What Big Victory?

There’s a steady drum beat of pundits and politicians telling me the passage of the TaxScam is a great, wonderful, awesome, fabulous, stupendous, magnificent piece  of legislative action.   Okay, I am certainly not the brightest bulb in the great chandelier, but I’m no dim candle either, and I can tell the difference between tax reform and a tax heist giveaway, handout, bequest, benefaction, and contribution to the top income earners when I see it.  Further, I am truly tired of pounding out the fact-of-life:  Trickle Down Economics is a HOAX.

What the Congress is voting on today isn’t a tax reform bill, it is purely and simply the enaction of economic mythology and political ideology.  There is much economic theorizing asserting the efficacy of tax cuts toward encouraging economic growth, but the numbers (those pesky facts) haven’t substantiated the claim, and the recent example of Kansas offers a real time look at some very dismal prospects.

Making the tax system more rational isn’t best served by a code that includes the Corker Kickback, exceptions for private airplanes,  golf courses, and doesn’t incorporate provisions for exempting state and local taxes.   And, we’ve covered the Carried Interest issue before.   The advice from the EPI back in January 2014 still holds:

“These investment advisors and hedge fund managers can take advantage of this tax structure because they are often compensated through a scheme that, in part, pays them according to the returns on the fund. The industry standard for hedge fund managers is “two and twenty,” which is shorthand for an “overhead” fee of 2% of capital under management plus carried interest (often called a “carry”) of 20% of the returns on the fund. Thus a $100 million fund earning 20% would pay its fund manager $2 million for overhead and $4 million in carry. The carry portion of their compensation is treated under the tax code as capital gains for the fund manager and is taxable at the much lower capital gains tax rate of 15%.” [EPI] (emphasis added)

However, rest assured Nevada’s Republican members of the 15th Congress will vote in favor of retaining the carried interest loophole, and other egregious portions of the Trump Family Property and Legacy Protection Act.  Paris Hilton’s wealth will be preserved.  And for this we may now expect an onslaught on “spending” as in Republican attempts to dismantle Social Security, Medicare, and Medicaid.

As the Republicans hiss out “entitlements” as if the word was a synonym for undeserved welfare, most Americans are quite aware they’ve been paying into Social Security — yes,  to restate the obvious, people are entitled to receive their Social Security benefits — they’ve been paying for them all along.

The point will come when the GOP will cry out, “Oh, we have to cut government spending, because Social Security is going broke! Medicare is out of control.  Medicaid will bankrupt the nation — look at the national debt!”   Really — the way to fix these issues is to re-visit and revise the mess made in the 15th Congress, repeal the TaxScam, and do some revisions targeted at helping middle income Americans.

Some suggestions:

Enact tax cuts 80+% of the benefits go to working middle and lower income Americans who will actually go out and spend the benefits on washing machines, cars, groceries, rent or home mortgages, and who support our economy.

Close the carried interest loophole.  It was never a good idea and it certainly isn’t now.

Enact tax reforms that address the modern economy — not the horse and buggy days.  Support solar, wind, and alternative energy sources and research.  One of the fastest growing jobs in the US today is “wind turbine technician.”  Continuing to subsidize fossil fuels is tantamount to protecting the buggy whip factory owners.   Just to hammer the point a bit further:  “Increases in Job Opportunities:”  Solar Photovoltaic installers  — 105% increase; Wind Turbine Technicians — 98%; Home health aides — 47%; Personal Care aides — 37%; Physician Assistants — 37%; Nurse Practitioners — 36%; and interestingly enough Bicycle Repair Specialists — 29%.

Forget the territorial tax regime — all that does is incentivize corporations to move their operations overseas.

This would be a start.  There’s nothing simple about a tax code — there never was and there never will be.  Piling up stacks of paper to illustrate the density of the code isn’t instructive, all it demonstrates is that we have an extremely complex economy.  We use taxation as a lever to encourage or discourage certain decisions.   In this instance we are encouraging the behavior of hedge fund managers (notoriously short term thinkers) and multi-national corporations.  This didn’t work so well in 2007-2008 and it surpasses all reason why anyone would think a repetition would have any different result.

But we can count on Senator Dean Heller and Representative Mark Amodei to march right in line with the GOP leadership…straight into the next bubble, the next crisis, and the next recession — only this time the resources of the federal government will be depleted in the face of adversity.  In slightly less modest terms, it’s a recipe for more debt which will eventually lead to the necessity of incurring even more debt.

And they’re still coming after Social Security and Medicare.  Be prepared.

