Enlighten Radio Podcasts:Podcast Moose Turd Cafe -- 9/28/17 -- "You Asshole You"

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Link: http://podcasts.enlightenradio.org/2017/09/podcast-moose-turd-cafe-92817-you.html

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CBPP:Doubling of Extreme Poverty Belies Welfare Reform Success Claims

Doubling of Extreme Poverty Belies Welfare Reform Success Claims

LaDonna Pavetti, Ph.D.

Vice President for Family Income Support Policy

pavetti@cbpp.org

As Congress seeks agreement on overhauling Temporary Assistance for Needy Families (TANF), lawmakers must address TANF's dismal failure to help the poorest Americans, many of whom are desperately trying to find work, as documented in the new book $2 a Day.  Authors Kathryn Edin and Luke Shaefer found that the number of families surviving on cash incomes of no more than $2 per person, per day in any given month more than doubled, to 1.5 million, in the decade and a half after the 1996 welfare law created TANF (see graph).  Nearly 3 million children lived in those extremely poor households.

 

Edin and Shaefer trace the rise in extreme poverty to the weakening of the cash safety net for families when the TANF block grant replaced Aid to Families with Dependent Children.  One parent, asked why she didn't receive TANF, replied, "What is that?"; another said, "They are not giving that out anymore."  That's not surprising, since TANF reaches so few families. 

For every 100 families in poverty, only 26 received cash assistance from TANF in 2013 — down from 68 families in 1996.  In ten states, fewer than ten families received TANF cash assistance for every 100 poor families. 

The $2 per person per day standard, which the World Bank uses to measure extreme poverty across the globe, amounts to about 12 percent of the U.S. poverty line, or about $180 per month for a family of three.  Edin and Shaefer provide a devastating account of what life is like for families that don't have money to pay the rent, keep the utilities on, or even buy second-hand clothes for their children. 

Yet despite the harsh realities facing families whom welfare reform has left behind — selling plasma for $30 twice a week, spending hours collecting scrap metal to earn a few dollars, "trading" sexual favors for rent money — some conservatives continue to tout welfare reform as a success and a model for other programs.   

The 1996 welfare law essentially assumed that the economy would produce enough jobs that match the skills of the parents required to work.  But Edin and Shaefer found people desperate for work and a cash safety net so rare that families didn't even know it existed. 

Their proposed solutions include a guaranteed job and a robust safety net if work fails.  We're long overdue for policy changes to improve TANF, they argue:

The $2-a-day poor are willing — even eager — to work.  But the low-wage labor market is failing them with too few jobs, inadequate hours, and unsafe working conditions.  If our stories are any guide, the long-term consequences for children are particularly high.  Is that a price we're willing to pay for hanging on to an approach to welfare that is two decades old?

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John Case
Harpers Ferry, WV

The Winners and Losers Radio Show

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The Poets and Mechanics Quaker Worship Group

Activist Art in Working-Class Communities [feedly]

Activist Art in Working-Class Communities
https://workingclassstudies.wordpress.com/2017/09/25/activist-art-in-working-class-communities/

The impacts of government sell-offs of public housing on working-class communities are highlighted in new documentary film released in the UK. Dispossession: The Great Social Housing Swindle (2017), features experts and politicians, but at its heart are the working-class people affected by forced evictions and the loss of communities. The filmmaker, Paul Sng, is committed to telling working-class stories. His previous feature documentary, Sleaford Mods – Invisible Britain (2015) follows a British punk band, The Sleaford Mods, on a tour of some of the working-class areas of Britain hit hard by the Tory government's austerity agenda. Dispossession has been screened across Britain and has received positive reviews. This important exposé of the housing crisis in Britain (or what is referred to in the film as a 'tragedy') highlights the very real and tangible effects of reductions in public housing. I've written before about the importance of public housing, including the positive aspects of these communities. Watching the continued sell-offs, demolitions, and forced relocations of public housing tenants is heartbreaking – and, for someone who grew up in a public housing community, personal.

Paul Sng's film makes a significant contribution because it highlights working-class life and demonstrates the value of public housing, which is ignored or denied by those responsible for the sell-offs. The sale of public housing has been described as social cleansing, but it also benefits developers. Once public housing tenants are moved out, the estates are often redeveloped for wealthy private buyers whose presence changes the fabric of the community. Many of the homes in the private developments have been bought by investors who then charge high rents for the properties – at rates beyond reach of the original tenants. Public housing estates were never intended for wealthy people. They were built to provide working-class people with the dignity of life that comes with housing security.

With the new wealthy owners and tenants comes gentrification. Neighbourhoods change as working-class residents are priced out. The small number of original tenants rehoused by councils in the local area watch as their old estates are handed over to wealthy people. The infrastructure of the old community makes way for these new residents. Old pubs close, community centres shut down. Laundrettes (laundromats) disappear; popular cafes (caffs as they used to be known in London – serving cheap but home cooked food) turn into expensive coffee shops. And 'art' begins to appear.

