ECONOMIC POLICIES, ANALYSIS, AND RESOURCES
The Economic and Trade Policy Domain tracks and reports on policies that deal with budget, taxation, and finance issues. The domain tracks policies emanating from the White House, Congress, the Department of Commerce and the Department of Treasury.
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Brief #93—Economic Policy
By Rosalind Gottfried
Many workers opt for public sector jobs lured by generous pensions and other benefits such as healthcare and leave time. Private sector work may offer higher salaries and some benefits but they are much less likely to offer guaranteed defined benefit retirement plans.
By Rosalind Gottfried
The Stock market has surged, in August, almost to its historic February high, prior to the onset of the Covid-19 pandemic. This in spite of the absence of a new stimulus, the bi-partisan strife in the capital, and the spike in the Covid-19 cases this summer. In fact, the market has gained 32% since Trump took the office of the presidency.
October 19, 2020
The recently published revelations regarding the status of President Trump’s tax record hardly come as a surprise. Many of us have the vague notion that the tax structure is unfair, but how bad is it? And, how is it structured?
It is very unfair. The burden on the wealthy versus everyone else is very little. As stated in The Guardian, “there is one set of rules for the richest 0.1% and another for everyone else.” President Trump exemplifies the former group. For the 15 years between 2000 and 2015 Trump paid no taxes for ten of those years and little for the remaining years. In 2016 and 2017 he paid $750 which he described, in a recent interview, as a filing fee. He has carried over business losses to multiple years accruing extra tax credit for the same losses. He has not denied that he owes more than 400 million plus in debt, due in the next four years, and he will not state whether any of this is to foreign banks or foreign governments. The NYT articles detailing his tax status have asserted that he has failed to make any payments on the principal of a 100 million dollar loan, from 2012, to fund the Trump Tower. They also report that Trump depends on money from businesses which represent significant conflicts of interest with the office of the Presidency. The full picture of his tax status is still missing in action since he asserts that he is under an audit and therefore cannot supply his records though there is no prohibition against him doing so.
Individual federal taxes are structured so that theoretically the more income you have the more taxes you will pay in terms of the percentage levied on your income. This rarely plays out, in fact, and so frequently the working and middle classes are paying more income tax than the wealthy. In 2018, the 400 top earners paid an average federal income tax rate of 23%, rather than their theoretical level of 37%. One wealthy banker reports paying a tax rate in the high teens. The bottom half of earners paid an average of 24%.
Tax levels for wages and salaries are greater than those levied on investments and property taxes. Capital gains from investments, certain dividends, and long term capital gains are capped at 23.8%. The tax burden is supposed to be “progressive” but the wealthy pay a similar portion, or less, than the middle groups and this imposes a far smaller burden on them. Those who can least afford to do so pay a bigger portion of their relatively low income to taxes. This is especially true in other “regressive” taxes such as Social Security and sales taxes. The social security tax is increased as incomes go up but only to 137,000 dollars and then there are no additional charges. Sales taxes, for example on food and gas, are equal for all though they are more costly to a household with a lower income. These tax differentials are adding fuel to the fire igniting the ever widening gap in wealth in the US and the stagnation of the financial picture of the working classes. The persistent separation of the very wealthy, from everyone else, is the most dramatic it has ever been and far outpaces the situation in other advanced democracies.
Trump and Biden favor different approaches to the tax structure. Overall, Biden seeks to make it more equitable and simple to utilize. Trump seeks to advance the interests of business and capital. A few highlights from the Tax Cuts and Jobs Act of 2017 (TCJA) exemplify these differences. Trump wants to maintain the theoretical tax celling of 37% whereas Biden wants to return it to the pre-2018 level of 39.6%. He feels the affluent should pay more because they can. Trump suggests that the 22% rate on the middle groups be lowered to 15% or the brackets be modified so that more people fall into the lower groupings. He has advanced no specific plans. Trump would move the investment rate down to 15%, from a ceiling of 23.8%. 15% OF WHAT? Taxes on investments..He also suggests tying the tax rate to the inflation index. Biden would like to see the rates be the same or similar for all types of income.
The TCJA doubles the standard deductions on annual federal taxes and limits the itemized deductions a person can claim. This has caused most people to stop itemizing. The rate went from 31% to 14%.WHAT RATE? Of people who bothered to itemize…Those with large mortgages and significant charitable contributions still benefit from itemizing. BUT ABOVE YOU SAY PEOPLE HAVE STOPPED ITEMIZING/EXPLAIN Wealthy who have the means to buy huge homes and significant contributions to charities The Act also increased child deductions to $2000 for children under 17 and $500 for other dependents. The Act, with regard to personal income taxes, expires in 2025. Biden seeks to increase the deduction to $3000 for children 6-17 and $3600 for children under 6. Trump would leave it as is.
