David Sirota, Josh Keefe, and Alex Kotch, writing at International Business Times, reported that a provision inserted into the Republican tax bill will provide large benefits to former holdout Senator Bob Corker, as well as President Trump. The provision would allow income from real estate investment trusts to be taxed at a 20 percent rate, as opposed to the 37 percent tax rate paid by high income individuals.
According to Corker’s disclosure forms, he makes between $1.2 million and $7.0 million annually in this sort of income. (We don’t know how much Donald Trump earns in this type of income since he broke his campaign promise about releasing his tax returns after his audit was completed.) If we plug in the top end $7 million figure, Corker could be saving as much as $1,190,000 from this late addition to the tax bill.
By comparison, much has been made of Senator Marco Rubio’s effort to change the refundability rules on the child tax credit, thereby giving more money to moderate-income families. According to calculations by the Center on Budget and Policy Priorities, with this change, a married couple with two children, earning $30,000 a year, will get back an additional $800 a year.
Source: International Business Times and Center on Budget and Policy Priorities.
David Sirota, Josh Keefe, and Alex Kotch, writing at International Business Times, reported that a provision inserted into the Republican tax bill will provide large benefits to former holdout Senator Bob Corker, as well as President Trump. The provision would allow income from real estate investment trusts to be taxed at a 20 percent rate, as opposed to the 37 percent tax rate paid by high income individuals.
According to Corker’s disclosure forms, he makes between $1.2 million and $7.0 million annually in this sort of income. (We don’t know how much Donald Trump earns in this type of income since he broke his campaign promise about releasing his tax returns after his audit was completed.) If we plug in the top end $7 million figure, Corker could be saving as much as $1,190,000 from this late addition to the tax bill.
By comparison, much has been made of Senator Marco Rubio’s effort to change the refundability rules on the child tax credit, thereby giving more money to moderate-income families. According to calculations by the Center on Budget and Policy Priorities, with this change, a married couple with two children, earning $30,000 a year, will get back an additional $800 a year.
Source: International Business Times and Center on Budget and Policy Priorities.
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It is common to look at the ratio of new hires to job openings to get a sense of the tightness of the labor market. The idea is that if there is a high ratio of hires to openings, employers are not having trouble finding workers, whereas a low ratio means that jobs are going unfilled. This means either that employers are unable to find qualified workers, or that they are not willing to offer the market wage for some reason.
The Post had an article about the Trump administration’s plans to reduce the pay and benefits for federal government employees. It notes the arguments of Trump administration economists that federal employees are overpaid. It is worth noting that the ratio of hiring to openings in the federal government is far lower than in the pre-recession period.
The table below shows this ratio for several major sectors in the first six months of 2007 compared with the most recent six months.
| Ratio of Hires to Job Openings | |||||
| Jan-June ’07 | May-Oct ’17 | ||||
| Total Private | 1.16 | 0.93 | |||
| Retail | 1.78 | 1.08 | |||
| Accomodation and Food Service | 1.59 | 1.13 | |||
| Private minus retail &food service | 1.02 | 0.87 | |||
| Health Care & Social Assistance | 0.67 | 0.54 | |||
| Federal Government | 1.61 | 0.42 | |||
| S&L Education | 1.13 | 0.92 | |||
| S&L Other | 0.57 | 0.55 | |||
Source: Bureau of Labor Statistics.
As can be seen the ratio of hiring to openings is just over one quarter of its pre-recession level. This suggests that the federal government is already having a difficult time getting qualified workers given current pay and benefit packages. If it reduces pay and benefits further, then the federal government will presumably have an even more difficult time attracting qualified workers.
It is common to look at the ratio of new hires to job openings to get a sense of the tightness of the labor market. The idea is that if there is a high ratio of hires to openings, employers are not having trouble finding workers, whereas a low ratio means that jobs are going unfilled. This means either that employers are unable to find qualified workers, or that they are not willing to offer the market wage for some reason.