I am a big fan of art, always have been. My auto-didactic working-class father introduced me to the world of art as a young child, and I've always been aware of its classed dimensions. While many people have been excluded from the official art world, isn't it a positive to be able to find art in working-class communities? Surely the appearance of street art democratises art, making it free and accessible? Technically, yes, and artists have often lived in low-rent areas, and they can benefit a neighbourhood. But art is also a sign of gentrification. It tends to appear along with rising rents, contributing to a 'cool' and 'arty' vibe. Small boutique galleries open in the closed-down businesses that used to serve the working-class community. Too often, the creative arts are dominated by middle-class people, and the art presented in the small galleries and even street art projects commissioned by councils and companies is not likely to be created by working-class artists. Art galleries filled with the work of middle-class artists attract other middle-class people, shifting the local demographic as it becomes more affluent and whiter.

If working-class people object when boutique galleries replace the old barber shop or corner store, or if they don't celebrate street art installations, they may be accused of misunderstanding art or not appreciating its value. Many working-class people love art, but not when it represents gentrification or the covering up of corporate interests taking over public spaces. They understand that private companies often sponsor art to 'improve' the look of a neighbourhood and boost local property prices. Developers use the presence of art to sell the neighbourhood to investors. This process has been called 'artwashing'.  When public housing is sold and redeveloped, new privately owned spaces (theoretically for public use) often include street art. But who is it now for? The original working-class residents, or the new middle-class owners and renters? Even Richard Florida (who famously championed so-called 'creative cities') has admitted that artists contribute to gentrification.

But working-class people have used art to protest against social cleansing and to assert their presence in neighbourhoods earmarked for redevelopment. In Sydney, Australia, residents of two public housing towers in inner-city Waterloo, both scheduled for demolition, recently collaborated on an art installation called 'We Live Here 2017'. Volunteers helped residents place colourful LED lights in their windows and light the blocks up at night to show that the towers contain people and homes. This is art as protest rather than art as serving corporate interests.

Paul Sng's film and the installation on the Sydney estate demonstrate how art is being used to tell working-class stories that highlight the impacts of social cleansing. These projects show how the sale of public housing by conservative governments in Britain and Australia is an assault on working-class people. Through film and art, they show the value of working-class experiences and insist that working-class stories must be told.

Sarah Attfield

 -- via my feedly newsfeed

Place-Based Initiatives and Economic Mobility in Rural Areas [feedly]

Place-Based Initiatives and Economic Mobility in Rural Areas
http://www.mobilitypartnership.org/publications/place-based-initiatives-and-economic-mobility-rural-areas

Much research on the effects of concentrated poverty and residential segregation has focused on urban areas and issues. Similarly, discussions of economic mobility from poverty often focus on urban geographies and use urban assumptions that may not be true for rural communities. Rural communities experience different types of place-based effects on poverty, and rural poverty has often been forgotten and hidden behind a myth of an idyllic agrarian past. But compared with metropolitan areas, rural areas have a higher prevalence of persistent poverty, where 20 percent of the population has been living at or below the federal poverty level for three consecutive decades. In 2010, 85 percent of the 429 persistently poor counties in the US were rural. At the same time, some rural communities have seen growing inequality between low-wage service workers and wealthier retirees and tourists who drive up local costs of housing and services. Several place-based initiatives to build rural opportunity have been launched in recent years, but they have not yet been fully evaluated. There is also no comprehensive research on what a move to rural opportunity areas looks like for poor households. This knowledge gap is significant, given the high rates of residential instability among rural people in poverty and the well-documented out-migration of more educated and skilled individuals from rural areas. We have learned some lessons about creating economic mobility in rural places, but additional research is necessary to understand how to create and implement pathways from rural poverty.

VISIT WEBSITE
 -- via my feedly newsfeed

Jared Bernstein on the Trump/R "tax plan"

Real Tax Reform: What It Is and What It Isn't

Trump's proposed tax cuts, mostly on corporations and the wealthy, will do nothing to help the people who elected him president.

Jared Bernstein

September 27, 2017

O

n the night of President Trump's upset victory, one of my first forlorn thoughts was "There goes health care." So far, I've been wrong about that. My second thought, however, was "Rich people are going to get a big tax cut." Given the dysfunction of the congressional majority and the rudderless, chaotic White House, that too may be proven wrong. Still, even more than destroying government-aided health care, cutting taxes is encoded in Republicans' DNA.

In fact, the conservative commentator Robert Novak famously said: "God put the Republican Party on earth to cut taxes. If they don't do that, they have no useful function." A very dejected Ross Douthat, conservative columnist for The New York Times, argued in a recent column titled "Just. Cut. Taxes." that "a party that offers nothing, whose ideological sclerosis and internal contradictions allow it to offer nothing, might as well just go pass a tax cut and call it a day." A murderers' row of diehard supply-side trickle-downers, including Art Laffer and Larry Kudlow, made the same point in a Times op-ed, asking the musical question "Why Are Republicans Making Tax Reform So Hard?"

To understand the answer to that question, you need to appreciate the distinction between tax cuts and tax reform. Believe me—that's not just semantics. And part of the story is a big, portentous hole in the Democrats' agenda: Progressives do not have a good, crisp, resonant answer to the question "What's your great idea for reforming the tax system?"