Biden proposes increasing payments to Social Security, often referred to as the payroll tax for incomes up to $400,000 rather than the current stopping point of $137,000. Trump has suspended social security payments for September through December. These deferred payments would be due in 2021 unless Trump eliminates the debt with a tax holiday. A Congressional mandate is required to make these permanent. The deferments only accrue to those making less than $100,000.
The portion paid by corporations versus the overwhelming mass of individual taxpayers continues to plummet. Corporate taxes, under the TCJA, are at a flat rate of 21% rather than the previous range of 15-35%. These modifications are permanent under the Act. Trump prefers a set rate of 20% though he has made no proposal yet. Biden supports a 28% rate and a limit to how long a business can claim little to no income. A significant portion of corporate taxes are paid by employees, shareholders, and consumers rather than by the company.
Suggestions for improving the tax structure include: that the tax subsidies for failing businesses be limited to six years; preferential treatment for investment income should end; a 10% sur tax should be placed on incomes over two million dollars regardless of its source; and large charitable donations should not have repercussions which accrue to the personal lives of their donors outside of the tax deduction. It is estimated that the current set of rules results in 574 billion dollars of lost revenue annually and the wealthy comprise 70% of the noncompliant. Can we afford this?
References: Learn More
https://joebiden.com/ Biden campaign website
https://americansfortaxfairness.org/national-organizations-working-families/ Organizations seeking to change the federal tax structures
Women are leaving the workforce at a rate four times than that of men. There are two alarming trends affecting women in the labor force as a consequence of the corona virus. The first impacts lower wage workers and concerns the dramatic rate of unemployment among women and especially Latinas. The second trend pertains to women with higher education and the increasing rate at which they are dropping out of the workforce largely due to childcare needs.
In recent economic downturns, until the covid era, recessions were more pronounced in their effects on male employment earning them the title of mancessions. With the covid era that has changed. Sixty percent of jobs lost, at the onset of the virus, were to women. In December 2019, women were 50.04% of the labor force, making them more than half of the labor force for the first time in a decade. In April, the labor force participation for women was the lowest it has been since 1986. Between February and April women’s unemployment increased by 12.8% compared to 9.9% for males. Between August and September 1.1 million people left the labor market. Women comprised the highest portion of this group at 800,000 including 324,000 Latinas and 58,000 African Americans. Job losses were more pronounced in industries which hire a disproportionate number of women. These include service work, production work, restaurant work, and some health care occupations. These affect all women and especially women of color. These women are least likely to be able to work at home and most likely to lose jobs. Their unemployment is likely to outlive the recession. In Sun Belt states this has hit really hard among Latinas. These include Florida, California, Texas, and Arizona which have the highest concentration of Latinx populations. It is hard to say how long it will take for these jobs to be reinstated or if they actually will be. For some, unemployment payments, augmented by the federal CARES program, were literally lifesaving but that aid ended July 31st and there is no new program on the horizon. The consequences for the community are dire, especially for single women headed households with minor children.
For professional women the situation is more voluntary in that women are opting out of the labor force due to caregiving requirements related to childcare and homeschooling. Women are more likely than their male partners to quit working because more often they make the lower salary. Cultural expectations still also play a role in the burden placed on women. When women are still working they perform 15 hours more childcare duties than their partners. It is too stressful and they are bending under the weight. The problem is not only that they are the ones likely to sacrifice working for now but that their departure from the labor force will have long ranging consequences both for women and for the economy. Women in mid professional careers are on a trajectory where they are more likely to be promoted. If this window is missed they are in jeopardy of losing those opportunities permanently. Women who leave professional jobs are at high risk for never replacing them at the same level and/or for sacrificing their future gains. This will create a situation in which the income gains of women, hard won in recent decades, will regress and likely not recoup for some time. These millennial women also suffered setbacks during the great recession.
To address the problem of the lower wage workers, the solution is pretty straight forward. The federal government must create a CARES program to help those in dire need. This is not a time for partisan shenanigans. The need is clear and the response should be swift and compassionate. In addressing the concerns of women opting out of professional jobs, the employers need to institute very specific programs which will allow for recruiting women back into positions comparable to those vacated. Flexible scheduling, remote opportunities, and programs to facilitate promotion can be elaborated by human resources departments. This is not a matter of giving women (or men in the same position) special treatment but of compensating for very real biases in employment world and in the gendered nature which persists in society. This is not just a way to help specific women but of supporting the economy. It is estimated that the unemployment of women has cost the economy 341 billion dollars so far.
https://www.crisistextline.org/ National crisis hotline. It will connect you with local counties which can provide local information on rent assistance, food aid, mental health, suicide, housing, healthcare.
