Fwd: Elizabeth Warren's Medicare for All Plan

via Portside:

Elizabeth Warren's Medicare for All Plan     David Dayan November 1, 2019 The American Prospect The deeply detailed proposal includes no new taxes on the middle class. It cuts health care costs and finds other revenues, saving ordinary Americans $11 trillion in premiums and deductibles , Cheryl Senter/AP Photo   Presidential hopeful Elizabeth Warren today released a much-anticipated plan to finance Medicare for All, which she says would require no new taxes on middle-class families. New revenues to fund the single-payer system come mostly from an employer head tax; additional taxes on large corporations, banks, investors, and the wealthy; and military budget cuts. Significant savings to the cost of providing health care, roughly $7 trillion over ten years, also help to reduce the price tag. The financing does not include Warren's signature wealth tax, though she does add a 3 percent surtax on wealth over $1 billion. In shifting this financing mix, $11 trillion currently paid by individuals in insurance premiums and deductibles would go back into Americans' pockets. Individuals would still pay the current taxes on Medicare, and whatever taxes fund the state share of health programs, but nothing more. Premium payments and co-pays would be wiped away. The result is "substantially larger than the largest tax cut in American history," Warren writes in a Medium post on the proposal, framing it as something that significantly lowers overall costs to everyday families. "We can meet these commitments without a tax increase on the middle class—and, in fact, without any increase in income taxes at all." The detailed plan will test the limits of voter endurance: The Medium post clocks in at over 9,300 words. But the concept is quite simple: Figure out what it costs to pay for health care for the entire country, figure out how much you can reduce that spending, add in health funding that the government already pays for, and then make up the difference. The whole thing is kind of a ridiculous political exercise, a burden placed upon single-payer advocates that other health care reform plans never have to shoulder. Warren perhaps hopes that she can drill down to such detail to take the issue off the table politically, and challenge other campaigns to step up with similar substance. But in doing so, Warren's team incorporates a number of other policy preferences outside of health care, including comprehensive immigration reform, banking regulation, initiatives to fight inequality, antitrust enforcement, boosts to unionization, tax compliance, anti-corruption measures, military spending, and more. It really reflects an entire agenda and value set that values working families over the oligarchs currently running roughshod over America. While there would be enormous challenges to advancing such a complete economic and social transformation, the plan does a meticulous job of answering the nagging "how will you pay for that" question, while attempting to shift the debate by foregrounding the significant benefits of universal coverage, and the personal freedoms it would usher in. "It gives her a chance to put her stamp on it," Representative Pramila Jayapal (D-WA), author of the Medicare for All bill in the House, told me earlier this week, before the Warren plan came out. And if nothing else, this plan does that. Here's how it breaks down. Driving Down Costs Warren's plan is modeled after the Medicare for All Act, introduced by fellow presidential candidate Bernie Sanders. But that plan doesn't outline exactly how to handle reimbursement of doctors and hospitals, prices for prescription drugs, cuts to administrative costs, and handling of existing state funding of Medicaid. Warren's team tries to fill in these gaps and explicitly identify the savings, relative to an estimated $59 trillion in national health spending under Medicare for All over ten years, contained in an analysis from the Urban Institute. The campaign leaned heavily on Don Berwick, President Obama's head of the Centers for Medicare and Medicaid Services, the governing body for those federal programs. Berwick has been a single-payer advocate for years since exiting the Obama administration, most recently in a USA Today op-ed. He is as knowledgeable as anyone on how the health care system works, and therefore perfect for analyzing how to realize savings. If anything, the steps on costs are conservative, considering the U.S. pays nearly twice as much as most industrialized countries on national health expenditures. The plan envisions dropping administrative spending—the cost of billing and accounting and haggling with different providers—from 12 percent of premiums collected, as with private insurance, to 2.3 percent, which is Medicare's approximate expense. That alone knocks $1.8 trillion off the total cost. Then, Warren's team goes after high provider prices, easily the biggest driver of health cost inflation. The plan calls for reimbursing physicians and outpatient providers at current Medicare rates, while reimbursing hospitals at 110 percent of Medicare rates. There would be adjustments to that mix, like more reimbursement for primary and preventive care (which could generate its own cost savings), and less for specialty care. Rural and teaching hospitals would get higher reimbursements. And all providers would benefit from simpler administrative processes, lower drug prices, more patients with insurance, and the lifting of uncompensated care. In addition, Warren proposes ending large geographic cost variances (where hospitals charge wildly different rates for the same treatment), slashing overpayments for rehabilitation and palliative care, and expanding bundled payments that cut down on fee-for-service medicine. All the provider-related savings trim another $2.9 trillion. On prescription drugs, Warren explicitly promises to reduce brand-name drug prices by 70 percent, and generic prices by 30 percent. She gets there by negotiating all purchases of pharmaceuticals (unlike the 25 high-cost drugs envisioned in House Democrats' H.R. 3) and setting a ceiling of 110 percent of an international index as the highest possible price. If negotiations fail, the plan calls for seizing pharmaceutical patents and licensing them to competitors, or manufacturing them directly, as Warren called for in a bill released late last year. That saves $1.7 trillion, all told, and considering the limited negotiation in H.R. 3 brings an estimated $345 billion in savings, that's a reasonable number. All told, Warren seeks to slow growth of health care costs over time in line with future expected GDP growth (roughly 3.9 percent). And if the aforementioned options don't get there, Warren suggests using automatic reimbursement reductions or global budgeting, where hospitals get a set amount of money annually as payment. Hitting the growth target, according to the estimates Warren's team provided, would save another $1.1 trillion. One policy Warren identifies but sets no cost savings for is antitrust enforcement of the health sector. Virtually every part of the health system is incredibly concentrated; research from Cal-Berkeley's Brent Fulton shows that 90 percent of all metropolitan areas have highly concentrated hospital markets, buoyed by 1,667 hospital mergers in the past 20 years. The concentration goes across the chain, from outpatient clinics to group purchasing organizations that raise the cost of medical supplies to pharmacy benefit managers that increase drug costs, and on and on. Warren has vowed to block all health sector mergers unless they prove that they will maintain or improve care, and rein in anti-competitive behavior sector-wide. But the bean-counters put no savings toward this, despite documented evidence that market power explains much of the rise in health care prices. In fact, a lot of the potential cost savings aren't really accounted for in the Warren plan, like the benefits of widespread preventive care in eliminating the need for more expensive treatments down the road. That's part of why this whole exercise is somewhat foolish, governed by a Congressional Budget Office whose assumptions are often mercurial and frequently mistaken. Nevertheless, adding up all the savings knocks around $7 trillion off the Urban Institute's $59 trillion, ten-year figure for total health expenditures. In essence, this means that you can cover 24 million more Americans, and ensure that another 63 million aren't underinsured, with the expansion paying for itself through bringing U.S. health care more in line with international norms. Using the Dollars Already in the System From that $52 trillion figure, Warren's