Links [feedly]

Links
http://economistsview.typepad.com/economistsview/2018/05/links-5.html

• America's Dismal Turning Point - Paul Krugman
• Don't Fall for Employers' Whining About a 'Skills Gap' - Bloomberg
• Trump lags behind his predecessors on economic growth - Brookings
• Monetary policy and inequality: A new channel - VoxEU
• Nominal Wage Rigidities and the Future Path of Wage Growth - Kansas City Fed
• The Bankrupt Ideology of Business School - The New Republic
• Will the Paris Agreement Help or Hinder Cooperation among Nations? - Robert Stavins

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New Estate Tax Cut Encourages More Wealthy Individuals to Skirt Capital Gains Tax [feedly]

New Estate Tax Cut Encourages More Wealthy Individuals to Skirt Capital Gains Tax
https://www.cbpp.org/blog/new-estate-tax-cut-encourages-more-wealthy-individuals-to-skirt-capital-gains-tax

The 2017 tax law not only delivers large, direct tax cuts to wealthy Americans but also creates myriad opportunities for them to push the boundaries of the tax code to reduce their tax bills further, which would make the law even costlier and more tilted to the top than current projections indicate. A prime example is its cut in the estate tax.

The 2017 law doubled the amount that a wealthy couple can pass tax-free to their heirs, from $11 million to $22 million. This eliminated the tax for many estates (less than one-tenth of 1 percent of estates now owe it, down from two-tenths of 1 percent previously) and gave the few estates large enough to still owe the tax a direct tax cut of $4.4 million apiece. The larger exemption has also increased interest in existing "upstream planning" techniques designed to help wealthy individuals avoid paying capital gains taxes on certain assets.

Here's the background. Under "stepped-up basis"— a tax break that the 2017 law retained — if someone holds an asset without selling it until death, neither she nor her heirs owes capital gains tax on the growth in its value during her lifetime. This enables parents with assets (such as stock or real estate) that have appreciated over time to pass them to their children free of the accumulated capital gains tax. But stepped-up basis is available only for an asset that is transferred after a parent's death, which can be many years away. Upstream planning enables parents to accelerate the transfer of assets to a child by funneling appreciated assets to the child's grandparents, who then pass those assets on to the child upon their death. On the assumption that the grandparents pass away before the parents, the child receives the asset — and the benefit of step-up basis — sooner.

The estate tax has generally been a barrier against upstream planning, underlying its role as a critical backstop to the income tax. Upstream planning isn't worthwhile if transferring assets to the grandparents pushes the value of their estate above the estate tax exemption limit, since a 40 percent tax would then be owed on the amount above the limit upon their death. But the 2017 tax law, by doubling the exemption, made upstream planning attractive for more wealthy families. As one tax lawyer quoted in Tax Notes put it: "Now that you've got $11 million [per individual, or $22 million per couple] to work with, there are a lot of things that all of a sudden start to be worth the trouble." It creates an "enormous opportunity" for upstream planning, another tax lawyer was quoted as saying.

Some of these upstream planning techniques are legally questionable. But some tax professionals expect the under-resourced IRS to be too busy to focus on the likely rush to use upstream techniques. The IRS isn't "likely to enact new regs or new laws to put the kibosh on it," tax lawyers discussing the tax reduction opportunity said, since its "hands are full right now," because "the IRS is already busy with the mammoth task" of implementing the new tax law.

Moreover, policymakers haven't given the IRS adequate resources; enforcement funding is 23 percent below the 2010 level in inflation-adjusted terms. As we've warned, the combination of an underfunded IRS and the 2017 tax law's new avoidance opportunities invites the wealthy and profitable corporations to push the law's boundaries to extract benefits that go even beyond the large, explicit tax cuts they receive from it.

Upstream planning will likely be just one of many examples of how the loopholes and gaming opportunities in the hastily drafted, poorly conceived tax law will deliver even larger tax cuts to the wealthiest Americans than its authors intended.

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House-Passed Amendment Makes Farm Bill’s Harmful SNAP Provisions Worse [feedly]

House-Passed Amendment Makes Farm Bill's Harmful SNAP Provisions Worse
https://www.cbpp.org/blog/house-passed-amendment-makes-farm-bills-harmful-snap-provisions-worse

The House, which is expected to vote this week on the Agriculture Committee-approved farm bill, passed an amendment today from Committee Chairman Michael Conaway that worsens an already troubling bill by expanding its cuts in SNAP (food stamps) and making its expanded work requirements even more rigid and unworkable for families and

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America’s Dismal Turning Point [feedly]

America's Dismal Turning Point
https://www.nytimes.com/2018/05/16/opinion/americas-dismal-turning-point.html

Austin Frakt had a very interesting piece in the Upshot the other day, on U.S. health spending – and U.S. health — in international perspective. Everyone knows that U.S. spending is more or less literally off the charts compared with everyone else, while many are aware that we have also diverged, in the wrong direction, on measures like life expectancy: we're falling further than further behind the rest of the advanced world.