The Supreme Court has an enormous influence on economic policy though this association is not commonly made. For example, the rights and well-being of the working and middle classes can hinge on the opportunity to unionize. This right suffered a blow in a 2018 Supreme Court case, Janus v AFSCME (American Federation of State, County, and Municipal Employees). The so-called “right to work,” was upheld by the court in a 5 to 4 decision restricting unions from the collecting “fair share dues. Prior to the decision, a union could take a “fair share” of the dues from the employee, without their consent, to cover the cost of collective bargaining. This ruling applies to persons who are in a collective bargaining unit but have not joined the union, since they benefit from the union contract. They can be applied only to collective bargaining.
In a 5 to 4 decision in June 2018, the court negated the fair share mandate saying that collecting fees from non-consenting employees violated the First Amendment rights guaranteed by the Constitution. Prior to that decision twenty two states had fair share provisions and 28 were “right to work” states barring collection of fair share monies. The decision voided the fair share mandates. The dissenting opinion, written by Elena Kagan, cited protections in the 1977 ruling, Abood v the Detroit Board of Education, which stipulated that fair share dues could only be utilized for collective bargaining which benefited all employees. She asserted that the ruling allowed the judiciary to intervene in economic and regulatory policy while weakening the unions.
With the current court poised to get another Trump appointment, the 6-3 conservative majority it would represent can do a lot of damage and, with the relative youth of the newer judges it could be sustained for decades. According to the Bloomberg report, the current nominee Amy Coney Barrett, represents positons to the right of Chief Justice Roberts. The fear is that the Court will overturn the Chevron Deference which maintains that federal agencies can interpret laws they administer as long as they are “reasonable.”
In the past, Anton Scalia supported the Chevron Deference, at least in the earlier part of his tenure, arguing that Congress intended to delegate authority and that the courts should uphold that perspective. Now that interpretation of Congressional intent is considered problematic and the judges are favoring seeing the laws as they are written. Flexibility in agency administration allowed the EPA to interpret the Clean Air Act to permit regulation of carbon emissions. The new court would halt the authority of agencies to interpret policy.
These two examples indicate the great impact the court can have on workers, businesses, and the economy. Unionization is at an all-time low with 33.6% of government employees belonging to a union while only 6.2% of private workers are unionized. Nonunion workers average about $1500 less in salary and have to bargain for benefits. In 2010, Wisconsin Governor Scott Walker signed Act 10 into law that significantly gutted the effectiveness of public employee unions, including the most state and most municipal workers as well as the teachers. Teacher’s salaries fell an estimated 2.6% and their benefits dropped by 18.6%. Walker successfully faced a recall vote in 2011 over the crisis in public unionization.
- https://aflcio.org/about-us/our-unions-and-allies the largest umbrella organization of union and union affiliates.
Many workers opt for public sector jobs lured by generous pensions and other benefits such as healthcare and leave time. Private sector work may offer higher salaries and some benefits but they are much less likely to offer guaranteed defined benefit retirement plans. These refer to a guaranteed payment, often for life, based on formulas computed with age and years of service. Contributions are made from the employees’ salaries as well as by the agency. These pensions are guaranteed untouchable by states laws which protect their future. If revenues fall, the employers must absorb the risk and contribute more to compensate for the shortfalls. In the public sector 77% of employees enjoy defined benefit pensions in contrast to only 13% of private sector workers. The situation is different in counties and municipalities which become vulnerable to some reductions if they enter Chapter 9 bankruptcy. In defined contribution systems, the employee and employer pay into the system but there is no guaranteed payout and the employee assumes the risk. More companies are shifting to these programs and government may follow this path, too.
Economists have been sounding the alarm, for years, regarding the shortfall or gap between pension obligation and available assets. This is true in all pension plans, to a greater or lesser extent, from small local entities to the California state employee system, Calpers, which services 1.6 million employees. Economists have been warning pension administrators of demographic shifts leading to the decreased contributions from contracted workforces paired with growing numbers of retirees. The pandemic has accelerated this change leading to greater deficits from unemployment and revenues lost when businesses shut down. State and local pensions have seen a loss of one trillion dollars since mid-February. California, for example, has seen a loss of 69 billion dollars in their 404 billion dollar portfolio, compounding a shortfall already predicted by the state budget offices. Overall, estimates suggest an immediate state revenue gap of 650 billion dollars. Although state pensions are predicted to be stable, due to law and political pressures, some localities such as Detroit, were forced into reducing payouts as a consequence of Chapter 9 bankruptcy restructuring. Experts have been cautioning pension planners to shift form high yield to conservative investments but these warnings have gone unheeded. In 2019, state and local pensions averaged a 71% funding level but this is predicted to decrease to 62.7% in a healthy recovery and 55.5% in a sluggish one. Many entities have relied on “gimmicks” such as short term loans, tapping reserves, and/or deferring some costs to cover their obligations. Ultimately, these will exacerbate the problem by delaying a longer term solution.