team then fills in all the existing payments and taxes that the government already puts toward health care. Federal spending through Medicare taxes, as well as Medicare and Medicaid health spending financed by general taxes, comes to a little over $25 trillion over the ten-year period. Then there's another $6 trillion that reflects the state and local government share of spending for health programs like Medicaid, the Children's Health Insurance Program (CHIP), and coverage for government employees. By using a "maintenance of effort" function that keeps those states paying the same amount for Medicare for All, that lowers the new revenues needed even further. Because overall health spending growth will reduce over time, states will end up spending less through this maintenance of effort provision than they would under current law. After doing the math, Warren's team projects that new government revenues necessary to finance Medicare for All would come to $20.5 trillion. Paying the Difference Warren's biggest mechanism to fill this gap amounts to an employer head tax. The plan estimates that all businesses with over 50 employees—who must provide health care to workers or pay a fee under the Affordable Care Act's employer mandate—will pay around $9 trillion over the next ten years on coverage. Through a complicated formula, the plan creates an employer Medicare contribution that's around 98 percent of the average cost per employee. This means that businesses would save $200 billion in health care costs over ten years. Part-time employees would count toward that per capita total, along with those workers seen as independent contractors today, who would fall under Warren's expanded definition of an employee. Small businesses under 50 employees would be exempt from the head tax unless they're providing employee health care today. Pass-through businesses like law firms and private equity firms would have to pay the head tax. In an ingenious twist, employers operating under a collective-bargaining agreement would have their head tax reduced, if they pass any savings under that to workers in wages or benefits. In other words, the plan would incentivize collective bargaining, not just for workers, but for employers as well. In all, this estimates revenues of $8.8 trillion, over 40 percent of the way to the total. If it doesn't get there, Warren would trigger a supplemental tax on companies with high executive salaries and large amounts of stock buybacks. Repeatedly in this plan, she discourages behavior she wants to get rid of, and vice versa. The next bucket of money may be a little tricky. Because workers will not contribute to health insurance through their paycheck, Warren's team presumes they will take home that pay. That additional $3.7 trillion in workers' pockets would constitute newly taxable income, and therefore another $1.15 trillion in tax revenue. This assumes that employers won't assess a "fair share fee" to have workers pay for health care, which you could envision happening. A senior Warren aide doubted this would take place, because employers make out better under the plan than what they contribute today. But that's not true for large corporations and multinationals, as we'll see. The question of whether workers will realize higher take-home pay after Medicare for All is a critical one, and not a complete slam dunk in my view. It is true that workers won't have to bother with health savings accounts to shelter money for medical costs, or tax deductions for medical expenses. That saves another $250 billion. The plan gets another $2.3 trillion by collecting what is already owed to the government. Warren goes about reducing the gap between the taxes people are supposed to pay and what they actually do by adding significant enforcement funding, expanding tax compliance measures, and redirecting audits to high-income earners. Then there are targeted taxes on the financial sector: a 0.1 percent financial transaction tax on stocks, bonds, and derivatives, and a "systemic risk" fee on banks with more than $50 billion in assets. Ironically, the latter fee was part of Dodd-Frank until Scott Brown, whom Warren replaced in the Senate, forced the fee out as a condition for his vote. These two taxes reap another $900 billion. Warren would close the expensing loophole, which allows businesses to realize the full cost of equipment investments up front. She would increase the minimum tax on multinationals that park earnings abroad to 35 percent, while prohibiting deferring those tax payments. She would put a tax on the domestic sales of foreign firms as well. That adds $2.9 trillion. There's an expansion of the "two cent" wealth tax through a surcharge of an additional three cents on wealth over $1 billion. Warren would also include a "mark-to-market" system of annually collecting capital gains taxes based on gains from that year, rather than only collecting capital gains on a sale. Senator Ron Wyden (D-OR) has proposed this change. A total of $3 trillion comes from these two changes. Another $800 billion comes from eliminating an egregious slush fund for military spending called Overseas Contingency Operations, or OCO. This was supposed to be a short-term fund to finance war fighting, but has become a way to increase military budgets magically without counting the spending. Finally, Warren applies the increased revenues from comprehensive immigration reform, around $400 billion according to an earlier estimate of an immigration bill from 2013. That revenue comes from taking the undocumented out of the shadows and giving them a path to citizenship, whereupon they pay federal taxes. To actually use such a pay-for, you would have to put the immigration bill into the Medicare for All bill; either one of them alone would be a heavy lift to pass, let alone both together. All told, this $11 trillion in new revenue would still put America in the middle of the pack among developed nations in terms of taxation. The Politics In theory, that all costs out, according to top economists like MIT's Simon Johnson, former Obama Council of Economic Advisers member Betsey Stevenson, and Moody's Mark Zandi. The financing pays for a universal single-payer system without new taxes on the middle class. Individuals would pay for health care, of course, just as they do now: through dedicated Medicare taxes, and state and federal taxes that get put toward health care programs. But that would be it. More than anything, this comprehensive assessment allows Warren to pivot. Other candidates can quibble with her numbers, but she starts from the base of giving Americans back $11 trillion in individual premium and deductible payments. She can now assert the principles she leads her Medium post with, that nobody should go bankrupt in America from high-cost health care, that nobody should endure the hassle of determining in-network doctors and what treatments insurers will cover, that nobody should die from lack of access. She can lead on values instead of costs and financing. "Every candidate who opposes my long-term goal of Medicare for All should put forward their own plan to cover everyone, without costing the country anything more in health care spending, and while putting $11 trillion back in the pockets of the American people," Warren writes, turning the tables on her opponents. "If they are unwilling to do that, they should concede that they think it's more important to protect the eye-popping profits of private insurers and drug companies and the immense fortunes of the top 1% and giant corporations." I could see hardcore Sanders supporters cherry-picking the words "long-term goal" and claiming that Warren is not committed to getting Medicare for All done. But this plan is so wrapped up with her other concerns, and so in line with her populist message, that I think it will pass the test for most single-payer fans. And it allows her to go on offense against Joe Biden, Pete Buttigieg, and others, asking them why they don't cover everyone, why they don't cut costs, why they don't want to end the horror of medical bankruptcies and unnecessary deaths. "We need plans, not slogans," Warren concludes. Read the original article at Prospect.org. Used with the permission. © The American Prospect, Prospect.org, 2019. All rights reserved.  Read the original article at Prospect.org. Used with the permission. The American Prospect, Prospect.org, 2019. All rights reserved.  Support the American Prospect. Click here to support the Prospect's brand of independent impact journalism       Interpret the world and change it     Submit via web Submit via email Frequently asked questions Manage subscription Visit portside.org Twitter Facebook

