No, Mr. Trump, nothing made you smart. To illustrate: You think a VAT tax is a trade tariff.
9:20 PM ET
Just to pull back for a second here, you can see a part of Clinton’s strategy. She is not campaigning against him as a crazy man. She is campaigning against him as a traditional and, in her argument, flawed conservative Republican.
— First Clinton and Trump Debate: Analysis, New York Times, live blogging of debate
Okay, all you regular Bear readers won’t be surprised that my most favoritist lines in the entire debate were, “We settled the suit with zero — with no admission of guilt. It was very easy to do.” And, “I settled that lawsuit with no admission of guilt, but that was a lawsuit brought against many real estate firms, and it’s just one of those things.”
He settled that lawsuit with no admission of guilt. Which is how lawsuits traditionally are settled. It’s also why lawsuits of certain types are settled for more money than they otherwise would be; an admission of guilt gets you a settlement discount.
This particular type of lawsuit normally is settled with no admission of guilt–just a court decree in which the defendants promise to stop doing what they were not guilty of doing. An admission of guilt would defeat the main purpose of settling: minimizing harm to the reputation of the business and its owners or executives.
Those lines of Trump’s last night, stupifyingly stupid as they were, did have some tough competition for my designation of The Best. After all, there was that protestation by Trump that his cheering for the housing-bubble collapse is “called business, by the way.” And that an architect Clinton mentioned who was among the thousands of workers and small-business owners whom Trump has refused to pay after they’s completed the work for him “maybe” “didn’t do a good job and [Trump] was unsatisfied with his work.”
And that Trump’s never paying any federal income taxes “makes [him] smart.”
Actually, nothing yet has made Trump smart. I think he was referring to his tax lawyers and accountants. Who are very smart but are not running for president.
I was absolutely delighted that Clinton, rather than just repeating the generic refrain that Trump is the first major-party presidential nominee in four decades to not release his tax returns, and saying only that they probably would show that he has paid no or almost no federal income taxes throughout most of his business life, also told the viewers that he’s probably hiding much more than that: international business partners and lenders who are propping up his real estate projects and that this would constitute major conflict of interest for a president, in foreign policy, regulatory policy and tax policy.
I hope she continues to hit hard on this, with more specificity about who these people likely are (e.g., Russian billionaires) and what their interests, as opposed to our interests, are.
But I also was thrilled with something else she did—what Nick Confessore noted in real time last night: a key part of Clinton’s strategy last night was to campaign against Trump as an exaggerated form of traditional conservative on fiscal and regulatory policy, and to illustrate best as she could in a couple of two-minute answers (responses to Trump, if I recall correctly) how that didn’t work when George Bush tried it and instead lead to economic disaster and spiraling inequality—and that’s probably not what most people who want change have in mind.
For one thing, it’s not change; it’s retro.
You. Go. Girl!
I wish she’d done even more of it, but obviously there were tight time constraints. I’m betting that she will now aggressively move this ball down the field to a touchdown. With ads, local TV news interviews, and … rallies.
The overwhelming consensus—and I think it is accurate—is that while she clearly won last night, it wasn’t a knockout. But I think there’s more to it than that. I think she reset her campaign last night, and she no longer should shy away from holding rallies where she gives a thorough stump speech on economic, fiscal and regulatory policy—and notes that Trump’s billionaire backers who likely would be his puppeteers during a Trump administration are not exactly pushing change of the Rust Belt blue-collar-worker sort. Well, they are, but the change they want is in the wrong direction.
And one more thing. Well, two more. First, when Clinton told Trump during the discussion on the TPP, “Well, Donald, I know you live in your own reality, but that is not the facts,” she was not referring to his accurate claim that Clinton had said when helping to negotiate the pact that it was “the gold standard” of trade treaties but instead his statement that once in office she would retreat from her promise not to try to push the deal through. It was a memorized line that would have been perfect had she saved it for later in the debate but was not an apt comment on that, since Trump was speculating about what she would do, not stating a fact. It was, in my opinion, her worst moment last night. But pundits are mischaracterizing what she was denying.
She said what she back when she was helping to negotiate the TPP. She wasn’t denying that; she was reaffirming her promise made late in the primary season and again in her convention speech to not push and not approve the pact unless the changes surrounding two controversial planks in the treaty are changed.
