Category Archives: Nevada economy

DIY Economic News for 2018: Some Suggestions and Sources

The gripe noting the emphasis (or narrow focus) on stock market “news” is a recurring one on this blog, but perhaps it’s high time to suggest some sources which will provide a more comprehensive picture than merely stock market numbers and unemployment figures.  Here are a few for your viewing pleasure:

Labor Information:  What we get on television broadcasts and from most print media are national numbers, however this obfuscates the point that not all parts of the country are experiencing employment (and unemployment) in the same way.   To find out more about state and local employment there’s information available from the Bureau of Labor Statistics at this page. Nevada, for example, is in the western region in the BLS categorization of various statistics, and more specifically as the national unemployment rate is 3.9% nationally (October 2017) the Clark County rate is 5.1%.(pdf)  Although employment in the construction sector is up in Clark County, NV, the rate is altogether to close to that of Cleveland, OH  which was 5.2% (pdf)  Unlike Clark County, which saw a decrease in unemployment, Cleveland actually ticked up from 2016’s 5.1% to 5.2%.   Using the handy interactive from the BLS link give will allow a person to see differences within a state, such as the 5.1% unemployment rate in Las Vegas and the 3.9% unemployment rate in the Reno area. (pdf)

A summary of state unemployment rates is available from the Bureau of Labor Statistics. As of November 2017 the lowest unemployment rate in the country is in Hawaii (2.0%) and the highest unemployment rate belongs to Alaska which has a rate of 7.2%.

The BLS also provides employment projections (for the next 10 years) complete with a graphic illustrating the fastest growing occupations.  Presidential climate change denial notwithstanding, we should observe that the two fastest growing occupations are solar photovoltaic  installers (105.3% increase) and wind turbine technicians (96.1% increase).

A few recommended bookmarks:  AFL-CIO website;  UAW website; SEIU website;  Nevadans will want to keep up with Culinary Worker’s news;  the Communications Workers of America is also highly informative.   Labor Notes is also recommended.

Income Information:  For those who don’t have FRED bookmarked — please do, you’ll be pleased with yourself for doing so.  One of the many topics covered and charted is median household income.   A person can also find information about the Income GINI Ratio for Households (by race), and Real Mean Personal Income.   It would be difficult to imagine what information Isn’t available from FRED.

Once in a blue moon the media reports on the release of the Beige Book from the Board of Governors of the Federal Reserve.  It is a compilation of anecdotal reports from each of the Federal Reserve districts, and is useful for those wanting to drill down into regional economic conditions.  It’s published eight times per year, with the next release due out on January 17, 2018.

The St. Louis Fed provides FRED, and the New York Federal Reserve is the go-to place for information about debt, from student to household.  See their Center for Microeconomic Data.  The NY Fed has its own blog, also informative on a variety of topics.   Readers might like to start with the NY Fed’s report on political polarization and consumer expectations.

There’s FRED, the Beige Book, and the NY Fed, and then there’s the Census Bureau, which tracks income inequality.

There are thousands of more sources and links which will prove helpful to those interested in economic trends, and this is by NO means a comprehensive list.  However, I do hope these links will indicate to any reader that there is a wide variety of sources describing our economy going well beyond the narrow focus on stock market numbers and unemployment statistics!

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Filed under Economy, Nevada, Nevada economy, Politics

The Incredible Tax Bill

For once the President* found the precise word.  The recently enacted tax bill is incredible, and so is the President*.

There are some elements of the tax plan which, indeed, are genuinely incredible.  Here are a few —

 The tax plan is predicated on what amounts to economic mythology/ideology, and it is NOT grounded in empirical evidence.  Trickle Down economics is and has always been a theory in search of some evidence, and not a result of the collection and analysis of actual economic data.  The following summation is as good a point at any to discuss the reality of this manufactured ideology:

“The harsh reality is that while this story has been told for – sometimes very eloquently for 30 years, now – we can look back to President Reagan’s tax cuts in 1981. There’s never been a documented case in which it actually worked. The problem is that every time we’ve enacted tax cuts in the last 30 years that have been based on this premise, we’ve had to backpedal as a nation. We’ve had to undo them. Sometimes, as in the case of the Bush tax cuts of 2001, it’s taken a decade of pitched battle for Congress to realize in a bipartisan way that they really had just dug the hole too deep.”

The tax plan benefits approximately 83% of the nation’s income earners, and does little to help the remainder.

“By 2027, more than half of all Americans — 53 percent — would pay more in taxes under the tax bill agreed to by House and Senate Republicans, a new analysis by the Tax Policy Center finds. That year, 82.8 percent of the bill’s benefit would go to the top 1 percent, up from 62.1 under the Senate bill.”

And even in the first years of the bill’s implementation, when it’s an across-the-board tax cut, the benefits of the law would be heavily concentrated among the upper-middle and upper-class Americans, with nearly two-thirds of the benefit going to the richest fifth of Americans in 2018.”