Suggestions regarding changing investment patterns to solidify the available assets and minimize risk are rational but unlikely to meet the need of the changing ratios of active workers to retirees. It is possible that future public sector employees will not be offered defined benefit pensions. In recent years, increases in pensions and healthcare costs have been favored by unions as these benefits are not subject to income taxes though they are severely impacting government budgets. Some states are closing their pensions to new workers while others are increasing the employee contribution. In Kentucky, a state with a steep shortfall, teachers are now contributing 13% to their retirement, twice as much as their social security payroll tax. Other states, such as Illinois, have added a 3% tax compounded annually, an amount which exceeds inflation. Other remedies have been doubling the gas tax; tripling the real-estate transfer tax; increasing car registration; increasing car metering costs; legalizing and taxing marijuana; and instituting a property fee which is levied on all entities including schools and churches. These actions have cost the state some of its population.
Increased employee contributions to public systems are feared to discourage people from entering the public sector as teachers, firefighters, law enforcement, or agency workers. Post-pandemic restructuring of government agencies is predicted to reduce the number of public employees, further cutting into available revenue. The federal government should be providing aid to ailing states and local governments but it not moving in that direction. Mitch McConnell (R), the Senate majority leader has stated that Congress should move to allow state bankruptcy rather than depend upon federal aid. The short sighted management of pension funds was already putting these at risk prior to the pandemic. Now the issue is accelerating and attention should be turned to redesigning government polices with regard to pensions, social security, and employment.
- https://www.aarp.org/entertainment/books/bookstore/money-work-retirement/info-2016/retirement-survival-guide.html A guide to retirement planning, especially important for those who do not have a defined benefit.
The Stock market has surged, in August, almost to its historic February high, prior to the onset of the Covid-19 pandemic. This in spite of the absence of a new stimulus, the bi-partisan strife in the capital, and the spike in the Covid-19 cases this summer. In fact, the market has gained 32% since Trump took the office of the presidency. Good news? Yes, if you are among the top 1% but if you aren’t, the figure is largely irrelevant. The top ten percent of households account for 84% of all the equity from stocks while the top 1% enjoys one half of all equity. The next 10% account for 9.3% of the stock values and the bottom 80% weigh in at 6.7%. Although 52% – 54% of American households own stock, some by way of investments in 401Ks, they average $40,000 in total value. The value of the market has increased ten times since 1990 during which time the share by the top 1% of households experienced dramatic increases in their portion of the US wealth. The health of the stock market does not accrue equivalently across the sectors of the population. This measure of prosperity pertains to a micro sector of the society.
The market has sustained its performance in August, even after the failure of the government to pass a second set of stimulus programs. Unemployment is high, though the rebound is a bit better than anticipated, and the GDP was down in the second quarter. It is hypothesized that the resilience in the market is based on the assumption that there will be a stimulus passed by the end of September to avoid a government shutdown. The Federal Reserve’s pledge to keep the prime rate low until inflationary rates are attained, at least until 2022, and the faith in an eventual stimulus have kept the market hearty though its health is tenuous.
Evidence from the first stimulus package indicates that many Americans who could afford to do so saved their government payouts. Those who did not need to use their checks saved them and overall consumer spending declined indicating a preference for banking the acquired asset for future needs. Since February, personal savings rose from 8.3% to 33.5% of disposable income. Bank of America reported clients’ checking and savings accounts rose by 13% and 8% respectively. Average Americans had between one thousand and three thousand dollars more in the bank than prior to the pandemic. Credit card debt was down. Commercial bank deposits rose by 15% between February and August. Currently, the rate of savings is slowing and there is evidence that household spending has been falling as the stimulus wound down, especially among low income households. Credit card debt is creeping up again. The claim that the robust market is evidence of a good economy pales with respect to the persistent unemployment, failed businesses, and the health costs associated with the virus. After an upsurge of economic indicators in the late spring and early summer, the growth of the economy is slowing.
The evidence of the economic gains of the Trump era speaks mostly to the enhancement of the wealth of the elite. The increase in savings and decreased spending, associated with the stimulus, show what Americans can do if they have some flexibility with disposable income. Because the stimulus was not very accurate in targeting the most vulnerable it demonstrates what people will do if they have discretionary income. For communities with concentrated poverty it can be seen that targeting them for business investment and employment programs is one way to improve the standard of living. Another stimulus would help vulnerable families and businesses and bolster the chances of avoiding the worst fallout from the continued virus threat.
