Dean Baker's Blog, page 121

Yes, Wages Are Growing

The jobs report for October showed the unemployment rate falling to 4.1 percent, the lowest rate in almost 17 years. Of course, as many have noted, the unemployment data are somewhat erratic and this was associated with a drop in employment rates (EPOPS), as people left the labor market, which is not good news. Still, the drop in EPOPS followed a jump in September, so that even with the October decline the EPOP for prime age (ages 25 to 54) women is still 0.7 percentage points above its year...

The Tax Foundation's Projection of Growth from Tax Cuts Should not be Presented as Neutral

A NYT article discussing the prospects of the Republican tax plan included projections from the Tax Foundation which does not indicate that it is a conservative organization. The piece told readers:

"When economic growth is taken into account, the gains would be more evenly distributed, with the middle class seeing the biggest income increase on a percentage basis. That is because the Tax Foundation assumes additional growth spurred by business tax cuts largely finds its way into workers’ pay...

Even in NYC Area a "Starter" Home Does Not Cost More Than $600K

There are many reasons to object to the Republican tax cut plan. Most importantly, the corporate tax cut is likely to primarily benefit shareholders, with little impact on investment; the elimination of the estate tax is a gift to the very richest people in the country; and the 25 percent tax rate for rich people on the income they receive from pass-through businesses is both a huge gift to the very rich and an enormous growth incentive for the tax shelter industry.

But one complaint is large...

Republican Tax Plan Goes for Temporary Cuts and Permanent Lies

The Washington Post reported that Republicans in Congress are now considering making their tax cuts temporary, so as to reduce their cost over the 10-year budget horizon. The paper neglected to mention that this change would completely undermine the basis for the claim that the tax cut will lead to boom in investment and growth.

This alleged boom is the basis for both the claim that the average family would get $4,000 from the tax cut and that additional growth would generate $1.5 trillion in...

Will Cutting Corporate Taxes Lead to an Investment Boom? The Data Refuse to Cooperate

The Republicans are telling us that cutting in the corporate tax rate will lead to a big $,4000 pay increase for ordinary workers. The story goes that lower taxes will lead to a flood of new investment. This will increase productivity and higher productivity will be passed on to workers in higher wages.

That's a nice story, but the data refuse to go along. My friend Josh Bivens took a quick look at the relationship across countries between corporate tax rates and the capital to labor ratio. I...

How Will Reducing U.S. Taxes on Foreign Operations to Zero "Lure" Companies to Bring Jobs Back to the U.S.?

The Washington Post told readers that the Republican tax plan:

"will aim to slash corporate tax rates, simplify taxes for individuals and families and lure the foreign operations of multinational firms back to the United States with incentives and penalties."

While there is no plan at the moment, the reports to date have said the Republicans want to shift to a territorial tax under which companies don't pay U.S. tax on their foreign profits. If this is true, their proposal will increase the i...

Getting Everyone in China Above Its Poverty Level by 2020 Would Cost It 0.05 Percent of Its GDP

A NYT reported on a commitment by its president, Xi Jinping, to raise everyone in China above its official poverty level of 95 cents a day by 2020. According to the piece, 43 million people in China now fall under this income level.

While the piece implies this would be a difficult target for China to make, the cost would actually be quite small relative to the size of its economy. If it were to hand this amount of money (95 cents a day) to each of these 43 million people, it would co...

Folks Who Believe in Secular Stagnation Don't Think the Trade Deficit Is Determined by the National Savings-Investment Balance

It is common for economists to assert that the trade deficit is equal to the gap between national savings and national investment. If the United States invests more than it saves (combining private savings and government savings) then it is running a trade deficit. This is true by definition.

Intro Econ fans may remember that we have the basic accounting identity saying that output is equal to income:

C+I+G+(X-M)=Y

...where C is consumption,

...I is investment,

...G is government spending,

.....

Are 401(k)s Cheaper than Defined Benefit Pensions for Employers?

A NYT article discussing Republican plans to sharply limit the tax deduction for 401(k)s noted how these retirement accounts have largely replaced traditional defined benefit pensions and said that they were cheaper for employers. This is not entirely clear.

In principle a payment for a retirement benefit is supposed to be a substitute for wages. If a worker gets $2,000 a year paid into a defined benefit pension or a 401(k) plan, this is supposed to be offset by roughly a $2,000 reduction in...

The Myth of High Youth Unemployment in France

The NYT had a very informative piece on the prospects for the labor market changes being pushed through in France by its new president Emmanuel Macron. While the background explaining the proposed changes and their rationale was useful, the article included one important item that is seriously misleading. It said that nearly one in four young people in France is unemployed.

This figure is referring to the unemployment rate for French youth (ages 15-24), which the OECD reports as 24.6 percent....