December of 2009. If this trend continues, non-energy prices are sure to back down much further. There’s just no support for price action at this time – the Fed can’t pull back… it probably should be putting more in.

crossposted with Newsneconomics by Rebecca Wilder

Note on data: Macroeconomic Advisers now publishes a blog where they make available their calculated monthly GDP series (nominal and real) to the public (thank you).

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Social Security ‘Crisis’: Lensing the Framing: Part 1

by Bruce Webb

The immediate economic/political news this week will revolve around Health Care and then transition to Jobs. Which is a good thing because I could really use a job with health care benefits. But Social Security blogging is what I do so here is a piece on the various ways in which Social Security ‘crisis’ is viewed which in turn controls the structuring of the proposed solutions. A lot of meta with not much in the way of numbers so I’ll tuck it unobtrusively under the fold.

Once again I’ll let Baker and Weisbrot set the stage from their 1999 ‘Social Security: the Phony Crisis’

We have a chance, said President Clinton, to “fix the roof while the sun is still shining.” He was talking about dealing with Social Security immediately, while the economy is growing and the federal budget is balanced. The audience was a regional conference on Social Security, in Kansas City, Missouri, that the White House had helped bring together.

The roof analogy is illuminating, but we can make it more accurate. Imagine that it’s not going to rain for more than 30 years. And the rain, when it does arrive (and it might not), will be pretty light. And imagine that the average household will have a lot more income for roof repair by the time the rain approaches.

Now add this: most of the people who say they want to fix the roof actually want to knock holes in it.

Exactly so. Meaning that the first step in engaging in a defense of Social Security is to determine if your opponents falls in the ‘mend it’ category or the ‘end it’. Is the problem that Social Security is fundamentally broken? or that it exists at all?

By the Seventies the latter question seemed to be settled, Social Security was the Third Rail of American Politics, conventional wisdom said if you tinkered with it you died. This is not to say that people believed the program itself was perfect, Social Security having been adjusted both as to form with the addition of first survivors and later disability insurance and requiring periodic adjustments in the tax rate, but apart from some Randian Objectivists few people were willing to attack the concept openly even if they doubted the ultimate solvency. But those who were in what we would now call Movement Conservatism, that strand leading from Landon to Reagan never embraced Social Security and warned against expansion of the concept via Medicare and federalized Welfare programs, it was just that through the sixties and seventies they were stymied by a combination of the Democratic coalition forged in the New Deal along with the more liberal to moderate North East style Republicanism that came to be known as the Rockefeller Wing, which could be typified as those Republicans who believed in Good Government (in previous generations known as ‘Goo Goos’ http://en.wikipedia.org/wiki/Goo-goos)

But of course the ground was moving under their feet. The forces unleashed by the Civil Rights movement, the anti-war movement, environmentalism, and the counterculture served both to fracture the New Deal Coalition, particularly as a result of the Southern Realignment and to undermine the mostly Northeastern and Mid-Western power structure of the Republican Party and moved that power South and West and we could add Right as well. And one result among many is that fundamental hostility to Social Security transformed from being a fringe position to being that of the center of Movement Conservatism and Reaganism.

The end result of the Greenspan Commission of 1982-83 was a compromise fix of Social Security and this has fed a myth that all parties were pre-committed to a ‘mend it’ and not ‘end it’ position. The accounts of the actual participants show this was not true, the decision to mend came after a bitter deadlock, that was broken only after Reagan concluded he didn’t have the votes to do what he wanted. Even at that it was a close thing, Reagan having committed to the deal having to do some arm twisting on some of the Republican Commissioners and still ending up with three No votes on final.

In the aftermath of what they called among themselves the ‘fiasco’ represented by the 1983 compromise, ideological opponents of Social Security literally regrouped themselves around what would become the Cato Project on Social Security Privatization (now Cato Project on Social Security Choice) and undertook a joint reframing exercise on Social Security that in one incarnation was labeled the ‘Leninist Strategy’. Rather than an open attack on Social Security as being a bad thing in and of itself, a position largely untenable at the time, they simply set out to undermine future support for it, primarily among younger workers, and selling the message that whatever you thought of Social Security in principle, that long term it was guaranteed to fail in practice, and so that while it could be patched, there was no permanent ‘mend it’ solution, meaning that at some point it would need to be addressed by an ‘end it’ or at least ‘transform it’ strategy.