What Frakt points out is that it was not always thus. The dismal U.S. combination of high costs and poor results only began to emerge around 1980, which poses a mystery:

What changed? In a subsequent post, Frakt suggests that U.S. exceptionalism may be related to income inequality. And it's true that income inequality began its huge rise just about the same time that U.S. health care apparently went off the rails:

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But it's not just income inequality. Lots of things had an inflection point around 1980. For example, regional convergence – in which poor states closed the gap with rich states – also came to a dead halt or even went into reverse around the same time. Incomes in Mississippi relative to Massachusetts:

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Meanwhile, circa 1980 financial leverage began its huge climb, with household debt relative to income soaring (and setting the stage for the 2008 financial crisis):

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And, of course, political polarization made its big move, again at more or less the same time:

Image

So 1980 was an inflection point for a lot of things in America. That can't be an accident. And it's also almost surely not an accident that this turning point coincided with the election of Ronald Reagan.

A good guess, surely, is that the whole story is connected with the rise of modern movement conservatism, which brought with it unequalizing economic policies, retreat from antitrust, financial deregulation, and more.

And surely most people would agree that soaring medical costs, rising inequality, financial crises, regional decline, etc., are bad things; so you might think that all of this would suggest to everyone that something was wrong with the newly dominant ideology. But here's the thing: conservatives don't see it that way. Not only do they continue to regard Reagan as America's savior; they haven't changed their ideas, or indeed come up with any significantly new ideas, for the past 35 years.It would be nice if commentators who accuse Democrats of lacking new ideas knew something about this history.

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Trump’s Corruption: The Single Most Important—and Neglected—Campaign Issue of 2018 [feedly]

Trump's Corruption: The Single Most Important—and Neglected—Campaign Issue of 2018
http://cepr.net/publications/op-eds-columns/trump-s-corruption-the-single-most-important-and-neglected-campaign-issue-of-2018

From cable news to social media, from the NFL to Kanye West's Twitter feed — people spend an enormous amount of time discussing President Donald Trump. Oddly, the only people not spending much time discussing Trump — his corruption, his malfeasance, his lack of fitness for office — are the ones who have the most invested in publicizing Trump's blatant corruption: the Democrats. As evidenced by recent national security news, Trump's corruption poses a clear and present danger to your wallet, your economic future, and the health and well-being of the planet. And yet somehow, the Democrats are failing to connect the dots.

The Associated Press named "the president's feud with the NFL" as "the runaway winner for the top sports story of 2017 in balloting by AP members and editors."

Trump-baiting material from Stephen Colbert and Jimmy Kimmel has elevated those shows, while ratings are falling for Jimmy Fallon, who is less comfortable doing political humor.

Bottom line? If you want to grab attention in 2018, you need to discuss Trump.

You would think this lesson would be particularly clear to Democrats, to whose fortunes the corruption at the heart of Trump's presidency seems rather more central than to those of, say, Jimmy Kimmel. Especially since by discussing Trump's corruption and lack of patriotism, Democrats can participate in the country's principal conversation while also drawing attention to the most urgent issues we now face.

Yet US House Democratic Leader Nancy Pelosi recently said, "I don't even advocate for people talking about Donald Trump. It's about a more positive agenda — better jobs, better pay, better future."

Deval Patrick, the former governor of Massachusetts and a potential 2020 presidential candidate, sounded a similar note in the New York Times, saying "we need to focus less on what's wrong with Trump and the Republicans and more on what's right with us."

These are not cherry-picked examples — legions of establishment Democrats think that the key to success for Democrats is to ignore the bull who seems likely to have cheated his way into the Oval Office and is now smashing all the proverbial china.

The failure of Democrats to tie Trump to the critical issues of our day means whatever conversations they are having are like that tree falling in a forest with no one around to hear. On Tuesday, May 15, for example, a genuinely impressive and diverse group of leading Democrats were assembled for the Center for American Progress' 2018 Ideas Conference to "explore and unveil new ideas that can make America a place for every single one of us to thrive."

Did you even know this happened?

Our obsession over Trump is unhealthy both as individuals and as a society. Many critical issues that do not relate directly to Trump suffer a wholly undeserved decline in attention. It is important that civil society do its best to address those issues as well as deal with Trump.

