Eileen AppelbaumHuffPost, December 21, 2017

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.

While inflation-adjusted house prices are still far below bubble peaks nationwide, they have been outpacing inflation for the last five years and are well above their long-term trend levels. However, these prices may be justified by unusually low-interest rates (both real and nominal) in the years following the Great Recession. Also, unlike the bubble period, rents have been outpacing inflation in most markets, suggesting that house prices are responding to the fundamentals of supply and demand in the housing market rather than being driven by a speculative frenzy.

Nonetheless, there are sharp divergences in trends by geographic market area. The Case-Shiller tiered house prices index has been showing the sharpest increases in the bottom third of the market in most of the cities it covers. This raises the possibility that at least this segment of the market may be driven by speculation rather than fundamentals.

In a paper in the fall of 2016, CEPR examined the evidence in some of these cities to see if rents appeared to be following in step with house prices in the bottom tier of the Case-Shiller indices (CSI). As a measure of rents, we used the Department of Housing and Urban Development’s estimate of the fair market rent (FMR) for a two-bedroom apartment. This measure is somewhat different in construction from the Case-Shiller indices. It is not measuring the rent changes for a fixed set of units, but looks at average rents for different units year-by-year. Nonetheless, it should give a reasonable approximation of trends in the segment of the rental market that most directly competes with the bottom third of the home sale market.

Of all the provisions maintained within the Tax Cuts and Job Act that just passed, among the most devastating is the repeal of the individual mandate in the Affordable Care Act. According to estimates by the Congressional Budget Office, 4 million additional people will be uninsured within a year with a total of 13 million additional people uninsured by 2025.

Repealing the individual mandate means that people will have the option to opt-out of the health insurance pool, increasing premiums for those that remain within the pool. It is safe to guess that those who would choose to opt-out would be those who are healthier. Needless to say, the repeal of the individual mandate will affect those that are poorer; those from low-income families and people of color.

An NYT article on the Republican tax cut told readers:

"When President Trump adds his distinctive signature to the tax bill, he will also be making a huge bet that the Republican strategy of deep cuts for businesses and wealthy individuals will fuel extraordinary growth across the board.

"Perhaps more than any other American political leader, Mr. Trump knows that long shots, like his own presidential bid, sometimes pay off. In that vein, he and congressional Republicans are arguing that their bitterly contested and expensive rewrite of the tax code will ultimately create more jobs and raise wages.

"If they are proved correct, they will be repudiating not only historical experience, but most experts. From Congress’s own prognosticators to Wall Street’s virtuosos, scarcely any independent analyses project anything like the rosy forecasts offered by the president’s top economic advisers."

While this is a correct assessment of the views of economists, there is another possibility left out of this discussion, the economy may already be on a faster growth path for reasons having nothing to do with the tax cut.

The Center for Economic and Policy Research (CEPR) releases the following statements on the House passage of the Republican tax bill:

From Dean Baker, Co-Director, CEPR:

“The Republican response to four decades of upward redistribution of wealth before-tax income is a $1.5 trillion tax plan to hand over even more income to the richest people in the country. Most of the people responsible for this bill rank among the richest one percent, and they constructed a bill that is tailor-made to make them even richer. This includes provisions on the estate tax, pass-through income, and special provisions for the real estate and oil industry.

“The original promise was a tax reform bill that would benefit the middle class. This bill is not reform and does not benefit the middle class. It makes the code far more complicated with its special interest provisions and the beneficiaries are overwhelmingly the highest income people in the country.”

Eileen AppelbaumHuffPost, December 18, 2017

Dean Baker
Truthout, December 18, 2017

Zachary Karabell, the head of global strategies at Envestnet, got the story badly wrong in a Post Outlook section piece arguing that the Fed's model of inflation is wrong. The piece highlights the relatively rapid growth in the last two quarters and argues that this should be leading to inflation. That is not what the Fed's model would predict.

In the Fed's model, the change in the rate of inflation is tied to the level of unemployment. While the unemployment rate is at a level where the model predicts rising inflation, the rate of GDP growth is largely besides the point. The economy has had much more rapid GDP growth at earlier points in the recovery. For example, growth averaged 4.9 percent in the third and fourth quarters of 2014. It averaged 2.9 percent in the second and third quarters of 2015.

The question is primarily one of how rapidly productivity can grow. The labor market is getting tighter, although with the employment-to-population (EPOP) ratio of prime-age (ages 25 to 54) still below pre-recession levels and well below 2000 levels, it is likely that we still have some ways to go before reaching full employment. Once that point is reached, the economy will only be able to grow at the rate of labor force growth determined by demographics (around 0.5–0.7 percent) plus the rate of productivity growth.

Productivity growth had been averaging less than 0.7 percent annually from 2012 to 2017, and most projections had assumed slow growth would continue. However, it grew at more than a 3.0 percent annual rate in the third quarter and seems on track to again grow at a rate above 2.0 percent in the fourth quarter. If we can sustain a faster rate of productivity growth, the economy will be able to sustain a faster rate of GDP growth even when the labor market is fully employed.

Dean Baker
The Hankyoreh, December 15, 2017