http://jaredbernsteinblog.com/what-should-states-do-about-the-new-tax-law/
While everybody's been trying to figure out what the Republican tax plan means for families, paychecks, and the federal budget, there's another important group of stakeholders that hasn't gotten enough attention: states. Yes, the capping of the state and local tax deduction (SALT)—one of the bill's more substantial payfors (it's expected to raise over $600 billion over the next decade)—got elevated during the debate. But now that the new code is in place, what does it mean for state finances, what are states planning to do about it, and what should they do?
The fact that every state interacts differently with the federal tax code means that there's no simple answer to this question, but here's why trying to figure this out is so critical. Those of us concerned about maintaining what we've achieved in terms of progressive social policies are focused on at least two things. First, not losing what we've got, and second, making further progress at the sub-national level.
The first goal requires fighting it out around the federal budget and in battles over national policies, like health care and taxes. But regarding the second goal, there's a trap embedded in their tax plan into which we must not fall: shifting the funding of progressive policies to the states, while making it harder for the states to support them.
Whether it's Medicaid, SNAP (food stamps), education, job training, infrastructure, or any other anti-poverty program or public good, the R's strategy is to shrink the federal role by making states responsible for the programs. They sell this under the rubric of "block grants," with the sales job that states can do a better job administering programs. In fact, states already administer such programs on the ground. The block grant is just a code word for a frozen budget. If you don't believe me, see the TANF block grant, which has been frozen in nominal terms since the mid-1990s.
OK, so I'm onto their plot. What does any of this have to do with the tax plan?
The answer comes from a new paper by two of my CBPP colleagues—Michael Leachman and Michael Mazerov (or, factoring: Michael(Leachman, Mazerov)). Because some states link to the federal code in a way that will raise state revenues, some state policy makers want to cut taxes because they think their state will get a revenue windfall.
Depending on the existing linkages (state to federal), some revenue raisers in the fed code will also raise state revenues. For example, some states have personal exemptions that mimic the federal ones, so the fact that the new fed code gets rid of these exemptions means more revenues to these states. That is, however, as LM point out, a highly regressive revenue raiser.
Other linkages have similar effects, including the reduction in the mortgage interest deduction and the SALT cap, which raises state revenues because state taxpayers that get fewer itemized deductions will have higher taxable incomes.
But just like the overall tax plan loses much more than it collects—i.e., it is deficit financed—LM point out that "roughly 29 states will lose revenue, see no impact, or see modest revenue gains totaling less than 1 percent of general fund revenue…And in many of those states that could see larger revenue boosts, the added revenue would come disproportionately from lower-income families (due to the elimination of the states' personal exemptions), which would partially reverse states' substantial progress in recent decades in eliminating income taxes for families in poverty."
In fact, as the figure reveals, the federal tax cuts for the richest 1 percent of households alone, whose average income is over $2 million, will amount to about $80 billion this year. "Even under generous assumptions, states will net [about] $7.5 billion to $10 billion in new personal income tax revenue this year…roughly one-tenth of the total windfall for the top 1 percent." [These estimates are by the invaluable tax analysts at ITEP.]
Further tax cuts at the state level would thus be a serious mistake, one that would both compound the dis-equalizing impacts of the federal change, while making it harder for states to support economically vulnerable populations. Instead, states should:
–Decouple from the federal code on personal exemptions, as any revenue gained through that route is too regressive. Similarly, states should consider decoupling on standard deductions (the new fed code doubles them, so this is a revenue loser for states that link to it), the estate tax, and expensing provisions.
–Build up their reserves to a) offset the R's attempts to shift anti-poverty funding responsibilities to the states, and b) be ready for the next downturn (LM point out that state budgets, while largely recovered, still have balances below where they need to be in this regard).
–Do not enact further tax cuts.
–Consider tax changes that would hold state taxpayers harmless from the SALT cap. A number of these ideas have surfaced in recent weeks, though they're complex and may invoke "technical and legal challenges."
–Improve their revenue outlooks by clawing back some of the windfalls the tax plan bestows on the wealthiest households.
Given the pace at which this benighted tax plan was jammed through, there's considerable uncertainty regarding its impacts. In my own writings, I've stressed the incentives for US multinationals to increase their offshore production, leading to revenue losses for both the state and federal coffers. Bevies of tax lawyers are finding new loopholes every day, underscoring my strongly held view that the revenue losses will go well beyond initial estimates.
All of which pushes toward states not doubling down on further tax cuts, nor allowing these changes to undermine their abilities to make up for the loss of federal support for progressive programs. The conservative playbook is to shift funding sources to the states, while cutting states' abilities to raise such funds off at the knees. It's an evil plan, and it must be resisted.