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Jared Bernstein: October jobs report: Robust job growth minus wage pressure equals NOT-full-employment. [feedly]

October jobs report: Robust job growth minus wage pressure equals NOT-full-employment.
http://jaredbernsteinblog.com/october-jobs-report-robust-job-growth-minus-wage-pressure-equals-not-full-employment/

Payrolls rose 128,000 last month, well above expectations for 85K, and job gains in the prior two months were revised up by 95,000 (a sizable upward revision). Also, the October gain of 128K was dampened by the absence of about 50,000 striking workers at General Motors who are now back at work as the strike ended. In other words, despite slowing global growth, political uncertainty, weakening trade flows hit by the trade war, the U.S. job creation machine remains in high gear.

What's missing–and it is a serious omission–is wage growth. Yes, wages are rising at a decent yearly clip of around 3% and importantly, they're beating inflation which is running below 2%. But if anything, wage growth, at least for the series in this report, has decelerated in recent months (see figures below; another series show flattening; none show acceleration). This, along with weak inflation data, strongly suggests the labor market is not at full employment. If it were–if labor demand was strong enough to trigger clear supply constraints–we'd see be seeing considerably more wage pressure.

The unemployment rate ticked up to 3.6% last month, but for good reasons: more workers entering the workforce, as the labor force rate also ticked up slightly. At 63.3%, it's the highest it has been since August 2013. More important, since the overall rate includes elderly people leaving the job market for retirement, the closely watched prime-age employment rate rose to 80.3%, climbing back for the first time to its 2007 peak. This is evidence that persistent, high-pressure labor market is pulling people in, and another indicator that labor market capacity is greater than many believed to be the case earlier in the recovery.

Another indicator of the benefits of running a high-pressure job market is seen in the African American unemployment rate, which at 5.4%, hit an all-time low last month with data going back to 1972. Due in part to systemic racism, black unemployment rates–at all education levels–are higher than those of whites. Pushing the other way, however, is the fact that minority workers often respond more strongly than whites to cyclical gains of the type we've been seeing of late. It is thus notable that over the past three months (August, September, and October) the black/white unemployment gap has been the lowest on record. Since 1972, the average gap (black unemp – white unemp) has been about 6 percentage points. Over the last three months, it was 2.1, 2.3, and 2.2 respectively.

