Tag Archives: tax policy

Bribes As Economic Development

According to the Indianapolis Business Journal, Indiana lawmakers are considering paying people to move here.

Members of what I still call “The World’s Worst Legislature” (despite a significant amount of competition from places like Florida and Texas) are evidently considering what the IBJ calls “an extensive piece of legislation to restructure the incentive toolkit of the Indiana Economic Development Corp.” One “key” component would create a statewide remote-worker grant program.

Senate Bill 361 has a provision that would require the department to design and implement a program giving remote workers cash incentives for moving to Indiana.

A remote worker would be eligible for a grant of up to $5,000 a year with a maximum of $15,000 over the life of the program. The total grants, which would come from the IEDC, would be capped at $1 million this year and $1.5 million in 2023….

The bill also would allow businesses outside Indiana to apply for IEDC tax credits, if they bring at least 50 remote jobs to Indiana, paying at least 150% of the state’s average hourly wage. That would be about $25.

This interesting use of taxpayer funds is essentially an admission that Indiana isn’t a very attractive place to live–that (at least, outside Indianapolis, the city our legislators love to hate) people need to be bribed to move to the Hoosier State.

A few days ago, in another blog, I noted that Indiana’s Statehouse is filled with legislators who have exactly one policy proposal to offer for any problem you can name: tax cuts. When it comes to economic development, they assure us that the only thing businesses look at when looking  to relocate or expand is a “favorable tax environment.” Believing this, of course, requires a certain imperviousness to that pesky thing called “evidence,” but if there is one thing our GOP super-majority is really, really good at, it’s ignoring evidence.

Which brings me to yet another bit of unwelcome research, sure to be dismissed and ignored.

The Brookings Institution has been examining ways to “rejuvenate” states in the Midwest that have, as we say, “missed the boat.” The report begins by noting that there are currently two Midwests

One Midwest features communities that have diversified and turned an economic corner in today’s urbanized, global knowledge economy. In this Midwest, many of the region’s major metro areas and university towns have found new economic dynamism and relative prosperity.  

In the other Midwest, however, factory towns that have lost anchor employers continue to languish. Most of these small and midsized industrial heartland communities rely on traditional economic development strategies to reinvigorate their economies, including doling out incentives to attract or retain employers or attempting to create a more “business-friendly” environment with lower taxes and labor costs. 

Most of Indiana clearly falls into that second category. But as Brookings reports, there is “compelling new data” telling us that these traditional economic development tools are–if not entirely ineffective–far less effective than investments in quality of life and place.

Research on smaller communities has found that community amenities– recreation opportunities, cultural activities, and especially “excellent services (e.g., good schools, transportation options, including connectivity to urban areas)” significantly exceed so-called “business-friendly” policies in their ability to  contribute to healthy local economies.

Smaller places with a higher quality of life experience both higher employment and population growth than similarly situated communities, including those that rank high by traditional economic competitiveness measures.

Research has confirmed that people are willing to pay higher housing prices and even accept lower wages to live in places that offer a higher quality of life.  

Indiana’s lawmakers will have great difficulty getting their heads around another finding (assuming they would even bother to consult the research); studies, including this one, have shown that businesses are willing to pay higher real estate prices and offer higher wages in order to locate in places with more productive workers. 

More productive workers, of course, are produced by better schools. Not religious indoctrination academies supported by Indiana’s voucher program with monies drained from our struggling public schools, and not schools in which teachers are forbidden to teach accurate history…

The bottom line:

After estimating quality of life (what makes a place attractive to households) and quality of business environment (what makes a place especially productive and attractive to businesses) in communities across the Midwest, we found quality of life matters more for population growth, employment growth, and lower poverty rates than quality of business environment. 

Or, of course, you can just take some of the tax money generated by those low rates and try to bribe people to move to the “hanging on by a thread” areas of Indiana.

Given the pathetic history of Indiana’s General Assembly, I expect they’ll opt for bribery.

 

Of Death, Politics And Economics

The other morning, I read two completely different columns, on different subjects, that came together in a surreal sort of way.

The first was from The Atlantic, titled “The Anti-Vaccine Right Literally Brought Human Sacrifice to America,” and it began with a collection of quotes comparing Republicans’ reality-denial and elevation of economic concerns over public safety to human sacrifice.

