Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press.

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At a time when the inflation rate has been consistency been well below the Federal Reserve Board's 2.0 percent target, Donald Trump has nominated Marvin Goodfriend to fill one of the Fed's vacant governor positions. Goodfriend argues that the Fed's major policy failure has been that it has inadequately convinced the public of its commitment to fighting inflation.

This seems more than a bit otherworldly, but in the era of Donald Trump, anything is now possible. In Congressional testimony given last year Goodfriend complained:

"If in years past the Fed had been fully committed to price stability as embodied in an inflation target, retirees would be in a much better position today. Years ago, households would have been advised and willing to hold a significant share of their lifetime savings in long-term nominal bonds paying a safe nominal rate of interest. Households could have counted upon the fact that the nominal return would have been locked in purchasing power terms. The promised nominal interest rate, having incorporated a 2% inflation premium to offset the steadily depreciating purchasing power of money at the Fed's inflation target, would have delivered a safe long-term real return upwards of 3% per annum.

"Instead, the Great Inflation called the Fed's commitment to price stability into question as it decimated the real return on long term nominal bonds. Responsible households have since steered away from saving in long-term nominal bonds to protect themselves from inflation risk. To avoid inflation risk, households have shortened the maturity of their interest-earning savings and reached for more return in equity products, forced to accept the risk of ultra-low short-term interest rates and volatile equity prices in the bargain."

This one is worth stepping back from and taking a deep breath for a moment. We have just gone through a long period following the Great Recession in which the unemployment rate was needlessly kept higher than necessary primarily due to lack of adequate fiscal stimulus, but also a monetary policy that was less aggressive than it could have been in trying to boost demand.

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Treasury Secretary Steven Mnuchin is apparently confused about rule by governments and rule by rich people. In response to questions about whether Donald Trump was catering to elitists by attending the World Economic Forum in Davos Switzerland, he said that he didn't think the group of people there was any more elite than the group attending the Group of 20 finance ministers meetings.

The Group of 20 meetings of finance ministers are meetings of people who are there because they represent governments, most of which were democratically elected. The people at Davos are there because they are rich. Apparently, Mr. Mnuchin does not recognize this distinction.

It might have been worth pointing this out to readers.

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Actually, we don't know the extent to which the tax cut was a factor in Walmart's decision to close 63 stores, as it announced it was doing yesterday. Nor do we know the extent to which the tax cut was responsible for the increases in wages and benefits that the company also announced yesterday, although the company did claim a direct relationship in this case. Walmart's competitors, like Target, had been raising wages months before the tax bill was even public, so it is entirely possible that Walmart would have been forced to raise pay due to a tighter labor market, even if there had not been a tax cut.

It is worth noting that by Walmart's own estimate the pay increases will only cost it $300 million a year. This is roughly 15 percent of the $2 billion a year that it should save from the tax cut. This is in line with most economists estimates of the share of the tax cuts that would go to wages. By contrast, the administration had claimed that the wages would rise by more than the full amount of the tax cuts, although this impact would only be seen after a number of years as increased investment led to higher productivity.

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The Washington Post had an editorial titled "Trump is trying to dismantle free trade. That is almost impossible." Of course, the Post is not actually talking about free trade, it is talking about a policy of selective protectionism.

This is the policy of deliberately exposing less-educated workers to competition with low paid workers in the developing world while protecting the most highly educated workers like doctors and dentists. It also involves increasing protectionism in the form of longer and stronger copyright and patent monopolies. 

The predicted and actual effect of the Post's selective protectionism is to redistribute money from most workers to the richest people in the country. The Post uses both its news and opinion pages to try to convince people that this was a natural outcome (and then it wrings its hands over this unfortunate situation) rather than the result of deliberate government policy that it strongly supports.

(Yes, this is the topic of my [free] book Rigged: How Globalization and the Modern Economy Were Structured to Make the Rich Richer.)

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That's what the numbers look like to me. This is the money that could be at stake if the state switches from its state income tax, much of which can no longer be deducted under the Republican tax plan, to an employer-side payroll tax, which would be fully deductible.