Readers know that we use our monthly smoother to boost the signal-to-noise ratio in the payroll data by taking averages of monthly gains over 3, 6, and 12 month periods. This month's smoother has an extra set of bars, as we've (where "we" means the remarkably efficient Kathleen Bryant) added 50K back into the payroll gains to account for the strike. Doing so reveals a quite strong pace of job gains over the past 3 months of 192K. The 12-month average yields a longer-run trend of around 180K, also a strong number, and easily big enough to keep the unemployment rate below 4 percent for the near future.

So where's the wage pressure? The next two figures show wage growth clearly accelerated as the job market tightened, then stalled in recent months. I'm sure some commentators will make the point that as unemployment has bottom out in the mid-3's (i.e., it's not been falling further), we shouldn't expect wage acceleration. (Technically, this argues wages are on the wage-Phillips-curve line.) It's a fair point, but it also implies that employers are not facing pressures to further bid up pay to get and hold onto the workers they need to meet the demand for the goods and services they're selling. And absent these pressures, along with a) weak inflation data and b) the higher participation figures cited above, the fact remains that while the U.S. job market is going strong, it's not yet at full employment.

 

 -- via my feedly newsfeed

Chile: The Poster Boy of Neoliberalism who Fell from Grace [feedly]

I am allergic to "neoliberalism" rants (for most, just a shamefaced way ranting against capitalism). But Branko Milanovic rundown on Chile is on the money, and I KNOW what HE means by the term, since he does the courtesy of spelling it out.  I call Milanovic, the Eeyore of economics. :)

Chile: The Poster Boy of Neoliberalism who Fell from Grace
https://www.globalpolicyjournal.com/blog/30/10/2019/chile-poster-boy-neoliberalism-who-fell-grace

Branko Milanovic explores the meaning of recent protests in Chile.

 

It is not common for an OECD county to shoot and kill 16 people in two days of socially motivated riots. (Perhaps only Turkey, in its unending wars against the Kurdish guerilla, comes close to that level of  violence.) This is however what Chilean government, the poster child of neoliberalism and transition to democracy, did last week in the beginning of protests that do not show the signs of subsiding despite cosmetic reforms proposed by President Sebastian Piñera.

 

The fall from grace of Chile is symptomatic of worldwide trends that reveal the damages caused by neoliberal policies over the past thirty years, from privatizations in Eastern Europe and Russia to the global financial crisis to the Euro-related austerity. Chile was held, not the least thanks to favorable press that it enjoyed, as an exemplar of success. Harsh policies introduced after the overthrow of Salvador Allende in 1973, and the murderous spree that ensued afterwards, have been softened by the transition to democracy but their essential features were preserved. Chile indeed had a remarkably good record of growth, and while in the 1960-70s it was in the middle of the Latin American league by GDP per capita, it is now the richest Latin American country. It was of course helped too by high prices for its main export commodity, copper, but the success in growth is incontestable. Chile was "rewarded" by the membership in the OECD, a club of the rich nations, the first South American country to accede to it.

 

Where the country failed is in its social policies which somewhat bizarrely were considered by many to have been successful too. In the 1980s-90s, the World Bank hailed Chilean "flexible" labor market policies which consisted of breaking up the unions and imposing a model of branch-level negotiations between employers and workers rather than allowing an overall umbrella union organization to negotiate for all workers. It was even more bizarrely used by the World Bank as a model of transparency and good governance, something that the transition countries in Eastern Europe should have presumably copied from Chile. The brother of the current Chilean president, scions of one of the richest families in Chile, became famous for introducing, as Minister of Labor and Social Security under Pinochet, a funded system of pensions where employees make compulsory contributions from their wages into one of several pension funds, and after retirement receive pensions based on investment performance of such funds. Old-age pensions thus became a part of  roulette capitalism. But In the process, the pension funds, charging often exorbitant fees, and their managers became rich. José Piñera had tried to "sell" this model to Yeltsin's Russia and to George Bush's United States, but, despite the strong (and quite understandable) support of the financial communities in both countries, he failed. Nowadays, most Chilean pensioners receive $200-$300 per month in a country whose price level (according to International Comparison Project, a worldwide UN- and World Bank-led project to compare price levels around the world) is about 80% of that of the United States.

 

While Chile leads Latin America in GDP per capita, it also leads it terms of inequality. In 2015, its level of income inequality was higher than in any other Latin American country except for Colombia and Honduras. It exceeded even Brazil's proverbially high inequality. The bottom 5% of the Chilean population have an income level that is about the same as that of the bottom 5% in Mongolia. The top 2% enjoy the income level equivalent to that of the top 2% in Germany. Dortmund and poor suburbs of Ulan Bataar were thus brought together.

 

Chilean income distribution is extremely unequal. But even more so is its wealth distribution. There, Chile is an outlier even compared to the rest of Latin America. According to the Forbes' 2014 data on world billionaires, the combined wealth of Chilean billionaires' (there were twelve of them) was equal to 25% of Chilean GDP. The next Latin American countries with highest wealth concentrations are  Mexico and Peru where the wealth share of billionaires is about half (13 percent of GDP) of Chile's. But even better: Chile is the country where billionaires' share, in terms of GDP, is the highest in the world (if we exclude countries like Lebanon and Cyprus where many foreign billionaires simply "park" their wealth for tax reasons). The wealth of Chile's billionaires, compared to their country's GDP, exceeds even that of Russians.