The immediate panicky focus on resuming business as usual in order to keep the stock market from crashing was the equivalent of “those who offered human sacrifices to Moloch,” according to the writer Kitanya Harrison. That first summer, as Republicans settled into their anti-testing, anti-lockdown, anti-mask, nothing-to-worry-about orthodoxy, Representative Jamie Raskin, a Democrat, said it was “like a policy of mass human sacrifice.” The anthropology professor Shan-Estelle Brown and the researcher Zoe Pearson wrote that people who continued to do their jobs outside their homes were essentially victims of “involuntary human sacrifice, made to look voluntary.”

(Parenthetically, I will note that every time some pundit tells us that Americans are “losing faith in Biden’s handling of the pandemic,” I want to scream that the f**ing anti-vaxxers who are sacrificing the lives of their own voters are to blame for derailing his efforts. But I digress.)

The author of the article noted that the original concern about economic damage was “at least fundamentally rational, a weighing of social costs against social benefits.” But that original concern should have abated.

Today, however, the economy is no longer in jeopardy; unemployment rates and salaries have returned to pre-pandemic levels; GDP per person is higher than it was at the end of 2019; personal savings are growing, and businesses are starting up faster than ever; corporate profits and stock prices are at record highs.

The recitation of current economic realities was meant to emphasize the fact that the  “ongoing propaganda campaign against and organized political resistance to vaccination… has been killing many, many Americans for no reasonable, ethically justifiable social purpose.”

Almost immediately after reading that article, a reader sent me a column by Ball State economist Michael Hicks. It had nothing to do the political insanity surrounding COVID–it was instead an explanation of why Indiana’s economic future is grim.  Compare the Indiana data to the relatively rosy national picture relayed by The Atlantic.

Hicks began by noting that Indiana’s relatively good recovery from the effects of the pandemic, particularly in manufacturing and logistics, was largely due to the fiscal policy interventions of the Trump and Biden administrations, and that the state’s current, flush fiscal condition is “wholly a consequence of COVID stimulus.”

Otherwise, not so hot.

In 2000, Indiana ranked 24th in average wages nationwide, with the typical worker earning almost 88 percent of the national average. By 2019, we’d dropped to 35th in average wages per job, or just over 85 percent of the national average. In just the decade of the longest economic expansion in American history, Indiana’s per capita income relative to the rest of the nation saw its biggest 10-year decline in history. This sort of rapid declines in job quality and earnings are catastrophic for Indiana’s long-term prosperity, and addressing the decline is the number one policy issue facing the state.

To the extent that Indiana’s economy has grown, it is due to the performance of Indianapolis–the city our legislators love to shortchange.

Just to clarify this point, from 2000 to 2019, Indiana created 154,000 new jobs, but 195,000 of these went to the Indianapolis Metropolitan Area. No, that is not a math error. The non-Indianapolis portions of the state had 40,000 fewer jobs in 2019 than they did at the turn of the century, while Indianapolis grew much faster than the state as a whole. Only the highly educated, high-tax parts of Indiana are growing.

And how about that GOP fever dream that cutting taxes will fix anything and everything that ails you? (Probably including thinning hair and genital warts…)

Our overall business taxes, as reported to the Federal Department of Commerce ranked 8th lowest in 2000, dropping to 6th lowest by 2019. However, our taxes on manufacturing dropped from 25th to 4th lowest over the same period, while we shed 120,000 factory jobs.

No one can construct an honest argument that this has bettered the Indiana economy. This is mostly because cutting taxes on manufacturing necessarily means spending less on key public services, while shifting the tax burden to households and other businesses.

Indiana’s Republican super-majority (courtesy of gerrymandering) is pursuing both kinds of death addressed by these articles: anti-vaccine policies that will kill real people, and demonstrably stupid economic policies that will depress economic growth while making Indiana a less attractive place to live and work.

All while waging war on education and the urban areas that are critical to the state’s economic well-being.

Talk about sacrificing human and economic health to ideology!

 

 

 

Taxing The Rich, Helping The Poor

Political observers have consistently dismissed Andrew Yang’s chances of securing the Democratic nomination, and I’ve agreed with their assessment. Yang also agrees–he has terminated his campaign.

Policy folks and political pundits alike have also dismissed his signature proposal–a UBI, or Universal Basic Income. I don’t agree–and neither does the Brookings Institution.

Now, don’t get me wrong–no one who isn’t imbibing very strong drink thinks American lawmakers are likely to pass, or even consider, a UBI any time soon. But as I argued in my most recent book, Living Together, there is a high probability that  millions of jobs will be lost to automation within the next 15-20 years–presenting a challenge America’s current inadequate and bureaucratic social safety net is clearly unable to meet.