Let’s get realistic about this point.  Nevada has a total population of 2,998,039; with a median home owner value of $191,600.  The median household income is $53,094.  The per capita income is $27,253.   We’ve covered Nevada tax filers previously, with the following result:

1,350,730 Nevadans filed income tax returns in 2015.   27.21% of the Nevada filers reported adjusted gross income between $25,000 and $50,000.  13.5% of filers reported AGI between $50,000 and $75,000. 8.15% reported AGI between $75,000 and $100,000.  Another 10.22% reported an AGI between $100,000 and $200,000.  From this point on the percentage of filers by category drops, those reporting AGI between $200,000 and $500,000 were 2.48% of the filers; those reporting AGI between $500,000 and $1 million were 0.43%, and those reporting over $1 million AGI made up 0.26%.

It doesn’t take any form of complicated arithmetic to discover that giving tax breaks to the top tier income tax filers doesn’t apply to all that many people in the state of  Nevada (or anywhere else for that matter.)  While the definition of  “middle class” seems to vary, the most commonly accepted definition by income asserts  it is  those households  earning between $46,960 and $140,900 annually.  Nevada’s median income ($53,094) fits within that range.   The majority of the benefits included in the current tax scheme do NOT accrue to the majority of Nevada’s income tax filers.

And then there’s the CBO analysis:

“According to the CBO’s calculations, individuals in every tax bracket below $75,000 will experience a year in which they record a net loss — meaning they’ll pay more in taxes, experience diminished services, or both — by 2027.  The lowest income groups will face significant overall losses, and those making between $10,000 and $20,000 a year will face the biggest losses. The CBO estimates that in 2027, taxpayers from this bracket will see an overall loss equivalent to $788.10.”

If ever there was an example of Reverse Robin Hood, this tax scheme would serve nicely.  This is a middle class tax cut only if the middle class is defined in extremely illogical ways — as if $250,000 AGI was anywhere in the “middle.”

The tax plan make corporate tax cuts permanent and individual/family tax cuts temporary.  This is a recipe for disaster in 2027 when someone is asked to pony up the difference between realistic spending and unrealistic assumptions about economic growth.

The tax plan is underpinned by the assumption corporate tax cuts will yield increased wages and increased employment.   A common Republican argument of the moment is that our recovery from the last recession was sluggish, and tax cuts would have made it better.  Another argument could as easily be made:  The recovery was not as robust as it could have been because Republicans refused to enact the kinds of stimulus spending that would have both improved our national infrastructure and boosted consumer expenditures.  Republicans screamed “deficit spending” and “national debt” to the heavens, a tune they now seem to have forgotten as they vote in favor of a $1.4 trillion deficit.

The tax scheme also ignore the obvious.  How many times in this modest little blog have we said: There is ONE and ONLY  ONE reason for any firm to hire anyone at any time — a business only hires personnel when the staffing levels are insufficient to meet the demand for goods or services with an acceptable level of customer/client satisfaction. Regular readers should be able to recite this from memory by now.

We’ve also mused about other ways corporations spend their windfalls — mergers and acquisitions, increased dividends, stock buy-backs, increased investment in financial revenue streams, etc.  It’s not like wage increases and plant expansion are the only options.  In fact, for corporations, especially those for whom  ‘shareholder value” is the driving focus, increasing wages and capital expenditures is the last likely option.  Shareholders are focused on getting a maximum return on their investments and this is not enhanced by increasing labor costs.

The tax plan is riddled with benefits for the wealthy that defy common sense.  For example: Carried interest, increasing the estate tax exemption (Fun Fact: Of the 5,460 estates slated to pay the estate tax this year only 80 of them are small businesses or farms.)  More examples?  There’s the alternative minimum tax which was enacted  to address a concern which may be resurrected by this tax bill:

“Congress enacted the AMT in 1969 amid widespread outrage that many wealthy people paid little or nothing to Washington thanks to clever use of loopholes. But because income thresholds for being subject to the tax weren’t indexed to inflation (until 2012, which didn’t make up for the decades of lost ground), many middle-class people got sucked into paying it. ”

The tax plan is only part of an overall plan to Kill The Beast.  Or, make government so small it could be drowned in a bathtub?  Those who aren’t convinced by now that the next move by this Norquistian Congress is to go after Social Security, Medicare, and Medicaid haven’t been listening to GOP leadership.   Expect the drumbeat of commentary on “entitlements” to increase by leaps and bounds — We have a Huge Deficit! (Which they created) and now We have to cut government spending.  Remember: They are called entitlements because you are entitled to the benefits you’ve been paying for with your payroll taxes all along.

Pro Tip:  This assessment of voters was made in 2006, and not all that much has changed since –

“Regular voters also are older than those who are not registered. More than four-in-ten of those ages 50 and older (42%) are regular voters, about double the proportion of 18-29 year-olds (22%). Among those between the ages of 30 and 49, more than a third (35%) reliably go to the polls ­ a fact that is consistent with previous research that found voting is a habit acquired with age.”

Now, who is most likely to be quite concerned with saving Social Security and Medicare? There’s a reason  Social Security and Medicare form the third rail of American politics.

