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Thursday, April 13, 2017

How wrong is IBD on California? Let us count the ways

Investor's Business Daily has a hit piece out on California, as you can tell from the headline, "Taxifornia does it again." Here's the first paragraph of the editorial*, to give you a good flavor of it:
California's far-left government has done it again. Not realizing its real problems are excessive spending on misplaced priorities, excessive taxes, too much debt and a far-too generous welfare state, its legislature working in cahoots with Gov. Jerry "tax-and-spend" Brown has pushed through the largest tax hike in state history.
Amazingly, the editorial does not mention regulations once, though it did get around to the "job-killing $15-an-hour minimum wage" recently passed, along with the proposal for a single-payer health insurance system. I guess that counts as massive self-restraint on the editors' part.

The article calls California "the highest-tax state in the union." If that's so, it's just another example of the false claim (popular also with Arthur Laffer and the conservative American Legislative Exchange Council) that high taxes always mean bad policy outcomes. (FWIW, according to Forbes, California only has the sixth-highest state and local tax burden.)

So what have been the consequences of all of California's tax increases? According to IBD, "Since 2004, California has lost more than 1 million people, representing a $26 billion net income loss." Of course, no one has actually been lost. California's population grew by almost exactly 4 million between 2004 and 2016, from 35.25 million to 39.25 million. What IBD's editors are referring to is net interstate immigration and even there, the analysis is a little squirrely. From 2004 to 2008, the state had net interstate emigration of over 100,000 per year, with a low point of 288,000 net loss in 2006 (you know, during the housing disaster), but in every year since 2009, the number has been under 100,000 per year. Of course, interstate immigration is only one element of population change, and IBD conveniently omits the rest.

And the $26 billion alleged income loss due to interstate out-migration over that time period? A rounding error in an economy which grew from $1.8 trillion (2004) to $2.2 trillion (2015) annually in real 2009 dollars. I'm not even going to bother searching for their unlisted source.

The article further claims that because of taxes, over 10,000 firms, including Toyota, "have either fled the state or reduced their investments." Of course, Toyota has been replaced in its Fremont factory by Tesla, the most valuable auto company in the United States by market capitalization (yes, I agree: it does need to make profits sometime to maintain this). Again, we need to look at the bigger picture. California hit its pre-recession peak employment in January 2008 at 16,949,800 (6.1% unemployment rate), went below 16 million employed and over 12% unemployment in the worst of the Great Recession, but in December 2016 reached 18,376,600 employed with just a 5.2% unemployment rate. So something more than offset all the companies that "fled," I guess.

Of course, not everything is hunky-dory in California. As Woody Guthrie sang in 1940, "you won't find it [California] so hot, if you ain't got the do-re-mi." It's just as true today. California has persistent problems with a shortage of affordable housing, with studies rating it as having the highest housing costs in the country. But that means, contrary to the tax-doomsayers, that it is low-income people moving out and higher income people moving into the state, the opposite of what we'd expect if the anti-tax hype were true.

All in all, the editorial is Exhibit 538 in pressuring states to cut taxes, pretending you can provide infrastructure, education, and training without tax revenue, and that you can create prosperity by creating low-wage jobs.

* Thanks to a non-blogging friend for pointing out this editorial.

Friday, March 31, 2017

Tax Justice Network Taxcast, March 2017: Brexit and Tax Havens; Losses to Tax Avoidance

Will Brexit harm the City of London's tax haven? With weak regulation, money laundering, and satellites like BVI, Cayman Islands, and Jersey, everyone knows it's already a tax haven. The UK is threatening to be more of a tax haven if they don't get their way on other issues in the Brexit negotiations, but the EU will be vigilant on this issue, in John Christensen's opinion. He notes that the General Agreement on Trade in Services (GATS) does not guarantee trade in most financial services. He says UK suffers from finance curse (like the resource curse increasingly studied in political science). He predicts that the EU will find it easier to regulate financial services after the UK is gone.

