Shapiro on the Economy

The Three Choices for Tax Reform

This essay was posted originally at The Point, www.sonecon.com

Trump administration officials and GOP leaders in Congress are still putting together their tax plan. Nevertheless, the early signs point to decisions that could sink the project or produce changes that would jeopardize economic growth.

Congress can approach changing the corporate tax in one of three ways. It can try to simplify the code, it can reform it, or it can cut it back. The GOP’s current approach appears to start with simplification. Simplifying the corporate tax normally means phasing out a package of tax preferences for particular industries or business activities, and using the revenues to bring down the current 35 percent tax rate to 28, 25 or even 20 percent. This model shifts the burden of the tax among industries but not among income groups, since shareholders continue to bear most of the burden. Such simplification can also attract bipartisan support and produce real economic benefits. At a minimum, it lowers tax compliance costs for most businesses; and if it’s done thoughtfully, it can increase economic efficiency. To be sure, any efficiency benefits will be marginal unless the simplifications are fairly broad and sweeping.

The record also shows that serious tax simplification is very hard to achieve. Support from President Obama and congressional GOP leaders wasn’t enough to advance it in 2014, for the simple reason that most companies prefer their tax preferences to a lower tax rate. They’re not wrong economically: The Treasury calculated in 2016 that tax preferences lower the average effective corporate tax rate to 22 percent, and companies in many industries pay substantially less. Why give up those preferences for a 28 or 25 percent rate? A 20 percent rate could solve the problem for most industries, if anyone had a plausible way to pay for it. Of course, financing a deep rate cut was the border adjustment tax promoted by Speaker Paul Ryan, and which the White House and big importers and retailers quickly squashed.

The second option is genuine reform, where Congress changes the structure of the corporate tax. Economically, the most promising reform would give U.S. companies a choice of tax treatments when they invest in equipment. They could deduct the full cost of those investments in the year they make them (“expensing”) while giving up the current deduction for interest on funds borrowed to finance the investments. Or they could stick with the current depreciation system for their investments, including the deduction for interest costs. If enough companies choose the first route, as they likely would, this reform would spur investment and sharply reduce the tax code’s nonsensical bias towards financing business growth with debt rather than equity. Such a structural reform would make sound economic sense. It also seems as unlikely as serious simplification, because it foregoes the pixie dust of marginal tax rate cuts that GOP supply-siders demand.

That leaves the Trump administration and Republican leaders with option three: Cut the corporate tax rate without paying for it. The President seems to favor this approach. He has called repeatedly for slashing the corporate rate to 15 percent, a multi-trillion dollar change, and paying for a small piece of it by limiting a few personal tax deductions for higher-income people. It’s also catnip for GOP supply-siders who continue to proclaim that a deep rate cut will boost economic growth enough to pay for itself. We’ve tried this t several times already, so we now have hard evidence to evaluate those claims. The actual record shows, beyond question, that such turbo-charged dynamic effects do not occur. The most recent example is George W. Bush’s 2001 personal income tax cuts. His “success” enacting them produced huge deficits and ultimately contributed to the financial collapse that closed down his presidency.

A largely-unfunded cut in the corporate tax rate in 2018 would boost corporate profits as well as budget deficits, but it won’t increase business investment, productivity or employment. Prime interest rates in this period have been lower than at any time since the 1950s, so companies have had easy and cheap access to funds for investment for years. At a minimum, this tells us that there’s no real economic basis to expect businesses to use their windfall profits from a big tax cut to expand investment.

Instead, they’re likely to use some of their additional profits to fund stock buy-backs. The rest will flow through as dividends and capital gains, mainly for the top one percent of Americans who hold 49.8 percent of stock in public companies, and the next nine percent who own another 41.2 percent of all shares. Those lucky shareholders will use much of their windfall gains to buy more stock; and coupled with the corporate stock buy-backs, the boost in demand for stocks will pump up the markets. To be sure, those shareholders will also spend some of their unexpected gains, which will modestly stimulate growth. Once that stimulus dissipates, as it will fairly quickly, the ballooning budget deficits will drive up interest rates and slow the economy for everyone else.

The worst scenario is that large, deficit-be-damned cuts in the corporate tax rate could produce a stock market bubble that could take down the economy when it bursts. The good news is that the current Congress would never enact it. The odds of Democrats supporting Donald Trump on a tax plan to make shareholders richer are roughly the same as winning the Powerball; and the certainty of soaring budget deficits should scare off enough conservative Republicans to sink the enterprise.

