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

Treasury Secretary Mnuchin’s Forked Tongue on Tax Cuts for the Wealthy

Treasury Secretary Mnuchin’s Forked Tongue on Tax Cuts for the Wealthy

Shortly before the inauguration, Steve Mnuchin discussed the incoming administration’s tax plans and announced the Mnuchin Rule–that “[a]ny reductions we have in upper-income taxes will be offset by less deductions so that there will be no absolute tax cut for the upper class.”   EXCLUSIVE: Steve Mnuchin says there will be ‘no absolute tax cut for the upper class’, CNBC Squawk Box (Nov. 30, 2016).  At the same time, he argued that those who foresaw a tax cut for the rich accompanied by a tax increase for many in the middle class were wrong:  “When we work with Congress and go through this, it will be very clear.  This is a middle-income tax cut.” Id.

Contrast that with the so-called “tax reform” “framework” that the Trump administration has put out with the GOP establishment in Congress and for which both the House and Senate have made provisions in their budget document by including a (likely significantly underestimated) tax-cut-caused federal deficit of 1.5 trillion dollars.

As this blog and many tax and economic experts have noted (see, e.g., Nunns et al, An Analysis of Donald Trump’s Revised Tax Plan, Tax Policy Center (Oct. 18, 2016), Trump’s tax plan has always favored the wealthy.  In fact, the recently released “tax reform” “framework” is heavily tilted in favor of the wealthy, because the corporate statutory rate cut from 35% to 20%, the elimination of the AMT, the elimination of the estate tax, and the 25% pass-through rate for taxpayers all represent huge tax cuts for wealthy taxpayers who are the ones most likely to have been impacted by those tax provisions.  Meanwhile, there is actually an increase in rate for the lowest-income taxpayers from 10% to 12%, and the elimination of personal exemptions (and possibly other provisions) which may or may not be entirely offset by the proposed doubling of the standard deduction and possibly some increase in the child tax credit.  Thus, some poor families who can afford it least may pay more in taxes, middle income families may get a small tax cut, and wealthy families who don’t need the money at all will get a huge tax cut.  See, e.g.,  earlier A Taxing Matter posts on this issue here and here.

And these “massive” tax cuts for the wealthy, combined with massive increases in the deficit (and borrowing) to fund the tax cuts, likely won’t even trickle down as more jobs for working Americans.  There’s very little support from past tax cuts for businesses and for the wealthy for any kind of economic stimulus, either in terms of more jobs or higher wages.  See, e.g., White House math on corporate tax cuts is ‘absolutely crazy’, Mother Jones (Oct. 17, 2017).   In fact, there is much more support for tax increases on the wealthy resulting in more jobs than vice versa.

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The Sharing Economy – Including the @$$holes

A friend of mine who has made it into his sixth decade without ever sullying himself with gainful employment is now doing deliveries, shared-economy style. (Packages, not people via Uber or Lyft.) I thought he was going to rail against the system when he described what is new in his life, but his attitude surprised me. Transcribed, to the best my of my recollection, his comments were:

So I went down for orientation. There were a bunch of people just like me. Basically, @$$holes who don’t deal well with people. @$$holes who don’t want a job, and couldn’t keep a job if they could get one. What I love about the shared economy is that it allows @$$holes like me to participate. I work when I want, and I’m getting somewhat regular income for the first time in my life.

Obviously, not everyone in the sharing economy is an @$$hole. I’ve met some nice people while taking Lyft, for instance, or staying somewhere through airBNB. And my wife is a superhost on airBNB. I’d be afraid to call her an @$$hole. On the other hand, the only person with whom I have an acquaintance who regularly drives for Uber and/or Lyft has a personality that is best described with words like “volatile” and “belligerent.” In any case, I don’t think he is capable of holding down an actual job but he doesn’t seem to have a problem driving strangers around on short trips.

So maybe one unexpected benefit of the sharing economy is that it has made some otherwise unemployable people into productive citizens.

Update: 10/22/2017, 4:57 AM – corrected first sentence by changing word “fifth” to “sixth.”

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Labor Market Slack and Weak Wage Growth

by Hale Stewart (originally published at Bonddad blog)

Labor Market Slack and Weak Wage Growth

From the IMF’s latest World Economic Outlook:

Sluggishness in core inflation in advanced economies—a surprise in view of stronger than expected activity—has coincided with slow transmission of declining unemployment rates into faster wage growth. Real wages in most large advanced economies have moved broadly with labor productivity in recent years, as indicated by flat labor income shares (Figure 1.4, panel 6). As shown in Chapter 2, muted growth in nominal wages in recent years partly reflects sluggishness in labor productivity.1 However, the analysis also reveals continued spare capacity in labor markets as a key drag: wage growth has been particularly soft where unemployment and the share of workers involuntarily working part-time remain high. The corollary of this finding is that, once firms and workers become more confident in the outlook, and labor markets tighten, wages should accelerate. In the short term, higher wages should feed into higher unit labor costs (unless productivity picks up), and higher Sluggishness in core inflation in advanced economies—a surprise in view of stronger-than expected activity—has coincided with slow transmission of declining unemployment rates into faster wage growth. Real wages in most large advanced economies have moved broadly with labor productivity in recent years, as indicated by flat labor income shares (Figure 1.4, panel 6). 