The second thing is this: There seems to be a consensus developing among pundits that Clinton came off as too wonkish about economic and fiscal and regulatory policy. Roger Cohen argues in the NYT this morning that she should not have mentioned what many economists are saying about the likely effects of her plan, and the likely (certain, but okay) effects of his. That’s just wrong. That’s exactly what she should do.
She should, after last night, not fear references to economists. She should tell the public who exactly—by which I mean, what exactly—Trump’s economic advisers are, and hers are. She should do this in two-minute ads, on TV and on the Internet, and at rallies, and in interviews.
The problem with her wonkish persona has been that it has not demonstrated a desire for the type of dramatic change that so much of the electorate so badly wants. But discussing who (what) her economic-policy advisers are would do that. And discussing who Trump’s are would, well ….
And there’s another reason why she should not shy from demonstrating knowledge: Trump is wrong about key facts that the public doesn’t know he’s wrong about. Paul Krugman posted a blog post this morning illustrating one example. He said he was surprised when early in the debate, during the discussion on trade, and Trump said China is manipulating its currency to help its exports to the U.S. and hurt our manufacturing sector, Clinton didn’t update him, and the viewers, that because of certain problems that have developed with the Chinese economy, China no longer is keeping its currency artificially low and is instead actually trying to raise the value of its currency. Trump’s claim is five years out of date.
I knew that! I read Krugman’s blog regularly, so I knew that! But doesn’t Clinton also know that? I expected her to correct Trump on that. I don’t know why she didn’t, but I think maybe it was for fear of sounding too wonkish. If so, that’s just silly.
And then, as Krugman also notes, there was that bizarre babbling about Mexico’s VAT tax. Krugman writes:
There was this, on Mexico:
“Let me give you the example of Mexico. They have a VAT tax. We’re on a different system. When we sell into Mexico, there’s a tax. When they sell in — automatic, 16 percent, approximately. When they sell into us, there’s no tax. It’s a defective agreement. It’s been defective for a long time, many years, but the politicians haven’t done anything about it.”*
Gah. A VAT is basically a sales tax. It is levied on both domestic and imported goods, so that it doesn’t protect against imports — which is why it’s allowed international trade rules, and not considered a protectionist trade policy. I get that Trump is not an economist — hoo boy, is he not an economist — but this is one of his signature issues, so you might have expected him to learn a few facts.
Lordy, folks. I guess I can’t blame Clinton for being speechless on that. I couldn’t figure out how a VAT tax—a sales tax (I know what it is)—has anything to do with trade balance. But his statement that we don’t have a VAT tax is, for relevant purposes, false. We have a sales tax in most states in this country. So what? Americans pay their state’s sales tax on purchases of things made in Mexico. And Mexicans pay their VAT tax on things made or grown here.
I think Clinton just couldn’t follow why Trump thinks Mexico’s VAT tax impacts trade. I mean, how could she foresee that he thinks a VAT tax is a … trade tariff? And figuring that out instantly is too much to have expected from her. (Who could have? It struck me, and probably everyone else watching who knows what a VAT tax is, as just baffling.)
But it provides a beautiful, brand new example of this man’s profound ignorance of basic things that a president needs to know. Sure, most Americans don’t know what a VAT tax is, and isn’t—the latter being a trade tariff. But this man wants to direct international trade between this country and others. Clinton should tell the public that Trump thinks a sales tax is an international trade tariff.
At heart the “wonkishness” issue turns on when, and how, Clinton should be wonkish. As simple explanation that VAT taxes are not trade tariffs, and are sales taxes that apply to all goods wherever they’re made or grown or assembled—and that Trump should know that, but doesn’t—makes another point, as well: Trump has no business experience whatsoever in manufacturing or in anything else involving international trade. Unless that new hotel of his (and his investors’/business partners’/lenders’) was manufactured outside this country.
On Mars, maybe.
*Quotation marks inadvertently omitted, originally. Corrected 9/27 at 3:14 p.m.
