Monday, January 23, 2017

Demographic Dividends Of The Past And Headwinds That Will Shape US Growth In The Trump Era

 One of Donald Trump's signature campaign promises is a 4 percent growth rate for real GDP. During his confirmation hearings, Treasury secretary designate Steven Mnuchin scaled that back to a 3 to 4 percent range, but that is still an ambitious goal. US GDP growth has not reached 4 percent in any year since the start of the century and has not averaged 4 percent over any four-year period since the 1970s.

The new administration is counting on changes in tax rates, trade policy, infrastructure investment, and the burden of federal regulation to reach its growth targets. Assessing the effects of those policies would be speculative at this point, as they exist only in outline. One thing we can be fairly sure about, though, is the demographic environment that the Trump administration faces. Let's look at some of the key demographic dividends that boosted growth in the past and at the headwinds the American economy will face over the next eight years.   .   .  .

Follow this link to read the full post on SeekingAlpha.com

Sunday, January 22, 2017

The Progressive Case for Abolishing the Corporate Income Tax

Reform of the corporate income tax is shaping up to be one of the big issues facing Congress in 2017. Republicans are pushing for big cuts in the corporate tax rate. Most observers seem to assume that conservatives and progressives will be at swords points over those cuts, but they should not be. There is a strong progressive case for sharply lowering the corporate income tax, or better still, abolishing it altogether.

On the Republican side, President Elect Donald Trump has proposed lowering the top corporate tax rate from its current 35 percent to 15 percent while eliminating most loopholes. House Republicans have proposed a 20 percent top rate, also eliminating some important deductions and preferences.

In the Senate, many Democrats, who retain the power to filibuster tax reform legislation, are digging in their heels against the corporate cuts. Progressive superstar Senator Elizabeth Warren of Massachusetts  is leading the fight. In a recent New York Times op-ed, she wrote, “Congress should increase the share of government revenue generated from taxes on big corporations—permanently.” She points out that in the 1950s, the corporate tax accounted for more than 30 percent of all federal revenue, compared to less than 10 percent today (see chart).



She is wrong. Progressives should stop trying to recreate the glory days of the corporate tax. Instead, they should join forces with conservatives to implement a comprehensive tax reform program that includes deep cuts in the corporate tax, or even its entire elimination. Here are three reasons why.

Saturday, January 21, 2017

How To Interpret Differing Perspectives On Changes In The Price Level


The Bureau of Labor Statistics reported Thursday that the Consumer Price Index for all items rose by 2.1 percent in December from its level in the same month of the previous year. At the same time, the BLS and other agencies reported several other perspectives on rising US price levels. 

The change in the CPI is best understood as a change in the cost of living. As explained here, an increase in the cost of living measures the difficulty of maintaining one's standard of living, based on no change in income. The cost of living is the natural focus of individual consumers.

Other data attempt to measure the rate of inflation. Inflation means a change in the value of the unit of account, the US dollar, in this case. A pure increase in the unit of account would raise all wages and prices by the same amount, resulting in no change in the cost of living. Inflation is the natural focus of monetary policy.  . . .

Follow this link to read the full post at SeekingAlpha.com

Thursday, January 19, 2017

Divergent Unemployment Rates Highlight The Intractable Structural Problems Of The Eurozone


The latest data from the nineteen member countries of the Eurozone show an average unemployment rate of 9.9 percent. That is good news, insofar as unemployment is down from its 2013 peak of 12.1 percent. The bad news is not only how high EZ unemployment still is, but how much the rate varies among member countries.

More than fifty years ago, Robert Mundell, then an economist at the IMF, wrote a classic paper explaining when currency areas can work well and when they cannot. Among other things, he noted that an ideal currency area should have free flows of labor among members, flexible labor markets within each member, and similar exposure of members to economic shocks.

If Mundell's criteria were satisfied, unemployment rates would not vary significantly from one member of a currency union to another. . .
Unfortunately, as the chart shows, the Eurozone falls far short of the ideal. . . .

Follow this link to read the full post at SeekingAlpha.com

Wednesday, January 18, 2017

Part-time Worker Crisis Recedes as Economy Recovers

 Not long ago, America seemed to be facing a crisis of part-time work. CNN Money wrote of a "huge part-time work problem" and a "new normal - a permanently high number of part-timers." Others pointed the finger at Obamacare, which they saw as encouraging employers to cut hours in order to avoid providing healthcare coverage. Fortunately, recent data show that the "crisis" has receded as the economy has recovered. What remains is a more modest picture of structural change that does point to a gradual, long-term shift toward more part-time employment. . . . 

Follow this link to read the complete post on SeekingAlpha.com

Tuesday, January 17, 2017

New Data Show Growing Role Of Occupational Licensing in U.S. Labor Market

Not long ago, America seemed to be facing a crisis of part-time work. CNN Money wrote of a "huge part-time work problem" and a "new normal - a permanently high number of part-timers." Others pointed the finger at Obamacare, which they saw as encouraging employers to cut hours in order to avoid providing healthcare coverage.

Fortunately, recent data on voluntary and involuntary part-time employment show that the "crisis" has receded as the economy has recovered. What remains is a more modest picture of structural change that does point to a gradual, long-term shift toward more part-time employment.  . . .

Follow this link to read the full post and view the chart at SeekingAlpha.com 

Thursday, January 12, 2017

Who Benefits from the Mortgage Interest Deduction?

The mortgage income deduction is America's favorite middle-class tax preference
right? The trouble is, the middle class doesn't really get all that much out of it.


The chart is based on data from a 2016 study by Chenxi Lu and Eric Toder of the Tax Policy Center. Following a definition used in a recent study by the Pew  Research Center, it defines "middle class" as households earning from 67 percent to 200 percent of the median household income, or approximately $40,000 to $125,000 per year. Just under half of all US households fall in that income bracket, but they receive less than a fifth of the tax benefits of the mortgage interest deduction. Higher-income households receive a far larger share.

Several factors reduce the value of the mortgage interest deduction to middle-class households. First, only 21 percent of them claim the deduction at all, either because they do not own a home, because they do not have a mortgage, or because their tax bill is lower if they use the standard deduction instead of itemizing. Second, their income tax rates are lower than those of higher-income households. Third, their homes are worth less, on average.

Putting all of this together, the average middle-class household receives just $191 annually in benefits from the mortgage deduction. In contrast, as the next chart shows, higher-income households, on average, receive benefits of thousands of dollars per year, because more of them claim the deduction, their tax brackets are higher, and their homes are more valuable.


What kind of reforms could potentially correct the inequities of the deduction, both within and between income classes, without raising the overall tax burden on middle-class households or increasing the federal deficit?

Lu and Toder examine two reforms. One would lower the cap on the value of property qualifying for the deduction from $1,000,000 to $500,000. The other would replace the current tax deduction with a flat 15 percent tax credit, which would help all households equally regardless of their tax bracket. They conclude that either of these reforms, or both in combination, would be an improvement over the current system.

An alternative, which I have discussed in detail in a previous post, would be to eliminate the mortgage interest deduction entirely, together with several other federal benefits and tax preferences, and replace them all with a universal basic income. Properly structured, a UBI of that kind would protect the overall after-tax incomes of middle-class families while reducing inequities within and between income classes.