 

 

Such extraordinary inequality of wealth and income, combined with full marketization of many social services (water, electricity etc.), and pensions that depend on the vagaries of the stock market have long been "hidden" from foreign observers by Chile's success in raising its GDP per capita.  But the recent protests show that the latter is not enough. Growth is indispensable for economic success and reduction in poverty. But if there Is no social justice and minimum of social cohesion, the effects of growth will dissolve in grief, demonstrations, and yes, in the shooting of people. 

 -- via my feedly newsfeed

Mark Thoma's Links (10/31/19) [feedly]

Good summaries and links  to the latest posts.

Links (10/31/19)
https://economistsview.typepad.com/economistsview/2019/10/links-103119.html

• Manufacturing Ain't Great Again. Why? - Paul Krugman  
  When Donald Trump promised to Make America Great Again, his slogan meant different things to different people. For many supporters it meant restoring the political and social dominance of white people, white men in particular. For others, however, it meant restoring the kind of economy we had a generation or two ago, which offered lots of manly jobs for manly men: farmers, coal miners, manufacturing workers. So it may matter a lot, politically, that Trump has utterly failed to deliver on that front — and that workers are noticing. Now, many of Trump's economic promises were obvious nonsense. The hollowing out of coal country reflected new technologies, like mountaintop removal, which require few workers, plus competition from other energy sources, especially natural gas but increasingly wind and solar power. Coal jobs aren't coming back, no matter how dirty Trump lets the air get.
• Stop Inflating the Inflation Threat - J. Bradford DeLong 
  Given the scale and severity of inflation in America in the 1970s, it is understandable that US monetary policymakers developed a deep-seated fear of it. But, nearly a half-century later, the conditions that justified such worries no longer apply, and it is past time that we stopped denying what the data are telling us.
• How to Tax Our Way Back to Justice - Saez and Zucman 
  It is absurd that the working class is now paying higher tax rates than the richest people in America.
• It's Time to Go - Dave Giles
  When I released my first post on the blog on 20th. Febuary 2011 I really wasn't sure what to expect! After all, I was aiming to reach a somewhat niche audience. Well, 949 posts and 7.4 million page-hits later, this blog has greatly exceeded my wildest expectations. However, I'm now retired and I turned 70 three months ago. I've decided to call it quits, and this is my final post. I'd rather make a definite decision about this than have the blog just fizzle into nothingness. For now, the Econometrics Beat blog will remain visible, but it will be closed for further comments and questions.
• Prospects for Inflation in a High Pressure Economy: Is the Phillips Curve Dead or Is It Just Hibernating? - Brad DeLong 
  I have some disagreements with this by the smart Sufi, Mishkin, and Hooper: the evidence for "significant nonlinearity" in the Phillips Curve is that the curve flattens when inflation is low, not that it steepens when labor slack is low. There is simply no "strong evidence" of significant steepening with low labor slack. Yes, you can find specifications with a t-statistic of 2 in which this is the case, but you have to work hard to find such specifications, and your results are fragile. The fact is that in the United States between 1957 and 1988—the first half of the last 60 years—the slope of the simplest-possible adaptive-expectations Phillips Curve was -0.54: each one-percentage point fall in unemployment below the estimated natural rate boosted inflation in the subsequent year by 0.54%-points above its contemporary value. Since 1988—in the second half of the past 60 years—the slope of this simplest-possible Phillips curve has been effectively zero: the estimated regression coefficient has been not -0.54 but only -0.03. The most important observations driving the estimated negative slope of the Phillips Curve in the first half of the past sixty years were 1966, 1973, and 1974—inflation jumping up in times of relatively-low unemployment—and 1975, 1981, and 1982—inflation falling in times of relatively-high unemployment. The most important observations driving the estimated zero slope of the Phillips Curve in the second half of the past sixty years have been 2009-2014: the failure of inflation to fall as the economy took its Great-Recession excursion to a high-unemployment labor market with enormous slack. Yes, if we had analogues of (a) two presidents, Johnson and Nixon, desperate for a persistent high-pressure economy; (b) a Federal Reserve chair like Arthur Burns eager to accommodate presidential demands; (c) the rise of a global monopoly in the economy's key input able to deliver mammoth supply shocks; and (d) a decade of bad luck; then we might see a return to inflation as it was in the (pre-Iran crisis) early and mid-1970s. But is that really the tail risk we should be focused monomaniacally on? And how is it, exactly, that "the difference between national and city/state results in recent decades can be explained by the success that monetary policy has had in quelling inflation and anchoring inflation expectations since the 1980s"? Neither of those two should affect the estimated coefficient. Much more likely is simply that—at the national level and at the city/state level—the Phillips Curve becomes flat when inflation becomes low:
• Debt, Doomsayers and Double Standards - Paul Krugman 
  Selective deficit hysteria has done immense damage.
• Fed Attempts To Conclude Their Mid-Cycle Adjustment - Tim Duy
  After spending much of the year battling the forces of uncertainty weighing on the economy, the Fed declared victory today. Absent a fresh deterioration in the economic outlook, Fed Chair Jerome Powell and his colleagues believe they are done cutting rates with this month's policy move. Expect an extended policy pause; the Fed is neither interested in easing policy further given their outlook nor in soon raising rates back up given continued below-target inflation.
• Fall 2019 Journal of Economic Perspectives Available Online - Tim Taylor 
  I'll start with the Table of Contents for the just-released Fall 2019 issue, which in the Taylor household is known as issue #130. Below that are abstracts and direct links for all of the papers. I will probably blog more specifically about some of the papers in the next week or two, as well.
• Does a wealth tax discourage risky investments? – Digitopoly 
  The other day I wrote about the potential impact of a wealth tax. In so doing, I wrote: "we can all agree that the wealth tax likely deters risk-free saving." This was a paraphrase of a claim made by Larry Summers who then went on to say that it was unknown whether a wealth tax would encourage or discourage risky investment. But I did wonder what the impact of a wealth tax would be on various types of investments and in examining this I realized that the claim was incorrect. In fact, a wealth tax is unlikely to have any change on the risk profile of investments in contrast to an income (or even consumption tax) that will. I discovered later that this was a known result being contained in a paper from Joe Stiglitz (QJE, 1969).
• Will Libra Be Stillborn? - Barry Eichengreen
  Where the problem for economies and financial services is lack of competition, residents of developing countries need to look to their own regulators and politicians. The remedy for their woes is not going to come from Mark Zuckerberg.
• Children of Poor Immigrants Rise, Regardless of Where They Come From - The New York Times 
  A pattern that has persisted for a century: They tend to outperform children of similarly poor native-born Americans.
• The tempos of capitalism - Understanding Society 
  I've been interested in the economic history of capitalism since the 1970s, and there are a few titles that stand out in my memory. There were the Marxist and neo-Marxist economic historians (Marx's Capital, E.P. Thompson, Eric Hobsbawm, Rodney Hilton, Robert Brenner, Charles Sabel); the debate over the nature of the industrial revolution (Deane and Cole, NFR Crafts, RM Hartwell, EL Jones); and volumes of the Cambridge Economic History of Europe. The history of British capitalism poses important questions for social theory: is there such a thing as "capitalism", or are there many capitalisms? What are the features of the capitalist social order that are most fundamental to its functioning and dynamics of development? Is Marx's intellectual construction of the "capitalist mode of production" a useful one? And does capitalism have a logic or tendency of development, as Marx believed, or is its history fundamentally contingent and path-dependent? Putting the point in concrete terms, was there a probable path of development from the "so-called primitive accumulation" to the establishment of factory production and urbanization to the extension of capitalist property relations throughout much of the world?
• The Way We Measure the Economy Obscures What Is Really Going On - Heather Boushey 
  By looking mainly at the big picture, we are missing the reality of inequality — and a chance to level the playing field.
• Audits as Evidence: Experiments, Ensembles, and Enforcement - Brad DeLong 
  This is absolutely brilliant, and quite surprising to me. I had imagined that most of discrimination in the aggregate was the result of a thumb placed lightly on the scale over and over and over again. Here Pat and Chris present evidence that, at least in employment, it is very different: that a relatively small proportion of employers really really discriminate massively, and that most follow race-neutral procedures and strategies:
• Study analyzed tax treaties to assess effect of offshoring on domestic employment - EurekAlert 
  The practice of offshoring--moving some of a company's manufacturing or services overseas to take advantage of lower costs--is on the rise and is a source of ongoing debate. A new study identified a way to determine how U.S. multinational firms' decisions about offshoring affect domestic employment. The study found that, on average, when U.S. multinationals increase employment in their foreign affiliates, they also modestly increase employment in the United States--albeit with substantial dislocation and reallocation of workers. The study was conducted by researchers at Carnegie Mellon University, Georgetown University, and the Federal Reserve Bank of Kansas City. It is published in The Review of Economics and Statistics