A final point.  The Republicans have given away their cards.  When Democrats called for increased spending on health programs, Republicans pointed to the deficit. When Democrats called for increased infrastructure spending, Republicans pointed to the deficit.  Now, the deficit (all $1.4 trillion of it) is the responsibility of the Republicans.  They’ve given away the revenue.  Now the Democrats have the Tax the Corporations card in hand.  And who among the GOP wants to run on a platform of saving those cash-hoarding multi-national corporations?  Good luck with that.

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Filed under Economy, Nevada economy, Politics, Taxation

Nevada and the Tax Scam: Debts Debts and More Debts

The Bureau of Economic Analysis has some important numbers for the state of Nevada.  As of September 26, 2017 the agency reports Nevada’s per capita personal income was $43,567 ranking 32nd in the US and 88% of the national average.  However, the numbers don’t signify as much as they could without looking at the trends in which they occur.

“The 2016 PCPI reflected an increase of 1.0 percent from 2015. The 2015-2016 national change was 1.6 percent. In 2006, the PCPI of Nevada was $39,930 and ranked 15th in the United States. The 2006-2016 compound annual growth rate of PCPI was 0.9 percent. The compound annual growth rate for the nation was 2.6 percent.”

There are at least two things to unpack from this. First, it’s evident Nevada took a wallop from the Great Recession in the wake of the Housing Bubble and Wall Street Casino collapse. Secondly, Nevada’s per capita personal income isn’t growing at a pace which would make anyone too confident of increased disposable income for Nevada consumers.   In fact, it makes one think we’re going to be looking at increased levels of household indebtedness — again.

Another number to toss into this mix is the inflation rate, ranging in 2017 from about 1.6% to 2.7%.  And now we come to the inflated promises of the President* and the members of the 115th Congress who claim that their tax plan will “put more money into consumers’ pockets.”  Not. So. Fast.

It’s no secret the Tax Bill benefits those in the upper income brackets far more than it does those in the lower quintiles of the tax brackets.  Nor is it any surprise that the pass through benefits inserted into the bill are a windfall for a select group of businesses which in most circumstances don’t really qualify for the brand “small business.”  Therefore, it’s hard to visualize how this plan truly benefits the “average” Nevada taxpayer.

It’s even harder to see how the bill would create the kind of growth necessary for the bill to “pay for itself.”  The conclusion of the Tax Policy Center isn’t exactly comforting:

TPC has also released an analysis of the macroeconomic effects of the Tax Cuts and Jobs Act as passed by the Senate on December 2, 2017. We find the legislation would boost US gross domestic product (GDP) 0.7 percent in 2018, have little effect on GDP in 2027, and boost GDP 0.1 percent in 2037.

If you’re thinking this isn’t enough to boost the per capita personal income level in Nevada, except for a chosen few, you’re probably right on target. Nor is there much reason to believe the Growth Fairy will wave her wand more strenuously anywhere else in the country.  What do people do when wages and salaries don’t increase by all that much, inflation creeps up, and those people want to maintain their standards of living? The borrow.  And this is where DB starts jumping up and down again sounding alarms.

Look, for example, at the NY Fed Report from February 2017: (pdf)

Aggregate household debt balances increased substantially in the fourth quarter of 2016. As of December 31, 2016, total household indebtedness was $12.58 trillion, a $226 billion (1.8%) increase from the third quarter of 2016. Overall household debt remains just 0.8% below its 2008Q3 peak of $12.68 trillion, but is now 12.8% above the 2013Q2 trough.

Yes, this dry as dust account is saying that levels of household debt are perilously close to what they were just before the Bubble splattered all over our economy in 2008.  There are a couple of reasons not to panic — quite yet.  The level of debt delinquencies hasn’t approached the 2008 level, and we’re seeing fewer bankruptcy filings.  [CNN Money]  There are a few more dessicated sentences from the Fed of note:

“…while comparable in nominal aggregate size, the composition of current household debt is very different from that in 2008. We pointed out in a recent press briefing that debt balances are evolving; mortgages now have a much smaller share than in 2008, auto and student loans have increased in their share, and balances are increasingly shifting towards more creditworthy and older borrowers.”

Read: Mortgage debt is down, student and automobile debt is up. Banks are lending to older borrowers with better credit.  This situation is fine for the banks and those who invest in them, it isn’t exactly cause for young people to rejoice.

At the risk of sounding alarmist — we do need to watch the effects of those automobile loans on the financial sector because those loans (like the mortgages before them) are sold into secondary markets (securitized) and there are some initial warning signs.

One industry analysis doesn’t provide all the comfort I’d care to feel at the moment:

In fact, S&P Global Ratings has issued 881 upgrades and no defaults or downgrades on the subprime auto ABS deals it’s rated from 2004 to present. However, the company ran a stress test simulating what another financial crisis-like event would look like today and found that subprime losses would rise 1.67 times higher than S&P’s baseline expectations for the economy. So while the markets are stable, there are certainly economic factors to watch for.  “Yes, losses are going up from 2015 and 2016, and are even approaching recessionary levels,” Amy Martin, S&P’s senior director, told Auto Finance News. “But you have to look at it relative to what’s happening with the ratings, and the ratings are very stable.”