The Trump Administration is Disrupting the 2020 Census

The decennial Census is a genuinely powerful institution in American life. I didn’t understand its impact until I oversaw the Census Bureau as it prepared and carried out the 2000 decennial Census, when I was Under Secretary of Commerce for Economic Affairs. Believe me, the upcoming 2020 decennial Census will matter more than you think. Yet, Congress and now the Trump administration have set the 2020 decennial on a course that threatens its basic accuracy. In so doing, they put at risk the integrity and effectiveness of some of the national government’s basic missions.

Normally, the Census Bureau spends the first six years of each decade planning the next decennial Census. The Bureau’s funding ramps up in years seven, eight and nine of the decade, when it tests and purchases its technologies, conducts a nationwide inventory of residential addresses, orders forms, letters and advertising, and begins to lease local offices and train temporary workers. It is expensive to accurately locate and count 325 million people in 126 million households (2016). That’s why, for example, Census funding jumped 96 percent from 1997 to 1998, and more than 60 percent from 2007 to 2008.

The problems began in 2014, when the Congress decreed that the 2020 Decennial Census should cost no more than the 2010 count without adjusting for inflation, or some $12.5 billion. The Obama administration objected, but to no effect – although it’s worth recalling that Bill Clinton took a different tack in 1998, when he vetoed an omnibus budget bill and risked a government shutdown to get rid of a provision that would have barred the Census Bureau from using statistical sampling to verify the 2000 count.

The Census Bureau did what it had to do to live within its new budget constraints: it drew up new plans to cut costs by replacing thousands of temporary Census workers and hundreds of temporary offices with new technologies and online capacities. It also had to do what it shouldn’t have done: To save money, the Bureau aborted a planned Spanish-language test census and didn’t test or implement new ways to more accurately count people in remote and rural area. Census also ended its plans to test a range of local outreach and messaging strategies to get people to fill out their census forms, which are crucial to minimizing undercounts in many minority and marginalized communities.

Even so, the Census Bureau prepared to ramp up funding in 2017 and 2018, as it normally did, under the $12.5 billion cap. Enter the Trump administration, which cut the Obama administration’s 2017 budget request for the Census Bureau by 10 percent and then, this past April, flat-lined the funding for 2018. It is no coincidence that the Director of the Census Bureau, John Thompson, resigned in May, effective in June. It’s a serious loss, since Dr. Thompson directed the 2000 decennial count and is probably the most able person available to contain the coming damage to the 2020 count. For its part, the administration hasn’t even identified, much less nominated, his successor. It is no surprise that the Government Accountability Office recently designated the 2020 Census as one of a handful of federal programs at “High Risk” of failure.

The costs of starving the decennial Census could be great. It not only paints the country’s changing demographic and geographic portrait every 10 years. Its state-by-state counts determine how the 435 members of the House of Representatives are allocated among the states; and its counts by “Census block” (roughly a neighborhood) shape how members of state legislatures and many city councils are allocated in those jurisdictions. That’s just the beginning.

Consider as well that every year, the federal government distributes about $600 billion in funds to state and local governments for education, Medicaid and other health programs, highways, housing, law enforcement and much more. To do so, the government uses formulas with terms for each area’s level of education, income or poverty rate, racial and family composition, and more. The decennial Census provides the baseline for those distributions by counting the people with each of those characteristics in each state and Census block. Similarly, the Census Bureau conducts scores of additional surveys every year on behalf of most domestic departments of government, to help them assess the effectiveness of their programs. Here again, the decennial Census provides the baseline for measuring each program’s progress or lack of it.

Without an accurate Census, many states and cities will be denied the full funding they deserve and need, and the federal government will have to fly blind for a decade across a range of important areas. Moreover, many businesses also rely on decennial data, from retailers and commercial real estate developers to the banks that finance them. Data on the demographics and locations of potential customers not only inform their planning and investments. In some cases, the data actually make their projects possible, for example, when an investment qualifies for special tax treatment if it occurs in places with certain concentrations of low or moderate-income households.

The Trump administration cavalier approach to the 2020 decennial Census is evident in ways other than its funding deficit. A draft executive order, leaked but not issued so far, would direct the Census Bureau, for the first time in over 200 years, to “include questions to determine U.S. citizenship and immigration status.” The Census Bureau is legally required to protect the privacy of all Census data from requests by anyone, including government officials. Unsurprisingly, many people remain skeptical and avoid answering the Census out of fear that other government agencies will access their information. Requiring that Census 2020 probe each respondent’s citizenship and immigration status would turbo-charge those fears among Hispanics and other immigrant groups. The result would be systemic undercounting and underfunding of states, cities and towns with substantial populations of Hispanics and other immigrants.

