Friedman probably doesn’t realize it, but in his column he is describing an economy with soaring productivity growth. That is what it means when robots, artificial intelligence, and other new technologies displace workers in large numbers. If productivity growth takes off (contradicting the projections of the Congressional Budget Office and most other forecasters) then GDP growth will also increase (barring especially awful macroeconomic policy), which means that the 3.0 percent growth rate targeted by the Trump administration should be easily reached.
It is striking that so many people who write on economic issues apparently don’t have the most basic understanding of the economy. If we see rapid job displacement, then we will see rapid economic growth and things like budget deficits and Social Security’s finances are not problems. This is not a debatable point, it is a matter of logic.
Friedman probably doesn’t realize it, but in his column he is describing an economy with soaring productivity growth. That is what it means when robots, artificial intelligence, and other new technologies displace workers in large numbers. If productivity growth takes off (contradicting the projections of the Congressional Budget Office and most other forecasters) then GDP growth will also increase (barring especially awful macroeconomic policy), which means that the 3.0 percent growth rate targeted by the Trump administration should be easily reached.
It is striking that so many people who write on economic issues apparently don’t have the most basic understanding of the economy. If we see rapid job displacement, then we will see rapid economic growth and things like budget deficits and Social Security’s finances are not problems. This is not a debatable point, it is a matter of logic.
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The NYT printed a Reuters article which included the bizarre assertion that the United States would be in some way threatened if China stopped buying US government bonds. The assertion is bizarre because for years many people (included me) complained that China was deliberately keeping down the value of its currency against the dollar in order to support its exports.
Depressing the value of the Chinese currency resulted in the country building up a huge trade surplus with the United States. This led to the loss of millions of manufacturing jobs, largely in Rust Belt states like Pennsylvania and Ohio.
The way China kept down the value of its currency was by buying up government bonds with the dollars it acquired instead of just selling them in the open market. If China now decides to sell these bonds, it should mean that its currency will rise, thereby reducing the US trade deficit. It’s hard to see what the problem is here.
The NYT printed a Reuters article which included the bizarre assertion that the United States would be in some way threatened if China stopped buying US government bonds. The assertion is bizarre because for years many people (included me) complained that China was deliberately keeping down the value of its currency against the dollar in order to support its exports.
Depressing the value of the Chinese currency resulted in the country building up a huge trade surplus with the United States. This led to the loss of millions of manufacturing jobs, largely in Rust Belt states like Pennsylvania and Ohio.
The way China kept down the value of its currency was by buying up government bonds with the dollars it acquired instead of just selling them in the open market. If China now decides to sell these bonds, it should mean that its currency will rise, thereby reducing the US trade deficit. It’s hard to see what the problem is here.
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That is a fairly important point that somehow was missing from an NYT article telling readers that the UK’s National Health System (NHS) is in crisis. The Conservative government has cut back spending on NHS from levels that were already very low by international standards. According to the OECD, the UK spends a bit more than 40 percent as much per person as the United States.
In purchasing power parity terms, the UK spent $4,200 per person in 2016. This compares to $9,900 per person in the United States. If the UK increased its spending by 20 percent, it would still be spending just over half as much per person as the United States. The enormous disparity in spending is an important fact that should be included in any serious discussion of the quality of care in the UK system.
That is a fairly important point that somehow was missing from an NYT article telling readers that the UK’s National Health System (NHS) is in crisis. The Conservative government has cut back spending on NHS from levels that were already very low by international standards. According to the OECD, the UK spends a bit more than 40 percent as much per person as the United States.
In purchasing power parity terms, the UK spent $4,200 per person in 2016. This compares to $9,900 per person in the United States. If the UK increased its spending by 20 percent, it would still be spending just over half as much per person as the United States. The enormous disparity in spending is an important fact that should be included in any serious discussion of the quality of care in the UK system.
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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.
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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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.)
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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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.
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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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.
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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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.
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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