GOP Dances With The Growth Fairy

The Toxic Mix

Once a national political party cheered the ascendance of “movement conservatives,” religiously radical, ranging from Dominionist to single issue anti-abortion — and the decision in Citizens United — “corporations are people my friend,” — and white disaffection, “we are under assault,” “They” are taking our jobs… And then the stew became toxic. The fumes threaten to overtake the atmosphere in which a national political party can function.   The disarray is NOT on the Democratic side of the ballot this time, the Grand Old Party is in trouble.  There is nothing new about this perspective,  Outside the Beltway published its analysis back in 2009. However, the Republicans of 2017 aren’t merely a regional party of the American south, as Jonathan Ernst opined in 2013, there are five Republican Parties:

“The House and Southern Republican parties are more concerned with ideological purity and tribal politics than they are with building a durable, competitive national party base to win presidential and Senate majorities. In most cases, they are in no danger of losing their House seats or their hegemony in their states. They will be resistant to changes in social policy that reflect broad national opinion; resistant to any policies or rhetoric, including but not limited to immigration, that would appeal to Hispanics, African-Americans, or Asian-Americans; and resistant to policies like Medicaid expansion or Head Start that would ameliorate the plight of the poor. They also will be more inclined to use voter-suppression methods to reduce the share of votes cast by those population groups than to find ways to appeal to them.”

Ernst missed the Trump surge in 2016, but he’s accurately described the political atmosphere.  The House and Senate Republican parties have ossified, more inclined to use vote suppression methods than outreach; more aligned with the Donor Class in terms of determining the legislative agenda.

Politics of the Donor Class

Money doesn’t care.  Money doesn’t care if a child has medical insurance.  It doesn’t care if a Dreamer is deported. It doesn’t care if banks are allowed to engage in unethical and even illegal activities.  Money doesn’t care if a student is saddled with debt in the course of a four year academic program.  Money doesn’t care if a homeowner can pay property taxes.  Money cares about money.  Thus, why are we the least bit surprised that given the toxic atmosphere and the primary emphasis of the donor class, we are looking at a tax cut bill which is written by the donor class, for the donor class?

Why else would Republicans, so long advocates for lower debt, adopt a plan which will add approximately $1.4 trillion to our indebtedness?  Why else would Republicans, long advocates for home ownership, promote a plan which removes or reduces the deduction for home mortgage interest?  Why else would Republicans, long champions of individual responsibility, accept a plan to give 2/3rds of its tax benefits to corporations?  Why else would Republicans, for decades the voice of local government, advocate removing the deductions for state and local taxes?

The Dance of the Growth Fairy

Why would a political party, long associated with small business, vote in favor of a bill that will do significant damage to most small businesses? [Forbes]  If the 1% are driving the Republican agenda, and are the flesh and blood of the Donor Class — from whence comes their money? Spoiler: It’s NOT from paychecks.

“The results show a stark contrast between the 1 percent and the rest. The population as a whole earns 64 percent of its expanded cash income from so-called “compensation,” basically a paycheck from a company. But the top 1 percent earns only 39 percent from compensation. It gets 24 percent from business income and 29 percent from investments.” [CNBC]

Somehow or another, increased corporate profits are supposed to generate enough growth to cover that $1.4 trillion whole in the can.  This might work IF the profits were piled back into corporate expansion, but as we’ve noted before — corporations can and do have other options (mergers, acquisitions, stock buybacks, executive compensation) and these options are far more likely than plant expansion.  When the Growth Fairy waves her wand, if the growth is associated with increased investment income then there is less incentive for plant expansion, and more for short term financial profit making. (And taking)

However, when trying to conjure up the Growth Fairy in order to justify more income for investors (read: donors) one can always try esoteric arguments predicated on “scoring” issues — static scoring vs. dynamic scoring.  The problem is that neither version of scoring yields enough “growth” to cover that whopping gap!

Nothing in the Growth Fairy’s repertoire can disguise the fact that the Senate version of the tax bill will raise taxes on average for every income group below $75,000 and 72% of the tax cuts go to the top 5%. (Those earning $200,000 annually or more)  Or we could describe it as giving 98% of the households with annual earnings of $5 million or more a tax cut, while only 27% of households making between $30,000 and $100,000 can expect a tax cut.  Not to put too fine a point to it — but, the GOP tax plan is a recipe for disaster.

Home construction is up?  Why not spike it by eliminating or reducing the home mortgage deduction?  Health care services sector is doing well?  We can spike that too by eliminating health care insurance for some 13 million people by removing the Individual Mandate.  How the plan is supposed to narrow the income inequality gap and put more money into the hands of those most likely to spend it on goods and services remains a mystery.

However, this is what happens when in the midst of a toxic mix of partisanship, a donor class emerges as the driving force behind a once principled political party, and that party attempts to paper over the demands of its donor class beneath the gossamer wings of the Growth Fairy.