There is still time for a course correction that could rescue the 2020 decennial Census, in next month’s negotiations over the 2018 budget. With some GOP members of Congress exhibiting a measure of newly-found independence from the Trump administration, Paul Ryan and Mitch McConnell could need Democratic support to pass a budget. A wide range of minority advocacy and business groups, along with most big city mayors, have vital interests in an accurate decennial Census. It’s up to them to pressure Nancy Pelosi and Chuck Schumer to make adequate funding for the Census one of their top priorities. Otherwise, one of the basic mechanisms for fair and competent governance could be disabled for a decade.

This post was originally published on Dr. Shapiro's blog.

It’s Still the Economy, Stupid!

Republicans know that the terrain for next year’s midterm elections could be treacherous. Off the record, they bemoan their inability to enact their agenda and mourn President Donald Trump’s unpopularity. In principle, the GOP still might get its act together and pass a tax reform with new tax breaks for middle class taxpayers. Events unforeseen and unimagined could offer Trump a platform to renew his poplar appeal. Even so, they’re ignoring the signs that a sagging economy next year will dominate the 2018 campaigns.

The current expansion is old – it turned eight years old this month – and its fundamentals are weak. Neither Trump nor Congress has done anything to perk it up. Only the 1990s expansion lasted longer, and it expired two years after its eighth birthday. Comparing the two will not cheer Republicans. At a comparable point in the expansion that defined the Clinton era, March 1999, GDP was growing at nearly a 5 percent rate; over the last year, GDP has edged up barely 2 percent.

The most important difference is what was happening then with productivity, and what’s happening now. In the three years leading up to each expansion’s eighth birthday, productivity had expanded at a 2.4 percent annual rate in the 1990s, compared to 0.7 percent this time. Without decent productivity gains to lift wages and fuel demand, incomes stall and growth slows.

The main reason we’re not in a recession today is the strong job gains of the last three years, and the current 4.4 percent unemployment rate is comparable to the 4.2 percent rate in March 1999. Full employment normally presages a slowdown in job creation. We avoided that in the late 1990s, because the strong productivity growth supported more demand by raising wages. The best measure of that is personal consumption spending, which increased at a 5.9 percent rate in the year leading up to March 1999. But our current predicament includes such weak productivity gains that personal consumption spending edged up just 2.6 percent over the last year.

It’s the same story with business investment, the other domestic source of new demand. In the year preceding the eighth birthday of the 1990s expansion, fixed business investment rose 8.5 percent; over the past year, it grew 4.2 percent or half that rate.

All of these measures presage a slowdown in the U.S. economy next year – GDP gains of 1.5 percent in 2018 is a fair guess – and we could slip into a recession if some adverse event provides the trigger.

Last October, I cautioned Hillary Clinton that she would face these same conditions if she won, but that three initiatives could breathe new life into this old expansion. The first order of business is a dose of demand stimulus, preferably through large infrastructure investments paid for down the line. Trump promised the same thing; but he and the GOP Congress moved quickly beyond it.

The second initiative would focus on energizing productivity growth. My own recommendations last October started with measures to help average Americans upgrade their skills, by giving them free access to training courses at local community colleges. The Trump and GOP budget proposals would cut the inadequate training programs already in place.

The third initiative is a companion piece to promote higher productivity: Jumpstart business investment in new technologies and equipment. That will be harder for Trump than it would have been for Secretary Clinton, because it requires setting aside the supply-siders’ faith in the power of cutting marginal corporate tax rates. Instead, we should focus for now on lowering businesses’ upfront costs to purchase the new technologies and equipment that make skilled workers even more productive.

The measure would offer businesses a choice: deduct the full cost of those new purchases in the year they buy them – it’s called “expensing” – or stick with the current system where businesses depreciate the cost and deduct the interest on funds borrowed to cover it. Expensing is a feature of the Trump and GOP tax proposals, but both plans offer more sweeping and much more expensive changes that appear headed for the same fate as Trumpcare.

The election of Trump and the GOP Congress buoyed business confidence precisely because investors believed they would follow through quickly with an infrastructure stimulus and business tax reforms. Neither seems likely today; and even if one or the other somehow passes in some form late this year, it will probably be too little and too late to revive growth and wages by November 2018. If neither happens, it will take more than tweets to explain to voters why Republican control of both branches of government has failed to improve their lives.

This post was originally published on Dr. Shapiro's blog.

How to Raise Incomes and Delay the Next Recession

Last October, mulling over the economic environment the next President would face, I sent Hillary Clinton memos on how she should provide some stimulus to sustain the current expansion and raise incomes by boosting business investment and productivity. Alas, she did not become President; but that didn’t change our current economic challenges. To be sure, President Trump’s manifold troubles may preclude Congress from doing anything meaningful until after the 2018 elections. But if that’s not the case, here’s some advice for both sides.