The idea is that the state pick a number, say 5 percent, which would make the payroll tax roughly equal to the state income tax for most workers. To protect low-end workers, it should have a zero bracket below which employers would not owe the tax. A reasonable figure would be $15,000 so that employers only start deducting the tax on annualized pay in excess of $15,000. (The state would still have its earned income tax credit in place to ensure that workers with families are not hurt.) To preserve progressivity the state should supplement the payroll tax with an income tax on the most highly paid workers (e.g. 3.0 percent on wages in excess of $250,000). It also leaves in place its income tax on capital income in the form of dividends, interest, rent, etc.

Here's what the numbers look like. According to the Commerce Department's data, wages in NY will be around $910 billion in 2017. If we raise this by 3.5 percent for 2018 to account for wage and employment growth, then we get a total wage bill of $941.9 billion, as shown in the first row of the table. If we deduct $15,000 for each of New York's 9.5 million workers, that comes to $142.9 billion as shown in the second row. This leaves $798.9 billion subject to the payroll tax as shown in row 3. Using the 5.0 percent rate, that translates into total payroll tax revenue of $39.9 billion, as shown in row 4.

    Billions
     
New York state wage bill (2018)  $941.9
Minus $15,000 per worker exemption $142.9
     
Amount Subject to Payroll Tax  $798.9
Revenue from 5% Payroll Tax  $39.9
     
Saving on Federal Income Tax  $8.0
Savings on FICA  $4.0
     
Total Savings  $12.0
     

Source: Bureau of Economic Analysis, Bureau of Labor Statistics and author's calculations.

This is the reduction in the amount of wage income that is subject to federal taxes, assuming that this tax is passed on dollar-for-dollar to all workers. In this case, if we assume an average federal income tax of 20 percent, the savings on federal income taxes would be $8 billion a year, as shown in the fifth row. There would also be savings on Social Security and Medicare taxes since the wages subject to these taxes will also be reduced by $39.9 billion. I have assumed the average savings is 10 percent. While the 2.95 percent Medicare tax applies to all wage income, the 12.4 percent Social Security tax is capped at $128,400. This gives the savings of $4 billion shown in row 6. (One downside, is that by lowering wages subject to the Social Security tax, this is likely to lead to somewhat lower Social Security income when workers retire.)

The total savings come to $12 billion a year, or a bit more than $1,200 per worker. That seems like a pretty good payback for a little bit of tax planning. And, of course, it completely undermines the Republican effort to screw blue states.

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A NYT article told readers that investors are worred because China may stop buying and could even start selling US Treasury bonds:

"Bond markets appeared to be further spooked on Wednesday by a report that China’s central bank, which owns $1.2 trillion in United States Treasury bonds, may be poised to slow or even halt its buying of United States debt. China has total reserves of just over $3 trillion."

It later added:

"But there is another interpretation that gets at the simmering tensions between the United States and China over North Korea and trade. 'It is possible too that China wants to signal to its people that it will not keep financing the U.S. when the U.S. is not treating China with respect,' Mr. Setser said." [Brad Setser is a senior fellow at the Council on Foreign Relations.]

While China's decision to stop buying, and possibly start selling US Treasury bonds, is presented as a bad thing in this piece, it is exactly what anyone who had complained about China's currency "manipulation" (e.g. Donald Trump) would want to see. This "manipulation" (which should more accurately be called "management" since it is entirely open) involved China's government buying US government bonds and other assets in order to prop up the dollar against the yuan.

By buying dollar-based assets, instead of selling its dollars in international currency markets, China was increasing the demand for dollars, thereby pushing up its price. If it stops and reverses this process, it will be lowering the value of the dollar relative to the yuan. This will make goods and services in the United States more competitive internationally, thereby reducing the US trade deficit.

Rather than being a hostile gesture toward the United States, this is exactly what Trump claimed he was going to make China do in his campaign. He said that he would a take a tough line with China and make it end its currency management.

It is also worth noting that if the dollar declines in the months ahead it would be the exact opposite of what most economists (including the Trump administration's economists) had predicted as the outcome from the tax cut. They had predicted a flood of foreign investment, which would have the effect of increasing the value of the dollar and the trade deficit.

