Category Archives: economic growth

What Are the Good Features in the Republican Tax Bill?

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I have made very clear in recent posts that one negative feature of the tax bill, increasing national debt by $1 trillion over ten years, greatly outweighs its good features.  For this reason I ask Nebraska Senator Deb Fischer to put the welfare of our country ahead of the demands of her Republican colleagues and vote against the bill.


Nevertheless, the tax bill does have beneficial features and I would like to acknowledge them here.  Major ones are:

  • Lowering the corporate tax rate from 35% to 21% and moving to a territorial system, making us far more internationally competitive and encouraging our multinational corporations to bring their foreign profits back home.
  • Establishing immediate expensing of capital investment, thereby speeding up business investment and increasing economic growth.
  • Reducing itemized deductions for state and local taxes and mortgage interest, but not eliminating them as should be done for much greater revenue savings.
  • Increasing the standard deduction to $12,000/$24,000 (for singles/couples) which will reduce the number of individual taxpayers who itemize deductions from 30% to just 6%. This single feature alone achieves major simplification.
  • Measuring inflation adjustments for income thresholds by the Chained Consumer Price Index (CCPI) rather than the current CPI. CCPI takes consumer behavior into account when computing inflation and will lead to an increase in tax revenue over time.
  • Eliminating the individual mandate for the ACA which will lead to fewer healthy people signing up for health insurance. This begins a process of healthcare cost reform which must continue much further to significantly reduce the cost of American healthcare. Much more later.

Conclusion. The good features in the tax bill do not nearly outweigh the awfulness of adding $1 trillion to our debt over the next ten years. The Republican Party should be ashamed of itself for such poor fiscal and economic stewardship.  What is it thinking?

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Senator Fischer, if You Vote for the Awful Tax Bill, There Will Be Political Consequences!

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Congressional Republicans have agreed on a compromise tax bill, details to be released soon. After scoring by the Joint Committee on Taxation, it will be voted on separately by the House and Senate, sometime next week.  It is likely to reach the President, and be signed into law, before Christmas.


As I have previously discussed at great length, this is a very bad bill for the following reasons:

  • Lowering the corporate tax rate to 21% is actually a good idea because it will encourage U.S. multinational companies to bring their foreign profits back home for reinvestment as well as encouraging foreign companies to set up shop in the U.S.
  • Adding $1 trillion to the debt over ten years, as previously scored by JCT and likely on rescoring, is what is so awful about the tax plan. It is also sad because this could be avoided.  Our debt (the public part on which we pay interest) is already, at 77% of GDP, the highest it has been since right after WWII, and is predicted by the Congressional Budget Office to keep getting worse without major changes in current policy.
  • As interest rates rise, interest payments on the debt will grow dramatically (right now our debt is almost “free” money). Eventually this will lead to a new financial crisis, much worse than in 2008.
  • Overheating the economy, now growing at 3% per year for the last two quarters, makes the tax bill even worse. The last thing our economy needs right now is a trillion dollars of artificial stimulation. This will force the Federal Reserve to raise interest rates faster than it would otherwise.
  • Nebraska Senator Deb Fischer, who is up for reelection in 2018, voted for the Senate version of the tax plan. She should reconsider for the final combined bill and vote no.

Conclusion. If Senator Fischer votes for the final version of this bill, and if it passes and is signed into law by the President, then she is personally responsible for the devastation it will wreak on our economy. What can I as an individual Nebraskan do about this?  It should not be hard to figure out.  Stay tuned!

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Who Is Responsible for the Atrocious GOP Tax Bill?

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I want to emphasize as strongly as possible that cutting the corporate tax rate from 35% to 20% is a very good idea. It makes the U.S. much more competitive with other developed countries and thereby encourages our multinational companies to bring their foreign profits back home for reinvestment in the U.S.  It will also encourage international companies from other countries to set up shop here and thereby contribute to more jobs and better paying jobs in the U.S.
As I pointed out in my last post, the tax plan needs to be revenue neutral to be beneficial.  Very unfortunately, the current plan adds $1 trillion to our already out-of-control debt over the next ten years.  Furthermore, our currently hot economy (3% growth for two quarters in a row) is likely to overheat from an artificial stimulus of $1 trillion.  This will cause inflation to speedup more quickly and force the Federal Reserve to raise interest rates precipitously to head it off.  This will lead to much higher interest payments on our debt which, in turn, will lead to a new and much worse fiscal crisis in the relatively near future.