The cost of the financial crisis was $6.5-$14.5 trillion, according to calculations by Gerald Epstein, of the University of Massachusetts, Amherst. The bailout enabled finance to make profits far beyond what was justified based on the risk banks took on prior to the bailout. Economic rent has been generated through excess compensation, drawing more top graduates into the sector. Private credit/GDP over 90% or so leads to lower economic growth. The U.S., UK, and Iceland all had been at 200% of GDP.

"Overcharged? The High Cost of High Finance" is the name of the report.

Listen to the entire broadcast here: http://traffic.libsyn.com/taxcast/Taxcast_March_17.mp3


Sunday, March 19, 2017

U.S. Has Worst Wealth Inequality of Any Rich Nation, and It's Not Even Close

I've discussed the Credit Suisse Global Wealth Reports before, an excellent source of data for both wealth and wealth inequality. The most recent edition, from November 2016, shows the United States getting wealthier, but steadily more unequal in wealth per adult and dropping from 25th to 27th in median wealth per adult since 2014. Moreover, on a global scale, it reports that the top 1% of wealth holders hold 50.8% of the world's wealth (Report, p. 18).

One important point to bear in mind is that while the United States remains the fourth-highest country for wealth per adult (after Switzerland, Iceland, and Australia) at $344,692, its median wealth per adult has fallen to 27th in the world, down to $44,977. As I have pointed out before, the reason for this is much higher inequality in the U.S. In fact, the U.S. ratio of mean to median wealth per adult is 7.66:1, the highest of all rich countries by a long shot.

The tables below illustrate this. First, I will present the 29 countries with median wealth per adult over $40,000 per year, from largest to smallest. The second table also includes mean wealth per adult and the mean/median ratio, sorted by the inequality ratio.


1. Switzerland  $244,002
2. Iceland  $188,088
3. Australia  $162,815
4. Belgium  $154,815
5. New Zealand  $135,755
6. Norway  $135,012
7. Luxembourg  $125,452
8. Japan  $120,493
9. United Kingdom  $107,865
10. Italy  $104,105
11. Singapore  $101,386
12. France  $  99,923
13. Canada  $  96,664
14. Netherlands  $  81,118
15. Ireland  $  80,668
16. Qatar  $  74,820
17. Korea  $  64,686
18. Taiwan  $  63,134
19. United Arab Emirates  $  62,332
20. Spain  $  56,500
21. Malta  $  54,562
22. Israel  $  54,384
23. Greece  $  53,266
24. Austria  $  52,519
25. Finland  $  52,427
26. Denmark  $  52,279
27. United States  $  44,977
28. Germany  $  42,833
29. Kuwait  $  40,803

Source: Credit Suisse Global Wealth Databook 2016, Table 3-1

Now that I've got your attention, let me remind you why this low level of median wealth is a BIG PROBLEM. Quite simply, we are careening towards a retirement crisis as Baby Boomers like myself find their income drop off a cliff in retirement. As I reported in 2013, 49% (!) of all private sector workers have no retirement plan at all, not even a crappy 401(k). 31% have only a 401(k), which shifts all the investment risk on to the individual, rather than pooling that risk as Social Security does. And many people had to borrow against their 401(k) during the Great Recession, including 1/3 of people in their forties. The overall savings shortfall is $6.6 trillion! If Republican leaders finally get their wish to gut Social Security, prepare to see levels of elder poverty unlike anything in generations. It will not be pretty.

Let's move now to the inequality data, where I'll present median wealth per adult, mean wealth per adult, and the mean-to-median ratio, a significant indicator of inequality. These data will be sorted by that ratio.


