Tag Archives: Trickle Down Economics

Income Inequality Matters for Nevada’s Children

child poverty

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.

First Law of Staffing

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.

tax incentives accounting 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:

temp jobs trendsAs 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.

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Filed under Economy, family issues, Nevada economy, Nevada news, Nevada politics, poverty, Taxation

Amodei and the Perils of the Second Question

Amodei 3I lasted for two questions and Amodeian Answers during last evening’s telephone town hall session.  The Second Question I  heard was from “Dorothy from Fernley” asking: “I live in Lyon County, what does the government plan to do to bring jobs…”

The previous post described the nature of any response on offer from Nevada’s 2nd District Congressman, Mark Amodei (R-NV2).  So, imagine the serpentine syntax and the following reply:

Representative Amodei was quick to let the caller know that the House had just passed a Jobs Bill, one that was a “general measure, instead of extending unemployment benefits.”

The Congressman didn’t specify what bill that was, but might have been referring to the Highway Trust Fund bill, or to the Federal Register Act, but those aren’t generally classified as “jobs” bills by the Republican leadership.  The bill to which he was most likely referring was H.R. 4718, amending the IRS code to make bonus depreciation permanent.  The bill “generally” helps businesses, and is an exemplar of Trickle Down in its almost pure form.

The bill passed on an almost  party line vote 258-160. [roll call 404] The Nevada delegation supported the measure. So, what would it do?

One rather brutal way to describe the bill is that it adds some $287 billion to the Federal budget deficit without doing much more than allowing businesses to write off the costs of capital improvements and investments more quickly.  [HuffPo]

If a person is waiting for a job in Yerington, Fernley, or Silver Springs — this bill doesn’t shorten the time. First, the corporation would have to make a capital investment or improvement, and the investment would have to be an expansion, and if it were an expansion, then it would have to expand in Lyon County…. you get the picture.  Describing the bill as “generally” promoting jobs is generous indeed.

More importantly, under the Austerian/Trickle Down Theory of Republican economics this kind of measure is supposed to have an overall stimulative effect.  First, bonus depreciation breaks have been in effect from 2008 to 2013.  Secondly, according to the Congressional Research Service report, (pdf) they weren’t all that stimulative:

“A temporary investment subsidy was expected to be more effective than a permanent one for short-term stimulus, encouraging firms to invest while the benefit was in place. Its temporary nature is critical to its effectiveness. Yet, research suggests that bonus depreciation was not very effective, and probably less effective than the tax cuts or spending increases that have now lapsed.”

It was a bust.  However, it was a tax break and Republicans believe, as an article of faith, that all tax breaks have a stimulative effect on the economy.

Not only was it a bust, but at the moment it is an expensive bust; again according to the CRS analysis:

“If bonus depreciation is made permanent, it increases accelerated depreciation for equipment, contributing to lower, and in some cases more negative, effective tax rates. In contrast, prominent tax reform proposals would reduce accelerated depreciation. Making bonus depreciation a permanent provision would significantly increase its budgetary cost.”

Remember how all those major corporations are forever telling us that the are paying the highest corporate tax rate in the Universe and that they can’t compete with other corporations based in foreign lands?  Well, here’s a tax break they can enjoy:

“Compared to a statutory corporate tax rate of 35%, bonus depreciation lowers the effective tax rate for equipment from an estimated 26% rate to a 15% rate. Buildings are taxed approximately at the statutory rate. Total tax rates would be slightly higher because of stockholder taxes. Because nominal interest is deducted, however, effective tax rates with debt finance can be negative. For equity assets taxed at an effective rate of 35%, the effective tax rate on debt-financed investment is a negative 5%. The rate on equipment without bonus depreciation is minus 19%; with bonus depreciation it is minus 37%.”  [CRS pdf]

Someone has to love the part wherein the capital improvements or investments are financed, the interest is deducted, and the effective tax rate can be a negative — what’s not to love? Except:

#1. The tax break was supposed to be a temporary stimulus for business expansion, with a temporary incentive for business spending.

#2. The way the current bill is drafted it’s going to cost the Federal government about $263 billion in lost revenue — from corporations, not the little guys.

#3. The CBPP informs us: ” Under current law, companies pay far less than the statutory 35 percent corporate tax rate on the profits flowing from those investments.  In some cases, they pay nothing and actually receive a tax subsidy.  Bonus depreciation only increases this favorable tax treatment.”

While the residents of Lyon County, Nevada are waiting for some business to expand and start hiring — the accountants at the corporate HQ of Soakem & Runn, Inc.  are tasked with finding yet more ways they can reduce their federal tax liability.  Therefore, the Lyon County residents must wait for the corporation to take its deductions, decide to use the money saved to expand the business, decide to locate the firm’s new improvements in the county, and take the plunge to build or expand operations.  Please do not hold your breath during this process.

Meanwhile, the extension of unemployment benefits, so disparaged by Representative Amodei have a far more immediate stimulative effect on the economy.