I would like to see her wrap up the issues of economic growth and inequality under a single concept: “For too long, especially during Republican administartions, the people who spend money in the U.S. and drive the economy are getting a smaller and smaller share of it. We need to reverse that trend and get more money in the hands of the 99%. We do that by generating full employment and giving workers more bargaining power, creating good jobs re-building our infrastructure, and raising the minimum wage. Giving more money to billionaires through lower taxes will not do that because they don’t create jobs out of the goodness of their hearts as Donald in effect says. They don’t create jobs until consumer demand shows they can earn a profit when they do it.”
I wish she had pointed out–and I hope she soon does–that large businesses are hoarding money from record profits. Giving them even more more money, by cutting taxes, won’t cause them to invest and hire and raise wages and salaries, any more than the hoards of money they already have, and have had for years now, has.
That’s another thing I expected her to say. Not sure why she didn’t.
I think she’s going to be better off accentuating the positive — getting a higher share of the GDP going to the 99%, rather than playing on resentment. If you start the process with the tools you have, all of which are popular in themselves, then the increased demand will pry some of those profits into more investment. Stridency seems to turn off a lot of voters, especially women, and it’s not necessary when you can make a compelling argument that trickle down economics simply does not work and actually makes no economic sense (because it depends on the “goodness-of-their-hearts” argument. Strength of argument is not the same thing as stridency.
The unstated message to the wealthy (and everyone of lesser means who identifies with the wealthy) is, “I’m goinjg to save you from your worst instincts. Now it’s the 99%’s time, and we need that for the healthy economy that will also work in your favor.”
She needs to make sure everyone knows that Trump wants to cut taxes dramatically on he wealthy and corporations, claiming, regarding corporations, that this will give them the money to invest in expansion and hiring. She went a long way last night in doing that.
But she also needs to refute the claim, not just by pointing out that that didn’t quite work out so well–which she did last night–but also that there is no corporate lack of money to expand and hire, and the wealthy already are absolutely raking it in. Supply side economics in these circumstances is even more ridiculous than when Bush did it, twice, in his first term.
She needs to put Trump on the spot. Does he not know that corporate profits are at record highs?
Looks like US investment is reaccelerating, the mid-cycle correction is over. Economic Boom(by modern government hedonics) is near in 2017.
Looks like Ed is wrong. My guess 2017-19 consumption starts growing to high in response of course, but that is how it works.
Even in a lot of poorer Trump supporting areas, by 2019, even they will be downshifted. The 2020 election will be a snooze.
Hillary is nothing more than a stopgap to the next credit bust.
A VAT is basically a sales tax. It is levied on both domestic and imported goods, so that it doesn’t protect against imports
But that is exactly the point. Or it should be the point.
I don’t know about Mexico but in many industrial countries the VAT tax is a substitute for the US payroll taxes. Payroll taxes and VAT ultimately are paid for as part of the cost of production. But the payroll tax puts US manufacturing workers at a competitive disadvantage because it only adds to the cost of goods US workers produce and doesn’t add to the cost of imported goods.
Of course this is not the fault of any trade deals. The blame
lies in stupid and regressive tax policy. If the payroll tax did not exist and a VAT tax was generating that same revenue instead then both domestic and imported goods would be contributing and domestically produced goods would cost relatively less and imported goods cost relatively more.
the payroll “tax” is “really the workers money.” if the payroll tax did not exist, the employers would have to raise the workers wages… according to “most economists” including the ones hired by the people who hate SS…. when it is convenient for them to say this instead of “it’s a jobs killing tax” which is what they say when its convenient for them to say that.
i don’t know whose side you are on, but implying that the payroll tax is what is making workers in this country poor is not helping the workers.
without SS workers would not be able to retire.
social security is called a “payroll tax” because the peculiarities of the American political mind required SS to be treated as a “tax” in order to pass congress, and because journalists call it a tax. It’s really called FICA Federal Insurance Contribution Act deduction.
this matters, because once people get a wrong idea in their heads they can almost never get it out, and it’s the bad guys who work hard every day putting misleading ideas in their heads so they can lead them to harm.
social security is called a “payroll tax” because the peculiarities of the American political mind required SS to be treated as a “tax” in order to pass congress, and because journalists call it a tax. It’s really called FICA Federal Insurance Contribution Act deduction.
That is an explanation of why it has to be stupid and regressive.