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New Yorker magazine had a very good piece on the history of Purdue Pharma and its successful marketing of OxyContin. It is worth noting that if the company had not had a government-granted patent monopoly on OxyContin, it would have had little incentive to mislead doctors and the general public about the extent to which the drug was addictive. Misrepresentations of this sort are a predictable and extremely harmful outcome of patent monopolies.

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Well at least Catherine Rampell, one of its columnists, has made this discovery. She carefully explains why the run-up in the stock market over the last year is not something that Donald Trump really should be boasting about, at least to the 90 percent of the country that own little or no stock.

Most importantly Rampell makes the point that stocks are supposed to represent the future value of after-tax corporate profits. This means that if we have a corporate tax break which results in a redistribution of income from everyone who doesn't much stock to those who do, then we should expect stock prices to rise. This is not good news for the economy, it just means shareholders have more and everyone else has less.

For some reason, very few people in the media seem to understand this basic economic point. They routinely refer to a rise in the stock market as good news.

It would be closer to the mark to think of stock prices as being like corn prices. Higher corn prices are great news if you grow a lot of corn. For everyone else, they just mean they will pay more for food.

Similarly, higher stock prices are great for the relatively small share of the population with large stock holdings. For everyone else, the main impact is likely to be higher house prices and rents, as the now richer stockholders bid up prices. There will be comparable stories in other areas where supply faces serious restrictions (e.g. tables at upscale restaurants, tickets to popular concerts or plays).

Anyhow, it would be good if the media stopped acting like high corn and stock prices were an economic barometer indicating the well-being of the country as a whole. And yes, I did also say this endlessly when Democrats were in the White House.

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The NYT had an interesting piece comparing the situation of a truck driver who lives in Mexico and gets paid to carry goods just over the border into Texas and a driver in Texas who transports goods across the country. The US-based driver (who was born in Mexico) earns far more than his Mexican counterpart.

The piece highlights restrictions that severely limit the ability of Mexican truck drivers to transport goods beyond the immediate border area. It reports that Mexico has been pushing to ease these restrictions, while the Teamsters have pushed to leave them in place or even tightened.

It suggests that there is not much at stake in this battle since the Mexican drivers are not allowed to carry goods back from their destination. The prospect of returning with an empty truck would make it uneconomical for most trips even if the Mexican drivers were paid far less than their U.S. counterparts.

This discussion misses the point. If the restrictions on Mexican drivers transporting goods in the United States were eased, then it is virtually inevitable that the NYT and other major news outlets would soon be running pieces on the fact that it is wasteful to prohibit them from picking up goods in the U.S. and instead come back with empty trucks. The likely result would be that this restriction would be removed as well.

The Teamsters understand this logic, which is why they are opposed to a relaxation of restrictions on Mexican drivers transporting goods into the United States. For some reason, the NYT and other major news outlets are far more concerned about the restrictions that protect truck drivers than the far more costly barriers that protect doctors, dentists, and other highly paid professionals from foreign competition.

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That probably would be have been helpful information to readers of a Washington Post article that told readers:

"Up to $2 billion in U.S. aid could be affected by President Donald Trump’s suspension of security assistance to Pakistan, which is accused of failing to crack down on Taliban militants targeting U.S. personnel in neighboring Afghanistan, a senior U.S. administration official said Friday."

Almost none of the Post's readers would have any idea of how much $2 billion means to the United States (or to Pakistan, it's about 0.7 percent of its GDP). The paper could have saved space by just leaving the numbers out of the article since it wasn't providing information by including them. Unfortunately, there is a reporter fraternity ritual that requires they use numbers that everyone, including them, know to be meaningless to their audience.

While we're on the topic, the $2.4 billion in food aid the United States provides to the UN to combat famine in Africa comes to a bit less than 0.06 percent of the federal budget. Many people mistakenly believe that such aid is a major component of the U.S. budget. If newspapers focused on informing their readers, instead of fraternity rituals, perhaps the public would be better informed.

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The NYT had a piece discussing the views of members of the Federal Reserve Board's Open Market Committee (FOMC), which sets monetary policy, on the course of interest rates over the next year. The piece notes that inflation has consistently been below both the Fed's 2.0 percent target and the FOMC members projections, as they have consistently over-predicted the impact of tighter labor markets on the inflation rate.