The Post had an article about the Trump administration’s plans to reduce the pay and benefits for federal government employees. It notes the arguments of Trump administration economists that federal employees are overpaid. It is worth noting that the ratio of hiring to openings in the federal government is far lower than in the pre-recession period.
The table below shows this ratio for several major sectors in the first six months of 2007 compared with the most recent six months.
| Ratio of Hires to Job Openings | |||||
| Jan-June ’07 | May-Oct ’17 | ||||
| Total Private | 1.16 | 0.93 | |||
| Retail | 1.78 | 1.08 | |||
| Accomodation and Food Service | 1.59 | 1.13 | |||
| Private minus retail &food service | 1.02 | 0.87 | |||
| Health Care & Social Assistance | 0.67 | 0.54 | |||
| Federal Government | 1.61 | 0.42 | |||
| S&L Education | 1.13 | 0.92 | |||
| S&L Other | 0.57 | 0.55 | |||
Source: Bureau of Labor Statistics.
As can be seen the ratio of hiring to openings is just over one quarter of its pre-recession level. This suggests that the federal government is already having a difficult time getting qualified workers given current pay and benefit packages. If it reduces pay and benefits further, then the federal government will presumably have an even more difficult time attracting qualified workers.
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Everyone remembers Marco Rubio walking the union picket lines, demanding stronger enforcement of workplace safety rules, and strong fiscal stimulus to counter unemployment. Oh, wait, Senator Rubio has been on the other side of all these issues. He has opposed strengthening workers’ rights to organize, stronger enforcement of workplace safety rules, as well as stimulus measures to counter unemployment.
That’s okay, in New York Times-land he still gets to be a “longtime champion of the working class.” The context is Senator Rubio’s fight for making more of the child tax credit refundable. His threat to hold out on this issue earned a slightly more generous provision that will net a single mother earning $20,000 about $300 a year.
This would be equivalent to an increase in the minimum wage of 15 cents an hour for a full-time year-round worker. It is equal to roughly 0.15 percent of the gains for the richest 0.1 percent of taxpayers. It’s great that we have The New York Times to tell us that Rubio is a champion of the working class, most of us would probably never realize it based on his actions.
Everyone remembers Marco Rubio walking the union picket lines, demanding stronger enforcement of workplace safety rules, and strong fiscal stimulus to counter unemployment. Oh, wait, Senator Rubio has been on the other side of all these issues. He has opposed strengthening workers’ rights to organize, stronger enforcement of workplace safety rules, as well as stimulus measures to counter unemployment.
That’s okay, in New York Times-land he still gets to be a “longtime champion of the working class.” The context is Senator Rubio’s fight for making more of the child tax credit refundable. His threat to hold out on this issue earned a slightly more generous provision that will net a single mother earning $20,000 about $300 a year.
This would be equivalent to an increase in the minimum wage of 15 cents an hour for a full-time year-round worker. It is equal to roughly 0.15 percent of the gains for the richest 0.1 percent of taxpayers. It’s great that we have The New York Times to tell us that Rubio is a champion of the working class, most of us would probably never realize it based on his actions.
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The NYT seems confused on how the new lower limit on mortgage interest deduction in the Republican tax bill would work. It told readers:
“The bill does retain significant subsidies, allowing home buyers to deduct interest on mortgages as high as $750,000.”
In fact, the bill allows homeowners to deduct interest on $750,000 of principal, regardless of the size of the mortgage. While the phrasing in the NYT piece might have led someone to believe that they could not deduct any interest on an $800,000 mortgage, in fact, they would be able to deduct almost all of their interest.
If a homeowner was paying 4.0 percent interest on an $800,000 mortgage, they would be able to deduct the interest on $750,000, or $30,000, from their taxable income. They would only lose out on the opportunity to deduct the $2,000 in interest on the $50,000 in principal above $750,000. Furthermore, after four or five years, when they had paid some of the principal, this homeowner would again be able to deduct the full amount of interest paid on their mortgage.