Passing the Tax Burden to Working Americans Via The Pass Through Loophole

Please excuse me while I jump up and down on this keyboard trying to flag attention to one of the most egregious GOP give-aways to the top 1% of American income earners.  It isn’t as though the Pass Through Loophole hasn’t garnered attention, it just doesn’t seem to have broken through the dismal cloud of information and misinformation about the GOP tax plan and into enough sunlight.

“The big one in the tax plan issued last week by the GOP and President Trump involves what’s known opaquely as “pass-through” business income. Even that term might have been too revealing, so the document the Republicans issued described it even more obscurely as a “tax rate structure for small businesses.” That’s also dishonest, however, because the businesses it affects are often nothing like “small.” [LAT]

There’s nothing new about legislative obfuscation of legislative intent — but this one is a major way to ease the burden on the 1% and put more pressure on the working and middle class Americans to make up the difference.   Here’s how it works:

“Pass-through” income is business income that’s reported to the IRS only by individual owners of, or partners in, the business. These businesses can be organized as partnerships, S-corporations, or sole proprietorships. They’re distinguished from C-corporations, which are almost always big businesses with public stockholders; C-corporations pay the corporate income tax, and the shareholders pay personal income tax on their dividends and capital gains.

In other words, if a business is a partnership, S-corporation, or a sole proprietorship it doesn’t pay corporate tax rates.  The income earned is reported by individuals.  Now, here’s how the Republican plan would specifically benefit the top 1%:

Currently, the top marginal individual rate is 39.6%; the new tax proposal would reduce the top rate on pass-through income to 25%. Pass-through income from an S-corporation, by the way, already is exempted from the Affordable Care Act surcharges that raised the top income tax rate on some high-income earners by as much as 4.7 percentage points.

So, if the business is an S-corporation, sole proprietorship, or partnership the tax rate is 25%.   Thus, if Desert Beacon were to become Desert Beacon LLC the income tax reduction would be from a maximum of 39.6% to 25%.   Now, who are those who tend to form the businesses which qualify for the LLC Loophole?

“Pass-through business income is substantially more concentrated among high-earners” than traditional business income, Treasury Department economist Michael Cooper and several colleagues observed in a 2015 paper. They also found that about one-fifth of it went to partners that were hard to identify, and 15% got sucked up into circles of partnership-owning partnerships, complicating IRS analyses.”

I sincerely hope the reader isn’t too surprised that these tax avoidance strategies are practiced mostly by high-earners.   Let’s take a closer look at the summary of that 2015 NBER paper:

Pass-through” businesses like partnerships and S-corporations now generate over half of U.S. business income and account for much of the post-1980 rise in the top- 1% income share. We use administrative tax data from 2011 to identify pass-through business owners and estimate how much tax they pay. We present three findings. (1) Relative to traditional business income, pass-through business income is substantially more concentrated among high-earners. (2) Partnership ownership is opaque: 20% of the income goes to unclassifiable partners, and 15% of the income is earned in circularly owned partnerships. (3) The average federal income tax rate on U.S. pass- through business income is 19%|much lower than the average rate on traditional corporations. If pass-through activity had remained at 1980’s low level, strong but straightforward assumptions imply that the 2011 average U.S. tax rate on total U.S. business income would have been 28% rather than 24%, and tax revenue would have been approximately $100 billion higher. (emphasis added)

Therefore, if someone is trying to pass this off as a “middle class” tax cut, or a “small business” tax cut, the appropriate (and perhaps most polite) response is BALDERDASH.

It should come as no surprise that Kansas, under the spell of Brownback-ism, tried opening the LLC loophole as a way to “create jobs.”  It failed, and failed miserably.  Not only did the state find itself in a terrible revenue position, losing money for schools, transportation, and other government services, but it allowed high-income earners to stash more cash.  Case in point: KU basketball coach Bill Self was avoiding most Kansas income taxes on his $3 million salary by parking most of his earnings in an LLC.  Even some of the tax freeloaders were beginning to feel like tax freeloaders by late Summer 2016.  [see also NYT]

And, no one should suggest the amount of money lost because of the ‘reformed’ Kansas tax structure was negligible:

For fiscal year 2014, which ended on June 30, the state collected $330 million less in taxes than it had forecast, and $700 million less than it had collected in the prior year.  Those are big numbers in a state that spends about $6 billion annually from its general fund, and the revenue weakness led both Moody’s and Standard & Poor’s to cut Kansas’ credit rating this year. [NYT]

The situation hasn’t gotten any better.   There were promises made:

In 2012, Kansas Gov. Sam Brownback signed a bill that, among other things, substantially cut the state’s top tax rate and exempted “pass-through” business income from taxation (President Trump’s tax plan includes a similar loophole). The architects of Brownback’s plan predicted that it would provide an “immediate and lasting boost” to the state’s economy.

