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Article Artículo

Are Most Working-Class Americans “Public Charges”?
According to Vox and the Washington Post, the Trump Administration is considering an Executive Order that would have a profound impact on the current system of lawful, family-based immigration. To understand what’s at stake, it’s helpful to first know som

Shawn Fremstad / February 14, 2017

Article Artículo

Contrary to What Robert Samuelson Says We Did Bail Out the Bankers and Did Not Prevent a Second Great Depression

Robert Samuelson is unhappy that people continue to believe something that is true — that we bailed out the bankers — and happy that people still believe something that is not true — that we prevented a second Great Depression. In his column Samuelson complains:

"The real Dodd-Frank scandal is that this misinterpretation of events, widely embraced by both parties, has been allowed to stand. In many bailouts, banks’ shareholders suffered huge losses or were wiped out; similarly, top managers lost their jobs. The point was not to protect them but to prevent a collapse of the financial system."

Okay, let's imagine the counterfactual. We decide to take the free market seriously and let it work its magic on Citigroup, Bank of America, Goldman Sachs and the rest of the high rollers. These huge banks all go into bankruptcy with the commercial banking parts of the operations taken over by the FDIC. All insured deposits are fully protected, with the FDIC and Fed having the option to raise the limits to protect smaller savers.

The shareholders of these banks are out of luck. They have zero. Samuelson is right that share prices were depressed during the crisis, but that is different than going to zero. Furthermore, operating with the protection of Treasury Secretary Timothy Geithner's promise of "no more Lehmans," the share prices soon bounced back.

CEPR / February 13, 2017

Article Artículo

Neil Irwin Warns of Financial Crisis from Corporate Tax Reform

This is really getting over the top. Republicans in Congress are debating an overhaul of the corporate income tax which would eliminate many of the opportunities for gaming the current tax code. To my mind this is great news, because the tax-gaming industry is where many of the richest people in the country, like private equity fund partners, make their money.

This means that the current corporate tax code is a mechanism for transferring money from the rest of us to the likes of Mitt Romney and Peter Peterson. It's understandable that these people would be very upset by a plan to end their tax-gaming windfalls, but why is Neil Irwin at NYT so upset?

The story he pushes is that border adjustability rules in the proposed reform would create enormous disruptions in the economy because it would lead to a sharp rise in the value of the dollar. Irwin tosses around a hypothetical 25 percent increase in the value of the dollar which he warns:

"...could shift trillions of dollars of wealth from Americans to foreigners; set off an emerging markets financial crisis; wreak havoc in global oil markets; and cause sustained harm to the American higher education and tourism industries (including, as it happens, luxury hotels with President Trump’s name on them)."

Okay, this is more than a little bit silly.

CEPR / February 11, 2017

Article Artículo

United States

The U.S. Tax Code Actually Doesn’t “Soak the Rich”

In 2012, Republican presidential candidate Mitt Romney famously commented that 47 percent of Americans were “dependent on government” because they didn’t pay any federal income taxes. He went on to explain that his job was “not to worry about those people.”

Journalists and other public figures often claim that only the rich pay taxes, supporting this with the argument that the rich pay the vast majority of federal income taxes. However, federal income taxes are just one part of the broader tax code. When we consider other types of federal taxes as well as state and local taxes, it becomes clear that the overall tax code isn’t extremely progressive – in other words, it doesn’t “soak the rich,” and it certainly doesn’t let the poor off the hook.

The aforementioned “47 percent” do pay substantial state and local taxes, but even ignoring these taxes, it’s worth noting that income taxes represent just half of all federal tax revenue:

buffie tax code 2017 02 06 table 1

In fiscal year 2013 – the last year for which we have full federal, state, and local data – the federal government raised over $2.6 trillion in total tax revenue. It also raised an additional $134 billion in funds from other sources, most notably customs duties, remittances from the Federal Reserve, and miscellaneous fees and fines. About $1.3 trillion of revenue came from the progressive federal income tax, while another $274 billion came from the progressive corporate profits tax. Estate and gift taxes, which are also progressive, accounted for $19 billion, equivalent to just 0.7 percent of federal tax revenue.

CEPR and Nicolas Buffie / February 08, 2017

Article Artículo

Thomas Friedman Says Donald Trump Could Boost Productivity Growth by Ending NAFTA

Economists have been worried about the weak productivity growth of the last decade, with some worried it will continue indefinitely. In the last decade, productivity growth has averaged less than 1.0 percent annually. This compares to a rate of close to 3.0 percent a year in the decade from 1995 to 2005 as well as the quarter century from 1947 to 1973. Slower productivity growth limits the extent to which wages can rise, except through redistribution.

However, Thomas Friedman apparently believes that if we end NAFTA, we will bring back manufacturing to the United States. But he argues that the new manufacturing capacity will be far more productive than the industry at present, and therefore mean very few jobs. He told readers:

"And if Trump forces all these U.S.-based multinationals to move operations from Mexico back to the U.S., what will that do? Help tank the Mexican economy so more Mexicans will try to come north, and raise the costs for U.S. manufacturers. What will they do? Move their factories to the U.S. but replace as many humans as possible with robots to contain costs."

Economists usually believe that expanding trade leads to higher productivity, so Friedman is offering a novel thesis with this idea that contracting trade will lead to more rapid productivity growth.

CEPR / February 08, 2017