This distinction is important since the reduction in the cap on mortgage principal eligible for the interest deduction (from $1,000,000 to $750,000) is likely to have a very limited impact on the housing market. The doubling of the standard deduction and the cap on deductions for state and local income and property taxes are likely to be far more important.
Note: Typo corrected, thanks Raleedy.
The NYT seems confused on how the new lower limit on mortgage interest deduction in the Republican tax bill would work. It told readers:
“The bill does retain significant subsidies, allowing home buyers to deduct interest on mortgages as high as $750,000.”
In fact, the bill allows homeowners to deduct interest on $750,000 of principal, regardless of the size of the mortgage. While the phrasing in the NYT piece might have led someone to believe that they could not deduct any interest on an $800,000 mortgage, in fact, they would be able to deduct almost all of their interest.
If a homeowner was paying 4.0 percent interest on an $800,000 mortgage, they would be able to deduct the interest on $750,000, or $30,000, from their taxable income. They would only lose out on the opportunity to deduct the $2,000 in interest on the $50,000 in principal above $750,000. Furthermore, after four or five years, when they had paid some of the principal, this homeowner would again be able to deduct the full amount of interest paid on their mortgage.
This distinction is important since the reduction in the cap on mortgage principal eligible for the interest deduction (from $1,000,000 to $750,000) is likely to have a very limited impact on the housing market. The doubling of the standard deduction and the cap on deductions for state and local income and property taxes are likely to be far more important.
Note: Typo corrected, thanks Raleedy.
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Ryan Avent had a nice piece in the NYT this morning pushing the argument that Jared Bernstein, Josh Bivens, and I (among others) have been making for years, that higher wages can be a force driving more rapid productivity growth. The basic point is straightforward, when labor is expensive, employers have more incentive to find ways to use less of it. In this story, anything we can do to push up wages, like promoting unionization or raising minimum wages, is likely to lead to higher productivity.
The one important point that Ryan misses in this piece is that we may already be seeing a turning point. The tightening of the labor market over the last two years has led to upward pressure on wages, especially for those at the middle and bottom of the wage distribution. As Jared and I noted:
“The real weekly earnings for full-time, low-wage workers are up by more than 3 percent over the past two years. Real weekly earnings for the median African American worker have risen by more than 5 percent over the past two years, while the increase for Hispanics has been more than 4 percent.”
This rise in wages is the result of the fact that the Fed allowed the unemployment rate to keep falling to its current 4.1 percent rate rather than hiking interest rates enough to keep it near the 5.0 percent level that most economists considered the best we could do without triggering spiraling inflation.
It also looks as though higher wages may be producing the productivity dividend that we predicted. Productivity grew at a 3.0 percent annual rate in the third quarter, after growing 1.5 percent in the second quarter. With the latest projections showing GDP growth in the fourth quarter at 3.3 percent, productivity growth is likely to come in over 2.0 percent in the fourth quarter. This follows five years in which productivity growth averaged less than 0.7 percent annually.
Productivity data are notoriously erratic, so it is too early to declare the trend of weak growth over, but these are promising signs. And, there is no doubt that workers at the middle and bottom have seen decent wage growth over the last two years. These are important points to add to Ryan’s piece.
Ryan Avent had a nice piece in the NYT this morning pushing the argument that Jared Bernstein, Josh Bivens, and I (among others) have been making for years, that higher wages can be a force driving more rapid productivity growth. The basic point is straightforward, when labor is expensive, employers have more incentive to find ways to use less of it. In this story, anything we can do to push up wages, like promoting unionization or raising minimum wages, is likely to lead to higher productivity.
The one important point that Ryan misses in this piece is that we may already be seeing a turning point. The tightening of the labor market over the last two years has led to upward pressure on wages, especially for those at the middle and bottom of the wage distribution. As Jared and I noted:
“The real weekly earnings for full-time, low-wage workers are up by more than 3 percent over the past two years. Real weekly earnings for the median African American worker have risen by more than 5 percent over the past two years, while the increase for Hispanics has been more than 4 percent.”