In my book, I laid out a number of reasons how–despite Americans’ deep cultural disdain for social welfare programs–a UBI would be both efficient and socially unifying. I also took a stab at explaining how we could pay for it. Nevertheless, some of the sources I identified would require ending fossil fuel and other subsidies and curtailing military expenditures–measures we should take in any event, but that would obviously be politically difficult.

So I was excited to come across an analysis by William Gale of the Brookings Institution that not only made a persuasive case for a UBI, but for his preferred mechanism to pay for it. Here’s the lede:

The Congressional Budget Office just projected a series of $1 trillion budget deficits—as far as the eye can see. Narrowing that deficit will require not only spending reductions and economic growth but also new taxes. One solution that I’ve laid out in a new Hamilton Project paper, “Raising Revenue with a Progressive Value-Added Tax,” is a 10 percent Value-Added Tax (VAT) combined with a universal basic income (UBI)—effectively a cash payment to every US household.

The plan would raise substantial net revenue, be very progressive, and be as conducive to economic growth as any other new tax. The VAT would complement, not replace, any new direct taxes on affluent households, such as a wealth tax or capital gains reforms.

A VAT is a national consumption tax—like a retail sales tax but collected in small bits at each stage of production. It raises a lot of revenue without distorting economic choices like saving, investment, or the organizational form of businesses. And it can be easier to administer than retail sales taxes.

Gale’s UBI proposal is similar to–but smaller than–Andrew Yang’s. The linked article gives the details of how the VAT that paid for it would be structured, and readers with a background in economics are encouraged to read and analyze those details.

The article also explains several of the virtues of the proposed combination of a VAT and a UBI.

The Tax Policy Center estimates that the VAT in conjunction with a UBI would be extremely progressive. It would increase after-tax income of the lowest-income 20 percent of households by 17 percent. The tax burden for middle-income people would be unchanged while incomes of the top 1 percent of households would fall by 5.5 percent.

It may seem counter-intuitive, but the VAT functions as a 10 percent tax on existing wealth because future consumption can be financed only with existing wealth or future wages. Unlike a tax imposed on accumulated assets, the VAT’s implicit wealth tax is very difficult to avoid or evade and does not require the valuation of assets.

Liberals have typically viewed VATs as regressive, but Gale points out that they can be quite progressive when combined with the UBI. He also notes that conservatives should support a VAT because the evidence suggests that VATs almost never increase overall government spending.

Assuming that Gale’s numbers are sound, a VAT would generate more than enough money to pay for a UBI.

Granted, under a UBI, all those caseworkers and number crunchers hired by government to decide who is worthy of support and who is not would lose their jobs. But they would have a UBI, so they wouldn’t starve…

 

Tariffs And Taxes

When I was still a Republican, and Republicans were still a political party and not a cult, there was broad agreement within the GOP that tariffs were rarely if ever useful policy tools. They raised the price of goods, invited retaliation, and interfered with productive trade. Today that position is, if anything, more correct: In our increasingly globalized economy, most tariffs are counterproductive.

There was less agreement back then about tax policy, and over the years–as the GOP has pursued tax cuts as an article of faith (and self-interest)–it has taken a real effort on the part of ostensibly thoughtful “policy wonks” to ignore the mounting evidence of the harm that low-tax philosophy was doing. (Kansas, anyone? How about the most recent tax cuts, which even the Congressional Budget office says did nothing for the economy, but did line the pockets of the already obscenely wealthy?)

Trump’s sudden decision (all of his decisions are sudden–comes with the “why examine this, I”ll just go with my gut” process) to impose tariffs on Mexico until they magically manage to seal the border is egregious for a number of reasons. Republican Senator Grassley has noted that trade policy and immigration policy are different, and require different tactics–and that this gambit is highly unlikely to work. Worse still, the U.S. does an enormous amount of business with Mexico, and a large number of American companies have operations in both countries. It gets complicated.

Ed Brayton summed it up succinctly at Dispatches from the Culture Wars:

Most of the goods crossing the border are parts of a larger supply chain, particularly for the auto industry that is already reeling from Trump’s huge tariffs on steel and aluminum. That means this is going to do enormous damage to our economy. Both economies, actually, and what happens when Mexico’s economy is in bad shape? More illegal immigration, obviously. The man is desperately ignorant, on virtually every subject but especially on this one.

I won’t belabor the thorny economic issues raised by this latest bit of Trumpian economic ineptitude. What I do want to point out–and as economists confirm–is that tariffs are taxes on the American public. Trump seems to think they are paid by the country against which he is leveling them, but anyone who has taken Econ 101 knows better. We the People pay the tariffs, because they raise the prices paid by consumers. And they are already hurting the poor.