1. United States  $ 44,977  $344,692 7.66
2. Denmark  $ 52,279  $259,816 4.97
3. Germany  $ 42,833  $185,175 4.32
4. Austria  $ 52,519  $206,002 3.92
5. Israel  $ 54,384  $176,263 3.24
6. Kuwait  $ 40,803  $119,038 2.92
7. Finland  $ 52,427  $146,733 2.80
8. Canada  $ 96,664  $270,179 2.80
9. Taiwan  $ 63,134  $172,847 2.74
10. Singapore  $101,386  $276,885 2.73
11. United Kingdom  $107,865  $288,808 2.68
12. Ireland  $ 80,668  $214,589 2.66
13. Luxembourg  $125,452  $316,466 2.52
14. Korea  $ 64,686  $159,914 2.47
15. France  $ 99,923  $244,365 2.45
16. United Arab Emirates  $ 62,332  $151,098 2.42
17. Norway  $135,012  $312,339 2.31
18. Australia  $162,815  $375,573 2.31
19. Switzerland  $244,002  $561,854 2.30
20. Netherlands  $ 81,118  $184,378 2.27
21. New Zealand  $135,755  $298,930 2.20
22. Iceland  $188,088  $408,595 2.17
23. Qatar  $ 74,820  $161,666 2.16
24. Malta  $ 54,562  $116,185 2.13
25. Spain  $ 56,500  $116,320 2.06
26. Greece  $ 53,266  $103,569 1.94
27. Italy  $104,105  $202,288 1.94
28. Japan  $120,493  $230,946 1.92
29. Belgium  $154,815  $270,613 1.75

Source: Author's calculations from Credit Suisse Global Wealth Databook 2016, Table 3-1

As you can see, the U.S. inequality ratio is more than 50% higher than #2 Denmark and fully three times as high as the median country on the list, France. As the title says, this is not even close.

The message couldn't be clearer: Get down to your town halls and let your Senators and Representatives know that it's time to raise Social Security benefits and forget the nonsense of cutting them.

Cross-posted to Angry Bear.

Sunday, February 12, 2017

Meanwhile, back in Ireland

We've gotten to another point where it's hard for me to turn on the TV. I know this will have to change, but for now I'll go back to one of my favorite topics, the fate of Ireland under austerity.

As I suggested might happen, Ireland in its 2015-2016 immigration statistical year (May-April) was finally able to end its net emigration. According to the Central Statistical Office's August report, 3100 more people came to Ireland than left during 2015-2016. This was the first time since 2008-2009 that Ireland had net in-migration. Still, among the Irish themselves, net emigration continued in 2015-2016, with 10,700 more leaving than returning.

The unemployment rate declined again from Q3 2015 to Q3 2016, from from 9.3% to 8.0%. The monthly unemployment rate for January 2017 dropped to 7.1%. And yet...

While Q3 2016 employment increased by 57,500 to 2,040,500, this remains 5.6% below its Q1 2008 peak of 2,160,681. Things are finally getting better, but Ireland is still not all the way back.

By contrast, currency-devaluing, banker-jailing Iceland long ago passed its old employment peak (create your own table), which was 181,900 in August 2008. Employment reached a low point of 163,900 in February 2011, first surpassed the old peak in February 2015 (182,900), and in December 2016 stood at 194,400, or 6.9% above the pre-crisis peak.

Oh, and Iceland's unemployment rate? A seasonally adjusted 2.9% in December 2016, and only 2.6% without seasonal adjustment.

Maybe one day we'll talk about the Celtic Tiger again. But Ireland, hamstrung by its inability to devalue and by harsh austerity measures, shows lingering weakness, masked by emigration, to this day. Iceland, by contrast, is the one looking like a Nordic Tiger.

Cross-posted at Angry Bear.

Thursday, November 17, 2016

Clinton's lead now more than a million votes UPDATED

As I explained last week, Donald Trump was elected to the Presidency despite having fewer votes than Hillary Clinton. She has already set a record for the biggest popular vote victory despite losing the Electoral College; according to CNN, she now (11/17/16 5:00am EST) leads by about 1,045,000 votes, roughly twice the margin of Al Gore's victory over George W. Bush in 2000. This equates to 0.8% of the popular vote.

Moreover, Clinton's lead will only increase in the coming days. The CNN infographic cited above shows that only 78% of California's votes (where Clinton leads by roughly 3 million votes) have so far been counted. Her raw vote margin will continue to climb there until the votes are all counted.

