Category: Economic Policy

Your New Tax Bill at Work (Deficit to Near $1 Trillion in 2018)

Two quick takes on the new tax code. First is from the Congressional Budget Office telling us that the deficit will sky back to near $1 Trillion in 2018:

“Because the tax legislation reduced individual income taxes for most taxpayers, the Internal Revenue Service released new income tax withholding tables for employers to use beginning no later than the middle of February 2018. As a result of those changes, CBO now estimates that, starting in February, withheld amounts of individual income taxes will be roughly $10 billion to $15 billion per month less than anticipated before the new law was enacted. Consequently, withheld receipts are expected to be less than the amounts paid in the comparable period last year.”

According to the Washington Post, “The U.S. Treasury expects to borrow $955 billion this fiscal year. It’s the highest amount of borrowing in six years, and a big jump from the $519 billion the federal government borrowed last year.”

So, yes, Obama did borrow heavy to address the fiscal crisis and two wars Bush handed him but had reduced the deficit during his last six years. Republicans talk a good game, but deficits always seem to rise faster under their administrations, or when cleaning up messes from their administrations.

On a much brighter note, the much-heralded tax cut, which slashed the corporate tax rate from 35% to 21% (saving Apple $47 billion), and gave back an average of $51,000 to those in the top 1%, did result in a certain secretary getting $1.50 more per week in her paycheck. Join me in a slow clap.

Not surprisingly, after some reflection, Paul Ryan deleted his tweet about this fabulously fortunate woman already bearing her share of the benefits of trickle-down economics. Make America Great Again.

As we’ve said all along, the tax bill will deliver more money to the wealthy by raising deficits (borrowing money to give to the rich), while delivering next to no benefits to poorer people who really need the help.

Net Neutrality in 60 Seconds or Less: Why Griffith Will Vote No

Griffith has taken $198,000 in contributions from telecom companies during his time in office; if net neutrality comes to Congress, which way do you expect he will vote? 

Net neutrality sounds like one of those techie issues that companies and politicians argue about but means nothing to you. If you have a Netflix account or watch a lot of YouTube, nothing could be further from the truth. Here’s a short description to get you up to speed.

What is net neutrality? Here’s a snippet from CNN. “The net neutrality rules were approved by the Federal Communications Commission (FCC) in 2015 amid an outpouring of online support. The intention was to keep the internet open and fair. Under the rules, internet service providers are required to treat all online content the same. They can’t deliberately speed up or slow down traffic from specific websites or apps, nor can they put their own content at an advantage over rivals.”

What just happened? The FCC just repealed these rules. The vote was on party lines, three Republicans voted to repeal, two Democrats voted against.

What does this mean? It means that internet service providers can prioritize traffic from their own media companies over third-party companies. This chart, from Business Insider, shows how potentially damaging that could be. For example, any of the internet service providers (ISPs) could throttle content from Netflix and YouTube, legally, so long as they disclose the practice. They could charge Netflix for fast access through their service, or charge consumers who access Netflix.

Here’s a snippet from CityBeat.

“For example, consider how ISPs in other countries that don’t recognize net neutrality protections, such as Portugal, are able to bundle popular internet services. Customers pay their ISP to access the internet and then an additional fee to access different bundles of popular content and services, such as YouTube, Hulu, Amazon or PayPal.”

So in addition to paying Netflix for Netflix, you’ll pay Comcast, AT&T, and Verizon as well. To track all of your watching data, these providers may deploy “supercookies,” without notification.

Who benefits? The large internet service providers.

How does this benefit consumers? It doesn’t. It makes the internet more intrusive, more expensive, may slow content from sites you like to watch and will increase the cost of innovation since new content sites will have to pay ISPs. Just like the Republican Congress voting to allow ISPs to sell browsing history, this benefits ISPs to the detriment of consumers.

What happens next? The FCC decision can be challenged in court or Congress. But today, it is the new normal.