So tariffs are effectively a tax we pay. Worse, however, they are a tax that fails to do what taxes ought to do: pay for necessary government services.

The Republican approach to tax policy is simply a fixation on cutting taxes. The reason that  is so misguided is that taxes pay for the country’s physical and social infrastructure. The roads we use, the police and firefighters we rely upon, the national defense, the costs of ensuring clean air and water, maintaining the justice system, social security and Medicare…on and on.

Think of the country as a club you belong to, with facilities and amenities that need to be maintained. Taxes are your dues. They keep the club furnace and roof repaired and the grass mowed.

It is entirely appropriate to argue about the specifics of tax policy: how should those dues be assessed? Who should pay the most? How do we ensure that the monies raised are properly spent? What are the tasks we need to fund collectively through government with our tax dollars? Reasonable people will have disagreements about these issues.

But onerous taxes levied through the imposition of disruptive and ineffective tariffs don’t fund our government. They just burden consumers–and especially the poor–without any offsetting benefit or return.

Leaving aside Trump’s multitude of offensive, childish and criminal acts, his ignorance of the economic consequences of his tariffs is a perfect example of his inadequacies for the office.

If Americans are capable of learning a lesson, that lesson is “don’t elect an ignoramus. It will cost you–and it sure won’t make America great.”

 

 

What We Don’t Know Is Hurting Us

There’s an old saying to the effect that it isn’t what we don’t know that hurts us, it’s what we know that isn’t so.

Misinformation, in other words, is more damaging than ignorance.

I agree–with a crucial caveat. The adage is only true when we are aware of our ignorance–when we recognize what information or skill we lack. As research continues to demonstrate, however, there’s a high correlation between ignorance of a particular subject-matter and ignorance of our own ignorance. (It’s called the Dunning-Kruger effect.)

That’s why lawmakers’ allergy to data and preference for evidence-free policy pronouncements are so maddening.

A while back, I read a column making the point that data is inevitably political. The government collects data in order to inform policy decisions, because in order to address issues, it is essential to understand the facts involved, to have a handle on what we academic types like to call “reality.”

The column that I read (and no longer remember where, or I’d link to it) considered the consequences of the Reagan Administration’s decision to stop collecting data on corporate market share. Without that information, policymakers have no idea how large the largest corporations have become. They lack evidence on the degree to which companies like Amazon, Walmart, et al can dominate a segment of the economy and effectively set the rules for that segment. It’s likely that this lack of data is a significant factor accounting for diminished anti-trust enforcement.

The problem goes well beyond economic data. For a considerable length of time, the United States has been mired in one of the nation’s periodic and damaging anti-intellectual periods, characterized by scorn for expertise and empirical evidence.  (Another troubling manifestation of that scorn is the reported evisceration of Congressional staff–the panels of employees with specialized knowledge that advise Congressional committees and individual Representatives on complicated and technical issues.)

Instead of evidence-based policy, we get faith-based lawmaking. Ideology trumps reality. (And yes, I meant that double entendre…)

Last year’s tax “reform” is a perfect example. It was patterned after Sam Brownback’s experiment in Kansas–an experiment that spectacularly crashed and burned. As NPR reported

In 2012, the Republican governor pushed reforms through the state Legislature that dramatically cut income taxes across the board. Brownback boasted the plan would deliver a “shot of adrenaline” to the Kansas economy.

But the opposite happened.

Revenues shrank, and the economy grew more slowly than in neighboring states and the country as a whole. Kansas’ bond rating plummeted, and the state cut funding to education and infrastructure.

You might think that Kansas’ experience would inform a similar effort at the federal level, that it would at least be taken into account even if it wasn’t considered dispositive, but clearly that didn’t happen.

It’s that same dismissive attitude about “facts” and “evidence” and “data”–not to mention science–that is the largest single impediment to serious efforts to slow the rate of climate change.

Some lawmakers who deny climate change ground their beliefs in religious literalism (making them ‘literally” faith-based), but most do so on the basis of the same free-market ideology that led them to dismiss results in Kansas, and oppose even the most reasonable regulations. (There’s a highly convenient aspect to that ideology, since it keeps campaign contributions flowing…but it would be a mistake to think everyone who subscribes to it does so only as a quid pro quo.)

If the country doesn’t emerge from this “Don’t bother me with the facts” era, we’re in for a world of hurt.

And speaking of literalism, the whole world will hurt.