Which is where we are today. The fundamental opposition to Social Security is where it has been since Alf Landon ran against it in the 1936 Presidential election, but the framing built on top of that foundation has been reshaped into one where the problem is not that Social Security is inherently bad, but that it is irretrievably broken. The problem for those opponents is that they can not concede either on ‘irretrievable’ or ‘broken’, that would simply case them to fall back on a ‘socialism’ argument that has been proven unpersuasive to a population that can say with no apparent sense of irony ‘keep government out of my Social Security’.

It is this commitment to the concept of “irretrievable” that seems to baffle supporters of Social Security. They live in a mental world that believes ‘Social Security is a social good that if possible should be fixed” as opposed to a mental world that holds ‘Social Security is a social evil that is also broken, but should not be fixed in any event’. For opponents ‘crisis’ is more seen as ‘opportunity’. Which is why you have to smile at the naivete of progressives who see the answer as being blindingly obvious, just raise the cap. For opponents any fix to Social Security misses the fundamental problem it poses, and the very worst possible approach would be one that moves Social Security even farther in terms of redistribution. For them the answer to socialism is not more socialism, supporters of a cap increase might as well be speaking Martian in terms of likelihood of delivering that particular message.

For years I thought that the answer to Social Security ‘crisis’ was to point out that the problem, to the extent it even was a problem, was small, on balance shrinking, meaning that the cost of a fix going forward would likely end up smaller than projected, and expect this would be received as good news. Who wouldn’t want a cheap and easy fix to an issue that was being framed as being broken? Not quite getting that for opponents of Social Security that brokenness was the best feature of Social Security, it giving them the opening they needed to address the real problem, which is socialism in America. They believe they have their hands around the neck of socialistic Social Security which is half-choked and ready to be shoved in Grover Norquist’s bathtub for final drowning and here come Coberly and Webb suggesting the patient would be okay if you just opened up his airway a little. Man talk about missing the point.
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This post was originally heading in a different direction. That argument will have to be saved for Part 2.

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Obama Health Care Plan is on the Web

Robert Waldmann

It’s alive

update: Igor Volsky provides a good summary of the proposal

As far as I can see the Snowe plan worst tax ever free rider provision to prevent employment of people who need jobs provision is included.

I believe I am the first person to publicly object to this proposal when the gang of six said that they were considering it.

Any company with 50 or more employees that does not offer coverage and whose employees access taxpayer supported health programs will be required to help offset the costs to the American taxpayer.

update 2: In comments Bruce Webb explains that the worst tax ever is almost certainly not included. It wasn’t in the Senate bill. The Senate bill has a free rider provision that sounds vaguely like the Snowe worst tax ever proposal, but doesn’t have the same perverse effects. The administration hasn’t released legislative language, but presumably didn’t reintroduce the strong perverse incentives.

The point is that Snowe wasn’t thinking precisely when she made her proposal and so can easily be convinced that something quite different is what she had in mind.

On the other hand she voted against cloture anyway, so I don’t see why the administration didn’t just go with the house approach which is better than the not the worst tax ever version of the free rider tax.

end update 2

There is a tax increase on the rich so that’s something

Broadened Medicare Hospital Insurance (HI) Tax Base for High-Income Taxpayers
Under current law, workers who earn a salary pay a flat tax of 1.45 percent of their wages to support the Medicare Hospital Insurance (HI) trust fund, but those who have substantial unearned income do not, raising issues of fairness. The Act will include an additional 0.9 percentage point Hospital Insurance tax for households with incomes exceeding $200,000 for singles and $250,000 for married couples filing jointly. In addition, it would add a 2.9 percent tax for such high-income households to unearned income including interest, dividends, annuities, royalties and rents (excluding income from active participation in S corporations).