 -- via my feedly newsfeed

Saez and Zucman: How to Tax Our Way Back to Justice

https://www.nytimes.com/2019/10/11/opinion/sunday/wealth-income-tax-rate.html?emc=rss&partner=rss  

How to Tax Our Way Back to Justice

It is absurd that the working class is now paying higher tax rates than the richest people in America.

By Emmanuel Saez and Gabriel Zucman

The authors are economists at the University of California, Berkeley.

America's soaring inequality has a new engine: its regressive tax system. Over the past half century, even as their wealth rose to previously unseen heights, the richest Americans watched their tax rates collapse. For the working classes over the same period, as wages stagnated, work conditions deteriorated and debts ballooned, tax rates increased.

Stop to think this over for a minute: For the first time in the past hundred years, the working class — the 50 percent of Americans with the lowest incomes — today pays higher tax rates than billionaires.

The full extent of this situation is not visible in official statistics, which is perhaps why it has not received more attention. Government agencies like the Congressional Budget Office publish information about the distribution of federal taxes, but they disregard state and local taxes, which account for a third of all taxes paid by Americans and are in general highly regressive. The official statistics keepers do not provide specific information on the ultra-wealthy, who although few in number earn a large fraction of national income and therefore account for a large share of potential tax revenue. And until now there were no estimates of the total tax burden that factored in the effect of President Trump's tax reform enacted at the end of 2017, which was particularly generous for the ultra-wealthy.