 

Tax Reform Doesn't Mean What You Think

In D.C. tax-debate parlance, "tax reform" means something specific: cutting tax rates and broadening the tax base. Rate reductions lose revenue, but you make it up by closing loopholes, exemptions, and favorable treatments of one type of income over another, thus broadening the income upon which taxes are levied. I personally don't think this describes true tax reform (I've got a better definition below), but that's what the term has come to mean.

Given that "reform" has a positive connotation, what's so great about a lower rate and broader base?

Given that "reform" has a positive connotation, what's so great about a lower rate and broader base? Both theory and evidence suggest that people with significant tax liabilities will lobby for and take advantage of favorable tweaks in the tax code. These tweaks are seldom there to serve some greater economic purpose. They exist because some industry had a good lobbyist with deep pockets, the latter of which helps members of Congress "understand" just how important the loophole they seek is to the greater public good. So tax loopholes are often economically inefficient as well as inequitable. So far, so good, but then comes the supply-side mischief.

Supposedly, lower rates will generate more growth and thus help to pay for themselves. But there's little support for this claim, either in theory or in evidence. Public-finance theory maintains that people respond to tax changes at the margin; as their top marginal tax rate changes, they'll supply a bit more or less labor and entrepreneurship.

Conservative trickle-downers incorrectly take this theory to mean that if you cut taxes, people will work and invest more. In fact, such behavioral impacts are ambiguous: Some people will work a little less after a tax cut because they can hold their income constant with less work, a larger share (according to evidence) will work a little more to take advantage of the higher after-tax wage, and the vast majority won't change their labor supply (or amount they invest) at all.

In the current tax debate—no surprise—the Trump administration and the Republican Congress are predicting that their tax cuts will return large growth effects. They claim their plan—and to be clear, there is, as of yet, no plan—will increase the real GDP growth rate by at least half, from around 2 percent to 3 percent or 4 percent, and that this increase will offset much of the costs of the cuts.

This was the same story told by Reagan, Bush I, and Bush II, and in every case the results belied the claims. The most recent example, from the state of Kansas, is particularly germane to this discussion, because it reveals flaws in the same ideas being bandied about by the current Congress.

Nudged on by some of the very same people currently advising the Trump administration on taxes (for instance, the authors of the Times op-ed cited above), Kansas sharply lowered their tax rates and totally eliminated income taxes on business "pass-through" income back in 2012. The geniuses behind these ideas predicted that they would provide an "immediate and lasting boost" to the state's economy. They were, of course, wrong. The same thing happened in Kansas as has happened whenever we cut taxes: revenue losses. Their bond rating was downgraded twice and the state burned through its reserves. Moreover, economic and job growth actually faltered there relative to neighboring states and the rest of the country. Oh, and 100,000 businesses changed their tax status to "pass-throughs" so they could tap the new loophole.

 The Kansas story has a—"happy" isn't the right word—partial-return-to-sanity ending, as a new (still-Republican) legislature recently overrode the governor's veto and reversed most of the tax cuts, including the pass-through loophole.

Interestingly, and I give them some credit for this, not all Republicans in the current debate have fully drunk the trickle-down Kool-Aid. There is talk about closing various loopholes, including the business interest deduction, which significantly lowers the after-tax cost of debt versus equity financing, leading to excessive reliance on debt. They're also considering capping the mortgage interest deduction, a classic upside-down tax break which, combined with a deduction for property taxes, returns 70 percent of its benefits to the top 20 percent of homeowners.

These offsets are known as "pay-fors": You pay for a revenue loss either by finding a different revenue source or by cutting spending. Another possible pay-for is more overtly political: eliminating taxpayers' ability to deduct state and local taxes, a swipe at blue states like New York and California that have relatively progressive state income taxes and lots of wealthy Democrats.

Whether these pay-fors will stick as the debate proceeds is another question. Given that it's at the core of the business model for private equity firms and hedge funds, I'd frankly be amazed to see the demise of the business interest deduction. And Trump's real-estate pals are going to be all over him if he tries to cap the mortgage interest deduction.

However, even if the lobbyists vaporize these pay-fors, the Republicans can still pass their tax cuts. They'll just load them on the budget deficit, using a combination of budget process tricks and phony economic growth assumptions (a.k.a. "dynamic scoring"). A budget process called "reconciliation" allows them to avoid the filibuster, since you can pass a budget with a simple majority. But reconciliation rules insist that the cuts not raise the budget deficit outside of the ten-year budget window. Thus, like the George W. Bush tax cuts, the Trump cuts too would likely sunset after ten years, at which point Republicans would surely go ballistic over the tax increase that they built into their plan.