The White House, above all, should appreciate the stakes: Without some form of serious stimulus, the U.S. economy almost certainly will slip into recession well before 2020. From Trump’s recent statements about “priming the pump,” he already understands that the eight-year-old expansion needs a boost. The GOP plan for sweeping tax cuts won’t work here, even if it could pass Congress. To begin, it devotes most of its resources to high-income people and shareholders, who will just save most of their tax savings. More important, the plan would vastly expand federal deficits on a permanent basis. If that happens, the Federal Reserve almost certainly will hike interest rates considerably higher and faster than they now contemplate, and those rate hikes would likely end the expansion.

Washington needs to prime the pump in a way that directly supports employment over the next two years and carries no long-term costs for the deficit. As it happens, Trump and Democrats already support a reasonable way to do just that – enact a large, two-year increase in public investments in infrastructure. But the plan will attract Democratic support only if Trump gives up the idea of using tax breaks to leverage private investment in new infrastructure projects. Democrats won’t (and shouldn’t) go along, because that approach tilts the program towards infrastructure projects in high-income areas that can generate strong profits for its investors.

I assume that the President’s economic advisors also have briefed him on the recent, serious slowdown in business investment and productivity growth. Unless Trump addresses those problems as well, most Americans will make little income progress. The challenge here is to focus on changes that will boost business investment in way that strengthen productivity, and do it without raising deficits on a permanent basis.

One approach that congressional Republicans and some Democrats could support entails allowing businesses to “expense” their investments in equipment – that is, deduct the entire cost in the year they purchase the equipment. This change focuses on equipment investments, because they have the greatest impact on growth and productivity. The catch is that this approach still costs the Treasury many tens of billions of dollars per-year, especially if it covers both corporations and privately-held businesses (like the Trump Organization), as it should.

Trump could draw some support for the plan from congressional Democrats by insisting that Wall Street pay for it. First, he could deliver on his campaign promise to end the notorious “carried interest” loophole that lets the managers of private equity, venture capital and hedge funds use the capital gains tax rate to shelter most of their income from their funds. Fund managers certainly can afford to pay the regular income tax like the rest of us: In 2016, the top 25 hedge fund managers altogether earned $11 billion or an average of $440 million each.

To pay for the rest of equipment expensing, Trump should support the call by many Democrats for a small tax on financial transactions – three one-hundredths of one percent of the value of all stock, bond and derivative purchases should do it. (Stock and bond IPOs and currency transactions would be exempt.) Wall Street will howl in protest – music to most Americans’ ears – but the economics are sound. On the plus side, the tax would reduce market volatility by discouraging short-term speculation and ending most high-frequency computer trading. Moreover, today’s short-term speculators and high-frequency traders will have to invest those resources in more productive ways. The negative is that the tax would raise transaction costs and thus dampen investment on the margins. But since the tax would finance a serious reduction in the cost of business investments in equipment, the overall impact on the markets will be positive.

This plan is far from the dream agenda of either party. A Hillary Clinton presidency would have included many other measures to boost productivity and incomes, from access to tuition-free college for young people and greater access to bank loans for new businesses, to broad retraining opportunities for adults and a path to citizenship to expand job opportunities for immigrants. For their part, congressional Republicans still believe in their trinity of huge tax cuts, drastic deregulation, and deep cutbacks in Medicare, Medicaid and Obamacare benefits. But the economics of stimulating an aging expansion and restoring business investment are non-partisan, and both parties should have an interest in reviving income progress for most Americans.

For President Trump, this plan has three simple parts consistent with his positions: Increase public infrastructure investments, lower the cost of business investments, and make Wall Street pay more of its fair share. If he can cut this deal, nearly everybody will win – but if he can’t, no one will lose more than he will.

This post was originally published on Dr. Shapiro's blog.

Backgrounder: Budgets, Health Care and Trump's Great Betrayal

With attention returning to budgets and the US economy, NDN has assembled some of our work on these matters over the past few months.  We hope you find these analyses helpful.  

Trump's Tax Plan is Aimed at the 2018 and 2020 Elections, Not U.S. Competitiveness, Rob Shapiro, NDN.org, 4/26/17. Trump's claims that damage from higher deficits will be minor compared to the benefits for US competitiveness, economic efficiency, and tax fairness are nonsense, and the real agenda here is the 2018 and 2020 elections.

Release: Still no 2017 budget from GOP, or proposal from White House, Simon Rosenberg, NDN.org, 4/26/17. While the President’s revenue outline today is a late but welcome development, it cannot be given serious consideration outside the eventual full budget proposal that is usually submitted to Congress in February.