When we were discussing the extension of unemployment benefits back in 2011, the Congressional Budget Office estimated (pdf) that the cost of the extension would be approximately $44.1 billion during the first year. [Roosevelt Inst]  Yes, there is a cost, but the money circulates back into state and local economies.  The Congressional Budget Office estimated more recently that not extending unemployment benefits puts an approximate 0.2% “drag” on the overall economy. [CNN]  The percentage may not sound like much but when we consider that our gross national product is $17,268.7 billion [FRED] that isn’t chump change.

Instead of waiting for Soakem & Runn, Inc. to decide whether to use the new tax break for any expansion, and to determine what kind of expansion that will be, and if it will actually be in the county — Lyon County citizens might pin their hopes more realistically on the continued growth in the American GNP:

US GNP

With all due respect, they’ll have a shorter wait watching the GNP and GDP charts than they’ll have waiting for the corporations to decide how to apply their new tax breaks.  However, there’s more, as Representative Amodei tried to get more specific about Lyon County.

He referred to the need to pass the “Yerington Bill” which would create jobs and passed in the 112th Congress, but not in the present 113th.  Again, we’ll have to speculate that he meant the bill to assist the Pumpkin Hollow Mining operations, [PHM] one which has previously gotten itself mired in partisan politics, wherein an amendment was attached allowing Border Patrol agents to bypass environmental laws they deemed too restrictive.  [LVSun]

Representative Horsford (D-NV4) and Senator Heller (R-NV) are both supportive of the bill so it may have some future… but again the residents of Lyon County will have to wait.   It’s July 16th, and the House is only scheduled to be in session for nine more days until the month long August break, after which the House will have ten working days in September, another two in October, seven in November, and finally another eight working days in December. [House Cal. pdf]  That leaves a total of 36 legislative working days from now until the end of the year.  Again, Lyon County residents might want to just keep watching the GNP and GDP trends.

 

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Filed under Amodei, Congress, corporate taxes, Economy, Nevada economy, Nevada politics, Politics, tax revenue, Taxation

Welcome To The Romney Used Ideas Lot

Best Line So Far From A Nevada Blog: “Romney doesn’t have an economic plan. He’s got a speech for a chamber of commerce breakfast.”  Nailed. It.

The concept could be extended to incorporate the notion that the Romney “plan” as currently articulated IS the Chamber of Commerce List For Santa.  Here’s their legislative goal for financial regulation: “Engage regulators to ensure that rules and proposals facilitate capital formation and market efficiency. Top priorities include derivatives, consumer protection, executive compensation, and corporate governance.”  What’s missing here?

Investment.  The Chamber wants the facilitation of capital formation, and it wants “market efficiency,” but conspicuously absent from the sentence is how the financial market and the capital accumulated therein should invest in America.   We’ve seen what happens when capital accumulates within the financial markets — The Wall Street Casino.   Heaven Knows, Nevada’s experienced a housing bubble and consequent economic collapse caused by  the avaricious appetite in the investment sector for mortgages to bundle, slice, dice, and use for derivative fodder.

The crucial problem for the Romney campaign is how to sugar coat the obvious failure of Trickle Down economics.

The Romney Plan relies on the hoary canard that cutting taxes for wealthy Americans will automatically create economic growth.

“Romney’s proposal to give every American a tax cut is a giveaway to the rich that is four-times larger than the Bush tax cuts. Half the benefit would go to the richest five percent of Americans, and each member of the top 0.1 percent would get at least a $264,000 cut. Romney says he will balance the cuts with the closure of tax loopholes, but he can’t name which ones he’d close and even if he did, the plan wouldn’t generate enough revenue to offset revenue lost to tax reductions. His corporate tax plan, meanwhile, results in more than $1 trillion in tax cuts.”  [TP]

Arithmetic.  The Romney camp sputters that the Democrats aren’t citing more recent variations and explanations offered by their campaign.  However, if there are not specifics forthcoming then what else are people trying to evaluate the efficacy of the plan supposed to do — especially when the “plan” changes at every whistles-stop and television interview?

One recurring theme from the Romney campaign says, the Governor is just setting forth a “vision” and he and the Congress will work out the details.  Lovely, but anyone can spout generalities about “freedom,” “prosperity,” and “economic growth,” what prevents visions from become hallucinations  and nightmares are details — preferably ones grounded in economic realities.

This graphic demonstrates something the Romney campaign would rather not discuss:

The point of the illustration is clear, even if the statistical references may be baffling to some, THERE IS NO CORRELATION BETWEEN LOW TAX RATES AND ECONOMIC GROWTH.  [Original Study CRS pdf]

Back to that Chamber of Commerce breakfast program.  What Governor Romney is trying to sell is the idea that Wall Street, left to its own devices, will invest in the American creation of more goods and services, even though it can be demonstrated mathematically that the lower marginal tax rates and lower capital gains taxes DO NOT correlate to economic growth.

Or, perhaps more simply, Governor Romney would have us believe that he has a economic plan which fails both arithmetically and mathematically — but he should get our votes anyway.

How many among us would purchase a used car in order to get to work, knowing full well it doesn’t run now — and in fact — it never has run as advertised?

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Filed under 2012 election, Economy, financial regulation, Republicans, Romney