People have raised two primary arguments against my position that having the Electoral Vote trump the popular vote is undemocratic. The first takes the view that Trump won under the rules as they are: If the popular vote were determinative, he would have campaigned more in California, New York, Texas, and other population centers, and, in his mind at least, he would have recorded an even bigger victory. The problem for this claim, as Josh Marshall has pointed out, is that Clinton would have also campaigned more in those states. Increasing voter turnout usually improves Democratic electoral fortunes, so electing the President by popular vote means that Democratic margins would increase, not decrease.

The second argument claims that focusing on the Electoral College as the reason for Clinton's loss lets her off the hook for her weaknesses as a candidate and a campaigner. And there is no doubt that she had her weaknesses. The problem with this view is that the existence of the Electoral College is a necessary condition for her to have lost. None of her campaign's other problems would have led her to lose the election if the Electoral College did not overweight the Wyomings of this country relative to the Californias. This structural disadvantage that populous states face is one of the biggest threats to democracy in America. And we've got to do something about it, soon.

Update: It's now over 1.5 million, according to CNN.  California still only has 83% tallied. Some sources have Clinton's lead over 2 million now. Something is seriously wrong with this picture.

Cross-posted at Angry Bear.

Wednesday, November 9, 2016

Need Readers' Advice

Yesterday, a non-plurality of the voters chose a new President. Just like in 2000, the Electoral College is not going to the candidate with the most votes. As this new President has also shown himself to not share our democratic ideals, I find it difficult to have much respect for him. Indeed, I am considering not calling him by his name, ever. But perhaps I am just reacting out of the immediate shock.

Therefore, I am asking you to respond to the poll at the top of the page regarding what I should call him. The choices are: He Who Shall Note Be Named (assuming I get J.K. Rowling's permission); Reality Show Host; his actual name; and Other (please specify). I need a reality check here.

Thanks for taking the time to give your advice.

Election of popular vote loser proves necessity of abolishing Electoral College

For the second time in just 16 years, the new President is actually the loser of the national popular vote (click on "Popular Vote"). This is the fifth time this has happened in U.S. history; the last time it happened prior to 2000 was in 1888. As children, we were all taught to believe in democracy and majority (or as we later learned, sometimes just plurality) rule. But with the way that rural and low-population states are overrepresented in the Senate and, hence, the Electoral College, the United States has persistent problems in achieving democratic outcomes in presidential elections and in passing legislation (the overrepresentation of small states in the Senate is amplified by the use of the filibuster).

As I write this (Nov. 9 at 3:53 EST), Hillary Clinton presently has a 219,000 vote lead, according to CNN (see link above). Yet she has lost the Presidency because low-population states are overrepresented in the Electoral College. How do we avoid such affronts to democracy in the future?

The best, and most straightforward way to do this would be to abolish the Electoral College entirely. This would make it impossible to repeat this travesty again.However, the Amendment process is a difficult one, requiring 2/3 majorities in the Senate and House of Representatives, and approval by 3/4 of the states.

There is an alternative, though it might not be permanent. This is called the National Popular Vote bill, which would take the form of an interstate compact that would come into effect when it was ratified by states wielding at least 270 electoral votes. The concept behind the bill is simple: The states which are members of the compact pledge to award all their electoral votes to the winner of the national popular vote (50 states plus the District of Columbia), rather than the winner of the popular vote in their own state. This would ensure that the popular vote winner also won the Electoral College. However, this solution might not be permanent, if one or more of the signees passed legislation withdrawing from the compact.

At present, states comprising 61% of the needed 270 electoral votes have signed on to the agreement. This is made up of ten states plus the District of Columbia, with 165 electoral votes. A quick glance at the list shows the biggest potential problem: Every one of them voted for Secretary Clinton last night (although it should be noted that the Republican-majority New York State Senate voted in favor of the bill 57-4). Although there is some bipartisan support for the bill, Republicans in other states could decide that keeping the Electoral College is a partisan advantage, making it impossible to get enough states to sign on.

And yet, one of these (or something with equivalent effect) solutions is needed. American democracy is being degraded by our inability to elect as President the candidate with the most votes. It has now happened in two of the last five Presidential elections, and continues to be a threat for the foreseeable future.

Cross-posted at Angry Bear.