And promises not kept. The 2017 numbers are truly remarkable, and not in a good way:

Real GDP growth in Kansas since the fourth quarter of 2012 (Brownback’s cuts took effect in January 2013) has been relatively slow, at 6.1 percent through the third quarter of 2016. That’s about three-fourths of U.S. GDP growth over that same period (8.3 percent). A similar story holds for private employment growth: 5.0 percent in Kansas between December 2012 and March 2017, 9.1 percent in the U.S. overall. [WaPo]

The Kansas Legislature was so disappointed in the Great Brownback Experiment it voted to change the tax law — and the governor vetoed their bill.

“Unfortunately, that part of the plan — what Brownback called an economic “shot of adrenaline ” — hasn’t materialized. The state’s budget deficit ballooned to $350 million. And the small-business provision also created new ways for residents to avoid taxes, meaning more lost tax revenue and compliance headaches for the state.” [Time]

Just what we don’t need — lost tax revenue and compliance headaches.  The bottom line of this easy route to the bottom is that:

(1) Claims that pass through exemptions and tax cuts will create new revenue have already prove erroneous.  Witness what happened to Kansas.

(2) The loss of revenue from the pass through exemptions was serious and exacerbated an already tight budget situation.

(3) Claims that the tax ‘reform’ would help small middle class business owners proved elusive — the overwhelming numbers of those who benefited, and will benefit, were high income earners.

This would be a good time to contact Senator Dean Heller (R-NV) to let him know that no one is fooled by changing the name from “pass through” to “tax rate structure for small business;” it’s still a way to shift the burden of maintaining government services from high income earners to middle and working class Americans.   The Senator can be reached at 202-224-6244; 775-686-5770; or 702-388-6605.

Everything Old Is New Again: GOP Tax Plan Misses Most Of The Nevada Middle

I think we’re going to have to agree that Republicans will call anything a “middle class tax cut” because it sounds good — not necessarily because the tax cuts are primarily for the benefit of middle income people.  Right off the bat, we have to take some care with what constitutes “middle class” and for this one of the best calculators is provided by Pew Research.

For example, a single person earning $65,000 pretax income living in the Reno area is definitely in the “middle,” like 53% of the income earners in that metropolitan region.  A household of four, in which the annual income is $142,000 is in the same middle position.  However, if we enter an annual income of $250,000 for a family of four in the Reno area, then the calculation is that the family is in the upper income tier, along with about 17% of other Reno area residents.   The status is about the same for this hypothetical family living in the Las Vegas area, only the income is comparable to 15% of the population.  Thus when the GOP discusses incomes above $200,000 as “middle class” they’re out of the calculation range — which maximizes closer to $150,000.

We should note that the middle bracket of the proposed tax plan is at a 25% rate for incomes between $45,000 and $200,000.  This modification allows the inclusion of those who would otherwise be classified as Upper income in Nevada metropolitan areas (those with incomes above $150,000) into the Middle range.  10.2% of Nevada income tax filers in 2015 reported incomes between $100,000 and $200,000.  Only 2.48% of Nevada filers reported incomes between $200,000 and $500,000.  The air gets thinner in the upper reaches:  0.43% reported incomes between $500,000 and $1 million; only 0.26% reported incomes in excess of $1 million.  (The median household income in Nevada is $51,847 and the per capita income is $26,541.)

In addition to artificially inflating the “middle class,” the Republicans have gift wrapped  their Wish List From Christmas Past — ending the estate tax, and eliminating the Alternative Minimum Tax — neither of which have a single thing to do with being in the Great American Middle.

Nevada has no estate tax, and the federal inheritance tax is on estates in excess of $5.4 million, or $10.9 million per family.  There are approximately 30 estates in Nevada liable for the federal estate tax (2016). [cbpp]  Avoidance of liability for federal estate taxes isn’t a common topic of conversation in Nevada’s 1,016,709 households.   Under the GOP plan the estate maximum would increase to $11.9 million and the tax would be eliminated by 2024. [NPR]

The Alternative Minimum Tax is supposed to insure that higher income households pay something into the federal coffers along with the rest of us:

“Taxpayers pay the higher of either their tax calculated under regular income tax rules or their tax calculated under the alternative minimum tax (AMT) rules. Because the 39.6 percent top rate under the regular income tax is higher than the 28 percent top statutory AMT rate, households with very high incomes who do not attempt to shelter much income typically pay based on the regular income tax system. Households that are not at the very top but still have relatively high incomes face somewhat lower statutory tax rates under the regular tax and are therefore more likely to pay the AMT.” [TPC]

Again, we’re not speaking of The Great American Middle — we’re speaking of those in upper income brackets, whether there are four brackets or seven.   Pro-tip:  If your family has spent time discussing the Alternative Minimum Tax and the Estate Tax — you’re not in the Middle of those 1,016,709 Nevada families.