Trump puts foreign investors first by supporting the Republican tax plan, Rob Shapiro, The Hill, 3/28/17. Rob weighs in on the very real problems of the House GOP's proposed border adjustment tax.  

Trump's Great Betrayal, Simon Rosenberg, NDN.org, 3/23/17. President Trump is pursuing policies deeply at odds w/his pledge to help every day Americans. It should become known as "The Great Betrayal."

Column: 5 Ways Trump Could Stop Obama's Expansion, Simon Rosenberg, US News & World Report, 3/23/17. There just isn't a lot of justification for the market's optimism that Trump's economic policies - Maralagonomics - will keep the Obama expansion going.

Memo: In A New Global Age, Democrats Have Been Far Better for the US Economy, Deficits, and Incomes, Chris Murphy and Simon Rosenberg, NDN.org, 2/21/17. In a new memo NDN finds that over the past generation of American politics Democrats have been far better for the economy, deficits and incomes. 

Steve Bannon, Meet Russell Pearce, Simon Rosenberg, US News & World Report, 2/21/17. If history is a guide, Trump's efforts to institutionalize xenophobia and ramp up immigration enforcement could disrupt businesses, hurt the US economy and tear apart families. The blowback could be significant and cause lasting damage to his Presidency.

If you would like to read more of Rob's other recent work, be sure to review our backgrounder, "Rob Shapiro on the Economy."

Trump’s Tax Plan Is Aimed At the 2018 and 2020 Elections, Not U.S. Competitiveness

President Trump wants to cut the tax rate for all American businesses to 15 percent, and damn the deficit. If you believe him, any damage from higher deficits will be minor compared to the benefits for US competitiveness, economic efficiency, and tax fairness. The truth is, those claims are nonsense; and the real agenda here is the 2018 and 2020 elections. Without substantial new stimulus, the GOP will likely face voters in 2018 with a very weak economy – and tax cuts, especially for business, are the only form of stimulus most Republicans will tolerate. Moreover, if everything falls into place, just right, deep tax cuts for businesses could spur enough additional capital spending to help Trump survive the 2020 election.

Let’s review the economic case for major tax relief for American companies. It’s undeniable that the current corporate tax is inefficient – but does it actually make U.S. businesses less competitive? The truth is, there’s no evidence of any such effects. In fact, the post-tax returns on business investments are higher in the United States than in any advanced country except Australia, and the productivity of businesses is also higher here than in any advanced country except Norway and Luxembourg.

The critics are right that the 35 percent marginal tax rate on corporate profits is higher than in most countries. But as the data on comparative post-tax returns suggest, that marginal tax rate has less impact on investment and jobs than the “effective tax rate,” which is the actual percentage of net profits that businesses pay. On that score, the GAO reports that U.S. businesses pay an average effective tax rate of just 14 percent, which tells us that U.S. businesses get to use special provisions that protect 60 percent of their profits from tax (14 percent = 40 percent of 35 percent).

Tax experts are certainly correct that a corporate tax plan that closed special provisions and used the additional revenues to lower the 35 percent tax rate would make the overall economy a little more efficient. But lowering the rate alone while leaving most of those provisions in place would have almost no impact on the economy’s efficiency – and the political point of Trump’s plan depends on not paying to lower the tax rate.

Finally, would a 15 percent tax rate on hundreds of billions of dollars in business profits help most Americans, as the White House insists, since 52 percent of us own stock in U.S. corporations directly or through mutual funds? The data show that most shareholders would gain very little, because with 91 percent of all U.S. stock held by the top 10 percent, most shareholders own very little stock.

Moreover, the proposed 15 percent tax rate would cover not only public corporations but also all privately-held businesses whose profits are currently taxed at the personal tax rate of their owners. So, Trump’s plan would slash taxes not only for public corporations from Goldman Sachs to McDonald’s, but also for every partnership of doctors or lawyers, every hedge fund and private equity fund, and every huge family business from Koch Industries and Bechtel, to the Trump Organization.

There is no doubt that the President’s tax plan would provide enormous windfalls for the richest people in the country. Beyond that, it may or may not sustain growth through the next two elections, since even the best conservative economists commonly overstate the benefits of cutting tax rates. But the truth is, there aren’t many other options that a Republican Congress would accept.

This post was originally published on Dr. Shapiro's blog.

 

Donald Trump and Paul Ryan's Plan to Put Foreign Investors First

The “Border Adjustment Tax” (BAT) endorsed recently by President Trump is his administration’s first foray into international economics. It is an inauspicious start.