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To fill this gap, we have estimated how much each social group, from the poorest to billionaires, paid in taxes for the year 2018. Our starting point is the total amount of tax revenue collected in the United States, 28 percent of national income. We allocate this total across the population, divided into 15 income groups: the bottom 10 percent (the 24 million adults with the lowest pretax income), the next 10 percent and so on, with finer-grained groups within the top 10 percent, up to the 400 wealthiest Americans.

The Regressive American Tax System

How combined federal, state and local taxes fall on American adults, by income percentile.

Three regressive taxes account for

most of the burden on the working class:

Consumption

taxes

Payroll

tax

Residential

property taxes

INCOME

PERCENTILE

TOTAL

TAX RATE:

Bottom

50%

12.3%

11.2%

25.6%

10

Working

class;

average

annual

pre-tax

income:

$18,500

10.3

11.3

24.2

20

9.1

11.7

24.5

30

7.7

10.6

23.5

40

6.7

10.6

24.2

50

Next

40%

6.4

10.5

25.4

60

Middle

class;

average

income:

$75,000

5.4

10.6

26.3

70

5.1

10.3

27.8

80

4.8

9.8

29.4

90

Top 9%

3.8

8.0

28.6

Avg.

$220,000

95

3.2

5.2

27.7

99

Top 1%

2.3

2.4

28.9

Avg.

$1.5

million

99.9

2.2

33.2

99.99

2.2

30.4

99.99+

The top 400

2.3

23.0

The richest 400 adults

pay a lower rate than

all other groups.

Estate

tax

Income

tax

Corporate and business

property taxes

By Bill Marsh/The New York Times | Source: Emmanuel Saez and Gabriel Zucman, University of California, Berkeley; adults in analysis are age 20 and older.

Our data series include all taxes paid to the federal, state and local governments: the federal income tax, of course, but also state income taxes, myriad sales and excise taxes, the corporate income tax, business and residential property taxes and payroll taxes. In the end, all taxes are paid by people. The corporate tax, for example, is paid by shareholders, because it reduces the amount of profit they can receive in dividends or reinvest in their companies.

You will often hear that we have a progressive tax system in the United States — you owe more, as a fraction of your income, as you earn more. When he was a presidential candidate in 2012, Senator Mitt Romney famously lambasted the 47 percent of "takers" who, according to him, do not contribute to the public coffers. In reality, the bottom half of the income distribution may not pay much in income taxes, but it pays a lot in sales and payroll taxes. Taking into account all taxes paid, each group contributes between 25 percent and 30 percent of its income to the community's needs. The only exception is the billionaires, who pay a tax rate of 23 percent, less than every other group.

The tax system in the United States has become a giant flat tax — except at the top, where it's regressive. The notion that America, even if it may not collect as much in taxes as European countries, at least does so in a progressive way, is a myth. As a group, and although their individual situations are not all the same, the Trumps, the Bezoses and the Buffetts of this world pay lower tax rates than teachers and secretaries do.

This is the tax system of a plutocracy. With tax rates of barely 23 percent at the top of the pyramid, wealth will keep accumulating with hardly any barrier. So, too, will the power of the wealthy, including their ability to shape policymaking and government for their own benefit.

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From Kennedy Through Trump, the Rich Have Done Very, Very Well

Here's the change in total wealth per adult since 1962, on average, from the poorest to the richest slices of America. Circles representing wealth are proportionate, which is why they're almost too small to see for the bottom 50 percent of Americans. All wealth figures are in 2018 dollars.

CHANGE IN TAX RATE,

1962-2018

1962

2018

TOTAL

WEALTH:

TOTAL

WEALTH:

Bottom 50%

of Americans

Bottom 50%

of Americans

1.5 x

increase

UP

24.2%

$3,528

$5,156

22.5%

27.6

3.5

$73,703

$259,200

Next 40%

25.1

DOWN

3.5

$738,841

$2.6 million

Top 10%

33.2

29.0

4.7

Top 1%

$2.9 M

$13.5 M

43.1

30.1

Top 0.1%

$9.6 M

$70.2 M

7.3

51.1

31.4

Top 0.01%

$30.9 M

$349.9 M

11.3

53.6

29.4

Top 400

adults

24.4 x

increase

$276.2 M

$6.7 billion

54.4

23.0

Each of these richest 400 adults

has, on average, the same wealth as

1,308,440

average adults in the working class

(the bottom 50%)

By Bill Marsh/The New York Times | Source: Emmanuel Saez and Gabriel Zucman, University of California, Berkeley; wealth includes all non-financial assets plus financial assets net of debts; tax rates account for all taxes paid at all levels of government (federal, state and local) and are expressed as a fraction of pre-tax income; adults in analysis are age 20 and older.

The good news is that we can fix tax injustice, right now. There is nothing inherent in modern technology or globalization that destroys our ability to institute a highly progressive tax system. The choice is ours. We can countenance a sprawling industry that helps the affluent dodge taxation, or we can choose to regulate it. We can let multinationals pick the country where they declare their profits, or we can pick for them. We can tolerate financial opacity and the countless possibilities for tax evasion that come with it, or we can choose to measure, record and tax wealth.