There’s one other major feature of the Republican tax plan which has precious little to do with Nevada’s middle class — the Pass Through, explained as follows by the Washington Post:

“Pass through” companies. Some wealthy Americans who run businesses structured as sole proprietorships, partnerships or LLCs would get a sizable discount on their taxes. Under the GOP bill, these “pass through” companies would pay a tax rate of only 25 percent on 30 percent of their business income, a big reduction from the 39.6 percent rate some pay now. The bill tries to prevent “service firms” like law firms and accounting firms from being able to pay the lower 25 percent rate, but a good tax lawyer can probably make the case for these firms to qualify. Also, on the campaign trail, Trump said that hedge funds were “getting away with murder” on their taxes and that he would take away carried interest, the popular opening in the tax code these Wall Street titans use. But the bill does not change or eliminate carried interest, which is also used by some real estate developers.”

S’cuse me while I run to my attorney and figure out a way to incorporate myself into a lovely little LLC and thus avoid tax rates paid by “ordinary” people — or, I would if I weren’t an ‘ordinary’ person.  And, we still haven’t toted up the lost deductions — home mortgage interest on loans over $500,000, interest on student loans, tax incentives for hiring veterans and disabled people…  Yes, this does get worse.  Stay tuned.

Tax Cuts, Wages, and Promises, Promises, Promises

That Blue Line on the chart is FRED’s report of gross domestic income, in terms of compensation for employees (wages and salaries) from 1980 to the present.  One of the things to notice is that it keeps rising.  We can explain part of this by taking inflation into account, and some of the bumps and blips by noting that the shaded gray sections represent recessions.  But, it just keeps going up except for the Great Recession brought to us in the wake of the Housing Bubble/Wall Street Casino Crash, compliments of the Wall Street Casino.

Indeed, notice that increase in employees wages and salaries between 1990 and 2000, when the top marginal tax rate increased from 31% to 39.6%, the blue line keeps going upward.   If nothing else, the graphic above illustrates that anyone trying to convince us that increases or decreases in the top marginal rate for income tax payers correlate to increases or decreases in wage and salary compensation trends hasn’t been paying attention.

The Corporate Tax Wrinkle 

Okay, if one can’t make the case that tax cuts for the wealthy won’t “increase” the money in the pockets of middle income Americans, then there’s the Corporate Tax Wrinkle.  Thus, the White House is trying this line:

“The Council of Economic Advisers report argues that high corporate taxes hurt workers in the form of smaller paychecks and that worker incomes rise sharply when corporate rates fall. It points to “the deteriorating relationship between wages of American workers and U.S. corporate profits” and says, essentially, that high corporate taxes have encouraged companies to shift capital abroad rather than flow profits to workers through pay increases.”

Here’s the first problem — this statement assumes that high corporate taxes cause companies to “shift capital abroad.”  This conveniently ignores some other reasons corporations seek to invest overseas.  Let’s make a quick list: (1) There’s good old fashioned market seeking.  In this case the company is looking for new customers for its goods or services, and it may be that the domestic market is fairly well saturated so looking abroad makes perfect sense.  This is especially true for technology firms which often find that the smallest market needed to drive development is larger than some of the largest national markets.  (2)  Resource seeking.  Labor costs may be cheaper in another foreign market, or there may be quicker access to natural resources in a foreign location.  (3) Strategy.  Imagine that a corporation is looking to improve its distribution network, or to take advantage of new technologies; a company might decide to partner with a foreign corporation which specializes in some specific phase of production.  And then there are (4) Efficiency elements.  We can insert some common elements into this category like trade agreements which give an advantage to plant or service locations because of tariff agreements, or there could be currency exchange rate considerations involved.

Therefore, we can quickly see that the corporate tax environment is a part of the decision making process about shifting capital overseas, but it certainly isn’t the only factor, and it may not even be the most important one.  What the White House Wrinkle demands is that we believe if Congress reduces corporate taxes this will offset all the other other reasons a corporation may want to shift some of its operations overseas.  Frankly, this really isn’t rational.

And, then there’s the second problem —  hoarding.

“The cash held overseas by US firms has continued to grow at a rapid pace, rising to almost $2.5tn in 2015. The substantial tax bill most firms would face if they attempted to bring this cash home, however, means that it is still very unlikely to ever be repatriated under the current system.”

Gee, if we could “repatriate” all this money imagine the increase in wages!  Not. So. Fast. The firms stashing the most cash overseas are Apple, Microsoft, Cisco, Alphabet (Google), and Oracle. [MW]  Right off the bat we notice that these are all tech firms, and as mentioned above tech firms are constantly market and resource seeking — while a repatriation scheme may bring some of the cash home, there’s still a reason the firms may want to keep capital available for foreign operations; it wouldn’t matter what domestic tax system was in place.

Another point that should be made more often is that this money isn’t “trapped” overseas.   Where are these “deferred profits?”