This rise in wages is the result of the fact that the Fed allowed the unemployment rate to keep falling to its current 4.1 percent rate rather than hiking interest rates enough to keep it near the 5.0 percent level that most economists considered the best we could do without triggering spiraling inflation.
It also looks as though higher wages may be producing the productivity dividend that we predicted. Productivity grew at a 3.0 percent annual rate in the third quarter, after growing 1.5 percent in the second quarter. With the latest projections showing GDP growth in the fourth quarter at 3.3 percent, productivity growth is likely to come in over 2.0 percent in the fourth quarter. This follows five years in which productivity growth averaged less than 0.7 percent annually.
Productivity data are notoriously erratic, so it is too early to declare the trend of weak growth over, but these are promising signs. And, there is no doubt that workers at the middle and bottom have seen decent wage growth over the last two years. These are important points to add to Ryan’s piece.
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I see that I got cited at the top of a NYT column this week. Desmond Lachman, an economist at the American Enterprise Institute (who I know and respect) had a column warning about the rise of bubbles around the world and the risk of their collapse. The first sentence tells us, “no one seemed to have anticipated the world’s worst financial crisis in the postwar period.” Yeah, well I realize I wasn’t very successful in getting my warnings across, but I sure did try.
Anyhow, I would say that Lachman is about half-right on the current situation. Many economies do seem to be seeing new bubbles. The housing markets in Canada, Australia, and the UK seem especially out of line. The bursting of bubbles in these markets is likely to be bad news for these countries; however, I don’t see comparable bubbles in the U.S. and most other major markets. If the more clearly identifiable bubbles burst, it does not look like 2008 all over again and a worldwide recession. (China looks bubbly too, but they have managed to go four decades without a recession, so I wouldn’t bet against them at this point.)
I see that I got cited at the top of a NYT column this week. Desmond Lachman, an economist at the American Enterprise Institute (who I know and respect) had a column warning about the rise of bubbles around the world and the risk of their collapse. The first sentence tells us, “no one seemed to have anticipated the world’s worst financial crisis in the postwar period.” Yeah, well I realize I wasn’t very successful in getting my warnings across, but I sure did try.
Anyhow, I would say that Lachman is about half-right on the current situation. Many economies do seem to be seeing new bubbles. The housing markets in Canada, Australia, and the UK seem especially out of line. The bursting of bubbles in these markets is likely to be bad news for these countries; however, I don’t see comparable bubbles in the U.S. and most other major markets. If the more clearly identifiable bubbles burst, it does not look like 2008 all over again and a worldwide recession. (China looks bubbly too, but they have managed to go four decades without a recession, so I wouldn’t bet against them at this point.)
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This line inexplicably appeared in the middle of an NYT article about a contract between the Communications Workers of America and AT&T which provides job protection and pay increases for 20,000 workers. It also apparently includes a commitment from AT&T to bring some jobs back to the United States.
There is nothing in the piece that identifies any policy being pushed by President Trump which would keep more low- and middle-skilled jobs in the United States. His actions to date do not demonstrate this sort of commitment. For example, he has displayed little interest in reducing the value of the dollar against currencies, which is the most immediate determinant of the relative competitiveness of the United States. He has supported the tax plans being pushed by congressional Republicans, which will altogether exempt the foreign profits of U.S. corporations from being taxed by the United States.
He also has done nothing to increasingly expose more highly skilled workers, like doctors and dentists, to international competition, which would reduce the pressure on less-skilled workers. And, he has pushed measures to increase protectionism for patents and copyrights, as well as imposing rules on digital commerce on our trading partners. These would have the effect of increasing the income of US corporations from foreign countries which would, other things equal, mean increased deficits in the areas that employ and low- and middle-skilled workers.
It seems like the comment about Trump wanting to keep low- and middle-skilled jobs in the United States was largely a throwaway line. It would have been best just to throw it away rather than include it in an otherwise solid article.