So the Republicans are talking about tax cuts, not tax reform. We don't know the details yet, but here are some of the big-ticket items that have already been floated and that we're likely to see as part of any eventual plan:

• a large cut in the corporate tax rate;

• lower individual rates, including a special low rate on "pass-through" income (remember, these are the same architects of the benighted Kansas plan);

• elimination of the alternative minimum tax (rich people whose credits, deductions, and exemptions zero out their liability can face a marginal rate of 35 percent under this tax; Trump himself has been dinged by this); and

• a repeal of what's left of the estate tax

 

The Likely Cost of Republican "Reform"

Together, these measures would lose about $6.5 trillion in revenues over ten years, according to the nonpartisan Tax Policy Center. The vast majority of the benefits of these measures accrue to the wealthiest households: Almost 50 percent of the cuts go to the top 1 percent, while 6 percent go to the middle fifth. About 27 percent of the gains go to the 120,000 families in the top tenth of the top 1 percent, whose average pretax income is $11 million.

The TPC, working off a pretty rough sketch of the Trump plan, even giving them credit for pay-fors that I suspect will get whacked by lobbyists, still come up with a net ten-year cost of $3.5 trillion. Again, that's a tax cut, and especially if I'm right about the sad fate of loophole closures, it's a far cry from tax reform.

So far, under the category of fiscal B.S., we've got tax cuts posing as tax reform, goosed by phony growth assumptions. Here's another one for that growing file: the idea that Republicans really care about budget deficits and debt.

Throughout the Obama presidency, Republican leaders like Mitch McConnell and Paul Ryan endlessly assailed the president for his alleged fiscal recklessness. As the figure below shows, their attacks were substance-free: During Obama's tenure, the budget deficit went from a historically large, recession-induced 10 percent of GDP back to around its historical average (since 1967, the deficit-to-GDP ratio has averaged 2.8 percent). In fact, those of us worried about the impact of austere fiscal policy on the weak recovery advocated for much less deficit reduction over these years.

Chart Data Source: OMB Historical Table 1.2

But to this day, conservatives natter on about crippling mountains of debt left to our children and grandchildren. Of course, taking lead out of the water or investing in a pre-school education—both of which would deliver both immediate and long-lasting benefits to actual children in the actual world—are off the table. But assuming the Tax Policy Center numbers ($3.5 trillion added to the deficit) are in the ballpark, how can the tax-cutters square the deficit impacts with their rhetoric?

They can't and they don't. Their deficit hysteria is just a tactic to prevent Democrats from increasing spending. The fact that tax cuts raise the deficit doesn't bother them. In fact, it doesn't even compute.

Once, after a hearing in which I testified before the House Budget Committee, I had a chance for a quick chat with the committee's chairman, Tom Price (currently Trump's Secretary of Health and Human Services). He and his fellow Republicans had just railed for two hours about the perils of deficits and debt, but when I got a chance to ask them, "Then why are you proposing to eliminate the estate tax?" (which loses $240 billion over ten years while providing tax relief to the richest 0.2 percent—!!—of estates), they had nothing to say. So, I pressed Price on this point. His response was "Look, my guys just don't believe that tax cuts increase the deficit."

"Then you must convince them they're wrong!" I cried. He shrugged, smiled, shook my hand, and walked away. And another great day in D.C. fiscal policy came to an end.

The punch line is, if you were thinking Republican fiscal hawks were going to block deficit-increasing tax cuts, you're almost surely wrong. When it comes to the deficit, they're chicken hawks.

You may well, however, ask, "What's wrong with budget deficits? Didn't I just say they needed to be larger back when the current expansion was getting under way?" Let me answer that question in the context of what I believe to be real tax reform.

If it turns out that there's a win in here, rest assured that Trump will sniff it out and tie himself tightly to the cause.

But before I do that, one last note on the politics. There is a line of thinking, one to which I do not subscribe, that Trumpian chaos and attacks on his fellow Republicans will tank their tax-cut plans. That is a misreading of his role in this policy process, one in which he has no interest or insights (beyond perhaps recognizing that eliminating the estate tax and alternative minimum tax will boost his and his kids' bottom lines). This process is being run by tax-cutters who are being paid to deliver. If it turns out that there's a win in here, rest assured that Trump will sniff it out and tie himself tightly to the cause.

 

Real Tax Reform

If you're still with me, you agree that real tax reform is not tax cuts. But neither is it the D.C. version of revenue-neutral rate cuts, paid for through base-broadeners (though such loophole closures are definitely part of real reform). Real tax reform implies tax changes responsive to the needs of the majority of the American people now and in the future. It must offset, not exacerbate, market-driven inequalities, and it must raise the necessary revenue to meet the many challenges we face.

Between now and 2040, the share of our population over 65 is expected to rise by more than a third (from 15 percent to 20 percent), generating pressure on both the spending and revenue sides of the budget. Health costs are rising more slowly, thanks in part to the cost-saving architecture of the Affordable Care Act. But given demographic and health cost pressures, the Congressional Budget Office points out that just maintaining Social Security and our public health programs will require another 2.5 percent of GDP over the next decade.

Then there's global warming, rising sea levels, and weather changes that will require near-term disaster relief and longer-term investments in infrastructure and science. There's increased inequality, which leads to "stickier" (less responsive to growth) poverty rates, diminished mobility, and the need for increased investment in children's education and their parents' well-being.