The fact which you did not challenge remains, if the revenue came from a VAT instead of a payroll tax it would would work to make American manufacturing workers more competitive.
As it stands the payroll tax is killing US manufacturing jobs because it does add significantly to the cost of the products those workers make, while the imported products that they are competing against get a free ride.
Another way of looking at would be that SS would be a lot more viable if the revenue came from all production sold in America and not just that which is made in America.
I guess calling SS a self imposed retirement plan the government has imposed to those of us who are not CEOs and wont ever earn Millions before retirement.
it is a self funded retirement plan. we pay for our own retirement saving through the FICA act.
helping people save money so they can “buy” all the things those Rich Entrepreneurs want to get Rich off of.
no one can buy is they don’t have “money” to buy things and make investors Rich without a Living Wage. otherwise Bangladesh/Pakiston and the Third World “standards” are what out children will inherit.
Business needs to understand that makes us poor kills business.
“Without SS workers would not be able to retire.”
Nonsense. Might have to move in with the kids, but it’s doable.
“[We] pay for our own retirement saving through the FICA act.”
That’s their story and their sticking to it.
suppose they don’t have kids. suppose their kid is out of work.
it must be nice to be able to ignore the real life experience of millions of people in order to have your story come out the way you like it.
“all you’ve really said is that higher labor costs in the US put US goods at a competitive disadvantage. ”
Yes shipping jobs to Mexico and importing the goods back reduces labor cost of those goods. But a significant part of that added cost of labor comes from the payroll tax that is a burden on US made goods but is not a burden to the imported goods. In other words, you have created an incentive to ship jobs abroad to avoid taxation. The result is both less employment opportunities for US workers and less funding for for SS.
If instead the burden of paying for programs like SS, medicare, worker’s comp and unemployment comp was applied equally to all production – including imported production then it would significantly tip the scales in favor of producing the goods in the US.
The stupidity and repressiveness of the payroll tax doesn’t just destroy jobs by sending them abroad, it also is a significant subsidy to automation. If a company lays off 1000 workers and replaces them with robots a significant part of the cost savings is that the company no longer has to pay the 16% of the labor cost that went to pay the payroll tax. That’s a huge subsidy to capital at the expense of workers. If the burden of the tax was applied to all output – including goods produced by robots, then it would balance the scales in favor of training and hiring workers instead of tipping the scales in favor of throwing the workers out and replacing them with tax-free automation.
Pssst. Overhead is reduced mostly and direct Labor costs less so. You have the right words in your second paragraph (this is Overhead).
Y’know, I really do not want to get involved with this, but I have a question.
Exactly how much of an effect on product costs can be attributed to payroll taxes? Not like there is a lot of labor intensive goods being made in this country.
One of you guys should do the math, cause I have more than a feeling that this “added cost” is insignificant and means almost nothing.
“Exactly how much of an effect on product costs can be attributed to payroll taxes? Not like there is a lot of labor intensive goods being made in this country.”
The point is that labor’s share of production would be higher if US labor was competing on a level playing field. The payroll tax contributes to driving away labor intensive production. The cutoff point where it becomes cost effective to ship jobs abroad or replace them with automation would shift if there was not the tax bias that adds to the cost when the product is made by US workers but doesn’t add to the cost if it is imported or automated.
I got it.
How much of a difference?
Quick back of the envelope from the GM rescue. Labor costs are about 10% of the total cost of an auto. So let’s take a $25,000 car.
I got $2500. But, half of that is not wages, so I have $1250. Of that, you can attribute $173 to Payroll taxes.
So I got a half a percent or so increase in that auto because of payroll taxes.
How is this a big deal unless you have a product with incredible labor cost/ product cost ratios?
And what product (that can be exported) can that be?
You would be correct on the 10% and it is actually smaller. What they are talking about is a Roger Miller. Taking all of the costs associated with Labor and not direct labor and blaming it on Labor. Labor is not the big nut to crack and after Materials it is Overhead. Those costs associated with Labor and not direct Labor are Overhead.
What they seem to be forgetting is the Heckscher–Ohlin theorem. Capital intensive work going to countries which have greater capital to build product. Labor intensive work goes to countries which have greater amounts of Labor.