I live in Omaha and most of my blog readers likewise live in Nebraska.  The Republicans hold a 52-48 majority in the Senate.  One Republican Senator, Bob Corker, from Tennessee, has already announced his opposition to the Tax Plan (now in Conference Committee) because he “will not vote to add even one more cent to the deficit.”  Thus the Republicans will not be able to pass this atrocious tax bill if they lose even two more votes (fifty votes needed with the VP able to break a tie).
If this awful legislation does become law, and Nebraska Senators Deb Fischer and Ben Sasse vote for it, we will be justified in holding each of them personally responsible.

Conclusion. The GOP is on the verge of making a very bad mistake. The party with a reputation for fiscal responsibility is on the verge of throwing it away for what will turn out to be a very short term gain.

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Ignoring Massive Public Debt Is Morally Unacceptable

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The House and Senate have now each passed their own versions of tax reform and a conference will come up with a single version acceptable to both legislative chambers. Each of the individual bills has been scored to add $1 trillion to the national debt over a ten year period and so the final bill will probably have the same feature.  This is a badge of dishonor on the controlling Republican Congress for the following reasons:

  • Yes, economic growth at 2.1% of GDP since the end of the Great Recession is too slow and has caused stagnant wages for millions of middle- and lower-income workers. Even though the unemployment rate has now dropped to 4.1% and the economy has grown at a rate of 3% for the past two quarters, there is still much labor slack to make up for.
  • Yes, the corporate tax rate is too high and encourages multinational companies to invest overseas. Immediate expensing for new business investment would also speed up growth and thereby create new jobs and higher wages.
  • Revenue neutral tax reform is “easily” accomplished by “simply” offsetting all tax rate cuts by closing loopholes and shrinking deductions by an equal amount. Since two thirds of taxpayers do not itemize deductions, it is primarily the higher income taxpayers who benefit from tax deductions and they can afford to pay higher taxes.

  • Current national debt, at 77% of GDP (for the public debt on which we pay interest), is the highest it has been since right after WWII, and is already predicted by the CBO to steadily keep getting worse. When interest rates eventually return to more normal and higher levels, interest payments on the debt will soar. And this will continue indefinitely, eventually leading to a new fiscal crisis, much worse than the Financial Crisis of 2008.

The GOP tax plan should be killed. Although a revenue-neutral tax plan could be put together and would be beneficial, the current plan makes our debt much worse and should be killed. We simply must make shrinking the debt a very high priority and not be distracted from getting this done.

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The Republicans are Making a Huge Mistake with the Current Tax Plan by Appearing to be Fiscally Irresponsible

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The House and Senate have now each passed their own similar tax bills and a conference will come up with a single unified plan. Each of the individual bills has been scored to add $1 trillion to the national debt over a ten year period and so the final plan will almost surely have this same feature.
With our public (on which interest is paid) debt now 77% of GDP, the highest since right after WWII, and already growing rapidly, this is an extremely unattractive, and even dangerous, feature of the tax plan.
One of our most cherished principles in the U.S. is “liberty and justice for all.”  But consider the normally perceived philosophical differences between the two political parties:

  • The Republicans are the party of liberty concentrating on providing maximum opportunity for people to succeed in life by realizing their full potential. This means fostering strong economic growth in order to have lots of opportunities for self-betterment. It also means keeping government at all levels as lean and efficient as possible, so as to minimize interference with private initiative. Excessive public debt is a particular anathema by creating a huge public burden, especially on future generations.

  • The Democrats are the party of justice concentrating on helping to provide the less fortunate members of society with the necessities of life by means of public support programs. This also means working to oppose all forms of prejudicial behavior based on race, gender, sexual orientation, etc. In addition it means trying to alleviate the inevitable income inequalities which arise in a free and dynamic society like ours, primarily with redistribution of tax revenues.

Conclusion. Both parties have fundamentally important principles. They gain and keep adherents by fighting for what they believe in. If the national Republican Party becomes lackadaisical about our huge national debt, as it appears to be right now, it risks losing its reputation for fiscal responsibility.  This will do it great damage.