“A 2010 survey of 27 large U.S. multinationals found nearly half of their “overseas” tax-deferred profits were invested in U.S. assets, including U.S. dollars deposited in U.S. banks or invested in U.S. Treasury bonds or other U.S. government securities, securities and bonds issued by U.S. corporations, and U.S. mutual funds and stocks.”

What’s “trapped” are the tax payments due on the funds — not the funds themselves, 50% of which are already happily running along in the corporate revenue streams or “reinvested” in U.S. assets.   And if we could “bring home”  (or get out of the bank) the other half would this mean higher wages?  Remember, we tried this once before:

“In 2004, lawmakers allowed multinationals to repatriate more than $300 billion in profits at a greatly reduced tax rate. But independent studies largely conclude that firms used those profits to pay cash to shareholders, not to invest or create U.S. jobs. In fact, many firms laid off large numbers of U.S. workers even while reaping multi-billion-dollar tax cuts. Today, offshore profits are concentrated in a few large multinationals that have recently made record cash payouts to shareholders by buying back stock, showing that they already have enough cash on hand to make whatever investments they project would be profitable. Repatriated profits would likely similarly be paid out to shareholders, not invested.”

Who are those “buyback monsters” who’ve been demonstrating they already have enough cash on hand to make any investments they think might create even more profits?   Apple is one, then there’s Exxon Mobil, IBM, General Electric, Pfizer, and McDonald’s. [CNBC]  If Apple is one of the ‘monsters,’ then why would anyone believe that allowing the tech giant to “repatriate” more money at reduced tax rates would make them do anything other than what they’ve been doing — using the capital to buyback stock?  McDonald’s?  If they have enough cash on hand to indulge in financial engineering to increase their stock prices, what would make anyone believe they’d change midstream and start advocating for raising the minimum wage?

Mythological Means

It’s really hard to imagine where that $4,000 pay raise is supposed to come from if corporations are given more tax breaks.  There’s a question of the provenance of that $4,000 number in the first place, and in the second place it’s a dubious estimate at best.  We should also notice that the claim isn’t being framed in context; there may be some gains for employees BUT they are long term, certainly not short-term or annual gains. [FC]

“It’s important to note that any gain to workers would only come in the long term — over several years. Furthermore, most households would not see a gain as large as the “average” or mean figure, which is pulled up by very high incomes of a relative few. In 2016, the average household income was $83,143 as we’ve already noted, but the median or midpoint for household income was $59,039, meaning that half of all households received less.”  [FC]

This is another version of the old story:  The Sultan of Brunei walks into a room with nine members of the Little Sisters of the Poor and the average (mean) wage skyrockets.  Take that $4,000 figure with a couple of boxes of Morton’s Salt.

The Bottom Line 

So, what do we know?  We know that there’s no direct correlation between low top marginal rates for individual filers and wage increases.  We know that corporations make decisions about off shore operations for a variety of reasons, taxes being only part of the equation.  We know that corporations have several options for investing cash (foreign or domestic) only one of which — seemingly the least likely — is to pay increased wages and salaries.  We know that corporations use “financial engineering” to increase their stock value, or increase dividends to their shareholders.  We know that even accepting the 20-25% labor liability for corporate taxation the returns to labor are long (not short or annual) term benefits of little value in terms of household budgeting; it’s NOT like having any useful amount of “cash in your pocket.”

In short, we probably know what we’ve suspected all along.  The current Republican version of “tax reform” is simply a gift to corporations, extremely wealthy persons, and a nice gesture from the Haves to the Have Mores.

And for this we are to accept cuts in Medicare to the tune of $472.9 billion over the next ten years, between $1 and $1.5 trillion in cuts to Medicaid, cuts to food assistance programs, cuts to low income heating assistance programs, cuts to children’s health insurance, cuts to education, small business support, and Meals on Wheels….

Income Inequality Matters for Nevada’s Children

We ought to be embarrassed.  The Kids Count Data Book 2015 edition is out, and the numbers aren’t pretty.

“Nevada ranks 47th among states in overall child well-being, up one spot from last year. The study found that Nevada ranks 43rd in family and community development indicators, like children living in high-poverty areas; 46th in health statistics, like low birthweight babies; 46th in economic well-being, including parents lacking secure employment; and 50th in educational achievement, including 69% of Nevada’s children not attending pre-school.” [LVSun]

Yes, there we are, ranked down there with Louisiana, Mississippi, and New Mexico.   Overall, things aren’t looking up for children, and there’s an explanation:

“Although we are several years past the end of the recession, millions of families still have not benefited from the economic recovery,” Patrick McCarthy, president and CEO of the Casey Foundation, said in a statement. “While we’ve seen an increase in employment in recent years, many of these jobs are low-wage and cannot support even basic family expenses.” [LVSun]