If we believe most commentators, tax avoidance is a law of nature. Because politics is messy and democracy imperfect, this argument goes, the tax code is always full of "loopholes" that the rich will exploit. Tax justice has never prevailed, and it will never prevail.

For example, in response to Elizabeth Warren's wealth tax proposal — which we helped develop — pundits have argued that the tax would raise much less revenue than expected. In a similar vein, world leaders have become convinced that taxing multinational companies is now close to impossible, because of international tax competition. During his presidency, Barack Obama argued in favor of reducing the federal corporate tax rate from 35 percent to 28 percent, with a lower rate of 25 percent for manufacturers. In 2017, under President Trump, the United States cut its corporate tax rate to 21 percent. In France, President Emmanuel Macron is in motion to reduce the corporate tax in 2022 to 25 percent from 33 percent. Britain is ahead of the curve: It started slashing its rate under Prime Minister Gordon Brown in 2008 and is aiming for 17 percent by 2020. On that issue, the Browns, Macrons and Trumps of the world agree: The winners of global markets are mobile; we can't tax them too much.

But they are mistaken. Tax avoidance, international tax competition and the race to the bottom that rage today are not laws of nature. They are policy choices, decisions we've collectively made — perhaps not consciously or explicitly, certainly not choices that were debated transparently and democratically — but choices nonetheless. And other, better choices are possible.

Take big corporations. Some countries may have an interest in applying low tax rates, but that's not an obstacle to making multinationals (and their shareholders) pay a lot. How? By collecting the taxes that tax havens choose not to levy. For example, imagine that the corporate tax rate in the United States was increased to 35 percent and that Apple found a way to book billions in profits in Ireland, taxed at 1 percent. The United States could simply decide to collect the missing 34 percent. Apple, like most Fortune 500 companies, does in fact have a big tax deficit: It pays much less in taxes globally than what it would pay if its profits were taxed at 35 percent in each country where it operates. For companies headquartered in the United States, the Internal Revenue Service should collect 100 percent of this tax deficit immediately, taking up the role of tax collector of last resort. The permission of tax havens is not required. All it would take is adding a paragraph in the United States tax code.

The same logic can be applied to companies headquartered abroad that sell products in America. The only difference is that the United States would collect not all but only a fraction of their tax deficit. For example, if the Swiss food giant Nestlé has a tax deficit of $1 billion and makes 20 percent of its global sales in the United States, the I.R.S. could collect 20 percent of its tax deficit, in addition to any tax owed in the United States. The information necessary to collect this remedial tax already exists: Thanks to recent advances in international cooperation, the I.R.S. knows where Nestlé books its profits, how much tax it pays in each country and where it makes its sales.

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Collecting part of the tax deficit of foreign companies would not violate any international treaty. This mechanism can be applied tomorrow by any country, unilaterally. It would put an end to international tax competition, because there would be no point any more for businesses to move production or paper profits to low-tax places. Although companies might choose to stop selling products in certain nations to avoid paying taxes, this would be unlikely to be a risk in the United States. No company can afford to snub the large American market.

These examples are powerful because they show, contrary to received wisdom, that the taxation of capital and globalization are perfectly compatible. The notion that external or technical constraints make tax justice idle fantasy does not withstand scrutiny. When it comes to the future of taxation, there is an infinity of possible futures ahead of us.

What Taxes Should Look Like

A proposal to return tax rates at the top to where they were in 1950.

Proposed reform:

tax rate changes, in

percentage points

Current tax rates.

This includes the cost of health insurance, a mandatory expense

that is, in effect, a tax on working Americans.

INCOME

PERCENTILE

–3.1

Bottom 50%

of Americans

10

–5.4

20

Working class;

average annual pre-tax

income: $18,500

–6.8

30

–9.0

40

–9.1

50

–9.5

Next 40%

60

–8.0

Middle class;

avg. income: $75,000

70

–7.0

80

–5.1

90

–1.7

The top 9%

95

+2.4

Avg. income: $220,000

99

+10.9

99.9

+24.6

The top 1%

99.99

+40.2

Avg. income: $1.5 million

99.99+

+48.8

The richest 400 adults

10%

20

30

40

50

60

70

80

90

100

TAX RATE:

By Bill Marsh/The New York Times | Source: Emmanuel Saez and Gabriel Zucman, University of California, Berkeley

Are these ideas for greater economic justice realistic politically? It is easy to lose hope — money in politics and self-serving ideologies are powerful foes. But although these problems are real, we should not despair. Before injustice triumphed, the United States was a beacon of tax justice. It was the democracy with the most steeply progressive system of taxation on the planet. In the 1930s, American policymakers invented — and then for almost half a century applied — top marginal income tax rates of close to 90 percent on the highest earners. Corporate profits were taxed at 50 percent, large estates at close to 80 percent.

The history of taxation is full of U-turns. Instead of elevating some supposedly invincible and natural constraints — that are often invincible and natural only in terms of their own models — economists should act more like plumbers, making the tax machinery work, fixing leaks. With good plumbing — and if the growing political will to address the rise of inequality takes hold — there is a bright future for tax justice.

--

John Case
Harpers Ferry, WV

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