-- via my feedly newsfeed
PRINCETON – Most discussions about the march of robotics and artificial intelligence (AI) have understandably concentrated on fears of massive job losses. But the implications of these technologies are actually far more terrifying. We have been brought to the brink of an alarming evolutionary transformation, not just of human capacities, but of the individual self.
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History provides only a partial guide for the uncertain future we face. What we know from the first Industrial Revolution is that new technologies can fundamentally alter humans and other species. The key to this process, according to Cambridge University's Tony Wrigley, the great historian of the era, was the replacement of human- and animal-driven mechanical energy by more productive forms, such as coal and other fossil fuels.
To be sure, the large-scale devaluation of human and animal muscle power did not happen immediately. At first, many auxiliary tasks – including mining the coal, or creating intermediate products in workshops – still required enormous physical exertion. But, after around two centuries, physical strength was rarely in demand.
Gradually, the basic nature of work had changed. By the late twentieth century, farmers sat on tractors, and even coal mining had become largely mechanized. There were few people in developed economies still earning incomes from the sweat of their brows.
Human physiognomy also changed, especially when the Industrial Revolution's full potential was realized. Sedentary lifestyles produced visibly different people. Waistlines expanded as previously salubrious diets, needed to fuel massive physical exertion, became increasingly unhealthy.
Some people saw these changes happening, and worried about them. A growing minority started to pursue intense physical activity not in fields or factories, but in leisure settings. The sweat of one's brow was no longer associated with productive work, but with consumption – often conspicuous consumption. Gyms became new sources of community. And as coworkers started to exercise together, enlightened employers came to see such recreation as a valuable source of physical and mental wellbeing.
The Industrial Revolution was driven by mental activity. Another way of thinking about it, then, is as an "industrious revolution," a term advanced by Jan De Vries of the University of California, Berkeley, Joel Mokyr of Northwestern University and the University of Tel Aviv, and other historians. In an industrious revolution, inter-connected groups of innovators compete with one another to devise new solutions to existing problems, resulting in a virtuous circle.
By putting a premium on mental endeavors and making physical routines obsolete, the transformation over the past three centuries gave people more opportunities to think. As humankind's collective intelligence rose to new heights, the dream of human perfectibility emerged. But that, we now know, was an illusion. The level of intellectual attainment that resulted from the Industrial Revolution may turn out to have been a plateau.
The technological revolution now underway is generating a different sort of replacement. Many tasks that once required human intelligence – making connections and drawing inferences; recognizing patterns; tracing the implications of complex events – are now better handled by AI applications. Whether the job is to scan thousands of pages of legal contracts for inconsistencies, or to make radiological assessments, an algorithm can now do it more reliably and less expensively. Soon, this will also be true of driving a vehicle.
At the same time, modern behavioral economics has shown that human thought can introduce irrational elements into otherwise straightforward processes. The search is on to discover and control for characteristics of the human mind that could produce distorting, unproductive, or inefficient results. Apparently, the next stage in human perfectibility will require us to give up independent thinking and judgment altogether.
AI and automation have obvious implications for employment. But they will also affect the human mind. The jobs of the future, most of them in the services sector, will require a different set of skills, particularly interpersonal skills that robotic applications – even Siri or Alexa – cannot provide. The ability to perform complex calculations or sophisticated analyses will be far less important.
The problem is that many older activities – be it driving in difficult conditions on a mountain road or taking on a complex legal case – are a source of fulfillment for countless people, because they provide opportunities to confront difficult, intrinsically motivated challenges. Soon, those activities, like plowing a medieval field, may be lost forever.
Worse still, ample evidence shows that people may have reason to regret retiring from mentally demanding jobs and embarking on a life of leisure. It turns out that not having to think on a regular basis is neither restful nor enjoyable. On the contrary, it tends to lead to poor mental and physical health, and a deteriorating quality of life.
The elimination of countless cognitive tasks has alarming implications for the future. Just as the Industrial Revolution made most humans physically weaker, the AI revolution will make us collectively duller. In addition to flabby waistlines, we will have flabby minds. It's not the economy, stupid; it's the stupid economy. Already, central banks are urgently exploring new ways to dumb down their statements for an increasingly unsophisticated public.
Mass stupidity will be driven by technology. But, as with the cult of physical fitness that took hold during the Industrial Revolution, a new industry of intelligence training will likely emerge to counter mental deterioration. Listening to someone constructing a logically articulated argument will become an exclusive source of aesthetic pleasure and distinction. "Difficult" works of literature or visual arts will become an ever more attractive form of conspicuous consumption.
And yet something about this seems deeply unpleasant. It is bad enough to listen to people boast about their physical fitness. But braggadocio about superior intellect will be far worse. The need to prove oneself as a lasting relic of the old human supremacy will threaten not just the common good, but also our common humanity.