This line inexplicably appeared in the middle of an NYT article about a contract between the Communications Workers of America and AT&T which provides job protection and pay increases for 20,000 workers. It also apparently includes a commitment from AT&T to bring some jobs back to the United States.
There is nothing in the piece that identifies any policy being pushed by President Trump which would keep more low- and middle-skilled jobs in the United States. His actions to date do not demonstrate this sort of commitment. For example, he has displayed little interest in reducing the value of the dollar against currencies, which is the most immediate determinant of the relative competitiveness of the United States. He has supported the tax plans being pushed by congressional Republicans, which will altogether exempt the foreign profits of U.S. corporations from being taxed by the United States.
He also has done nothing to increasingly expose more highly skilled workers, like doctors and dentists, to international competition, which would reduce the pressure on less-skilled workers. And, he has pushed measures to increase protectionism for patents and copyrights, as well as imposing rules on digital commerce on our trading partners. These would have the effect of increasing the income of US corporations from foreign countries which would, other things equal, mean increased deficits in the areas that employ and low- and middle-skilled workers.
It seems like the comment about Trump wanting to keep low- and middle-skilled jobs in the United States was largely a throwaway line. It would have been best just to throw it away rather than include it in an otherwise solid article.
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We all know that folks involved in debates on economic policy are not very good at arithmetic. That’s why almost no one was able to see the $8 trillion housing bubble that sank the economy. But we can always speculate about what the world would look like if arithmetic mattered.
Right now, the Republicans are claiming that cutting the corporate income tax rate from 35 percent to 20 percent will lead to a huge surge of investment and growth. They claim that the additional growth from this tax cut will produce $1.5 trillion in extra revenue. This is why they say they can have a tax cut that totals to $1.5 trillion without increasing the budget deficit.
While almost no independent economists agree that growth will be large enough to produce this much revenue, it is at least a coherent position. Tax cuts can boost growth, and higher growth does mean more tax revenue. The problem with this story is that the Republicans are apparently no longer talking about reducing the corporate income tax to 20 percent, they are planning just to reduce it to 21 percent. Nonetheless, they are still claiming it will produce enough growth to generate $1.5 trillion in additional revenue.
Fans of arithmetic everywhere should be ridiculing the Republican leadership for flunking third-grade math. If a cut in the tax rate to 20 percent produces enough growth to generate $1.5 trillion in revenue, then a cut to 21 percent must produce somewhat less growth and therefore less revenue. In effect, the Republicans are now saying that they can get the same amount of growth and revenue regardless of the size of the tax cut.
In Republican Tax Cut World, we must have a story that looks something like this:
Size of Tax Cut Revenue Generated from Additional Growth
15 percentage points to 20 percent $1.5 trillion
14 percentage points to 21 percent $1.5 trillion
13 percentage points to 22 percent $1.5 trillion
12 percentage points to 23 percent $1.5 trillion
11 percentage points to 24 percent $1.5 trillion
10 percentage points to 25 percent $1.5 trillion
9 percentage points to 26 percent $1.5 trillion
8 percentage points to 27 percent $1.5 trillion
7 percentage points to 28 percent $1.5 trillion
6 percentage points to 29 percent $1.5 trillion
5 percentage points to 30 percent $1.5 trillion
4 percentage points to 31 percent $1.5 trillion
3 percentage points to 32 percent $1.5 trillion
2 percentage points to 33 percent $1.5 trillion
1 percentage points to 34 percent $1.5 trillion
Yes, this is pretty damn ridiculous, but fortunately for the Republicans, knowledge of arithmetic is rare in Washington policy circles, so they will likely get away with claiming the same revenue dividend from additional growth, even with a smaller tax cut.
We all know that folks involved in debates on economic policy are not very good at arithmetic. That’s why almost no one was able to see the $8 trillion housing bubble that sank the economy. But we can always speculate about what the world would look like if arithmetic mattered.
Right now, the Republicans are claiming that cutting the corporate income tax rate from 35 percent to 20 percent will lead to a huge surge of investment and growth. They claim that the additional growth from this tax cut will produce $1.5 trillion in extra revenue. This is why they say they can have a tax cut that totals to $1.5 trillion without increasing the budget deficit.