Yes, auto loans are up, increasing the transactions in the secondary market, but we should all relax because the ratings are stable? The last time we put our faith in the ratings agencies every investment bank on Wall Street fell into its own sink hole.

If I’m a little shaky on the subject of auto loans and their securitization, I’m even less enthusiastic about what’s been happening on the student loan front.  Again, from the NY Fed which as a good track record for keeping tabs on the student loan situation:

Interestingly, though the difference in default rates between two- and four-year private college students is not large (less than 5 percentage points at age thirty-three), this is not the case for public college students. Default rates for community college (two-year public college) students are nearly 25 percentage points higher than those for their counterparts in four-year public colleges. The chart below also shows that while for-profit students have the highest default rates, the default rates of community college students are not too different from those of for-profit students (36 percent versus 42 percent for two-year and 39 percent for four-year for-profit students, respectively, at age thirty‑three).

And now comes the trap: While the administration and GOP controlled Congress make it harder for students to escape the clutches of student loan purveyors, the default rates are ominous.  Further, once in the student loan trap it becomes harder for younger people to become those “older creditworthy” souls to whom banks want to offer mortgages. The following assessment isn’t all that encouraging for the housing market:

“At any given age, holding debt is associated with a lower rate of homeownership, irrespective of degree type. While the homeownership gap between debt-holding and non-debt-holding bachelor’s-plus students remains relatively constant, that for associate degree students expands with age. Associate degree students who take on debt buy homes at almost the same rate as those who never went to college until they reach age twenty-five, when their homeownership rate rises above that of those who never went to college. At age thirty-three, the non-college-goers are almost 4 percentage points behind their peers who enrolled in associate degree programs and took on student debt, while lagging behind debt-free bachelor’s-plus students by 25 percentage points.”

The situation isn’t immediately indicative of economic peril BUT there are some points to remember.  While home-ownership is down (banks are looking for older more creditworthy borrowers) auto loans and student debt are up, and student indebtedness is linked to a reduction in home-ownership.  Meanwhile, the per capital personal income keeps slogging upward at a pace making garden snails look swift.   If you are wondering  from whence comes the fuel for the Growth Fairy — so am I.

Thus far the only elements I see emanating from this GOP controlled Congress are an untoward enthusiasm for giving tax breaks to those who need them the least, an equally unpropitious capacity to ignore trends in household indebtedness, coupled with an almost vexatious tendency to put the burdens on younger generations of Americans for whom education is increasingly costly.

If Nevadans are suspicious of Republican claims of “fiscal responsibility” it’s because they should be.

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Filed under Economy, Nevada economy, Politics

The Great Bamboozle: GOP Tax Plan Targeted Right At the Middle Of The Top 1%

There are some amazing feats of verbal legerdemain going on as Republicans try to explain why their Jam It Through Tax Plan isn’t a real bag of snakes.

Oh, don’t worry about our plan…people want to see an improving economy…people want to see more in their paychecks…now 90% of the people can file a simple return…there’s a lot of wishful thinking going on here, and most of it is wrong.  The political advertising is going to write itself in 2018.

Senator Maria Cantwell (D-WA) is correct to say that “haste makes waste,” and in its haste the GOP is about to unload both barrels into their own feet.

The tax cuts will explode the debt.  Remember all the times the GOP told us that debt is a problem?  It certainly can be.  When there was a Democrat in the White House the Heritage Foundation positively screamed about the impact of increasing the national debt:

Current and projected increases in government debt, cutting into future economic growth rates, also mean slower future growth of government revenues. Even as future interest expense rises as taxpayers are called upon to service all this debt, growth in government revenues will slow, leaving less available for other priorities, such as national security and economic security, education, and innovation-driving research.

The only difference now is that the accumulated deficits will be driven by a Republican penchant for rewarding the investor class with amazing tax cuts.  Now the argument is reversed: there will supposedly be More revenue, More innovation, More funds for national security and research.  No there won’t. And we don’t need to kid ourselves, because the same basic economic elements are going to underpin the new tax/budget structure that are girding the current one. 

Nothing in the tax bill reverses the current emphasis on short term gains. The GOP is fond of pointing to gains in the stock market as “proof” of its stewardship of economic growth.  There’s an obvious problem with this, as noted by the Chicago Tribune:

Nearly half of country has $0 invested in the market, according to the Federal Reserve and numerous surveys by groups such as Gallup and Bankrate. That means people have no money in pension funds, 401(k) retirement plans, IRAs, mutual funds or ETFs. They certainly don’t own individual stocks such as Facebook or Apple.

So, nearly half the population has Zilch invested in The Market. What about the others?  While people don’t generally have elephantine memories, 2008 isn’t that far in the rear view mirror, and that’s part of the reason about 54% of Americans have some sort of investments, as opposed to the 62% prior to the Big Crash of 2007-08.