     Consider the following chart from the Atlanta Fed:

For the longest time, I’ve been staring at the lower left-hand corner of that chart and thinking, “weak wages are really about low utilization.”  Let’s place that data into context:

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Cost Sharing Reductions and the Constitution

Republican Representatives who sued the Obama administration, Judge Rosemarry Collyer who decided they were right, Donald Trump and lawyers representing the Trump administration argue that the Department of Health and Human Services (HHS) can not compensate insurance companies for the expence of cost sharing reductions (CSRs) for people with income under 250% of the poverty line who purchase silver plans on ACA exchanges. The argument is that compensation for CSRs might be good policy, but the Constitution makes it clear that only Congress can choose such good policy.

I’m not an lawyer but I do not understand how anyone can make such an argument. Following Mark Joseph Stern, I quote from the ACA

(3) Methods for reducing cost-sharing
(A) In general
An issuer of a qualified health plan making reductions under this subsection shall notify the Secretary of such reductions and the Secretary shall make periodic and timely payments to the issuer equal to the value of the reductions.

(3) Payment
The Secretary shall pay to the issuer of a qualified health plan the amount necessary to reflect the increase in actuarial value of the plan required by reason of this subsection.

Tnat seems very clear to me. The whole case seems to rest on the fact that the ACA never says funds are appropriated for this purpose. My (non lawyer’s) understanding of precedent is that the Constitutional requirement that funds be disbursed only as appropriated by law by Congress has not been interpreted as requiring the approriate use of the appropriate “appropriated”.

Just to cut and paste a bit from Stern

When Congress passed the ACA, after all, it instructed HHS to make these payments. And in doing so, it effectively appropriated the necessary funds. As Georgetown University law professor David Super explained to my colleague Jordan Weissmann in 2015: “The Supreme Court has been very clear that you do not have to have a law that says ‘appropriations’ across the top. You just need a law directing that the money be spent.”

I don’t see an arguable case against paying the money.

Certainly, I don’t see how anyone can argue that the payments are not allowed and required without addressing the bits of the law which I cut and pasted.

It seems to me that to pretend they don’t exist is to lie by omission, and that lying to a judge is contempt of court, even if one isn’t under oath.

Lawyers help me. I sure wouldn’t want Trump administration lawyers to be disbarred.

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New Bill to Restore the ACA CSR

Senate Health Committee Chairman Lamar Alexander (R-TN) “Unless they are replaced with something else temporarily, there will be chaos in this country and millions of Americans will be hurt.”

Twelve Republicans and 12 Democrats signed on to the bill, which would continue ObamaCare’s insurer subsidies for two years and give states more flexibility to waive ObamaCare rules.

Senator Alexander is talking about the impact of Trump canceling the CSR which pays for deducible and co-pays directly to insurance companies for the insured between 138% and 250% FPL. And no, neither the CSR or the Risk Corridor Program bailouts for insurance companies. All of these are lies and misconceptions coming from the mouths of Republicans and the President.

Here is what will happen:

– Premiums for benchmark plans sold on the Affordable Care Act exchanges will rise about 20 percent next year and about 25 percent by 2020. The cost to consumers, however, would stay the same or even decline.
– People with lower incomes who buy insurance on the exchanges get a tax credit (subsidy directly to the insurance company), so their costs remain stable as a share of their income. When premiums rise, those government subsidies rise as well.
– For people with incomes below 200 percent of the federal poverty level, the out-of-pocket cost of insurance would remain about the same because of the bigger tax credits (subsidies offsetting premium increases to the insurance company).
– For those with incomes between 200 percent and 400 percent of the federal poverty level, the cost to buy insurance could actually get cheaper. Some Gold plans may be cheaper than the Silver plans. 85 percent of people who bought Obamacare insurance got a tax credit.

Kaiser Family Foundation Vice president Larry Levitt: “The CBO analysis makes it clear. The ending cost-sharing subsidies would be a perfect example of cutting off your nose to spite your face. Premiums would rise and the government would end up spending more in the end through tax credits that help people pay their premiums.”