What’s Morgan Griffith’s take on net neutrality? When a constituent asked about it, he quoted the Republican FCC Commissioner that the FCC was “adopting a solution that won’t work, to a problem that doesn’t exist, using legal authority it doesn’t have.” The quote proved to be wrong, as net neutrality was upheld by federal courts in 2016. More to the point, Griffith has accepted $198,000 in campaign contributions from telecom companies during his time in office. If legislation does come up, which way would you expect him to vote?

Three Takes on the New Tax Plan

The big question in everyone’s mind should be whether the new tax plan will help us in the VA9th, either directly or indirectly. Several interesting observations point to no.

These comments highlight that at some point, 9th district voters need to ignore the party line and start voting for representatives who pursue our best interests. While there may be a few wealthy individuals in the district who benefit from the new tax plan, overall it’s a huge negative.

All district voters should be asking themselves, “what’s in this bill for me?” The honest answer is very little, if not nothing at all.

OK, on to the comments.

The first is from the Economic Policy Institute (EPI), a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions. Here’s what the EPI said.

“After spending most of the year promising a tax cut for the middle class, Republicans in the Senate have joined their colleagues from the House of Representatives in reneging on this pledge. The bill passed today is nothing more than a giveaway to the richest households and corporations, period. It will raise taxes on many low- and moderate-income households, and the deficits it will leave in its wake will be used to attack Social Security, Medicare, and Medicaid—a strategy clearly telegraphed by both the Republican budget resolution from last month as well as by Senator Rubio more recently.

Besides lying about who would benefit most directly from the tax cut, defenders of today’s bill have also lied about the trickle-down benefits that will accrue to workers in the form of higher wages. Simply put, this bill will not raise wages for typical workers—but it will deny health insurance to 13 million workers, a measure Senate Republicans included to help contain the overall cost of giving large tax cuts to rich households and corporations. This bill is a scam through-and-through.”

The second is from the ChangeWave Investing newsletter which before now, has been very apolitical. In the December 5 newletter, author Josh Levine states (sorry, it’s a private newsletter, so I can’t provide a link,

“Growth is the key word for those promoting the tax plan. Proponents argue that by reducing the corporate income tax rate to 20% from the current 35% – along with a provision that allows some companies to bring back hundreds of billions of dollars in foreign profits at a lower rate than they otherwise would’ve paid – will translate to higher capital investment and wages. In other words, if the government taxes the rich less, the wealthy will save more, grow US capital stock and investment, and make workers more productive.

While such a tax scheme will ensure higher profits in the short run, thus giving a further tailwind to share prices, there is little evidence to support the case for trickle-down economics.

Fact is the share of national income going to the top 1% has doubled from 10% to more than 20%, while income accrued by the bottom 50% has been almost halved, from 20% percent to 12.5%. There has been no growth at all in the average pretax income of the bottom half of the population over the past 40 years – during which trickle-down enthusiasts promised just the opposite.

Today corporate profits and cash balances are already near historic records, and the business cycle is in the latter stages with interest rates and unemployment at long-term lows. If anything, such a tax plan would be far better suited for an economy at its trough, rather than closer to a peak.”

The third is from a letter to the editor from Rebecca Jones in the Roanoke Times which adds a local bent.

“The TCJA is full of gimmicks which will negatively affect southwest Virginians. Any small tax cuts benefiting the middle-class will be temporary: most of us will see our taxes rise within a few years, and those earning the least will see the biggest tax increase. Tax cuts for large corporations will be permanent, with no guarantees whatsoever that these billions in tax cuts will be used to create jobs or increase wages. Recent history suggests these corporations instead will direct their windfall to stockholders, CEO pay increases, and stock buybacks.

The wealthiest Americans will benefit mightily from tax cuts and the estate tax repeal, while the middle class, small businesses, and colleges and universities will bear the brunt of the noxious effects of a plan crafted to satisfy GOP mega-donors.

For families with children, college and graduate students, and those with student loans, the TCJA repeals vital deductions, making it harder to afford college tuition and significantly increasing student debt. TCJA harms colleges and universities directly in ways which will make higher education much more costly and less accessible.

Shame on Morgan Griffith! Call him today and tell him we are too smart to fall for this con game!”