Further,  there’s some recent research indicating the decline isn’t over.

Rosenthal and Austin’s main focus was the precipitous decline of taxable investment accounts. In 50 years, the amount of stock owned by individual investors and funds outside retirement and nontaxable accounts such as 529 college-savings plans has dropped off a cliff — to about 25% in 2015 from over 80% in 1965.

But wait, there’s more:

The other startling finding was the growth in foreign investment in the US stock market. What was once a small sliver of the makeup now accounts for a quarter of all stock ownership at $5.5 trillion. Part of this may be due to increasing wealth in foreign countries, but, as the researchers noted, it could also be influenced by corporate inversions, in which foreign-domiciled firms have large direct holdings of US-based stock.

So, we have a structural situation in which the percentage of individual investors is declining precipitously, the percentage of institutional investors is increasing, as is the percentage of foreign investors.   It doesn’t take much effort to perceive that the produce of stock market gains aren’t going to benefit most Americans, but should assist institutional and foreign investors.

But surely those institutional investors will be looking for long term investment prospects and will act as a curb on short term pursuits as exemplified by hedge fund operations?  Nupe.  That part of the structure hasn’t changed either.  It’s not happening:

Across the world, a clamor is rising against corporate short-termism—the undue attention to quarterly earnings at the expense of long-term sustainable growth. In one survey of chief financial officers, the majority of respondents reported that they would forgo current spending on profitable long-term projects to avoid missing earnings estimates for the upcoming quarter.1

Critics of short-termism have singled out a set of culprits—activist hedge funds that acquire 1% or 2% of a company’s stock and then push hard for measures designed to boost the stock price quickly but unsustainably. 2 The typical activist program involves raising dividends, increasing stock buybacks, or spinning off corporate divisions—usually accompanied by a request for board seats.

If corporations increase profitability I am hearing, “raising dividends, increasing stock buybacks, and mergers, acquisitions, and spin offs.  I am NOT hearing investment in plant expansion, workers’ wages, and company benefits.  And, I’m certainly not hearing anything about encouraging the promotion of taxable investment accounts, the kind that  puts revenue into the Nation’s coffers.

Nothing in the tax bill addresses wage stagnation.   And, no, this is not a myth:

“After adjusting for inflation, wages are only 10 percent higher in 2017 than they were in 1973, with annual real wage growth just below 0.2 percent.[1] The U.S. economy has experienced long-term real wage stagnation and a persistent lack of economic progress for many workers.” […] ” The portion of national income received by workers fell from 64.5 percent in 1974 Q3 to 56.8 percent in 2017 Q2.”

Ouch.  Somehow, the Growth Fairy is supposed to be so enamored of tax cuts for corporations and wealthy individuals that more greenbacks will float down and squirm into the pay packets of average American workers.  Probably not, and putting more dollars into the pockets of institutional investors — foreign and domestic — isn’t going to be all that helpful either.  So, not only does the tax plan not address short term-ism, it doesn’t really address paycheck issues either.

But Wait! How about increasing the child tax credits and standard deductions?  It’s no secret that those people earning $75,000 or less aren’t going to be the big winners in this tax bill.  “The tax bill Senate Republicans are championing would give large tax cuts to the rich while raising taxes on American families earning $10,000 to $75,000 over the next decade, according to a report released Thursday by the Joint Committee on Taxation, Congress’s official nonpartisan analysts.” [WaPo]

But, but, but…Your tax filings will be simpler!  Simple doesn’t matter if you aren’t getting your taxes cut.  And, if the tax preparation deduction is eliminated then there are going to be some mom and pop franchises in serious straits — those just happen to be local small businesses as well.

But, but, but…jobs won’t go overseas!  You can only dream.  The arguments get a bit into the economic weeds, into territorial taxation, but the bottom line is clear:

This might seem like a small difference, but the design of their global minimum tax creates perverse incentives for companies to offshore jobs and shift profits to tax havens—outcomes that a per-country minimum tax would avoid.

Perverse indeed, especially if one expects the new tax plan to provides incentives for companies to expand operations domestically.  Nothing in this plan actually and directly promotes domestic expansion in the economy — it’s all indirect and absolutely hopeful, perhaps even illusory if not downright delusional.

In the meantime, Medicare will be facing cuts of about $25 billion.  There will be calls to “reform” Social Security” in order to reduce the debt — translation: Higher requirements for fewer benefits.  There will be calls to cut SNAP programs — not a drop in the bucket needed to fill the debt hole; and, educational funding — another squeeze on programs that actually help people eventually earn higher wages.

This won’t prevent Republicans like Nevada’s Senator Dean Heller from enjoying the passage of a “great tax cut,” while he hopes to high Heaven no one in the state notices cuts to Medicare, Medicaid, Childrens’ Health Insurance, and no one talks about increased premiums in the individual health insurance market.  Perhaps no one will notice that graduate students at UNR and UNLV are supposed to pay taxes on tuition waivers while they’re actually earning minimum wages for part time jobs?  No one will notice the reduction in home mortgage interest deductions?  No one will observe the reduction or elimination of deductions for major medical expenses — much of which will be out of the pockets of the elderly.