It is worth noting that even the modest inflation we are seeing is largely due to rising rents. A measure of core inflation that excludes rent has risen just 0.6 percent over the last year.

Consumer Price Index, Excluding Food, Energy, and Shelter

core CPI rent

Source: Bureau of Labor Statistics.

This matters because rents are driven by a qualitatively different dynamic than most other prices. They depend largely on the ease of building and shortages of land, rather than rising wages. By slowing new construction, higher interest rates are more likely to increase rather than decrease rents, unless the rise goes far enough to lead to a recession and thereby substantially reduce demand.

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Austin Frakt and Aaron Carroll had an interesting Upshot piece in the NYT on why the U.S. spends twice as much per person as other wealthy countries for its health care. The piece cites research pointing out that people in the United States do not use more health care services than people in other countries. The reason that we pay more for health care is that actors in the industry, such as doctors, drug companies, insurers, and medical equipment manufacturers, get more money than their counterparts elsewhere.

The piece concludes by noting a couple of mechanisms for containing costs, but then argues:

"If attempted nationally, or even in a state, either of these would be met with resistance from all those who directly benefit from high prices, including physicians, hospitals, pharmaceutical companies — and pretty much every other provider of health care in the United States.

"Higher prices aren’t all bad for consumers. They probably lead to some increased innovation, which confers benefits to patients globally. Though it’s reasonable to push back on high health care prices, there may be a limit to how far we should."

It's striking to see economists reluctant to use mechanisms that would bring payments in the health care in line with payments in the rest of the world because they "would be met with resistance from all those who directly benefit from high prices."

Efforts to reduce trade barriers that had the effect of destroying jobs and cutting pay for autoworkers, textile workers, and other manufacturing workers were also met with resistance. Economists not only supported these efforts, they treated them as an almost holy cause. They insisted on "free trade," as the ultimate good.

For some reason, Frakt and Carroll believe that comparable efforts (we can also use trade in the health care sector to reduce costs) to reduce excess payments in the health care sector are a bad idea because the people who would see their pay and income reduced will be unhappy. In this context, it is probably worth mentioning that there is hugely more money at stake in bringing our health care costs in line with the rest of the world than with reducing trade barriers with items like steel and cars. The latter can save us at most a few tens of billions a year. If we paid the same amount per person for health care as people in Canada or Germany, the savings would be more than $1.5 trillion annually, more than $4,000 per person per year.

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The NYT had an article touting the fact that businesses are investing more under Donald Trump than before he was elected. It notes that non-residential investment has risen at an annual rate of 6.2 percent in the first three quarters of 2017. It attributes this increase to a removal of regulations leading to a newfound sense of confidence among investors.

There are two important points worth noting about this increase in investment. First, it is not an especially rapid rate of growth. There have been many periods in both the recent and more distant past when it grew at a more rapid pace.

For example, under President Obama, from the third quarter of 2013 to the third quarter of 2014 investment grew at a 9.1 percent annual rate. It grew at an even more rapid 11.4 percent annual rate from the first quarter of 2011 to the second quarter of 2012. Investment growth averaged 8.9 percent annually over the eight years of the Clinton administration.

The other important point about the growth of investment thus far during the Trump administration is the extent to which it has been concentrated in the mining sector. Investment, as measured in 2009 chained dollars, has risen by $102.0 billion from the fourth quarter of 2016 to the third quarter of 2017. Investment in mining exploration, shafts, and wells has accounted for $39.8 billion of this increase, while mining and oil field machinery have accounted for another $4.4 billion.

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That one isn't mine, it actually is the title of a Bloomberg column. (The "OMG" is mine.) This one may be a bit over the top: it complains both that we have too many people on the planet and that we have rising ratios of old to young, but it shows that all is fair when it comes to attacks on Social Security and Medicare.

Now that the Republicans have just shifted another big chunk of national income to the one percent, it is only natural that the media would focus on the need to cut Social Security and Medicare, put in the guise of generational equity. I'm sure I'll have more occasion to write about this issue, but the basic issue is idiocy from the word go.