 

David Stockman on Fox News – Why Trump’s Tax Plan Won’t Work

Stockman was budget director for Reagan, and he brilliantly details why Trump’s tax plan won’t create jobs or stimulate the economy, holding off five Fox News “experts.” If you have only ten minutes to learn about the Tax Plan, watch this video.

Liebrecht: Tariffs 101: Why they don’t work

During an oil change at Hines Tire in Fries, I was chatting with the guys there when one fellow, a former textile worker, remarked that tariffs will bring back manufacturing to the U.S.

This has become a popular idea in the current election. Donald Trump has most vigorously stated that he would impose tariffs of up to 45 percent on Mexico and China, but Democrats Hillary Clinton and Bernie Sanders have also spoken of restoring tariffs, albeit more obliquely than Trump, who has made tariffs a central issue of his campaign.

His message resonates with working-class Americans who have lost jobs to outsourcing, but there is good reason to be skeptical of politicians proposing tariffs as a means of bringing industry back here. One reason is that tariffs are a simplistic solution to a complex problem, and second, historically they have not worked.

Tariffs are more likely to result in the loss of domestic manufacturing than provide a stimulus to industrial growth.

Unquestionably, American jobs have been lost to China and other low-cost countries. Also, the losses have been greatest in labor intensive industries such as furniture making and textiles, which were the industrial backbone of Southwest Virginia.

The loss of American industry was not, however, solely due to cheaper labor and production costs overseas. While important, seeking lower costs may not even be the critical reason for moving production offshore, and it is important to understand this to know that jobs will not be brought back by imposing tariffs.

From 1980 to 1990, the U.S. lost approximately 300,000 manufacturing jobs. Coincidentally, the 1980’s was also an era of deregulation and revisions to the tax code favoring financial speculation. This fostered the business take-over craze of the eighties, which persists today. With the assistance of a compliant Congress who rewrote the government rulebook to favor big business, speculators bought, sold, resold and merged companies.

With each transaction, huge profits were made, but huge debts were also incurred. Finally, even previously profitable enterprises could not operate under burdens of accrued debt. First workers were terminated to save on labor costs. Then plants were closed or moved offshore.

Simply raising tariffs will not bring manufacturing back because cheaper foreign labor and production were not the sole reasons for offshoring. Rather than tariffs, we need tax and financial reforms that encourage investment in this country and discourage excessive speculation for short term profits.

Then we need to make necessary investments in education, research, products and innovation — in both the public and private sectors. This is the only real way to remain competitive and grow the economy.

It is appealing to think that raising the prices of imported goods via tariffs will restart American manufacturing, but historically this has not been so. Opponents of tariffs often cite the effects of the Smoot-Hawley Tariffs of 1930 as evidence that tariffs are counterproductive to economic growth and job creation.

In 1930 when President Hoover signed this bill, the U.S. unemployment rate was 8 percent. Two years later as a result of world-wide retaliation against the Smoot-Hawley Tariffs, factories were closed, the U.S. GDP was half of what it was in 1930, and unemployment stood at 25 percent.

Donald Trump has touted his education at the Wharton School of the University of Pennsylvania, a top business school, as one reason for his business expertise. When he proposes tariffs of 45 percent as a means of bringing manufacturing back to the U.S., I can only assume that he was cutting class when the causes of the Great Depression were being discussed.

Nancy Liebrecht | Liebrecht is a retired landscape architect and environmental scientist. She lives in Fries.

Trickle Down’s Failures Apparent to All, Except Those in Charge

Three years ago, in a town just south of where I live, the local paper carried a small story about a start-up business owner who had won the Annual Entrepreneurship Competition. Her new business was awarded $5,000 and some technical assistance as it prepared to open its doors in the downtown district.

The very same issue of the paper carried a front page story about another award going to a different sort of business: over $50 million in subsidies to induce a Cabela’s to locate five miles from the downtown center. I’m quite sure that some of this community’s elected leaders and economic development staff supported both the local entrepreneurship competition and the Cabela’s deal. But surely they know that giving a big, out-of-state corporation ten thousand times more financial support to set up shop on the edge of town would lure people away from downtown stores, including the award-winning local entrepreneur . What gives?