My guess is that Nevadans will notice.  The political ads may, indeed, write themselves.

 

 

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Filed under health insurance, Heller, Nevada economy, Nevada politics, Politics, Taxation

Bubble Bubble Crash and Trouble: Gambling With Nevada’s Prosperity

A person doesn’t need an advanced degree in either economics or finance to figure out that the current versions of the Tax Bill are not good for Nevada.  We’ll begin with the premise that the Republican tax plan gives the majority of the benefits to corporations.  High income individuals would also benefit from the elimination of the Alternative Minimum Tax, and the Estate Tax.  We should also note that the individual/family tax cuts would expire in 2027 while the corporate tax cuts are made permanent.  Additionally, we should accept the proposition that because of the fluid nature of the proposals and the complexity of how middle income families may be affected, the NY Times analysis is probably one of the best generalization summaries to date.  We can say with some certainty that the vast majority of the benefits will accrue to the upper 2% of American income earners, and to corporations.

Another point often overlooked in the various summations is what the bill will not do.  This element should not be ignored as we try to imagine what the ramifications will be for Nevada and its citizens.  First, a reminder of the obvious —

Nevada depends on the leisure and hospitality sector — our way of saying gaming, which is our way of saying gambling and the hotels that provide the entertainment.  In hard cold stats — the BLS reports employment as follows:  Leisure and Hospitality – 353.8 yoy +2.0; Trade, Transport, Utilities – 242.6 yoy -0.5; Professional and Business Services 191.1 yoy +5.9; Government – 163.0 yoy +2.3; Education and Health Services – 134.4 yoy +2.9.  Little wonder most people are employed in the “Hospitality” sector, the Las Vegas Convention and Visitors Authority reports some 32,108,552 visitors as of the end of September 2017.   Each visitor averaged about $619 spent on “gaming.” [LVRJ]

And now to state the obvious — that $619.00 spent at the tables or playing the slots is literally disposable income.  We intend for our visitors to dispose of it during the time they spend in Las Vegas.  Not to mince words,  anything that restricts disposable income has a direct impact on the total taxable gross revenue generated by our “hospitality.”  For example, in 2007 Las Vegas (Clark County) enjoyed gaming revenue totaling $10,868,464,000. As the housing bubble burst in 2008 the number declined to $9,796,749,000.  As of 2009 with the Recession deepening, the number fell to $8,838,261,000.  The last report, issued in 2016 reported gaming revenue in Clark County of $9,712,796,000, a good number, but still below the halcyon days before the Bubble and Crash.

If Nevadans had adopted the notion that gaming is a “recession proof” industry before the Wall Street Casino wiped out the Housing Market, we were disabused of the idea in the wake of the last debacle.  There was, obviously, a limit to the capacity of our visitors to save our bacon.

And now, we have a Republican tax plan which gives most of its benefits to upper income earners, and corporations, and eventually leaves middle income earners (those earning between $30,000 and $100,000) holding the bag awaiting immediate or eventual increases.  What happens to that average $619 budgeted for the tables and slots when a family has to adjust to higher health insurance premiums?  When a family is no longer able to deduct major medical expenses?  When a family can no longer deduct interest payments on student loans?  When a family finds it can’t deduct state and local taxes?

Years ago Nevadans would sing the praises of the “$60 bettor.”  High rollers are, of course, always welcome, but those $60 bettors were the prime rib in the Nevada casino buffet — the staple, the predictable, the profitable.  Decades later the $60 increased to $619, and these vacationers and tourists are still the staple, the predictable, and the profitable.  Make inroads into their disposable income and they will have less of it to dispose of at the tables and slots.

An economic policy which further rewards the already successful at the expense of the middle class, that would add a return to financial institution deregulation, and would compound the problems by eliminating or reducing the deduction of mortgage interest, is a recipe almost strategically designed to have a negative impact — another negative impact — on Nevada’s economy.

Going a step further, someone is going to have to make up the massive $1.5 trillion hole created by the Tax Plan.  What will Nevadans have to sacrifice?  Their Social Security? Their Medicare?  Their Medicaid?  What then of the now increasing education and health care services sector in Nevada?  What of the construction trades in Nevada, the builders and the contractors?  They’ve seen this movie before and it didn’t end well.

And yet we have one Senator who appears to have purchased the Trickle Down Hoax hook, line, and sinker; who appears to believe the Growth Fairy will wave her magic want and make all things whole — including that $1.5 trillion gap — and one who believes that balanced budgets are paramount except when it’s the GOP blowing the deficits into the stratosphere.   It is time to tell Senator Heller that we have all seen this script play out, and instead of buying into the Trickle Down Hoax he’d do better to purchase some chips from the cashier and donate his $619 to the Nevada economy.  Otherwise we’re looking at more Bubble Bubble Crash and Trouble.