September 5, 2020
In mid-summer, with the resurgence of reported cases of Corona virus, the Federal Reserve announced its intention to maintain its benchmark lending rate at 0 to .25%, until at least 2022. Some members think it will be extended even longer. The decision was made unanimously by the Federal Open Market Committee which is the policymaking branch the Federal Reserve. This rate represents the fee charged for loans between financial institutions and it has a significant impact on consumer interest rates. Although it does not represent any specific rate on mortgages, the current low rate of less than 3%, for a thirty year fixed mortgage, is likely to be sustained with this policy. That is the good news. The bad news is that the standards to obtain the most favorable loan rate will likely be stricter, applying to those with a credit score of 700 or above.
The action was taken as a consequence of the sustained high level of unemployment, which was significantly greater than the highest level (10%) seen in the Great Recession of the last decade. There was a dip in the rate due to more jobs available in the summer, probably due to temporary government hires and the reopening of restaurants, retail stores, and other small businesses. Amid concerns that these openings were made in haste rather than by informed health deliberations, economists fear for the mid-term fallout to the economy. They predict a sustained economic slump due to the slow recovery of industries such as food services, bars, recreation, air travel and any other activity engaging large numbers of participants.
The sustained public health crisis makes it difficult to accurately predict a timetable for its resolution and a concomitant stabilizing effect on the economy. The Fed predicts a 6.5% shrinking of the GDP for 2020 and a growth of 5% in 2021 and 3.5% in 2022. To further aid the economy they have pledged to flood it with “cheap money” and trillions of dollars in loans to keep businesses and local governments intact. They caution that these policies need to be met with similar government programs and urge support for the three billion dollar stimulus passed in the Democratic House in May, and stalled in the Senate. That program would provide the equivalent of the multiple programs passed in March by the Trump administration.
The Fed’s actions regarding the prime lending rate reflect the dramatic crisis facing the economy and highlight the need for policy action on multiple fronts. The rush to reopen the economy may have been penny wise and dollar foolish. This is not a time to herald the resilience of the stock market which has seen gains of 3% in the S and P 500 over the past year and 6% in the Nasdaq 100 so far this year. The suffering of a large portion of American workers and small business owners must be addressed by humane and compassionate financial policies. One way to promote this aid is to vote in November.
- https://www.howweflipthesenate.com/ A national campaign to flip the Senate to the Democrats
Just 1 month after the USMCA officially succeeded NAFTA as the framework for North American trade, one of the country’s most reliable allies finds itself, once again, in the crosshairs of U.S. protectionist trade policy. Under Section 232 of the U.S. Trade Expansion Act of 1962, the Trump Administration cited national security concerns as the underlying condition necessitating the re-application of tariffs on Canadian aluminum. Since the 2016 election, President Trump has continuously claimed that the health and security of the nation rest on the stability of industrialized manufacturing. Moreover, he believes that the inherent strength of the military is dependent on the success of the industrial base, essential for the production of specialized strategic supplies and artillery equipment necessary to ensure protection.
Back in 2018, prior to trade negotiations, the U.S. imposed tariffs on a wide sector of industrial metals ranging from competitive adversaries like China to the traditional alliances of Canada, Mexico, and the European Union. One of the components that became part of the framework of the new trade agreement was to mutually eliminate all forms of duties on steel and aluminum imported from within the production zones of North America, meaning that the U.S. Canada, and Mexico would all work collectively to allow the free-flow of industrialized products to and from supply chains within the region. Recently, however, President Trump insisted that since the country has experienced a surge of metal imports from Canada, the agreement reserved him the right to re-administer tariffs if aluminum continued to flood the U.S. market. The administration believes that the excess importation of Canadian aluminum into the country forces downward pressure on prices, restricting manufacturers from maximizing potential output. Proponents of the president’s trade policy advise the reason for supporting the 10% tariff is that it counteracts the massive degree of state subsidization granted to Canadian steel and aluminum producers, which, they claim, levels the playing field.
Although President Trump’s populist rhetoric has resonated with many blue-collar industrial capitalist and factory workers, his policies are rooted in a fundamental misunderstanding of the mutual benefits compatible with free trade. The reckless political approach of the Trump Administration continues to depart from the traditions that have been the staple of American foreign policy. In the first place, to declare any industry in Canada a threat to national security is both shortsighted and obtuse. While the U.S. has acquired steel and aluminum from Canadians for several decades now, it has never occurred at the expense of public safety. In fact, the U.S. and Canadian metal industries are highly integrated. Mid-stream metal producers from both countries utilize supply chains interchangeably when one develops any type of competitive advantage over the other. By taxing “Canadian” aluminum, it is quite conceivable that the US is taxing itself as the product is a collective meld from both foreign and domestic manufacturers alike.