BAT advocates like House Speaker Paul Ryan promise it will cut the trade deficit by making U.S. exports cheaper abroad and foreign imports more expensive here. The truth is, a BAT won’t much affect U.S. exports or imports, and it certainly won’t create jobs. It would produce a large stream of new federal revenues, and it could trigger retaliatory tariffs on some U.S. exports. A BAT also would enrich a great many foreign investors and companies, and leave a lot of American investors and large companies poorer. All told, it’s the kind of “bad deal” that Mr. Trump once railed against.

Mr. Trump and Speaker Ryan never mentioned a BAT until recently, and the reason they like it now is that it’s a cash cow to pay for their sharp cuts in corporate taxes. The Trump-Ryan BAT would give U.S. producers a 20 percent rebate on the wholesale price of any goods or services they export – 20 percent, because that’s the GOP’s preferred corporate tax rate – and impose a 20 percent tax on foreign goods and services imported here from abroad. It would raise trillions of dollars, because we import about $500 billion more per-year than we export.

For conservatives at least, all those revenues should be a red flag. In a populist period, a subsequent President and Congress may well decide to raise corporate taxes — and when they do, the BAT’s fat revenue stream could well go to fund progressive causes.

Mr. Trump still has no Council of Economic Advisers, so maybe he believes that a BAT will spur U.S. exports and create jobs. Even Peter Navarro should to be able to tell him why that won’t happen. At first, a BAT would strengthen demand for U.S. exports and weaken demand for foreign imports here. But those shifts in demand would quickly strengthen the dollar and weaken foreign currencies, perhaps enough to offset the BAT’s initial impact on import and export prices. In theory, the currency movements triggered by the changes in prices brought about by the BAT should restore pre-BAT prices for both imports and exports, so the only change would be a lot of new revenues from taxing net imports.

In practice, the BAT’s impact on the dollar and U.S. trade is a roll of the dice. As Federal Reserve chair Janet Yellen noted recently, no one knows how closely the currency changes will mirror the BAT’s direct effects on prices. If they overshoot, U.S. consumers will pay more for imports; if they undershoot, U.S. export prices won’t fall much. On top of that, no one knows how much of the BAT tax U.S. importers will pass along to American consumers, and how much of the BAT rebates U.S. exporters will pass along to their foreign customers. Finally, painful retaliation might follow, since China and others won’t take kindly to paying a 20 percent tariff on their exports to the United States, and China’s competitors won’t like the BAT’s substantial devaluation in the yuan-dollar exchange rate.

One effect is certain: The BAT will harm U.S. investors and reward foreign investors as the currency changes reduce the dollar value of U.S.-owned assets abroad and increase the foreign-currency value of foreign-owned assets here. The Bureau of Economic Analysis tells us that in the second quarter of 2016, Americans held foreign stocks, corporate and government bonds, and derivatives worth $12.9 trillion; and foreign-owned financial assets in the United States totaled $20.3 trillion.

If we assume the Trump-Ryan BAT leads to a 20 percent increase in the value of the dollar and a corresponding 20 percent decline in the trade-weighted value of foreign currencies, it would reduce the value of U.S.-held financial investments abroad by nearly $2.5 trillion and increase the value of foreign-owned financial investments here by more than $4 trillion. What kind of deal is that, Mr. President?

The trillion-dollar losers will include U.S. investors in European or Asian mutual funds; U.S. companies with profitable foreign subsidiaries, from Microsoft and Facebook to Coca Cola and Pfizer; and U.S. banks that lend to foreign companies. The trillion-dollar winners will include foreign investors with U.S. mutual funds; foreign companies with major American subsidiaries, from Toyota and Anheuser Busch to Unilever and Phillips; and foreign banks who lend to U.S. companies.

Perhaps the best motto for the Trump-Ryan BAT is “Put Foreign Investors First."

This post was originally published on Dr. Shapiro's blog and was a featured op-ed in The Hill.

Shapiro on the Economy

Our long time collaborator Dr. Rob Shapiro has been busy this year.  We've put together this compendium of his most important economic analyses for you to review.  Rob has been a bit ahead of the curve (again) in calling the improvements in the US economy a true recovery, and was among the first to document that the era of flat wages and incomes has gratefully come to an end. (Updated Thursday 9/13/17)

The Three Choices for Taxes, Rob Shapiro, Sonecon, 9/13/17.

The Trump Administration is Disrupting the 2020 Census - And it Matters More than You Think, Rob Shapiro, Sonecon, 9/5/17. Rob shows how the 2020 Census could be wildly inaccurate and risk the integrity and effectiveness of some of the national government’s basic missions.

