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Article Artículo

Why the Government's $1 Trillion Deficit Is Not a Big Problem for You, but Rich People Complaining About It Might Be

The Washington Post is trying to scare people about budget deficits. Okay, that is not exactly news, it has been trying to scare people about deficits to justify cuts to Social Security and Medicare benefits and other programs for decades, but they are redoubling their efforts now. (In fairness, the Republican tax cut gave them more material.)

Heather Long gives us the classic story:

"The United States is able to run such high deficits because the U.S. Treasury turns around and sells U.S. debt to investors around the world. Right now, a lot of people want to buy U.S. government bonds, even though America already has $15 trillion in debt owned by the public. But the problem is no one knows when people might say enough is enough and stop buying U.S. debt — or demand much higher rates of return.

"Even if the nightmare scenario doesn’t materialize, deficits are a drag on the economy. Investors opt to buy government debt instead of making the type of private investments that create jobs or raise wages, economists warn."

Okay, so the bad story is that the large amount of bonds issued to finance the deficit will lead to high interest rates. (This actually skips a step. The Fed could buy these bonds, ensuring rates don't rise, as it did in its quantitative easing days. Its ability to buy bonds is limited by inflation concerns.) But Long tells us that even if interest rates don't rise, government borrowing is still crowding out investment. Really?

CEPR / April 10, 2018

Article Artículo

Globalization and Trade

Pro-Corporate Trade Pacts Let Mark Zuckerberg Hide His Face

This might not be the best time to be alive if you worry about things like racism or climate change, but 2018 is undeniably a great time to run a multinational corporation. Ironically, Facebook’s Mark Zuckerberg helps illustrate why life is great for CEO’s of multinationals, even as the corporate behemoth he founded is experiencing a public relations crisis and a falling stock price.

Why? Because in 2018, basically the only international rules that apply to corporations are those that benefit them.

For years, pragmatic observers of international trade have worked to illuminate the intentionally boringly titled process known as “Investor-State Dispute Settlement,” or ISDS, that is embedded in modern trade deals. ISDS creates extrajudicial panels whereby multinational corporations can seek to invalidate a country’s laws by a shadowy and opaque process.

In other words, under contemporary trade deals, corporations like Facebook have the right to challenge laws or regulations that Facebook doesn’t like in countries where Facebook is not headquartered.

CEPR and Jeff Hauser / April 09, 2018

Article Artículo

Have a Flexible Savings Account? Don't Call Employer-Side Payroll Taxes Complicated

Last month New York Governor Andrew Cuomo signed into effect a law that created an optional employer-side payroll tax as a partial substitute for the state income tax. Since then the word in many news outlets is that the take-up is likely to be low since the new tax is complicated.

This complexity line is especially being pushed by conservatives, as in this Newsday article, since the point of the tax is to develop a workaround for the limit on deductions for state and local income taxes (SALT) in the new tax bill the Republicans pushed through Congress last year. This bill limited the SALT deduction to $10,000. This limit was quite explicitly put in place to hit more liberal high tax states like New York and California. Their plan was that if these states wanted to provide higher quality services to their residents and a stronger social safety net, they would pay a big price for it.

The employer-side payroll tax is a way to preserve deductibility. The expectation is that an employer-side payroll tax will come out of wages. To take a simple case, suppose a worker gets paid $200,000 a year. If her employer goes the payroll tax route then the employer will be a paying a 5 percent tax, or $10,000, on the worker's $200,000 salary. We would typically expect this to result in the worker seeing a pay cut of $10,000 so that she only earns $190,000.

While workers don't like pay cuts, in this case, it should not be an issue, since the payroll tax saves them $10,000 on her state income taxes. This means she has just as much money with $190,000 annual pay as she did before when she got paid $200,000 but owed the state $10,000 in state income taxes.

The big difference is that she now faces federal income taxes on just $190,000 of income, not her former $200,000 income. Since this worker is in the 32 percent federal tax bracket, this shift saved her $3,200 off her income taxes (32 percent of $10,000). And contrary to what is implied in the Newsday piece, she gets this savings whether or not she itemizes on her tax return.

CEPR / April 06, 2018

Article Artículo

Economic Growth

United States

Workers

Quit Rates Jump to 17 Year High in March

The percentage of unemployment due to people who voluntarily quit their jobs jumped to 13.1 percent in March, the highest level since May of 2001. This statistic is a good measure of workers' confidence in the labor market, since it means that they are prepared to leave a job even before they have new one lined up. Until this month, the quit rate had been unusually low (mostly under 11.0 percent) given the levels of unemployment we were seeing. The March level is more consistent with an unemployment rate near 4.0 percent.

Dean Baker / April 06, 2018

Article Artículo

Affordable Care Act

Inequality

United States

Workers

Does High CEO Pay Matter to Shareholders?

Last month, we did an analysis that examined the impact of a provision of the Affordable Care Act limiting the amount of CEO pay that could be deducted from profits to $500,000.

In the years after it took effect, this provision raised the cost of CEO pay to employers (i.e., shareholders) by more than 50 percent. Prior to 2013, shareholders of health insurance companies effectively paid just 65 cents on every dollar of CEO compensation, since their taxes would fall by 35 cents for every dollar they paid out. After 2013, they would be paying 100 cents of every dollar.

If CEO pay bears a close relationship to their value to the company, this change in the tax code should have led to some reduction in their pay. Using a wide variety of specifications, controlling for growth in profits, revenue, stock price, and other relevant factors, we found no evidence that the pay of health insurance CEOs fell at all in response to the limit on deductibility.

Dean Baker and Jessica Schieder / April 03, 2018