Real tax reform would begin from a clear-eyed assessment of the resources government will need to meet these needs, all of which fit neatly under the rubric of public goods, social insurance, and risks that will not be met by market forces. The raising of ample revenues, done in a way that balances efficiency and equity considerations—i.e., that minimizes the kinds of distortions you get by favoring one income type over another, while maintaining tax progressivity—that's real tax reform.

The White House

Like the George W. Bush tax cuts, the Trump cuts too would likely sunset after ten years, at which point Republicans would surely go ballistic over the tax increase that they built into their plan.

Why shouldn't Democrats just finance these public needs with deficits? Why do we always have to be the fiscal grown-ups? The traditional reason is fear that public debt will crowd out private borrowing and drive up interest rates. That correlation, however, has been absent from the data for a good while, in part because the Federal Reserve has kept rates so low for so long and in part because of increased international capital flows into safe assets like U.S. Treasury bills. I'd thus largely discount "crowd-out" concerns, though I would not wholly dismiss them.

But the main reason Democrats must be fiscal grown-ups is that they are the party that recognizes the role for government in meeting the challenges articulated above, and that recognition requires them to raise the revenue to pay for government we need. Democrats also recognize the Republicans' long game to undermine that role, to shrink government and give the proceeds to the rich. The Republican play here is as simple and transparent as it is shortsighted: cut taxes and tell people growth effects will offset their costs. When that fails to happen, throw up your hands with a big "Who knew?" and argue that the only option is to cut spending.

The recent health-care debate was truly remarkable in this regard, even for an ancient D.C. hand like myself: Despite the fact that no one, not even their own constituents, liked what they were proposing, the Republicans simply were unable to stop themselves from introducing bill after bill that took health care away from poor and moderate-income families to give massive tax cuts to the wealthy. And they were stopped, at least for now, by one measly vote!

For too long, Democrats have been reluctant to tie this cynical play to the tenets of real tax reform. Instead, they've argued at best that we can raise the revenues we need solely from the top 1 percent (we can't, though that's the right place to start, including raising individual top rates), and at worst that, while Republicans will cut taxes for the rich, the Democrats will cut taxes for the middle class. This is a losing game. Instead, Democrats should explain what true tax reform is, why it is so necessary, and how it must support a robust role for a government that is amply and fairly funded to meet the steep challenges we face.

 

So, What's the Plan?

As far as I can tell, and I've checked, Democrats don't have a tax plan.

As far as I can tell, and I've checked, Democrats don't have a tax plan. It's not like Republicans are asking for their input, so perhaps this isn't surprising. And no question, the distance between now and real tax reform is great. Still, good politics, good policy, and common sense suggest that the Democrats (and to be clear, I'm referring to the progressive wing of the party) should have, if not a fully fleshed-out and scored tax proposal, some concrete, big ideas to start shaping into something more granular.

In fact, 45 Senate Democrats recently sent a letter to their Republican colleagues agreeing with the need I mentioned above regarding ample revenue collection, which is a fine, reality-based start. But we can get more specific. Here are a number of bullet points to start the conversation about real tax reform.

• Reduce wasteful tax expenditures. There are two ways to do this. One is to try to cherry-pick the worst offenders and eliminate them. As noted—and, if they try to stick to their list of pay-fors, Republicans will shortly be reminded—this route invokes strong resistance from the targeted lobbies. (In fact, one of Republicans' main pay-for proposals, the border adjustment tax, has already died at the hands of opponents from the business community.) Real estate will fight to preserve the mortgage interest deduction, financial firms will go to the mat on the proposed elimination of the interest deduction, and so on.

A better idea is to raise rates on everyone in the top 5 percent or 10 percent of the income scale, allowing them to keep their itemized deductions but at a lower rate. Instead of taking deductions at their top income tax rate, which is now about 40 percent, they'd take them at, for example, 25 percent. Not only does this reform raise serious revenues, but since a lot of these tax breaks subsidize things that wealthy households would do anyway (retirement savings, home-buying, sending kids to college), reducing the subsidies boosts efficiency in the tax code. To be clear, I'm not suggesting the lobbyists will roll over; perhaps this idea unites them against a common cause. But few good things come without a fight, and with this proposal, we can at least argue that no one's getting singled out for better or worse treatment.

. 

•  "Stop coddling the super-rich." That's not me speaking. It's Warren Buffett, from a 2011 op-ed in The New York Times by that name. Therein he debunks many of the same phony arguments I bemoan above, especially those arguing that to optimize investments, the tax code must privilege the income types held by the wealthy, like realized gains from sales of appreciated capital. His main point—and the man is on the front lines of financial investing—is that investors don't "shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off." Much statistical work underscores his experience, showing little economic response to changes in taxes on investments (other than short-term timing shifts individuals use to take advantage of forthcoming changes).

Practically, this research suggests we should stop providing (or, at least, provide less) special treatment for capital income. In addition to raising marginal tax rates on capital gains, we should keep the estate tax (and make it more progressive); end "step-up" basis, a provision that means heirs don't have to pay capital gains on inherited wealth; and keep the Kansan loophole for pass-through business income closed at the federal level.