First of all businesses do kill jobs for less than 1% increase in earnings so your example fails even if it were accurate.
But its not accurate. The stated reason GM was bailed out was mostly because of the enormous number of workers who are in the supply chain (not GM employees) that would lose their jobs. You are not really counting all labor and payroll tax that adds to the car cost if you are just counting GM assembly plant labor.
Jim you are absolutely right about the legacy cost of the UAW but it really goes back to the ability of top decision makers to gain the ability through the bad trade NAFTA to move production out of the country with no consequence. 6M manufacturing jobs were lost and exploited from that unfair advantage to break unions given unfairly by the government. I remember being very pissed at Robb Portman our USTR at the time for the sell out of the unions to corporate executive Wall St.greed…As for the VAT it is a trade tax at the federal level put on imported goods only. The VAT is Not a state level sales tax or even national sales tax that would be put on all goods produced in America dummy. For it to work properly as a job creating VAT to bring about the Balanced Trade we need it would actually become a variable rate tax depending on how much imbalance we have with each nation individually for it to work for the American people effectively. This would also stop the merchantilism and currency manipulation advantages. Better get edumacated!
The payroll taxes should come down as the commenter points out. The substitute tax regime is not VAT (isn’t it at least 17 percent in Europe) as this is just taking the money from another pocket and there is a common sense reason why Japan held off raising their’s GIn, it weakens aggregate demand and burdens the bulk of society every time they spend. The alternative is income tax bad definition and rate changes and/or a. NET Worth tax (something Europe could enact if it had any sense of fairness, though it’s VAT indicates it sees wage and salary people as the easier target).
“The substitute tax regime is not VAT (isn’t it at least 17 percent in Europe) as this is just taking the money from another pocket”
The whole idea is to take from another pocket.
If we assume that any tax in the production cycle ends up adding to the final price of the product then an equal distribution of the tax to all products would lower the price of goods produced by US labor and increase the price of imported goods while not changing the overall price of goods. That obviously would increase the competitiveness of products made by US workers.
And that has the most impact on anything which is manually or machine made. Think about it.
the payroll tax is not a tax. it is part of the workers wages. designed in such a way as to insure that both the employer and the worker contribute directly the the savings and future income so that employee can retire at a reasonable age without falling into the worst poverty.
in the first place, trying to pay for it with another kind of tax… the VAT… would not save the country any money…. the retired workers will still need to eat and keep a roof over their heads.
in the second place it would introduce all kinds of unintended consequences, most of which would be ugly. how are you going to transfer the income from a VAT to the retirement of workers? welfare? a “government” pension with no connection to what the worker himself has paid?
it goes on, but those who have a simple answer for everything, especially those who hate SS, cannot learn. and as a wise man recently said, life is short.
“it would introduce all kinds of unintended consequences, most of which would be ugly.”
It would eliminate the unintended consequence of destroying US manufacturing jobs by helping to make the goods that workers make unable to compete by making them cost more.
Losing your job means losing current and retirement income – it doesn’t get more ugly than that.
Krugman has a followup blog post on this issue, at http://krugman.blogs.nytimes.com/?module=BlogMain&action=Click®ion=Header&pgtype=Blogs&version=Blog%20Main&contentCollection=Opinion.
His post is titled “VAT of Deplorables.”
no, what’s uglier is a mind that would destroy the ability of workers to retire when they get old.
social security does not cost workers their jobs. social security provides a means for those workers to save their own money, safe from inflation and market losses and… until the idiots on the right and the left succeed in turning it into welfare as we knew it… even from politics as usual.
“[Suppose they don’t have kids.”
Then what the 773H have they been spending their money on for 45 years?
“[Suppose] their kid is out of work.”
Move in with one who is employed.
What if both kids were killed in foreign wars?
What if like me your personality is just so unpleasant that no sensible person would have your progeny?
Lots of reasons that people don’t have kids. Or surviving kids. Do we just tell the grieving parents “Hey here is your Gold Star flag! With two stars!! One for each son!! Thanks for your sacrifice!!!! Now get on the ice floe, we don’t have a lot of time here.”
well, there you have it folks. the mind of the hater of Social Security, in his own words.