In the second place, subjecting Canadian aluminum to a 10% tariff in no way facilitates American competitiveness. Policies that encourage tariffs and quotas never seem to accomplish the most optimal economic outcome, because it is predicated on protecting the few at the cost of the many. One can argue that levying aluminum tariffs protects the concentrated sector of those who are directly competing against foreigners, but it comes at the detriment and costs to the greater population. Proposing to prop up the handful of aluminum manufacturers by forcing artificially higher costs on other intermediaries utilizing aluminum as inputs to production is rife with error. 97% of the U.S. aluminum industry is positioned in the median to downstream sector of the production process. Consequently, the majority of firms in the aluminum industry would encounter more costs than benefits from tariffs that supposedly protect American producers. The energy market, appliance manufacturers, the beverage industry, and auto-makers are just some of the major commercial interests adversely affected by the billions of dollars of excess costs they will be forced to absorb from the tariffs. It is impossible to protect one sector of the American economy without further damaging another, which only achieves a lateral effect at best.
While President Trump continues to propagate the notion that foreigners are taking advantage of Americans in the international market, he is either evidently unaware of the mechanism that fuels the global economy, or he is blatantly attempting to sabotage American enterprise. If Canadian taxpayers want to subsidize their commercial aluminum industries to the betterment of American standards of living, why should we discourage them? Doing so allows Americans to lower costs and acquire more disposable income, effectively translating into greater capital investment. Companies becoming inundated with excess costs become a drag on the U.S. economy by being forced to allocate more resources without any additional increase in output. Is anyone surprised why manufacturers seek supply chains abroad when the commander in chief has basically declared war on certain businesses for political objectives. The way to enhance American competitiveness is not by shielding them from competition, but by allowing them to choose from as open a market as possible, to achieve the advantage of maximizing output.
Under the Trump Administration, relationships built through the virtues of globalization continue to erode. Free trade is described as mutually beneficial voluntary exchanges between a buyer and a seller, done in the absence of coercion, force, or pressure, where peace and prosperity have been the benefits built by the coalescence of cooperation and support among nations. Declaring Canada a national security threat not only deviates from the perseverance of peace, but actually exists as a greater threat to the nation’s security. The U.S. is supposed to be the beacon of freedom, liberty, and prosperity. Yet the leader of the free world continues restricting freedom, disregarding allies, and propping up special interests.
At a time when the international community should be collectively seeking unification to solve universal problems such as Covid, climate change, and human rights issues, the U.S. continues to promote isolation rather than integration. The global landscape has changed. The planet is more interconnected through technology, communication, supply chains, and travel, than ever before. No longer do global actors compete on the basis of raw power and control, but rather through cooperation in promoting the general well-being and welfare of the global community. Countries who are commercially or actively integrated rarely have conflict. Yet through misguided logic and understanding, the president is threatening to reverse the years of progress made by Americans, allies, and adversaries alike who have all worked together in achieving a safer and more secure world.
- Cato Institute – [https://www.cato.org/research/trade-policy] – is a public policy research organization dedicated to the principles of freedom, free-markets, and peace. Through publishing policy proposals, blogs, web features, op‐eds and TV appearances, Cato has worked vigorously to present citizens with incisive and understandable analysis.
- FEE – Foundation for Economic Education – [fee.org] – An educational foundation that inspires leaders with sound economic and political solutions in both domestic and international policy issues.
- New York Times – [https://www.nytimes.com/2020/08/06/business/economy/trump-canadian-aluminum-tariffs.html] – assisting people in understanding domestic and global issues through expert, independent, non-partisan journalism.
August 18, 2020
Trump asserts that his payroll tax holiday will stimulate the economy, help workers take home more money, and generally be a boon to families suffering economic stress. The payroll tax stems from a 6.2% tax on wages from the employee and an identical payment from the employer. Each will be suspended retroactively from August 1 to December 27. Workers who make less than $100,000 per year will be eligible for the payroll tax cut. Individuals collecting less than $100 a week from the state’s program will not be eligible for this federal subsidy, eliminating supplemental payments to one million workers in need. Employers will also have a cut in taxes but both of these “tax holidays” will be short lived and each will ultimately be paid back unless the President waives the reimbursement in 2021. These taxes support social security which will compensate for the loss by siphoning money from the general fund, the budget that covers government operating costs. The loss of revenues to the Social Security system will be steep. In 2011 and 2012, a recessionary fix included a 2% payroll tax cut to stimulate the economy costing 10 billion dollars per month in revenue loss to the social security system.
The 38 million jobless Americans will have no impact from this executive memo. The real effect of this tax “holiday” is contingent on several vague mandates. For example, an employer can withhold the suspended employee portion for future payback expenses except in states where such actions are prohibited. Another potential negative impact is that repayment may be taken out of future checks as early as the end of the year or in early 2021 and employers can take the whole amount out of one check. Another potential option is that the extra payment will be taken from 2020 income taxes.