• Fix our multinational problem. Though we don't need to cut our corporate tax rate in half, as Trump has suggested, that part of the code really is a hot mess. The conservative mantra that our high statutory corporate rate of 35 percent is making our companies uncompetitive in global markets, however, is belied by the fact that the corporate sector has been more profitable in recent years than ever. Our multinationals consistently face an effective tax rate way below that statutory rate. Boeing, for example, a company Paul Ryan cited recently while attempting to sell corporate rate cuts, paid an average of only 3 percent between 2002 and 2016.

There are two reasons for multinationals' low effective tax rates: transfer pricing and income deferral. The former is the age-old play of booking profits in tax havens while booking deductible expenses in countries with high rates. "Deferral" means that as long as you keep your foreign earnings outside the United States, you don't have to pay corporate taxes on them.

There's a simple fix for both problems that progressives should get behind: a minimum tax on foreign earnings. Whenever and wherever foreign affiliates of U.S. companies earn income, they pay the minimum tax, after which they can do whatever they want with the rest, including repatriate it back here, tax-free (note that a minimum tax is very different from a repatriation tax holiday, which loses revenue and incentivizes ever more deferrals). The Obama administration penciled in a 19 percent minimum tax, which raised $350 billion over ten years.

• Two (not so) new ideas: Along with a few other progressives (and the late Nobel laureate James Tobin), I've long advocated for a tiny tax of a few hundredths of a percent on financial transactions. I consider such a tax to be great policy and great politics. Even a tiny financial transaction tax (FTT) would likely raise $100 billion to $200 billion over ten years.

Traders claim that higher transaction costs will dampen market liquidity. That's probably true, though a dime on a $1,000 trade is unlikely to have much impact. But today's financial markets are afflicted by too many high-frequency trades that have nothing to do with efficient capital allocation and everything to do with nanosecond price arbitrage.

Unregulated financial markets have consistently inflated bubbles that whack the rest of us. The last time they did so, post–housing bubble, they got bailed out at taxpayer expense, then they recovered well before the middle class did, and now they're lobbying for more deregulation. (And no, the stock market has not become democratized; 80 percent of its wealth is held by the top 10 percent, 40 percent by the top 1 percent.) Thus, I believe there's attractive symmetry here: Tax those responsible for the damage to help those hurt by it.

Why haven't Democrats embraced and run on an FTT as part of a progressive package?

Why haven't Democrats embraced and run on an FTT as part of a progressive package? I've scratched my aging noggin about that question and don't have a great answer, other than "follow the money": Surely, their own funding connections to Wall Street are part of the problem.

A tax on carbon, which could take the form of a higher federal gas tax (it's been stuck at 18 cents since 1993 and it's not indexed to inflation), is the second idea, and it's more of a bipartisan one than what's in the rest of this agenda (though we're generally talking establishment Republicans, not the Tea Partiers and others who have signed no-tax pledges).

These two ideas share a thread: They're so-called Pigouvian taxes, designed to put a higher price on some activity that's underpriced from the perspective of the broader society. Financial transactions and climate pollution certainly fit that bill.

• One new idea: I noted this above but let me drill down slightly more here. One tax credit that should not only remain in the code, but should be increased, is the earned income tax credit, a wage subsidy for low-wage workers in low-income families. It's a strong anti-poverty program—in 2015, the EITC lifted about 6.5 million people out of poverty, including about 3.3 million children—that both encourages and rewards work.

My colleagues at the Center on Budget and Policy Priorities recently asked, "What would it take for the earned-income tax credit to offset the damage done to low- and moderate-wage earners by the wage and income stagnation that has beset them in recent decades?" The answer is a $1 trillion expansion in the refundable credit over the next decade. A family of four making $40,000 would get a tax credit of about $6,000 instead of its current benefit of about $2,000. Yes, $1 trillion is real money. But I like the way my colleague, Chuck Marr, put it: "For less than one-fifth of the cost of the Trump tax plan, we could improve the lives of millions of working-class people."

Chart Data Source: Tax Policy Center

• Fully fund the IRS. This idea is even more of a no-brainer than the FTT, and it too hangs out at the intersection of good, progressive politics and good policy. In real terms, IRS funding is down 18 percent since 2010, forcing the agency to cut 13,000 employees (14 percent of its workforce). Trump's budget proposes further sharp cuts, which links to his team's tax proposal in a particularly toxic way. Defunding the agency is a stealth way to cut taxes, as it diminishes their auditing capacity and implicitly encourages tax evasion (audits are down from 1.1 percent of returns in 2010 to 0.7 percent in 2016). For example, the Tax Policy Center predicts that 30 percent of the cost of Team Trump's pass-through proposal  will be due to phony reclassifications of salary income as business income; that's $650 billion over ten years in revenue lost in part because of an under-resourced IRS.

As Nina Olson, the IRS's National Taxpayer Advocate, recently put it: "No business would fail to fund a unit that, on average, brought in $7 for every dollar spent. Shareholders would rebel and bring lawsuits, or at least oust the management or board of directors, yet this is precisely what we are doing with the IRS budget."