In exchange the cadillac plan excise tax is reduced. It now starts at a higher level and there are corrections for plans which are well read it

Reformed Excise Tax on Insurance Companies
Beginning in 2018, the Act imposes an excise tax on insurance companies to help finance the tax credits and other portions of comprehensive health reform.

[skip]

The excise tax will only apply to premiums above $27,500 for families and $10,200 for singles in 2018 and would be adjusted at the consumer price index plus one thereafter.

The excise tax includes important new permanent reforms that will focus its impact on plans that provide the highest-cost benefits – not those that happen to cover the highest-cost workers. These include permanent adjustments based on age, gender and high-risk professions.

I’d say the financing is improved. It seems to be a genuine compromise between the House and Senate plans.

There is no hint of a public option.

I guess it’s OK. It’s very important that the changes not add to the deficit or they can’t be implemented by 50 Senators plus Biden. I’m angry about dumping the public option now that cloture is out of the question anyway, but I’m not surprised (leaks made this very clear).

I can’t quite believe that the worst tax ever version of the employer mandate is still in the bill. I hope I’m misinterpreting the very brief explanation.

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How much do the wealthiest Americans make, and how much do they pay in taxes?

by Linda Beale

How much do the wealthiest Americans make, and how much do they pay in taxes?

Bloomberg.com’s Ryan Donmoyer has a brief story out on recent IRS statistics of income. See Top Earners Averaged $345 million in 2007, IRS says (Feb. 17, 2010).

Here are the figures cited in Donmoyer’s report (based on Tax Analysts’ data analysis presented by David Cay Johnston on Tax.com):

Average income of top 400 US households in 2007: $345 million (that’s income per year, folks)
Average income of top 400 US households in 2001: $131.1 million (that’s about half)
Average effective tax rate in 2007 for this same group: 16.6% (per Johnston article)
Average effective tax rate in 1993 for this same group: 29.4%
Percent of the top 400 earners in items taxed at preferential (low) tax rates: about 75%
So the richest of the rich managed to do quite well in the artificial boom of the Bush years when most Americans were barely holding even (or actually declining) in wages. They doubled their annual income from 2001 to 2007 in the years after the Bush ta cuts that disproportionately benefited the wealthy.

Johnston adds this comment in his article on Tax.com, noting that the top 400 enjoyed a 27% increase–nine times the increase enjoyed by the bottom 90%:

The figures came at the peak of the last economic cycle and show that widely published reports in major newspapers asserting that the richest Americans are losing relative ground and “becoming poorer” are not supported by the official income data.

These statistics evidence “two long-term trends: that income at the very top has exploded and their taxes have been cut dramatically” says Chuck Marr of Center on Budget and Policy Priorities. Donmoyer, op.cit
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crossposted with ataxingmatter by LInda Beale

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Global Trade Imbalances as a Statistical Artifact

by Brenda Rosser
cross posted from Econospeak with permission of author.

Global Trade Imbalances as a Statistical Artifact:

Today, the latest spin that purports to describe the still unfolding global economic crisis is that of ‘global trade imbalance’, with particular attention being focused on the US and China.

The US, we are told, has a huge trade deficit and China is conveniently blamed for this. “They say China’s currency manipulation hurts the U.S. economy” [1] making China’s goods much too cheap relative to those produced in America.

This tale does not reflect the contemporary reality and it is all the stranger because, on the other hand, it’s never been a secret about the manner in which the large global corporation has evolved its operations over the last 4 decades. These huge networked businesses now have production systems that most often span a large number of countries at the one time. That means, in effect, that world trade is now mostly defined by the nature and extent of the global corporation and its networks. The nation is no longer the core economic entity.

In 2006 Samuel J. Palmisano, Chair of the Board, President, and Chief
Executive Officer of IBM described the evolution that has occurred in the nature and function of the international corporation.[2]Since the early 1970s economic nationalism has abated, Palmisano says. Trade and investment barriers consequently receded. A revolution in information technology also occurred and this development improved the quality and cut the cost of global communications and business operations “by several orders of magnitude”. The large transnational corporation was then much more able to standardise technologies as well as its business operations all over the world. This, in turn, led to the interlinking and facilitation of work both within and among companies.