And why might this be a correct assessment of the situation? There has been income growth since the end of the Great Recession, but the recovery has benefited those at the top –thus much for anything trickling down:

“The states in which all income growth between 2009 and 2012 accrued to the top 1 percent include Delaware, Florida, Missouri, South Carolina, North Carolina, Connecticut, Washington, Louisiana, California, Virginia, Pennsylvania, Idaho, Massachusetts, Colorado, New York, Rhode Island, and Nevada.” [EPI]

Nevada has made some improvements – if bouncing off the bottom is an indication of progress – in health, for example, 5% fewer children are without health insurance, and education in which 69% of our kids aren’t attending pre-schools, up from a previous 72%.  But, the economic picture is bleak at best.  23% of the youngsters live in poverty, 34% are in families experiencing what’s euphemistically called “employment insecurity,” and 39% of the kids live in a situation in which housing costs are eating up the family budget.  [AECfnd]

If we tread deeper into the income inequality waters we can see why the numbers for Nevada youngsters didn’t improve. Here’s the answer: “In four states — Alaska, Michigan, Nevada and Wyoming — average income increased exclusively for the top 1% and declined for the bottom 99%.” [247Wallst]  So, in the Silver State, not only did all the income growth get sucked up by the top 1% during the recovery, but the bottom 99% actually saw their incomes decline.

Most analyses get the first part right.  In the last downturn the bottom fell out of the construction sector in Nevada; the housing bubble burst, and employees were laid off.  Laid off employees have less discretionary income to spend, and less income equates to fewer purchases.  Fewer purchases yield less economic activity in the community, and everyone starts to go down hill.  When we get to the middle part of the explanation some analysts start getting fuzzy.

The question in the middle is how to encourage more employment.  For the umpteenth time here’s the answer:  There is no rational reason to hire anyone to do anything unless the DEMAND for goods and services is greater than the capacity of current staffing levels to provide an acceptable level of customer service.  Amen. Again.

The Small Business Chronicle offers some very sound advice which expands on this generalization.  Their five step process asks: (1) Are your projects or other business activities getting done on time? If yes, then you probably don’t need any additional employees. If no, or the business is thinking of more marketing to drive up revenues then ask (2)  if you were to increase your marketing efforts could your present staff handle the additional work load? The next step (3) is to look at your overtime records. One sure sign that the business is understaffed is increased overtime from current employees.  In the first step the business owner gauged the project or work time, in the next (4) step it’s important to look at the issue from the customer or client’s perspective – if the business is monitoring customer wait time and it seems (or is reported to be) excessive, then the business is understaffed. Finally, in Step (5) a savvy business owner will determine if the increases in demand are continual or seasonal. If seasonal, then temporary employee hiring may be the solution.

What’s not under consideration here?  The advice offered above didn’t include a question about whether Nephew Lester needs a job. Familial ties are wonderful, but they don’t constitute a reason to hire an employee.  Hiring veterans is a healthy business practice – but again, no matter the benefits, if his or her skills aren’t necessary to get things done or made on time, and if a barrel of overtime isn’t on the current books, there’s no rational reason to make a new hire.  Tax breaks for hiring the unemployed are fine – but just as in familial or socially beneficial cases, there’s NO reason to hire anyone for any tax break if there is insufficient good old fashioned demand for the products and services.   It’s at this point that the conservative, trickle down, no new taxes, barrage of talking points becomes almost ludicrous.

There is a wonderful leap of logic, stretching that term to its extrapolated limits, in asserting that more tax incentives, tax breaks, tax forbearance, tax limits, tax deductions, and tax treatments will magically yield more employment.   What is required is to believe that if a company is more profitable it will automatically hire more people.   Yes, a more profitable firm is capable of hiring more but NOT if there is no increased demand for the goods or services.  A more profitable firm has the potential for more hiring – but not if it is corporate policy to put more effort into mergers and acquisitions than into actual plant expansion. A more profitable company may hire additional workers but not if the firm has decided that it will put its revenue into stock buy-backs, dividends, or management compensation. Potential may be a powerful argument, but unless it is translated into a realistic appraisal of company or corporate intentions and vision it’s as ephemeral as a fruit fly.  And it’s not really useful for putting food on the table for the kids.

And, now we return to the economic problems of children. If the jobs available for their parents are seasonal, temporary, or permanent but low wage then all the job “expansion” in the nation isn’t going to improve their prospects.