Will people on average have higher standards of living 20 or 30 years from now than they do today? I know of literally no economic forecast that shows otherwise. The "robots taking our jobs" folks are arguing that they will have hugely higher standards of living, even if they are too confused to know it.

Is it possible that most workers won't be sharing in these gains? Absolutely, but that is a story of intra-generational inequality, not inter-generational inequality. It's really that simple.

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As of today, I am no longer co-director at CEPR. Eileen Appelbaum, who has been a Senior Economist at CEPR for the last decade, will be replacing me as co-director. Prior to that, she was Distinguished Professor and the director of the Center for Women and Work at Rutgers University in New Jersey, the research director at the Economic Policy Institute, and a Professor of Economics at Temple University in Pennsylvania. CEPR will be in good hands.

I am stepping down after 18 years largely because I want more time for doing the work I enjoy and for pursuing personal interests. When Mark Weisbrot and I started CEPR at the end of 1999 we had no idea what to expect. We were one of the last of the dot.com startups, and unlike many others, we have managed to survive for almost two decades now.

I will keep doing work; there is still plenty of room for critical voices in economic policy debates. But I will no longer have administrative responsibilities at CEPR. Hopefully, this will let me be more productive. I expect to continue Beat the Press in its current form long into the future.  

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Okay, I know it was not deliberate, but how about in 2018 we get news reporters and columnists to think seriously about the concepts they are using? After all, at least the ones at elite outlets like the Washington Post are pretty well paid and have prestigious positions.

When Dan Balz discusses the Democrats political prospects for 2018 and asks about their economic policy, what does he mean when he asks:

"What is their response to concerns among many workers about the impact of globalization — more free trade or a rollback?"

The reality is that most formal trade barriers in the form of tariffs or quotas are already zero or very low with US trading partners. There is not much room to lower them further with "more free trade." The trade deals that have been recently under negotiation, like the Trans-Pacific Partnership or the Trans-Atlantic Trade and Investment Pact, don't have much to do with reducing traditional trade barriers. Instead, they are primarily about locking in a regulatory structure that is highly business friendly.

This structure includes special tribunals in which foreign investors can bring complaints. These tribunals would overrule domestic laws at the national, state, or local level. (Let me preempt some deliberate stupidity on this issue: the tribunals can't actually take the laws off the books, they can just make the relevant government pay a huge price for keeping the law in question on the books.)

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I have not generally been in the business of defending Amazon, but I thought I would throw in a word or two of clarification around Donald Trump's claim that the U.S. Postal Service is "dumber and poorer" because of its deal with Amazon. Trump's claim is based on a Citigroup study that found that Postal Service loses an average of $1.46 on each package it ships for Amazon. The Postal Service claims that it profits from its arrangement with Amazon and that it would lose business if it raises its rates.

There actually is a very simple explanation for the differing assessments. The Postal Service has a huge amount of fixed costs in the form of retiree benefits and especially retiree health benefits. Congress has required that the Postal Service pre-fund 75 years of retiree health benefits. This requirement sets the Postal Service apart from private businesses, who do little or no pre-funding of retiree health benefits. It also accounts for almost all of the Postal Service's losses over the last decade.

But the accounting issue is independent of this requirement imposed by Congress. Essentially what the Citigroup study did was impute the largely fixed cost of retiree health benefits to the various sections of the Postal Service's business. If these costs are imputed to its delivery of packages for Amazon, the Citigroup study finds they are coming up short by $1.46 a package.

But this is just bad economics. The question for the Postal Service is whether it is recovering its marginal costs — the additional amount spent on labor, gas, wear and tear on vehicles, etc. — with the prices it is charging Amazon. The Postal Service claims it does (I have not tried to check their calculations), and if that is true, the Postal Service is coming out ahead from its deal with Amazon.

So the loss claimed by the Citigroup study is clearly wrong and Donald Trump is wrong to be using it to attack the Postal Service, Amazon, and Jeff Bezos. On the other hand, Amazon has gotten a subsidy worth tens of billions of dollars since its creation as a result of not being required to collect sales taxes in most states for most of its existence. This subsidy almost certainly exceeds its cumulative profits since it was created, so people do have serious cause to complain about Amazon.