“Labor costs are about 10% of the total cost of an auto. So let’s take a $25,000 car.”
I find that hard to believe. Labor share is about 50% of national income.
I would be surprised if manufacturing had reduced that to one fifth of the national average.
Do you have a source?
This article puts labor share in the manufacturing sector still over 50%:
Is auto manufacturing five times more efficient?
So lets see . Higher wages can come from increased investment in technology but with less workers who will make more. Picketty, But how will this contain predatory globalism? It has been said that in the past the USITC has used the Peterson Reports data in many of their trade deals but it was found that the Peterson CGE model had many built in false assumptions about the economy. This is where the bad trade seal starts to go wrong in using it again for the TPP. They prefer the Tufts University model to be used but will it? In shaping the fourth industrial revolution it is vital that we can measure the value of “free” (as in free trade). So as the economy evolves so must the frame work of reference for the statistics to be used to measure it more accurately to better benefit the American people…Kkaus Schwab “People, Peace, Planet” and Charles Bean “measuring the value of Freedom”
The problem with Krugman’s analysis is that he (just like Trump) has no clue what this is about.
Krugman’s example of NY having a sales tax while Del. does not fails because that sales tax is not a substitute for a tax (a cost) on manufacturers. But what if it were used as a substitute for a mfg. cost?
Let’s suppose NY funded its unemployment and workman comp funds with a sales tax on manufactured goods sold in NY. What this would mean is goods produced in NY would be cheaper to produce (everything else being equal) than goods from other states. NY goods shipped to other states would not have the cost of UC and WC (no tax included in cost). Goods made in other states would be taxed when sold in NY and would help pay for NY UC and WC funds.
In terms of global trade this would help put NY manufacturers on an equal footing to compete with other countries where manufacturers don’t pay anything for unemployment or workman comp
It fails the test. It is still Overhead.
Companies do not leave the US due to direct Labor Cost as it is such a small percentage of the Cost of Manufacturing. Companies leave due to the higher Overhead to be incurred in the US as opposed to China, Thailand, Vietnam, etc. Those costs are burdened o Labor; but, they not a true cost of manufacturing a component or product. UC and WC are Overhead.
For a bit more insight I have gained is to take a closer look at the Harry Moser reshoring effort and his Total Cost calculator that I think better defines the total cast of ownership of making a product. I think many top executives of top companies should be looking and re looking at these always changing economic dynamics as to off shore or re shore their product. I believe that at the moment with current technology and possible regulation and tax changes on corporate inversions and possible VATs on imports only it may be in favor to stay or re shore in the near future. Depends who gets elected.
I don’t know why you are fixated on calling it “overhead” as
if what its called makes any difference.
Payroll taxes are a cost associated with labor when the worker is canned that cost disappears under the current tax structure.
If the cost was covered by an excise tax on the manufactured goods that would mean the cost would no longer be tied directly to labor. That means the cost savings (that now exists) would no longer be an incentive to get rid of manufacturing workers. It would also mean that imported goods goods produced by automation would share in paying the cost. The cost would be shared by all goods which would eliminate that artificial cost advantage that imports and automation now have.
Its not just about companies leaving – its about the huge decline in manufacturing jobs. There has been a 30% decline in mfg jobs since the major decline started around 2000. Companies leaving is just a small part of that. Many manufacturers went out of business they didn’t move anywhere. But much of the job loss is due to companies downsizing their workforce by either automation or outsourcing what employees used to do.
Somebody REALLY needs to go after Trump for his “We should have taken the oil before we left'” statement. I mean the average 6th grader should realize that the oil is currently in the ground. There aren’t any magic oil pixies who will take it out of the ground faster than it will flow into wells, push it through pipelines that can only carry so much oil per year, fill more oil tankers than exist, and then put it into more storage than exists. It is a logistical fantasy even worse than his wall.
when i first heard that i was pretty shocked myself.
but he seems to have “explained” that what he meant was occupy and defend the oil fields to prevent them from falling into the hands of ISIS.
that is, i think, a defensible position. that does not mean i think it is safe to elect Trump.
but it may mean that the dems don’t want to engage on an issue in which they have lots they don’t want to talk about.
we are, i am sorry to say, in a position where we have to choose between the very very bad and the even worse than that.