This kind of ‘all of the above’ thinking, which is the norm not only among local officials, but right up to the federal level, does more to prop up the economic status quo than to support local businesses. That’s because it sustains the extraordinarily uneven playing field between the little guys and the big guys, between local businesses that are rooted in their communities and mobile transnational corporations with no stake in particular places.

Underlying such policies is the continued adherence to the doctrine of “trickle-down economics”. All across this country, as local, living economies struggle to emerge and take root, as innovative entrepreneurs and sustainable farms provide products and services that customers want and communities need, trickle-down thinking works against the emerging new economy. The abysmal failure of trickle-down is apparent to most people, except to those who are running the show.

For readers too young to remember Ronald Reagan’s presidency, a quick explanation of trickle-down: Economic growth and prosperity, so the theory goes, is largely dependent upon a small group of businesses and their investors, who together create jobs by expanding their already large companies, innovating new products and technologies and spreading their reach into global markets. This elite group of very big companies and very wealthy people are the economic engine for all of us. Therefore we must cut their taxes – personal, corporate, capital gains and estate taxes – and free them up from burdensome regulations, in order for them to invest, grow and create jobs and wealth that “trickles down” to the rest of us. Nearly 40 years after Reagan, this thinking continues as the foundation underlying most of our tax, trade, investment and economic development policy.

But trickle down doesn’t. It hasn’t. People talk about how the United States has among the highest corporate tax rates in the world, but in truth, the menu of loopholes and deductions ensure that many of the biggest corporations pay dramatically less than they should, so much so that by Stacy Mitchell’s estimates, small businesses pay an effective tax rate that is 6 – 8% higher than the big boys. Talk about an uneven playing field. And keep in mind that the theoretical corporate tax rate of 35% is already a third lower than it was in the ‘50s and ‘60s, when business was booming. Have the biggest companies taken advantage of this lower rate and all these loopholes to expand their plants and launch new businesses, as trickle-down predicts? A few. Mostly, they’ve been stashing their excess cash, which now exceeds a trillion dollars in reserves.

Tax rates on the rich – the ‘investors’ – have also fallen dramatically, from a high of 91% in 1950 to between 35% and 39%, where it’s been since mid-way through Reagan’s presidency. Not only that, but taxes on capital gains and dividends, both of which benefit primarily the wealthy, have also fallen sharply. Yet all of these breaks have not spurred massive private investment in job creating businesses and technologies, but rather helped fuel the phenomenal growth of speculative and un-productive “financial products” on Wall Street. Like the so-called derivatives that helped crash the economy in 2008. Donald Trump’s tax plan calls for additional, steep cuts in these taxes, as if somehow, finally, they’d deliver benefits they’ve failed to for thirty five years.
And then there’s our trade policy, which has served as an extension of trickle down by lessening regulations on transnational corporations, widening their patent protections, protecting wealthy investors and tilting the scales even more in the favor of the one percent. President Obama’s relentless push for the Trans Pacific Partnership is rooted not in a productive track record for earlier, very similar trade deals, but in a bewildering belief in corporate-driven trickle down prosperity.

Trickle down has failed to deliver higher growth rates, more private investment, increased innovation and most of all, widely shared prosperity. In fact, it’s been a disaster, sucking the life out of communities and transferring wealth up, not down. Millions upon millions of people know this, as the crowds and enthusiasm for Bernie Sanders demonstrated, as does the widespread anger about our grotesquely unequal economy.

The alternatives to trickle down are emerging, not just in theory but in practice, in rural regions, small towns and big cities. This “bottom up economy” as I call it, is the antithesis of trickle down. The focus is on building the health, wealth and resilience of communities, based upon very diverse, locally rooted businesses and economies. From the dizzying array of local food enterprises in Athens, Ohio, to the solar and clean energy economy of Bellingham and western Washington, State; from the resurgence of regional manufacturers in rural western Minnesota to the surge in Latino entrepreneurs in Arizona, the bottom up economy is proving to be far more productive and innovative, far better for people and their communities, than the collateral damage economy of trickle down. The only real question is, when will the folks in charge finally acknowledge this reality?

(Originally published in the Progressive Wing in September 2016)