Senator Heller’s office: 202-224-6244.

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Filed under Economy, Nevada economy, Politics, Taxation

Amodei’s Wonderland: Wherein Economic Vision Becomes Hallucination

One of the more confusing statements from Representative Mark Amodei (R-NV2) concerns how the Republican Tax Scam will affect the economy:

(Part A) “With respect to the effect on businesses, Main Street job creators will see their tax rates reduced through the lowering of the maximum tax rate on business income to no more than 25%. (Part B) Additionally, federal tax rates on corporate taxable income will see a decrease from the highest rate of 35% to a flat corporate tax rate of 20%. (Part C) Each of these changes will help businesses and corporations expand, hire new employees, increase wages, and also give them the resources they need to stay competitive in the global marketplace.”  [Amodei] (“parts” added for discussion)

Let’s begin with Part A, those “main street job creators” are the high income earners discussed yesterday as be beneficiaries of the Pass Through Loophole.   It really doesn’t matter if the firm’s address is Main Street, 5th Avenue, or Wall Street, the result is essentially the same.  After telling Nevadans not to worry about losing their most popular deductions because not all that many people use them and the new standard deductions will take care of them,  Amodei doesn’t apply the same test to the business and corporate deductions.  That Pass Through Loophole, by any and all other names, has resulted in massive revenue losses in Kansas, the state which imprudently serves as a laboratory for the GOP’s ideological economics.  Let’s not confuse Mom and Pop’s Midtown Market with the capital management firm of Grabbem, Gouggem, & Howe.   Both may “create jobs” but there’s no comparison in terms of how much of a tax break each will receive for having essentially the same number of employees.

Moving along to Part B:  Yes.  At present there’s a plethora of corporate accountants employed to create a situation in which a top rate of 39.1% becomes an effective rate far below that maximum rate.  One study of Fortune 500 companies reached the following conclusions:

  • As a group, the 258 corporations paid an effective federal income tax rate of 21.2 percent over the eight-year period, slightly over half the statutory 35 percent tax rate.

  • Eighteen of the corporations, including General Electric, International Paper, Priceline.com and PG&E, paid no federal income tax at all over the eight-year period. A fifth of the corporations (48) paid an effective tax rate of less than 10 percent over that period.
  • Of those corporations in our sample with significant offshore profits, more than half paid higher corporate tax rates to foreign governments where they operate than they paid in the United States on their U.S. profits.

Now, if they’re starting at 39.1% and getting their taxes down by half or even more at present — imagine what they can do when they start from 20-25% and work their way down?  For example, the “intangible drilling costs” loophole seems not to have closed up at all in the House version, and this while it’s acknowledged that seismic testing has significantly reduced the prospect of drilling dry holes.  The old Depletion Allowance survives as it always does, even if other deductions for mere mortals do not.

Or, consider the creative ways corporations use depreciation.  The House Ways and Means Committee version allows corporations to write off the depreciation for new equipment immediately.  Nice, if one is looking for a way to get from 20% down to a 10% tax rate or less.  [WaPo]  Not to put too fine a point to it, but while mere mortals are expected to absorb the elimination of student loan interest deductions, home mortgage interest deductions, and major medical expense deductions — the corporations go almost untouched.

Part C is unalloyed wishful thinking.  Walter Isaacson observes in his new book about Da Vinci that “vision without implementation is hallucination,” and this GOP canard is an almost perfect example.   Where the Tax Cut Fairy Waves Her Magic Wand wonders ensue — commerce increases, new employees will be hired, employees will have higher wages, and we will be “more competitive.”

Let’s step back from the hallucinations and observe what happens in the real world of employment:

“Service businesses, in which payroll is the major cost of providing the service, can take on higher payroll percentages since the payroll is, in fact, producing the revenue. There is likely to be no other significant cost of services to be provided. In such situations, payroll can reach the 50% mark without destroying profitability. Manufacturers, however, must maintain a payroll figure closer to 30% or less as the business must endure the cost of manufacturing the widget plus the payroll. Same with restaurants, given the high cost of food the payroll must stay under thirty percent.”

In order to lend any credence to the overblown rhetoric of GOP apologists for reducing corporate taxes and enacting pass-through loopholes, we have to merge all hiring from all sectors into one grand lump.  No matter the tax rate, what really matters is that the widget factory can keep its payroll allocations to 30% or less of its costs.  Nor can we argue that the sector with the highest payroll allocation, “service,” is all created equal.  This tertiary sector includes everything from health care to banking to education, to media and communications.   At the risk of continuous redundancy, the tax rate doesn’t determine payroll allocation — no one will be hired to do anything unless there is a demand for the goods or services beyond the capability of current staffing levels to deliver an acceptable level of consumer or client satisfaction.

Employees will have higher wages if the corporation gets a tax cut?  Probably not.  We can wade into the deeply arcane economic theoretical weeds and talk about the relationship between labor costs and tax liabilities, but let’s keep our feet on the ground instead.