While almost no independent economists agree that growth will be large enough to produce this much revenue, it is at least a coherent position. Tax cuts can boost growth, and higher growth does mean more tax revenue. The problem with this story is that the Republicans are apparently no longer talking about reducing the corporate income tax to 20 percent, they are planning just to reduce it to 21 percent. Nonetheless, they are still claiming it will produce enough growth to generate $1.5 trillion in additional revenue.
Fans of arithmetic everywhere should be ridiculing the Republican leadership for flunking third-grade math. If a cut in the tax rate to 20 percent produces enough growth to generate $1.5 trillion in revenue, then a cut to 21 percent must produce somewhat less growth and therefore less revenue. In effect, the Republicans are now saying that they can get the same amount of growth and revenue regardless of the size of the tax cut.
In Republican Tax Cut World, we must have a story that looks something like this:
Size of Tax Cut Revenue Generated from Additional Growth
15 percentage points to 20 percent $1.5 trillion
14 percentage points to 21 percent $1.5 trillion
13 percentage points to 22 percent $1.5 trillion
12 percentage points to 23 percent $1.5 trillion
11 percentage points to 24 percent $1.5 trillion
10 percentage points to 25 percent $1.5 trillion
9 percentage points to 26 percent $1.5 trillion
8 percentage points to 27 percent $1.5 trillion
7 percentage points to 28 percent $1.5 trillion
6 percentage points to 29 percent $1.5 trillion
5 percentage points to 30 percent $1.5 trillion
4 percentage points to 31 percent $1.5 trillion
3 percentage points to 32 percent $1.5 trillion
2 percentage points to 33 percent $1.5 trillion
1 percentage points to 34 percent $1.5 trillion
Yes, this is pretty damn ridiculous, but fortunately for the Republicans, knowledge of arithmetic is rare in Washington policy circles, so they will likely get away with claiming the same revenue dividend from additional growth, even with a smaller tax cut.
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Did you hear the one about…? Okay, it’s not that funny, but the Washington Post tells us that the Republicans are now considering a 21 percent corporate tax rate instead of the 20 percent rate that was in the bill passed by both the House and Senate.
The reason this matters is that the Republicans are assuming their tax bill will lead to additional growth, which they claim means $1.5 trillion in new revenue over the next decade. While virtually no economists outside of the administration accept this claim (the Joint Tax Committee assumes one third of this growth effect), the ostensible basis for the claim is the incentive for new investment based on a 20 percent corporate tax rate.
The problem here is that a 21 percent corporate tax rate means less of a reduction in taxes than a 20 percent corporate tax rate. This means it should provide less incentive to invest and a smaller increment to growth and revenue. But apparently, the Republicans don’t intend to change their $1.5 trillion target implicitly leaving their growth assumption unchanged even though they’ve changed the basis for the assumption.
Welcome to the modern Republican Party: Up is Down, Night Is Day, and American is Great Again.
Did you hear the one about…? Okay, it’s not that funny, but the Washington Post tells us that the Republicans are now considering a 21 percent corporate tax rate instead of the 20 percent rate that was in the bill passed by both the House and Senate.
The reason this matters is that the Republicans are assuming their tax bill will lead to additional growth, which they claim means $1.5 trillion in new revenue over the next decade. While virtually no economists outside of the administration accept this claim (the Joint Tax Committee assumes one third of this growth effect), the ostensible basis for the claim is the incentive for new investment based on a 20 percent corporate tax rate.
The problem here is that a 21 percent corporate tax rate means less of a reduction in taxes than a 20 percent corporate tax rate. This means it should provide less incentive to invest and a smaller increment to growth and revenue. But apparently, the Republicans don’t intend to change their $1.5 trillion target implicitly leaving their growth assumption unchanged even though they’ve changed the basis for the assumption.
Welcome to the modern Republican Party: Up is Down, Night Is Day, and American is Great Again.
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