The CBO report confirms earlier analyses, including this one by Kaiser and this one from the consulting firm Oliver Wyman suggested eliminating the cost-sharing payments could make policies cheaper for some individuals.

In the end, the elimination of the CSR may cause a cumulative deficit of $194 billion from 2017 through 2026, CBO and JCT estimate. While it may be chaotic in the beginning as people will not know what to do, premium subsidies paid directly to the insurance companies will pickup the difference, and the CBO assumes the chaotic conditions will level out over a period of 2-3 years.

Giving states more control over the ACA in areas such as the 10 essential benefits or cheaper than Bronze plans would spell the end for the ACA and we would be back to garbage healthcare polices.

If you are prone to do so, it would be helpful to write your sponsoring Senator and tell them you are opposed to this bill by Senator Alexander. The  Democratic co-sponsors include Sens. Jeanne Shaheen (D-NH), Joe Donnelly (D-IN), Amy Klobuchar (D-MN.), Heidi Heitkamp (D-ND), Al Franken (D-MN), Joe Manchin (D-WVA.), Tom Carper (D-DE.), Tammy Baldwin (D-WI.), Claire McCaskill (D-MS), and Maggie Hassan (D-NH).

There will be issues; but, the greater issue is with Republicans and states tampering with the ACA offerings.

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“Hurricane adjusting” initial claims has proven its value

“Hurricane adjusting” initial claims has proven its value

For the last month, I deduced a “hurricane adjusted” number for initial claims, which showed that the previous underlying positive trend was intact, with the four week average remaining in the 230,000’s.

That approach was borne out by this week’s report, which, at 222,000, was the lowest since 1973.

Although I haven’t gone through the entire formal exercise, here’s how the numbers from the three affected jurisdictions compared in last week’s report compared with one year previously:

FL 13,861 (+6508 from 2016)
TX 16,656 (-225 from 2016)
PR 250 (-2409 from 2016) (DoL estimate)

Net change: +3904 from 2016

Since the seasonal adjustment last week was only ~6%, (244,000 vs. 229,289 NSA), this means last week’s “hurricane adjusted” number was on the order of 239,000 or 240,000.

Natural disasters will continue to strike. I am confident that the method I used in 2012 after Sandy, and again this past month, is a good way to distill the underlying trend from the disaster disturbance.

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Silicon Valley is not your friend

Vis New York Times

Growth becomes the overriding motivation — something treasured for its own sake, not for anything it brings to the world. Facebook and Google can point to a greater utility that comes from being the central repository of all people, all information, but such market dominance has obvious drawbacks, and not just the lack of competition. As we’ve seen, the extreme concentration of wealth and power is a threat to our democracy by making some people and companies unaccountable.

In addition to their power, tech companies have a tool that other powerful industries don’t: the generally benign feelings of the public. To oppose Silicon Valley can appear to be opposing progress, even if progress has been defined as online monopolies; propaganda that distorts elections; driverless cars and trucks that threaten to erase the jobs of millions of people; the Uberization of work life, where each of us must fend for ourselves in a pitiless market.

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Marxism-Leninism And The Chinese Communist Party Congress

Marxism-Leninism And The Chinese Communist Party Congress

At this moment I am watching live on Bloomberg News the opening speech by President/Party General Secretary/Chairman of the Military Commission Xi Jinping of the once-every-five-years Chinese Communist Party Congress.  This is far more important than what one finds on other TV networks whether pro-Trump right now (how great his tax plan/tromping on immigrants and football players are) or anti-Trump (what is the latest gossip from the Mueller investigation and will Republicans in the Senate stand up to Trump).  A major theme seems to be a reassertion of party power and discipline, with a reinvigoration of the State-Owned Enterprises, with Communist Party cells to operate in nominally private enterprises, socialism with Chinese characteristics, with a reaffirmation of the foundation based on Marxism-Leninism.  Yes, he used that term.

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On the Effect of the Gender Composition of the Editorial Boards for Top Economics Journals

Here’s the abstract of a discussion paper from the IZA Institute of Labor Economics by Felix Bransch and Michael Kvasnicka:

Using data on articles published in the top-five economic journals in the period 1991 to 2010, we explore whether the gender composition of editorial boards is related to the publishing success of female authors and to the quality of articles that get published. Our results show that female editors reduce, rather than increase, the share of articles that are (co-)authored by females. We also find evidence that female editors benefit article quality at low levels of representation on editorial boards, but harm article quality at higher levels. Several robustness checks corroborate these findings. Our results are broadly consistent with existing evidence on the behavior of gender-mixed hiring committees and of relevance for gender equality policy.

The rest of the article is also at the link.

Consider this post to be a follow up to this one.

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