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The Washington Post ran an article telling readers that employers are finding it difficult to attract qualified workers. As the piece says:

"Firms that save money from the tax cuts may simply be unable to find more workers to hire at the price they are willing to pay."

This is really the core of the problem. There is apparently a huge skills gap among employers at firms across the country. They don't seem to understand basic market principles. If they want to hire more workers, then they have to offer higher wages.

There are always workers out there. They may work for a competitor or live in another city, but for a high enough wage they will change jobs or move. According to the Post piece, many employers don't seem to understand this basic fact, leaving them unable to get the workers they say they need.

The Post piece suggests this problem is widespread. It notes manufacturing and trucking as areas facing serious labor shortages. According to the Bureau of Labor Statistics, the average hourly wage in manufacturing has risen by just 1.6 percent over the last year. That is slightly less than inflation over this period. The average hourly wage has risen by 4.4 percent in trucking over the last year, but this increase comes after a rise of just 1.0 percent in 2016 and a modest decline in 2015. If competent employers were facing a labor shortage, wages would be rising far more rapidly.

It is also worth noting that these labor shortage pieces are 180 degrees at odds with the "robots taking our jobs" story. That is a story of a labor glut. It is incredible that we often see these stories of labor shortages and labor glut running side by side. It would be like having an article warning of bone-chilling cold right next to an article talking about a record heat wave. In principle, one or the other can be the case, but both cannot be true at the same time.

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The New York Times had an article on President Trump's plans to cut the US contribution to the United Nations. The article told readers:

"Under a formula tied to economic size and other measurements established under an article of the United Nations Charter, the United States is responsible for 22 percent of the United Nations operating budget, the largest contribution. It paid about $1.2 billion of the 2016-2017 budget of $5.4 billion.

"The United States also is the largest single financial contributor, at 28.5 percent, to a separate budget for United Nations peacekeeping operations, which totals $6.8 billion in the 2017-2018 budget finalized in June."

This might have led readers to believe that the combined total of slightly less than $3.1 billion is a substantial cost to US taxpayers. In fact, it is slightly less than 0.08 percent of projected federal spending in 2018. While the value of this spending can be debated, it will not lead to major savings to the government if it is cut back or even eliminated altogether.

It would have been helpful if the NYT had made some effort to put this number in context since virtually none of its readers has any idea of the importance of this level of spending as it is written in the piece.

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Most economists didn't accept the view that the corporate tax cuts pushed through by the Trump administration and the Republican Congress would lead to a large increase in investment in the United States. (See, for example, this piece by Larry Summers.) This is why few accepted the claim that the additional growth from the tax cut would offset much or all of the revenue lost.

However, The New York Times appears to have accepted the Trump administration's view in an article arguing that European countries may start cutting taxes as well in order to remain competitive. The piece presents the views of two top executives of major foreign companies arguing that other countries will have to respond by also lowering their corporate tax rates.

It is not surprising that executives of major foreign corporations would argue that their companies need tax cuts. After all, the political philosophy that rich people need tax cuts goes beyond the United States. The NYT should have included the views on this topic of someone who does not stand to profit in a major way from large tax cuts elsewhere.

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No one should have any doubt about the main impact of the Republican tax cuts. These tax cuts are about giving more money to the richest people in the country. After four decades of the largest upward redistribution in the history of the world, the Republican tax cuts give even more money to the big winners.

In TrumpWorld, that makes sense. Instead of spending money to rebuild our infrastructure, reduce greenhouse gas emissions, provide quality child care or affordable college, we’re going to hand more money to Donald Trump and his family and friends.

However, even in the cesspool known as the “Tax Cuts and Jobs Act,” there are some changes for the better. These are worth noting and expanding upon when saner creatures gain power.

Doubling the Standard Deduction

The first and perhaps most important item on this list is the doubling of the standard deduction. This is really a good thing; it means that the vast majority of people will have no reason to itemize their deductions. We will spend over $27 billion this year (an average of almost $200 per household) on fees associated with filing taxes. In addition, many people waste hours of their time preparing documents and then worrying about making mistakes. Anything we can do to make this process simpler and cheaper is for the good.

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