“New perceptions emerged as to what was possible and permissible…. The focus shifted from products to production.” State borders defined less and less “the boundaries in corporate thinking and practice….”

More ominously, as we now see with the global fad for deregulation, Palmisano eulogises

“the growth of horizontal, intergovernmental networks among the world’s regulators and legislators [that are] built on shared professional standards and relationships among cross-national communities of experts.”

Almost anyone with more than a fleeting interest in economics understands this new reality. The most dominant global enterprises have embedded themselves in one nation after another and most of those businesses are US and European in origin. The economic reasons for these entities doing so appear quite obvious. Labour is cheaper in Asia. Corporations find it much easier to avoid tax and engage in transfer pricing to maximise profits, and so forth.

So, it’s not surprising, and somewhat belated, to find a 2007 paper published by the Asian Shadow Financial Regulatory Committee that finally raises the very serious issue of false accounting in international trade by governments around the globe. Quote:

“MNC affiliate sales within their host countries are not included in trade balances, but are counted in host country GDP. MNC affiliate sales from the host country to other countries are counted as exports of the host country. This accounting practice overstates the current account surplus of a country like China with heavy inward foreign direct investment (FDI). This surplus would be reduced if sales outside China by affiliates of foreign-owned MNCs were excluded from its exports and sales within China by affiliates of foreign-owned MNCs were included in its imports. The trade accounting system overstates the current account deficit of a country like the US, with heavy outward FDI. This deficit would be greatly reduced if sales outside the US of overseas affiliates of US MNCs were included in US exports and sales back to the US of overseas affiliates of US MNCs were excluded from US imports.” [3]

For all the huge trade surplus that China is purportedly ‘enjoying’ it turns out that little benefit is being derived from it. Over 50% of China’s exports are produced by foreign corporations. Walmart, for instance, has 700 factories in China. And ‘China’ (whatever accounting entity this word constitutes) has ‘trade deficits’ with “the rest of Asia”.

“In effect, China aggregates the trade surplus of East Asia with the U.S. and Western Europe, takes the political heat, but captures relatively little of the value that it adds to final products.”

We need to know more than just the fragments of data that government bureaucracies, mainstream professions and the media serve out. A true understanding of the nature of the crises now confronting us is absolutely essential, and yet deliberate obfuscation is occuring as to the cause and nature of our collective dilemma.

“Were it part of our everyday education and comment that the corporation is an instrument for the exercise of power, that it belongs to the process by which we are governed, there would then be debate on how that power is used and how it might be made subordinate to the public will and need. This debate is avoided by propagating the myth that the power does not exist.”

John Kenneth Galbraith, The Age of Uncertainty, 1977

[1] Q&A: How China’s Currency Policy Affects You
by Adam Davidson
text sizeAAA
April 20, 2006
http://www.npr.org/templates/story/story.php?storyId=5353313

[2] “The Globally integrated Enterprise” Samuel Palmisano, ceo and chair of the board of ibm, Foreign Affairs
http://www.ibm.com/ibm/governmentalprograms/samforeignaffairs.pdf

[3] Asian Shadow Financial Regulatory Committee
A New Perspective on Global Imbalances: the Role of MNCs
Statement No. 8
Hong Kong, July 5, 2007
www2.hawaii.edu/~fima/ASFRC/HK_Statement.pdf

Posted by Brenda Rosser

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National Debt in the Bail-out Era

by cactus

A Graphical Look at the National Debt in the Bail-out Era

Apologies for the lighter than normal posting, but things have been very hectic around here. Aside from some health issues facing my wife and work being particularly interesting right now, I’m reviewing a lot of stuff that is coming back fast and furious from the illustrator for my (our, actually, as I have a co-author) book which comes out later this year.

Meanwhile, last minute we ended up needing an “Obama chapter.” Here’s a graph that was produced on the fly for that chapter (before the illustrator does his magic and makes it really look snazzy):

That’s all I got. Reach your own conclusions.

Data sources…
Debt comes from the the Treasury.
CPI and Population come from Fred.
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by cactus

Comments (12) | |