Seasonal employment is relatively easy to understand.  It’s everything from harvest time to Christmas sales.  The sector of the labor market into which more parents are finding themselves is the temporary work force.  About 75% of Fortune 500 firms are relying on third party logistics companies to handle their warehousing, and employment in transportation and materials moving and production now accounts for some 42% of temporary hiring. [NELP]   The advocates of temporary hiring note that only about 3% of the workforce is on temporary status, which is true but doesn’t include the fact that temporary employment grew from just a bit over 0.5% in 1983 to over 2.5% as of 1999. [BLS] Further, the trend is increasing as this graphic from Staffing Industry illustrates in YOY growth from 2013 to 2015:

As this sector of the labor market increases the “employment security” of parents becomes more tenuous.  As long as this trend continues we’ll likely find more youngsters in that “parents lack secure employment category.” 

There’s no reason to believe that corporations in Nevada are functioning any differently than those in the rest of the country in terms of staunch adherence to the Shareholder Value Theory of Management, the interest in mergers and acquisitions rather than plant expansion in general, and the interest in utilizing temporary labor for logistics, warehousing, and service jobs.

In sum, there’s no rational explanation for hiring (temporary or permanent) which doesn’t relate directly to demand – and there’s no reason to expect demand to increase if the jobs created are temporary, low wage service or retail sector, and with reduced hours or misclassification of employees. Meanwhile the kids need housing, clothing, food, medical attention, and school supplies.

We ought to be embarrassed, but we probably won’t be until we can shake the 1% awake to the fact that profitability doesn’t necessarily equate to employment. To the fact that potential employment isn’t actual employment. To the fact that temporary employment isn’t secure employment, and to the fact that taxation has precious little to do with hiring the parents of Nevada’s children.

Battle Born and Still Squabbling: The Waning Days of the 78th Assembled Wisdom

Battle Born and still fighting.  Day 116 and the the squabble over revenue plans and priorities continues in the Assembled Wisdom.  See Let’s Talk Nevada for daily details.  The Latin Chamber of Commerce has lined up with the Governor’s proposal. [Slash Politics]  This makes some sense because those business interests which are opposing the Governor’s plan would actually pay very little under it. [Ralston] No, it doesn’t come as any surprise that those who are opposed to the plan don’t bear most of the burden, while supporters would pay a bit more than their share.

This morning’s agenda for Assembly Ways and Means includes SB 491, “Provides for the award of a grant to a nonprofit organization for use in Fiscal Year 2015-2016 and Fiscal Year 2016-2017 for the recruitment of persons to establish and operate high quality charter schools to serve families with the greatest needs..” 

Also on the agenda, AB 480, which would allow mortgage wholesalers from outside the state to act as mortgage brokers.  AB 481 would strike the limitations on the Consumer Affairs Commissioner and B& I Director to provide investigative assistance to the Attorney General in cases involving deceptive trade practices.

The Assembly Taxation Committee will take on SJR 13, the Settelmeyer, Gustavson, Goicoechea proposal to restrict property taxes — “no new taxes, and even less of the old ones” —  “This resolution proposes to amend the Nevada Constitution to limit the amount of certain property taxes which may be cumulatively levied per year on real property to 1 percent of the base value of the property. “ How does this fit with revenue plans and local government interests? It doesn’t.  The beast got out of the Senate on a 12-7 vote.  The city of Reno estimates it will cost about $8 million in lost revenue.

The Assembly Committee on Education will be looking at SB 509 which pertains to charter schools.  From the LCB analysis:

“Existing law requires an application to form a charter school to be submitted by a committee to form a charter school. (NRS 386.520, 386.525) Sections 21 and 22 of this bill authorize a charter management organization to apply to form a charter school. Section 2 of this bill defines the term “charter management organization” to mean a nonprofit organization that operates multiple charter schools. Section 21 also revises the required contents of an application to form a charter school. Sections 21 and 36 of this bill authorize a charter management organization to request a waiver of requirements concerning the composition of a governing body. Section 22 revises the manner in which a sponsor is authorized to solicit and review applications to form a charter school.”

“Existing law authorizes a sponsor to revoke a written charter or terminate a charter contract under certain conditions and requires a sponsor to take such action if the charter school demonstrates persistent underachievement. (NRS 386.535, 386.5351) Sections 5 and 27-29 of this bill: (1) authorize a sponsor to reconstitute the governing body of a charter school in such situations; and (2) revise the conditions under which such action is authorized or required.”

The Senate Education Committee will be looking at SB 92, which requires a teacher deemed minimally effective after the three year probationary period is reverted to probationary status.  And, then there’s the predictable assault on “seniority” as defined in master contract agreements:

“Existing law provides that when a reduction in the workforce is necessary, the board of trustees of a school district must not lay off a teacher or an administrator based solely on seniority. (NRS 288.151) Section 30 of this bill requires the board of trustees of a school district to consider certain factors when reducing the workforce. Section 30 also provides that, if two or more employees are similarly situated after the application of those factors, the decision by the board of trustees to lay off one or more of the employees may be based on seniority.”

Meanwhile, back at the Battle of the Budget……………..