Another Trump executive memo to “help” the economy provides a federal unemployment payment of $400 per week, retroactive to August 1, down from the $600 ended on July 31. One challenge of the new order is the requirement that one hundred dollars of it be provided by state funds. Since the states are already covering the regular state benefits many cannot source another $100 a week. Such a mandate would add, for example, $700 million dollars per week to the California state system, a prohibitive burden. The federal funds for this program, Trump proposes, can be taken from FEMA, the federal emergency management agency. This is a terrifying prospect since the summer storm season is already looking severe and storms can cost 22 billion dollars each.
Trump’s executive order regarding evictions does not extend the ban on evictions established in the earlier CARES act but leaves the decision making to the secretary of Health and Human Services and to the CDC director. The potential for assisting renters with payments rests with action by HUD, the federal Housing and Urban Development agency. It estimated that as many as 40 million Americans will be vulnerable to losing their residences.
Finally, Trump extended a suspension of interest payments on student loans until January 1, 2021 but this doesn’t apply to loans private entities like banks.
Trump’s executive acts represent a contracted group of workers with decreased aid in comparison to the earlier CARES act. As in keeping with the federal response to the Covid-19 emergency, this “remedy,” will be a day late and a dollar short.
The bickering between the Republicans and the Democrats has stalled the process and left many workers vulnerable to food shortages, homelessness, and loss of health insurance. The democrats want to extend emergency with a three trillion dollar Heroes plan, more generous than the 2 trillion CARES act passed in March and now expired. The republican program, called HEALS Act would cost one trillion dollars and be far less comprehensive. Chuck Schumer, Senate majority leader, maintains that in addition to help for wages, housing, and tax relief Americans should have programs which include testing, tracing, and treatment of the COVID-19; money for schools to safely reopen and to purchase adequate personal protection equipment; food assistance; budgetary support for local and state governments; money to support safety for the November election; and adequate funding for the Postal Service to support the demands of the election. The likelihood of attaining these measures seems tenuous, at best.
- https://www.cnet.com/personal-finance/trumps-pa yroll-tax-plan-when-the-holiday-starts-how-much-you-get-when-you-pay-it-back/
August 9, 2020
Today young people in school or entering the job market face enormous socio-economic challenges. Their economic and social vulnerability is pervasive especially for those young people who lack a college degree, and particularly if they are female or nonwhite. When job creation is reduced, as it is with the pandemic youth unemployment is the most likely to soar.
In “good times’ youths are three times more likely to be unemployed than people over 25. In the pre-pandemic era 53 million people were employed in low wage jobs with median incomes of $10.22 per hour. Youths comprised 24% of these workers. They also represent the largest group or workers laid off during the pandemic.
Youths who don’t complete college are are also more likely, at 23%, to work in jobs considered to be at “near-term” risk in construction, manufacturing, and real estate. These jobs are less likely to provide “benefits” such as health insurance, sick leave, or parental leave.
The picture is not as bleak for college graduates. This cohort often faces the derailment of first jobs and internships but they tend to be more resilient than their peers who lack degrees. Some analysts believe that Gen C’s resiliency from job loss is due to some of the group returning to finish college or graduate school.
The demand for finishing college and for graduate school attendance generally rises in poor economic times but there is a growing fear that higher education may cost more than it ultimately benefits. Effective K-12 education will also be challenging during the pandemic, especially for youth from low-income communities. Their school districts often lack the capacity to provide quality virtual learning and students from low income communities can lack access to computers and Broadband Internet.
The pandemic also is taking its toll on the mental health of Generation C. It is estimated that one half of adolescents and youths, 18-29, have symptoms of depression. Suicide is now the second leading cause of death in people under 35. A mental health crisis, already appearing, seems likely to worsen.
https://suicidepreventionlifeline.org/ National suicide prevention hotline website.
While American-first has been a theme for the Trump administration’s foreign policy, its unintended consequences have certainly restricted the collective response necessary to overcome Covid-19. President Trump continues to use populist rhetoric to convince Americans that the only way to ensure survival in the global arena is to pivot away from the international community, while shielding domestic business and industry from foreign competition.
For the past two years, under Section 301 of the Trade Act of 1974, the Trump Administration has continued to impose higher degrees of tariffs on a wide range of products from abroad. Imports from China, India, Canada, Mexico, and the European Union have been some of the main targets that have ended up in the crosshairs of U.S. trade policy. Products ranging from steel and aluminum to textiles and from electrical components to chemicals are among the valuable global inputs to production needed by U.S. firms to produce globally competitive products. Billions of dollars of these products have fallen under the blanket of tariffs imposed by the Trump Administration ranging from 15 – 25%, artificially raising the cost of production for many small businesses and manufacturers. Additionally, over $360 billion of Chinese imports have been targeted as well, encompassing more than 60% of U.S. consumer demand from China.