Like I said, that's far from a fully fleshed-out plan, but the ideas share a progressive theme that can be crisply and, I'd wager, compellingly developed: True tax reform calls for a system that fairly raises the revenues we need to meet the challenges we face. And it does so while pushing back on, not increasing, economic inequality.

 

What's the Endgame?

Yes, Democrats need a tax plan, but as long as Trump and the Republicans maintain their control over the White House and Congress, the threat of wasteful, regressive tax cuts will loom large. Vigilance against their phony, "dynamic" growth effects, the way they would exacerbate inequality, and deficit chicken-hawkery will be required, as will stressing the need for ample revenues.

But will Republicans succeed? Given reconciliation and their ability to avoid a Senate filibuster, there is, of course, a distinct possibility of a Bush II–type tax cut that, to meet the budget rules, sunsets at the end of the budget window (there's even been some talk of extending the window, but I don't think they'll go there). However, I can see an opening here not just for progressives, but for a united group of Americans to stand firmly against the Republicans' plan.

These tax cuts won't do anything to help the working-class people that helped elect Trump. Their benefits, as I've pointed out, largely accrue to those at the top of the scale. But there's another dimension of this tax-reform-versus-tax-cut problem that I believe is critical to our pushback. It's not enough to identify the winners and losers from tax cuts by just looking at the initial distribution of who gets the cuts. Again, we must recognize that the goal here is to starve government of revenues so it can't help anybody.

Unlike the more pragmatic Kansan conservatives, congressional Republicans will not raise future taxes to pay for the revenue shortfalls that will surely materialize when their phony growth projections peter out. They'll advocate for spending cuts. And since federal taxes and federal spending are both progressive, cutting both is doubly regressive.

The figure above shows the impact of the Trump cuts on low-, middle-, and high-income households both before and after they're ultimately paid for with spending cuts. Low- and middle-income households get nothing or little from the first round of cuts. But if conservatives then argue down the road, as I'm certain they will, that paying for their tax cuts requires spending cuts of the type they've proposed in their budgets or in their health-care plans—cuts that disproportionately hurt poor and moderate-income families—then you really get a sense of the damage these cuts can do.

It may well be true that Republicans were "put here on earth to cut taxes," but that just means the rest of us were put here to try to stop them. I can't predict whether their tax cut efforts will go the same way as their repeal-and-replace efforts have gone thus far. But I can assure you that I'll be trying to ensure they do, and I could use all the help I can get.  

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John Case
Harpers Ferry, WV

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from Follow the Money

Puerto Rico After Maria: Initial Thoughts on the Fiscal and Economic Implications

Blog Post by Brad W. Setser

September 27, 2017

Puerto Rico faced immense challenges even before the devastation from Hurricane Maria. Its economy is 15 percent smaller now than it was ten years ago, and the latest high frequency indicators from the (bankrupt) Government Development Bank indicate the economy was falling by about 2 percent a year going into September. About 10 percent of Puerto Rico's population has left in the last ten years—and the pace of outmigration has picked up recently, with about 2 percent of the population leaving in recent years. Its pension system had been paying benefits by selling assets, and it basically has no more assets to sell. Its medical system was running off a grant from the Affordable Care Act, and that too is about to run out. Serious fiscal austerity was about to start.

And now Puerto Rico appears on the edge of an acute humanitarian catastrophe. The electrical grid is down, and expected to remain down for some time. Without electricity, many critical services are hard to provide. Providing enough fuel access to run the secondary generators in all of the hospitals is a major challenge. The water utility needs electricity to run its pumps and waste water treatment facilities. Clean water is short in some places. Food too.

And no doubt there are many other acute problems that need to be solved to keep the current humanitarian crisis from becoming a full-on catastrophe.

Puerto Rico's future finances aren't the most pressing problem to address right now. But the discussion about how Maria will impact Puerto Rico's economy and finances clearly has started, and I wanted to make four initial observations:

1. There is no way Puerto Rico can pay its debts right now. And thankfully, Puerto Rico already had a framework (as a result of PROMESA) that provides Puerto Rico with protection from creditor litigation while it struggles to recover. Most of the major Puerto Rican public entities were effectively operating under Chapter 9 style bankruptcy protection (title III of PROMESA) before Maria. I would not be surprised if the water authority also seeks protection now. With the approval of the oversight board, Puerto Rico can zero out debt service for the next few years and divert all available cash to cover its critical short-term needs. And over time PROMESA's court supervised restructuring process should allow Puerto Rico to reduce its legacy debts significantly; the bonds generally thought to have the best legal claim on Puerto Rico now trade at around fifty cents on the dollar.
2. Puerto Rico's humanitarian crisis is likely to quickly turn into a budget crisis. Sales tax collections will disappear for several months. Income tax collections will be way down. Tourism over the winter will fall, along with associated revenues. Even with the FEMA waiver of cost-sharing on emergency help, Puerto Rico looks to be facing a budget hole thanks to lost tax revenues. (A super technical point, but the mechanics of the sales tax pledge on the sales tax-backed [COFINA] bonds matter; the oversight board is seeking to adjust the COFINA pledge, which would help).*
3.  Obviously, there is tremendous uncertainty right now, but I would bet the budget hole is larger than what can be covered by zeroing out projected debt service this year and next in the current fiscal plan (debt service is $400 million this year, $560 million next year, and around $700 million in FY 2020) and drawing on any budget reserve. Cutting the budget further in response to falling revenues would only add to the economic devastation. There should be a mix of emergency federal funds and/or the use of the PROMESA provisions that effectively allow the board to authorize debtor-in-possession (DIP) financing (the board can prioritize payments on new debt) to cover any immediate shortfall in tax revenues. Pulling forward future revenue to cover the current hole though will require further adjustments to the fiscal plan, as it obviously creates a fiscal shortfall later. I suspect the Oversight Board—which already has authorized the Governor to shift a billion dollars across agencies to meet emergency needs—understands this.
4.  Federal reconstruction funds will help Puerto Rico to rebuild a portion of its public infrastructure. But that alone won't be enough to assure long-term recovery. Puerto Rico will struggle I suspect to meet the requirement for a local match on new infrastructure investments to build long-term resilience (unless the requirement is waived).** And private businesses also need to decide to rebuild rather than relocate. I worry that the multinational companies that are the mainstay of Puerto Rico's pharmaceutical sector will migrate to other tax-favored jurisdictions: Ireland offers comparable tax advantages these days, and less hurricane risk.*** And I worry that many Puerto Ricans will decide that the time has come to migrate to Florida, to New York, or to a less traditional destination. That will further reduce Puerto Rico's long-run economic potential.

The provision of emergency help to Puerto Rico should not be controversial (even if the disaster relief fund has funds left over from Harvey and Irma, there will need to be another appropriation soon).

There also needs to be a discussion of how the federal government's current fiscal bargain with Puerto Rico needs to change. Right now low income Puerto Ricans with children are effectively disadvantaged by the tax system if they work in Puerto Rico rather than in Florida (or any of the 50 states), as Puerto Rican workers do not qualify for the earned income tax credit (EITC). And right now the Medicaid funding formula provides Puerto Rico with less support than it would get if it were a state, though care should be taken to assure that new Medicaid funds go to improving access to healthcare in Puerto Rico—not to bondholders.**** Addressing such discrepancies seems like low-hanging fruit and the budget cost is actually very modest (nothing at all compared to the cost of many tax changes now under discussion).

Remember that Puerto Ricans can already access these federal funds if they migrate off island, but then their work won't support the reconstruction of Puerto Rico.

No doubt there are other ideas too—ideas that would go beyond providing low income Puerto Ricans equal access to federal funding and that would move toward providing special incentives to encourage investment and industry.*****

But there should be no doubt that Puerto Rico needs help. Today. And over the next 10 years.

* Sales tax funds traditionally have flowed into the COFINA trust fund before going into the budget—so sales tax funds only arrive in the budget after all the funds needed to make bond payments for the full year are set aside. That traditionally creates a hole in the budget from July to December. But, well, if sales tax receipts fall sharply, almost all of this year's collections could go to the COFINA trust fund, with very little flowing into the budget until late in the year, if at all. (And to make this more complicated, the incremental sales tax revenue from the 2015 sales tax hike flows directly to the budget, this is only true for a portion of the sales tax proceeds—welcome to the wonderful world of securitization of general government revenues).

** The bond holders of the power company are offering to provide DIP financing to help PREPA meet the federal match, but only if some of their old bonds are also given priority. The second part may be a stumbling block; from afar, I would guess there might be less expensive ways to get DIP financing. 

*** For corporate income tax purposes Puerto Rico is outside the United States, so the pharmaceutical industry can defer U.S. income tax on the "foreign" profit they earn on their Puerto Rican operations (which can be structured as controlled foreign corporations).

**** Money is fungible, and there is an argument that the existing confirmed budget already covers essential medical care, so any new federal funds would be available for bond holders. I am no lawyer, but I would think creative legal drafting could limit the risk that new federal funds would be used for purposes other than raising access to medical care relative to the baseline in the current approved budget. 

***** Bloomberg, the Wall Street Journal oped page, Dan Drezner, Vox, and others are all arguing for exempting Puerto Rico from the Jones Act—a completely reasonable proposal. But in my view the long-term impact of a Jones Act waiver would likely be fairly modest. The Jones Act unquestionably raises the cost of shipping goods from the U.S. to Puerto Rico, but it doesn't seem to raise the cost of shipping back to the U.S. (the ships have a lot of excess space on the return journey, as they sail back roughly 20 percent full: see this GAO report, page 17. The GAO report also offers a ton of institutional detail, including maps showing shipping routes to Puerto Rico). While permanently lifting the Jones Act would clearly provide a one-off increase to real income in Puerto Rico by lowering the cost of goods "imported" from the U.S., in my view, it isn't likely to be sufficient to overcome the disadvantages of geography or fundamentally change Puerto Rico's economic trajectory.

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John Case
Harpers Ferry, WV

The Winners and Losers Radio Show

7-9 AM Weekdays, The Enlighten Radio Player Stream, 

Sign UP HERE to get the Weekly Program Notes.

Check out Socialist Economics, the Enlighten Radio website, and 

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