It's Still the Economy, Stupid! Rob Shapiro, Sonecon, 7/24/17. Rob highlights the the lack of Republican policies to continue Obama's expansion, and the potential consequences in the upcoming 2018 mid-term elections.

How to Raise Incomes and Delay the Next Recession, Rob Shapiro, Sonecon, 5/23/17. The White House could do three things to provide a stimulus to the US economy: increase public infrastructure investments, lower the cost of business investments, and make Wall Street pay more of its fair share

Backgrounder: Budgets, Health Care and Trump's Great Betrayal, Chris Murphy, NDN.org, 4/26/17. With attention returning to budgets and the US economy, we've put together some of our recent work on these important matters

Trump's Tax Plan is Aimed At the 2018 and 2020 Elections, Not U.S. Competitiveness, Rob Shapiro, Sonecon, 4/26/17. Trump's claims that damage from higher deficits will be minor compared to the benefits for US competitiveness, economic efficiency, and tax fairness are nonsense, and the real agenda here is the 2018 and 2020 elections.

Trump puts foreign investors first by supporting the Republican tax plan, Rob Shapiro, The Hill, 3/28/17. Rob Shapiro weighs in on the very real problems of the House GOP’s proposed border adjustment tax. This thoughtful piece is well worth a read, and this bad idea should be shelved for far more constructive ones in the days ahead.

Republican Presidents and Inequality, Rob Shapiro, Sonecon, 12/8/16. A review of the data suggests that a great deal of the inequality we've seen develop in the US economy has happened during GOP Presidents and their far less people oriented policies.  

What Hillary's Campaign Missed, Rob Shapiro, Sonecon, 11/15/16. Last week’s election should be dubbed the revenge of the neglected. The outcome would have been different if Hillary’s strategists had taken to heart James Carville’s famous quip in 1992, “It’s the economy, stupid.”

Why the good economy could be a problem for the next president, Jim Tankersley, The Washington Post, 10/26/16.

Obama's Expansion Is Finally Paying Off, Robert J. Shapiro, Sonecon, 10/13/16. American businesses have created net new jobs on a scale recalling the job creation rates of the 1980s and 1990s. In addition, the incomes of most American households grew again at rates that matched or exceeded the average for the 1980s and 1990s.

On Economic Growth, Hillary Delivers and Trump Pretends, Robert J. Shapiro, Sonecon, 9/26/16. To prepare for the first presidential debate, Rob decided to think through Donald Trump’s promise to deliver 4% annual economic growth.

The Economic Outlook for the Election and Beyond, and How Who Wins Could Change It, Robert J. Shapiro, Sonecon, 9/7/16. Clinton’s economic and social policy proposals include the three essential elements to boost productivity.

Sorry Donald – The Incomes of Minority Households Grow More under Democrats than under Republicans, Robert J. Shapiro, Sonecon, 8/29/16. Donald Trump says that Democrats have failed American minorities, so let’s test his claim by the most basic economic criteria.

Rising Incomes Are a Key to Winning in 2016 – But Not Enough, Robert J. Shapiro, Sonecon, 6/2/16. Since 2013, the household incomes of most Americans have risen steadily and substantially.

Whatever Some Candidates Tell You, the Incomes of Most Americans Have Been Rising, Robert J. Shapiro, Sonecon, 4/4/16. After a decade when most Americans saw their incomes decline, a majority of U.S. households racked up healthy income gains in 2013 and 2014.

Donald Trump’s Chutzpah: His Tax Plan Doubles on Inequality and Gives His Own Company a Huge Tax Windfall, Robert J. Shapiro, Sonecon, 3/3/16. Trump has been very precise about not only his plans for undocumented immigrants and Obamacare, but also his approach to taxes.

The Surprising Good News about American Incomes, Robert J. Shapiro, Sonecon, 10/26/15. For the first time since the 1990s and 1980s, household incomes rose substantially in 2014, and did so across all demographic groups.

Rob's analysis this past year has been spot on and ahead of the curve (again). From rising incomes to reckless Trump, here is Rob's work all in one place. 

Backgrounder: Rob Shapiro on the Economy

Our long time collaborator Dr. Rob Shapiro has been busy this year.  We've put together this compendium of his most important economic analyses for you to review.  Rob has been a bit ahead of the curve (again) in calling the improvements in the US economy a true recovery, and was among the first to document that the era of flat wages and incomes has gratefully come to an end. (Updated Wednesday 4/26/17)

Trump's Tax Plan is Aimed At the 2018 and 2020 Elections, Not U.S. Competitiveness, Rob Shapiro, Sonecon, 4/26/17. Trump's claims that damage from higher deficits will be minor compared to the benefits for US competitiveness, economic efficiency, and tax fairness are nonsense, and the real agenda here is the 2018 and 2020 elections.