Unfortunately, many of these products incorporated within the president’s protectionist agenda are major components of the healthcare industry, many of which Americans have come to rely on for health, safety, and well-being. Nearly $5 billion of medical necessities from China alone were subjected to U.S. tariffs, accounting for almost 26% of all medical supplies imported by Americans.
To fight against the adversities of this global pandemic, medical professionals have acknowledged the importance of essential consumables such as personal protective equipment, masks, gloves, goggles, hand sanitizer, and medical-wear just to name a few. Additionally, for hospitals and medical facilities to properly treat patients, they should be equipped with necessary durable supplies ranging from respirators to CT systems and patient monitors. In the past, duties on these devices were relatively low, enabling hospitals and medical establishments to stock up on critical care inventory. Prior to the Covid outbreak, Americans were importing over $20 billion of essential medical supplies, which are now subject to higher prices due to heavy trade regulation. Currently, products like pulse oximeters, hand sanitizers, ultrasound and x-ray systems from China are subject to 25% tariffs, while personal protective equipment, goggles, and gloves are levied at 15%.
Back in 2019, medical professionals testified to Congress about the risk tariffs would pose to the healthcare sector by limiting necessary supplies in the likelihood of abnormally high demand resulting from a medical anomaly. Unfortunately, these warnings were disregarded.
The Trump Administration’s trade policy has been predicated on the idea of using one hand to solve a problem that the other hand creates. The president’s protectionist policies have shielded some businesses from foreign competition but has increased the costs of operating for others. Because of the difficulty of protecting one industry without causing harm to another, government ends up subsidizing those who have been adversely affected from the higher costs precipitated by the tariffs. Subsequently this begins the downward spiral of legislation that forces excess challenges on already-burdened taxpayers.
Fighting the effects of Covid-19 will take a mutual unified effort, which underlines the benefits of globalization and free trade. One of the very best ways to protect Americans from the affliction of this pandemic is to allow consumers the advantage of acquiring medical necessities from a global market, rather than limiting supplies from abroad in order to protect concentrated special interests. Because such a wide range of products have fallen under layers of costly trade regulation, it becomes almost impossible for medical manufacturers and suppliers to operate efficiently. While protecting certain participants in the upstream sectors of the market, others in the downstream sectors, who have in the past, depended heavily on selective imports, find themselves absorbing the increased costs of operating. Higher input costs mean fewer output returns. Because several domestic manufacturers are the ones bearing the burden of higher costs associated with tariffs, they have been less incentivized to prioritize the development of critical-care supplies, which exacerbates the shortages associated with global hoarding from other countries who the U.S. has come to rely on.
The driving success behind globalization has been as a result of countries being able to put aside political, social, and religious differences in order to come together to solve a common problem, ultimately promoting both peace and prosperity. Global actors who share collective interests rarely engage in conflict. However, when individual nations begin to deviate from unification, there exists more adversity. The beauty and efficiency of globalization and free trade is evident when we see how different nations have been able to take advantage of specialization and come together to produce globally competitive products like cars, computers, cell-phones, and other devices that the world has become the benefactors of. Supply chains have been the engine of enriched productivity, effectively being the paradigm that has given the international community the collective resources to ensure a higher standard of living.
It is no secret that because of the benefits of globalization and free trade, the quality of life has improved globally and that has shielded not only Americans, but others around the world, from disease and sickness. True, there are large swaths of the global population who unfortunately still live in abject poverty, but globalization and free trade offer the best possibility of alleviating the persistency of deprivation rather than the ideological mindset of the president’s nationalist-isolationist strategy.
Even before the pandemic, regulating demand of medical essentials from abroad through tariffs and quotas has put pressure on healthcare, especially since the baby-boomers are aging and requiring more medical services. It makes no sense to close the country off to the benefits of a global market, while almost ensuring that both patients and medical manufacturers would be restricted to a minimal supply of resources, all in the name of protecting some of the most powerful interests.
If the conditions dictate that a definitive second round of Covid could emerge, policies that force the domestic market into shortages and rationing by artificially limiting medical supplies from abroad should be considered both shortsighted and obtuse.
- Peterson Institute for International Economics – [https://www.piie.com/] – An independent research organization dedicated to strengthening cooperation and prosperity globally through practical solutions.
- Cato Institute – [https://www.cato.org/research/trade-policy] – is a public policy research organization dedicated to the principles of freedom, free-trade, and peace. Through publishing policy proposals, blogs, web features, op-eds, and TV appearances, Cato has worked vigorously to present citizens with incisive and understandable analysis.
- FEE – Foundation for Economic Education – [fee.org] – An educational foundation that inspires leaders with sound economic and political solutions in both domestic and international policy issues.