But for leaders of the Democratic Party currently trying to wrap their mind around the fact that there is limited audience for their preferred message, there is a reasonably simple hack. Democrats should connect the monopoly on our brain Donald Trump has with the issues of economic fairness and patriotism that Democrats want to talk about by showing how Trump's personal villainy relates directly to those issues.

In short, Trump is a pretend mega-rich billionaire who is desperately cashing in on the presidency in order to become as rich as he has always claimed to be. Trump's corruption is a direct threat to all of us.

Trump's corruption is not in the crossing of some lines that overly strict lawyers and moralists care about, but rather the wholesale selling out of ordinary Americans to the highest bidder.

Is Trump benefitting from a tax bill that threatens Medicare, increases health care premiums, and leaves 13 million families without health coverage to pay for tax breaks for Trump and people like him? Yes!

Is Trump hiding his personal tax returns while hiring alums of Goldman Sachs to write a tax bill giving his Trump's family, donors, and business partners a staggering tax cut? Yes!

Did Trump make an end run around the US Senate and install David Kautter, a tax avoidance expert, to run the IRS while it is determining whether the hedge fund of Trump's ton donor owes more than $7 billion to the US Treasury? Yes!

Sadly, similar stories of Trumpian corruption can be told about everything from giveaways to Big Oil to Big Pharma and from deregulating Wall Street to seeking to end net neutrality.

And yet Senate Minority Leader Chuck Schumer contrasts the idea of just running against Trump with Democrats' need "to put together a strong, cohesive, economic group of proposals aimed at the middle class and those struggling to get there," as if running against Trump the Corrupt was in anyway divorced from the economic struggles of the middle class.

Trump's corruption is a throughline for how and for whom he runs domestic policy. And it's also a threat to national security.

After running a campaign aimed in no small part at concerns about the rise of China, we learn that, as HuffPost reported on Monday, "72 hours after the Chinese government agreed to put a half-billion dollars into an Indonesian project that will personally enrich Donald Trump, the president ordered a bailout for a Chinese-government-owned cellphone maker," ZTE.

Put aside important questions about whether elements of popular concern about China's rise are legitimate.

As Josh Marshall has noted, not only did Trump indicate a desire to save ZTE, a "sanctions-busting Chinese telecommunications company," right before China "agreed to loan $500 million to a major Trump-backed development in Indonesia," it appears as if the Trump family involvement in the development is especially tight.

At the same time that Trump is violating the United States' nuclear deal with Iran and reinstating sanctions on companies doing business with Iran, he is undermining efforts to hold a Chinese company accountable for past violations of … sanctions on Iran. 

Sen. Marco Rubio (R–FL) has suggested, as the Washington Post reported, that in addition to sanctions violations, the US intelligence community views ZTE's "technology as a national security risk."

This ought to be a bipartisan Code Red moment!

The US Constitution explicitly bans any officeholder from accepting "emoluments" (i.e., gifts) from any "foreign state," such as China, unless Congress explicitly okays the gift before it happens.

But one needn't look "merely" to the Constitution. Former US Attorney Joyce Alene has observed that "this deal has all the hallmarks of a quid pro quo," while the former head of the federal Office of Government Ethics, Walter Shaub, reminds us that "the bribery law (18 U.S.C. § 201) is still one of the few ethics laws that applies to the president, and ordering a cabinet agency to take action is one of the few things that would still qualify as an 'official act' after the Supreme Court gutted the law."

So Trump seems to have been bribed by China and violated the Constitution he swore to uphold — and Democrats have thus far offered some tweets and a handful of press releases.

What else should they be doing? A lot.

At a basic minimum, Democrats should take every opportunity in front of a microphone to scream that the president seems to have been bought by China.

Democrats are not doing so.

Democrats could also withhold consent on the Senate floor. Adam Jentleson, former staffer for retired Sen. Harry Reid (D–NV) has noted that Senate Democrats "have a powerful tool at their disposal, if they choose to use it" — "the simple but fitting act of withholding consent. An organized effort to do so on the Senate floor can bring the body to its knees and block or severely slow down the agenda of a president who does not represent the majority of Americans."

Democrats have not used this leverage to elevate public awareness of a possible bribe of Trump by China.

Instead, we see leading Democrats like the vice chairman on the Senate Select Intelligence Committee, Mark Warner (D–VA), announce support for Trump's pick to run the CIA (Gina Haspel, whom John McCain and others are opposing for having overseen torture) the day after the ZTE news broke.

When senior Democrats are supporting the president's already compromised national security picks the day after a national security story breaks, the message is clear — the story is no big deal.