Nevada has a fairly unique economy given one of our major sectors is “hospitality,” (or how to house, feed, and amuse people whom we want to leave behind large sums of money) establishments.  Therefore, there’s nothing surprising about finding out that we’ll need about 191,141 people working in food service in 2018; a growth rate of 2.8% with about 5,048 new positions expected. [DETR download]  The mean wage for food service workers is $12.74 per hour.  Most dealers are earning about $8.57 plus tips.  What will drive up food service and dealers’ wages?  Which is more likely to drive increases in food services wages: (a) more customers or (b) a bigger tax cut for corporate headquarters?

If you answered “b” then you are willing to wait for the calculations to be completed concerning how much the corporation should allocate for payroll expenditures, and then try to bank the results from this theory:

“Why would anyone think slashing corporate tax rates would increase workers’ wages in the first place? The theory endorsed by the CEA relies on three steps to get from corporate tax cuts to higher wages. First, the corporate tax cut increases companies’ after-tax returns on investment. As a result, firms will make more investments in plant and equipment than they would in a higher-tax-rate environment. Second, greater investment by firms leads to higher productivity by the workers who put those investments to work. Third and finally, workers will receive increased wages in line with those productivity gains.” [vox]

And, if you believe this I have a lovely bridge over the Humboldt River to sell you.  Why? Because corporations can do lots of other things with those savings — higher executive compensation, mergers and acquisitions, stock buy backs, and dividend payments.

Short Form:  Representative Amodei’s analysis requires redefining “job creators,” as those titans of the financial system who don’t necessarily become those doing the hiring; and requires disconnecting wages and salaries from the accepted wisdom about payroll allocation; and, means a person has to roll the dice and hope that the corporation trickles the money down to the counter-man.  In Isaacson’s parlance:  It’s vision without implementation.

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Get Along Little Dogie, but not to Asian Markets

The President was pleased to tell anyone watching his Twitter feed that his trip to Asia was a Wonderful, Biggest Ever In History, Success.  Not. So. Fast.  Especially “not so fast” if a person is in the cattle business, and most of the cattle business in Nevada is in the northern part of the State:

“Range livestock production is predominate in Nevada with well over half of the farms raising cattle or sheep. The highest concentrations of cattle are in the northern part of the State. Cow-calf operations are most common type of operation and Elko county ranks among the leading counties in the Nation in number of beef cows. “

So, when the administration announced it was pulling out of the Trans Pacific Partnership the rug got pulled from under any notions that Asian nations would increase their importation of beef from the US.  The Japanese and Chinese governments announced their own policies, and neither was amenable to imports from America:

“Japan announced it was increasing its tariff on imports of frozen beef from 38% to 50% until next April. The decision affects all countries with which it does not have a free trade agreement. That would include the United States.

Second, according to reporting that appears to be exclusive to Politico, the agreement the Trump administration made with China required that the beef be free of artificial growth hormones or additives that make the meat leaner. Unfortunately, most of the U.S. cattle industry relies on the hormones or the additives or both, according to the reporting.”

When Trump touted “America First” that translated to “America out of the market” as the administration bumbled through bilateral agreements.  The result was predictable, US beef imports to Japan dropped 26% from last year. [FBN]  Those who advocated bi-lateral, as opposed to multi-national agreements, argued that the former would allow negotiators to directly address issues.  Obviously, that didn’t happen.  Meanwhile, back in Beijing:

“The role of China in global beef markets has evolved rapidly in recent years.  Despite being a large beef producing and consuming nation for many years, China has never been a player in global beef markets until recently.  For many years China neither imported nor exported much beef. However, since 2012, growing beef consumption has resulted in a rapid increase in beef imports as consumption outpaced beef production in China.  China emerged as the second largest beef importing country in 2016.  Major beef suppliers to China in 2016 were Brazil (29 percent of total Chinese imports); Uruguay (27 percent); Australia (19 percent); New Zealand (12 percent) and Argentina (9 percent).   In 2017, Chinese beef imports are projected at 950 thousand metric tons, up 17 percent from 2016.”

So, can we expect progress on opening Chinese markets to American grown beef as a result of this recent trip to Asia?  Probably not.

“Business deals announced by the president are tentative agreements that may not be fulfilled. And while the president railed against what he viewed as systemic flaws in the U.S. trading relationship with its Asian partners, he neither publicly requested nor received specific assurances to address issues like market access and intellectual property theft.”

The beneficiaries of this administration policy appears to be the Australians.  An agreement reached last March allowed greater access to Australian imports of frozen beef: “The joint statement between China and Australia means the number of meat processors permitted to export chilled beef to China will increase from 10 to 36, with another 15 expected to have pending approvals fast-tracked.” [AuBC]  The applied tariff on Australian beef is 8.4% with an elimination of the 12% to 25% tariffs eliminated by 2024. [MLA.au]

The bottom line seems to be for all the boasting and bombast from the White House twitter line, the Asian trip produced ZIP/Zero for western US cattle producers, including those in Nevada.

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Filed under Economy, Nevada economy, Politics