Trump puts foreign investment first by supporting the Republican tax plan, Rob Shapiro, 3/28/17. Rob Shapiro weighs in on the very real problems of the House GOP’s proposed border adjustment tax. This thoughtful piece is well worth a read, and this bad idea should be shelved for far more constructive ones in the days ahead.

Republican Presidents and Inequality, Rob Shapiro, Sonecon, 12/8/16. A review of the data suggests that a great deal of the inequality we've seen develop in the US economy has happened during GOP Presidents and their far less people oriented policies.  

What Hillary's Campaign Missed, Rob Shapiro, Sonecon, 11/15/16. Last week’s election should be dubbed the revenge of the neglected. The outcome would have been different if Hillary’s strategists had taken to heart James Carville’s famous quip in 1992, “It’s the economy, stupid.”

Why the good economy could be a problem for the next president, Jim Tankersley, The Washington Post, 10/26/16.

Obama's Expansion Is Finally Paying Off, Robert J. Shapiro, Sonecon, 10/13/16. American businesses have created net new jobs on a scale recalling the job creation rates of the 1980s and 1990s. In addition, the incomes of most American households grew again at rates that matched or exceeded the average for the 1980s and 1990s.

On Economic Growth, Hillary Delivers and Trump Pretends, Robert J. Shapiro, Sonecon, 9/26/16. To prepare for the first presidential debate, Rob decided to think through Donald Trump’s promise to deliver 4% annual economic growth.

The Economic Outlook for the Election and Beyond, and How Who Wins Could Change It, Robert J. Shapiro, Sonecon, 9/7/16. Clinton’s economic and social policy proposals include the three essential elements to boost productivity.

Sorry Donald – The Incomes of Minority Households Grow More under Democrats than under Republicans, Robert J. Shapiro, Sonecon, 8/29/16. Donald Trump says that Democrats have failed American minorities, so let’s test his claim by the most basic economic criteria.

Rising Incomes Are a Key to Winning in 2016 – But Not Enough, Robert J. Shapiro, Sonecon, 6/2/16. Since 2013, the household incomes of most Americans have risen steadily and substantially.

Whatever Some Candidates Tell You, the Incomes of Most Americans Have Been Rising, Robert J. Shapiro, Sonecon, 4/4/16. After a decade when most Americans saw their incomes decline, a majority of U.S. households racked up healthy income gains in 2013 and 2014.

Donald Trump’s Chutzpah: His Tax Plan Doubles on Inequality and Gives His Own Company a Huge Tax Windfall, Robert J. Shapiro, Sonecon, 3/3/16. Trump has been very precise about not only his plans for undocumented immigrants and Obamacare, but also his approach to taxes.

The Surprising Good News about American Incomes, Robert J. Shapiro, Sonecon, 10/26/15. For the first time since the 1990s and 1980s, household incomes rose substantially in 2014, and did so across all demographic groups.

Republican Presidents and Inequality

The new findings on growing inequality by Thomas Piketty, Emmanuel Saez and Gabriel Zucman are deeply disturbing. They demonstrate again how extreme overall inequality has become in America. The top 1 percent's share of all pretax income went from 10.7 percent in 1980 to a little over 20.2 percent in 2014, while the share claimed by the bottom 50 percent fell from 19.9 percent in 1980 to 12.5 percent in 2014.

But that's not the whole story. I looked into their data, which cover five presidents from 1980 to 2014, and found that both the gains at the top and the losses by the bottom half varied a lot across those presidencies. Fully 73 percent of the gains by the top 1 percent happened from 1980 to 1992 and from 2000 to 2007, when Ronald Reagan, George H.W. Bush and George W. Bush held the White House. Moreover, the income share of the rich virtually stagnated from 2007 to 2014, mostly under Barack Obama. Equally important, 71 percent of the decline in the share of total income claimed by the bottom 50 percent also happened during Reagan and the two Bushes ’ and again, under Obama, their share in 2014 was virtually the same as it was in 2011.

Politics and policy matter, so income inequality worsened much more under Reagan and the two Bushes than under Bill Clinton and Obama. The final tally: Republicans held the White House 57.6 percent of the time examined here, and 72 percent of the increase in inequality happened during their terms. Democrats held the White House 42.4 percent of the time here, and only 28 percent of the increase in inequality happened on their watches.

Sadly, it's all too easy to imagine how the top 1 percent and the bottom 50 percent will fare under Donald Trump.

This post was originally published on Dr. Shapiro's blog.

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