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What Ever Happened to Fiscally Responsible Tax Reform?

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“I think this level of national debt is dangerous and unacceptable. My preference on tax reform is that it be revenue neutral.  What I’m hoping we will avoid is a trillion dollar stimulus.  Take you back to 2009.  We borrowed $1 trillion and nobody could find that it did much of anything.  So we need to do this carefully and correctly, and the issue of how to pay for it needs to be dealt with responsibly”

Senator Mitch McConnell (R, KY), 2016

Here is where we are today:

  • The world has seen remarkable human progress over the past 200 years. What has brought this about is specialization and trade, i.e. economic growth.
  • Since the end of the Great Recession in June 2009, economic growth in the U.S. has averaged just 2.1%, a remarkably slow recovery by historical standards. This has led to stagnant wage growth especially for blue collar workers. Finally growth is up over 3% for the past two quarters and wage growth is surging.
  • The U.S. corporate tax rate at 35% is not internationally competitive and encourages multinational corporations to move their operations overseas. A lower rate of 20% or so would encourage U.S. multinationals to bring their profits home and also encourage foreign companies to set up shop in the U.S.
  • What all of this means is that we still need tax reform (i.e. lower tax rates) but not fiscal stimulus.
  • The Republican tax plan now moving through Congress will increase our already outrageously excessive debt by $1 trillion over ten years, according to the Joint Committee on Taxation, the official scorekeeper for the U.S. Senate.
  • The Republican Congress will be making a huge mistake by implementing the current plan which has now passed both the House and the Senate. The GOP will no longer be able to make a credible case that it is the party of fiscal responsibility.

Conclusion. With a (public, on which we pay interest) debt of $15 trillion, and growing rapidly, the U.S. is approaching fiscal insolvency. The Republican tax plan will add an additional $1 trillion to this debt over the next ten years.  This is unconscionable behavior.

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Is World Population Under Control?

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The main topics discussed on this blog are the major fiscal and economic issues facing the U.S. My approach is to be calm, factual, rational and objective but I do have a very definite point of view.  I am an optimist.  I think that life is getting better slowly but surely both in the U.S. and around the world, see here and here.
The key to this progress is economic growth.  Faster growth means more progress.  But there are limits as to how fast the economy can grow.  In particular there are environmental limits as I have discussed in my last two posts, here and here.
Global warming is definitely a huge threat to human progress.
But severe overpopulation is not likely based on two reliable sources which I am using.  One is the latest UN Report, “World Population Prospects, 2017”.  The other is the 2010 book by Matt Ridley, “The Rational Optimist”.
Consider:

  • World population in 2017 is 7.6 billion. 10 years ago it was growing by 1.24% per year, today it is growing by 1.10% per year, i.e. growth is slowing down.

  • There is a 27% chance that world population will stabilize and begin to fall before the end of this century (see graph). Mr. Ridley’s prediction that population will peak at 9.2 billion in about 2075 and then begin to fall is consistent with the lower level of the UN graph.
  • The UN’s median projection is that the global fertility level will decline from 2.5 births per woman in 2010-2015 to 2.2 births per woman in 2045-2050 and then to 2.0 births per woman in 2095-2100. Since replacement level is 2.1 births per woman, no later than 2100 the die will be cast for world population to peak in the early 22nd century and then begin to decline.
  • Already 83 countries in 2010-2015 had below replacement level fertility. After 2050 Africa will be the only region still experiencing substantial population growth.

Conclusion. Sometime between about 2075 and the early 2100s, world population will peak and then begin to decline. The sooner this happens, the less misery there will be for humanity.  Nevertheless, the catastrophe of never ending population growth is very unlikely to occur.

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Is Economic Growth Environmentally Sustainable?