I believe Democrats could go even further than delaying the Senate — they could engage in acts of civil disobedience in violation of Senate or House rules in order to focus public attention.

They may get accused of being rash, uncivil, or premature in their analysis. They may get attacked by Trump or Fox News, especially if they seek to provoke Trump personally by suggesting he must be broke if he resorted to accepting bribes from a foreign government.

But that's okay! If Democrats need to incite a counter-attack on their "extremism" in defense of the idea that the president of the United States ought not to accept bribes from China, so be it.

If Democrats used some of their power, this story could rise above the cacophony of Trumpist outrages. Democrats could call into question Trump's patriotism and that of all of his enablers in Congress and across the Republican Party.

Or else there is always the popular Plan B: Democrats could cite some academics arguing that their cause is helpless and then complain about how hard it is to oppose the least popular president ever.

How's that working for them?

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Microsoft Wins Lucrative Cloud Deal With Intelligence Community [feedly]

Microsoft Wins Lucrative Cloud Deal With Intelligence Community
https://www.bloomberg.com/news/articles/2018-05-16/microsoft-wins-lucrative-cloud-deal-with-intelligence-community

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On neoliberalism [feedly]

On neoliberalism
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2018/05/on-neoliberalism.html

Is neoliberalism even a thing? This is the question posed by Ed Conway, who claims it is "not an ideology but an insult." I half agree.

I agree that the economic system we have is "hardly the result of a guiding ideology" and more the result of "happenstance".

I say this because neoliberalism is NOT the same as the sort of free market ideology proposed by Friedman and Hayek. If this were the case, it would have died on 13 October 2008 when the government bailed out RBS. In fact, though, as Will Davies and Adam Curtis have said, neoliberalism entails the use of an active state. A big part of neoliberalism is the use of the state to increase the power and profits of the 1% - capitalists and top managers. Increased managerialism, crony capitalism and tough benefit sanctions are all features of neoliberalism. In this respect, the EU's treatment of Greece was neoliberal – ensuring that banks got paid at the expense of ordinary people.

I suspect, though, that measures such as these were, as Ed says, not so much part of a single ideology as uncoordinated events. Tax cuts for the rich, public sector outsourcing and target culture, for example, were mostly justified by appeals to efficiency, and were not regarded even by their advocates as parts of a unified theory. To believe otherwise would be to subscribe to a conspiracy theory which gives too much credit to Thatcher and her epigones.

In this sense, I mostly agree with Paull Mason:

Neoliberalism is a time-limited global system sustained by coercive imposition of competitive behaviour, parasitic finance & privatisation.

I'm not sure about that word "system". Maybe it attributes too much systematization to neoliberals: perhaps unplanned order would be a better phrase. But it's better to think of neoliberalism as a bunch of arrangements ("system" if you remove connotations of design) rather than as an ideology. Ed has a point when he says that almost nobody fully subscribes to "neoliberal ideology": free market supporters, for example, don't defend crony capitalism.

And it's useful to have words for economic systems. Just as we speak of "post-war Keynesianism" to mean a bundle of policies and institutions of which Keynesian fiscal policy was only a small part, so we can speak of "neoliberalism" to describe our current arrangement. It's a better description than the horribly question-begging "late capitalism".

This isn't to say that "neoliberalism" has a precise meaning. There are varieties of it, just as there were of post-war Keynesianism. Think of the word as like "purple". There are shades of purple, we'll not agree when exactly purple turns into blue, and we'll struggle to define the word (especially to someone who is colour-blind). But "purple" is nevertheless a useful word, and we know it when we see it.

If neoliberalism is a system rather than an ideology, what role does ideology play?

I suspect it's that of post-fact justification.

Put it this way. In the mid-80s nobody argued that the share of GDP going to the top 1% should double. Of course, many advocated policies which, it turns out, had this effect. Some of them intended this. But those policies were justified on other grounds, often sincerely. Instead, the belief that the top 1% "deserve" 15% of total incomes rather than 7-8% has mostly followed them getting 15%, not led it. A host of cognitive biases – the just world illusion, anchoring effect and status quo bias underpin an ideology which defends inequality. John Jost calls this system justification (pdf). You can gather all these biases under the umbrella term "neoliberal ideology" if you want. But it follows economic events rather than is the creator of them.

So, I half agree with Ed that neoliberalism isn't a guiding ideology. But I also agree with Paul, that it is a way of describing a particular economic system.

I don't, however, want to get hung up on words: I'd rather leave such pedantry to the worst sort of academic. What's more important than language is the brute fact that productivity and hence real incomes for most of us have stagnated for years. In this sense, our existing economic system has failed the majority of people. And this is true whatever name you give it.

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