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Economic growth is a question of much political interest these days. Slow growth is a major reason why Donald Trump was elected President in 2016.  The main justification for the Republican tax reform plan now moving through Congress is that it will speed up economic growth.
There are many people who say that humanity must learn to live with slower growth because our planet can no longer support the high rate of growth we have enjoyed since the Industrial Revolution.  But consider:

  • World Population is likely to peak at about 9.2 billion in approximately 2075 and then start to decline. (See the Rational Optimist by Matt Ridley, page 206.)   In country after country around the world, economic progress has already led to lower mortality rates which in turn have led to lower birth rates. This demographic process is likely to continue.
  • Pollution is rapidly declining in the developed world (see above, page 279). Yes, greenhouse gas emissions (and global warming) are still increasing worldwide but the use of renewable energy is also increasing. Furthermore, the U.S. and China, working together, easily have enough clout to enact a carbon tax, which would provide an economic incentive for industry to get carbon emissions under control.

  • Natural Resources aren’t running out.  Take phosphorous for example, which is vital to agricultural fertility. When the richest mines are depleted, there are extensive lower grade deposits still available. The fracking revolution means that oil and natural gas will be available for hundreds of years to come. The earth is finite, of course, but it is also a vast storehouse of resources.

Conclusion. The economic growth that is needed to create more jobs and better paying jobs is compatible with maintaining a clean and stable environment on earth.

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How to Speed Up Wage Growth in the U.S.

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Donald Trump was elected President a year ago because the white working class is angry about a lot of things, including slow wage growth. The tax burden in the U.S. is lower than in other developed countries and wages are higher in the U.S. even if they are not rising fast enough. The Brookings Institute has carefully analyzed the wage growth issue, here and here, and has delineated several reasons for wage stagnation:

  • Compensation has lagged behind productivity growth. This is largely due to globalization and technology which has put upward pressure on skills and downward pressure on wages.
  • Benefits have grown faster than wages, thus holding down wages. The skyrocketing cost of healthcare is mostly responsible for this.
  • Labor’s share of income, compared to capital’s, has been shrinking. Technology needs less low skill labor. Also, market concentration, i.e. monopoly power, has been increasing, which increases profits and therefore return on capital.
  • Wage gains have been higher in the higher wage quintiles. This is explained by the increasing wage benefit of more education and higher skill levels.
  • Manufacturing output is up and employment is down. High technology needs fewer low skill workers and high skill workers are in short supply.
  • Entrepreneurship, i.e. new business formation, has declined over the past several decades. This is caused by increased business consolidation and would also be relieved by more immigration of high skilled workers.
  • Labor market slack has declined since the Great Recession. This bodes well for wage increases which are now starting to occur.

  • Labor productivity growth since the Great Recession has been especially slow. What is needed is increased business investment which is the justification for the current push for lower corporate and business tax rates.

Conclusion. In short, what is needed to boost wages is better education and skills, more business investment, control of the surging cost of healthcare, better trust busting to break up monopolies, and more high level immigration.

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The Connection between Taxes and Growth

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One of my favorite economic journalists is Eduardo Porter of the New York Times who writes the weekly column Economic Scene. In his latest column.  He points out that taxes (federal, state and local) for the U.S. and the O.E.C.D. average were about the same 27% of GDP in 1969.  But now, almost 50 years later, the U.S. tax level has stayed the same while the O.E.C.D. average has grown by 7% (see chart below).


Mr. Porter says that according to Wagner’s Law “government spending as a share of the economy will increase as nations get richer and their citizens demand more and better public services.”
Americans may be receiving fewer public services than citizens of the OECD countries but we are also enjoying faster economic growth as pointed out by the AEI scholar James Pethokoukis using data from the International Monetary Fund (see chart below).


According to the Pew Research Center our median family wage is also one of the highest in the world (see chart below).


As pointed out by Mr. Pethokoulis, lower taxes are a fundamental reason for the superior performance of the U.S. economy.  Other (tax-related) reasons are:

  • The most competitive large economy as ranked by the World Economic Forum.
  • An entrepreneurial culture fueled by a willingness to take risks.
  • Labor markets which generally link workers and jobs unimpeded by excessively restrictive labor regulations.
  • A growing population fueled by immigration based on economic opportunity.
  • A culture and tax-transfer system that encourages hard work and long hours.
  • A favorable regulatory environment, relatively speaking.
  • A decentralized political system in which states compete both tax-wise and by other means.

Conclusion. Americans pay lower taxes than other developed countries and also enjoy faster economic growth and higher median wages than most. There appears to be a strong connection between these three fundamental measures of economic wellbeing.

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