November 19, 2017

Myths of the 1 Percent: What Puts People at the Top

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Dispelling misconceptions about what’s driving income inequality in the U.S.

By

Nov. 17, 2017

Income inequality inspires fierce debate around the world, and no shortage of proposed solutions. As global billionaires bid up the price of a da Vinci painting on Wednesday, to $450.3 million, Congress debated tax reforms that many analysts said would give the largest benefits to the richest 1 percent of taxpayers.

In the United States, the richest 1 percent have seen their share of national income roughly double since 1980, to 20 percent in 2014 from 11 percent. This trend, combined with slow productivity growth, has resulted in stagnant living standards for most Americans.

No other nation in the 35-member Organization for Economic Cooperation and Development is as unequal, and none have experienced such a sharp rise in inequality.

In Denmark, the share of income going to the top 1 percent rose to 6 percent from just 5 percent. In the Netherlands, there was essentially no increase from 6 percent levels. Britain (6 percent to 14 percent) and Canada (9 percent to 14 percent) had notable increases in top-income earnings, but not as large as those in the United States.

Before looking into some of what’s behind this, let’s address common misconceptions.

No, It’s Not Trade

A rise in international trade — as a share of G.D.P., measured as either imports or exports using data from the Penn World Tables — is associated with equality, not inequality. The United States imports only a small fraction of the value of its total economy, whereas Denmark and the Netherlands are highly dependent on imports.

Or the Rise of Information Technology

Countries with higher rates of invention — as measured by patent applications filed under the Patent Cooperation Treaty, an indicator of patent quality — exhibit lower inequality than those with less inventive activity. As it happens, tech industries in the United States have contributed just a tiny bit to the rise of the 1 percent, and the salaries of engineers and software developers rarely reach the 1 percent threshold of an annual income of $390,000.

What About Unions?

Unions are thought to redistribute income from owners to workers, but there is no correlation across countries between the change in labor’s share of G.D.P. since 1980 and an increase in the income share of the top 1 percent. Britain saw an increase in the labor share of G.D.P. but also one of the sharpest increases in inequality. The Netherlands saw a large fall in labor’s share but no rise in inequality.

Image
A woman holds up a paddle with an image of Leonardo da Vinci’s “Salvator Mundi” as she arrives at Christie’s before bidding on the painting Wednesday night in New York. The work sold for a record $450.3 million.CreditTimothy A. Clary/Agence France-Presse — Getty Images

Scandinavian countries are heavily unionized and egalitarian, but Denmark experienced a large decrease in the share of workers represented by unions from 1980 to 2015, according to O.E.C.D. data, and very little change in inequality. Unionization rates dropped precipitously in the Netherlands and especially New Zealand over the period, but inequality rose as much if not more in Spain, where unionization rates rose.

Not Immigration, Either

Nationalists attribute rising inequality to mass immigration and the supposedly low skills of immigrants.

There is no correlation between changing immigration shares since 1990 and rising top-income shares. In fact, the countries that have absorbed the most immigrants — on a per-capita basis — have seen overall income inequality (measured by the Gini coefficient) fall.

An assumption implicit in this argument is that immigrants drag down earnings at the bottom of the distribution, making inequality worse. If this were an important factor, rising inequality should coincide with large gaps in income between foreign-born and native-born adults. It doesn’t.

My analysis of data from the Gallup World Poll from 2009 to 2016 shows that foreign-born adults earn 37 percent less than native-born adults in the Netherlands, after adjusting for age and gender. This is the largest gap among O.E.C.D. countries, and yet, the country saw no change in top-income inequality. Canada (minus 8 percent) and Britain (minus 7 percent) have small gaps but high and rising inequality.

In the U.S., Managers Are a Minority of Top Earners

Most top earners in the United States are neither executives nor even managers. People in those occupations make up just over one-third of all top earners in the United States. This share has been falling — particularly for corporate executives — and is lower than in many other advanced countries. In Denmark, Canada and Finland, close to half of top earners are in managerial occupations, according to my analysis of data from the Luxembourg Income Study.

So What’s Going On?

Almost all of the growth in top American earners has come from just three economic sectors: professional services, finance and insurance, and health care, groups that tend to benefit from regulatory barriers that shelter them from competition.

The groups that have contributed the most people to the 1 percent since 1980 are: physicians; executives, managers, sales supervisors, and analysts working in the financial sectors; and professional and legal service industry executives, managers, lawyers, consultants and sales representatives.

Without changes in these largely domestic services industries — finance, health care, the law — the United States would look like Canada or Germany in terms of its top income shares.

The United States also stands out in terms of how much money its elite professionals earn relative to the median worker. Workers at the 90th percentile of the income distribution for professionals make 3.5 times the earnings of the typical (median) worker in all occupations in the United States. Only Mexico and Israel, which have very high inequality, compensate professionals so disproportionately. In Switzerland, the Netherlands, Finland and Denmark, the ratio is about 2 to 1.

This ratio, the elite professions premium, is very highly correlated with income inequality across countries.

Others are noticing these trends. A new book, “The Captured Economy” by Brink Lindsey and Steven Teles, argues that regressive regulations — laws that benefit the rich — are a primary cause of the extraordinary income gains among elite professionals and financial managers in the United States and of a reduction in growth.

This year, the Brookings Institution’s Richard Reeves wrote a book about how people in the upper middle class have shaped both legal and cultural norms to their advantage. From different perspectives, Joseph Stiglitz, Robert Reich and Luigi Zingales have also written extensively about how the political power of elites has undermined markets.

Problems cited by these analysts include subsidies for the financial sector’s risk-taking; overprotection of software and pharmaceutical patents; the escalation of land-use controls that drive up rents in desirable metropolitan areas; favoritism toward market incumbents via state occupational licensing regulations (for example, associations representing lawyers, doctors and dentists that block efforts allowing paraprofessionals to provide routine services at a lower price without their supervision).

These are just some of the causes contributing to the 1 percent’s high and rising income share. Reforming relevant laws can make markets more efficient and egalitarian, and in contrast with trade, immigration and technology, the political causes of the 1 percent’s rise are directly under the control of citizens.


Jonathan Rothwell is the Senior Economist at Gallup. He is writing a book on political equality and its relationship to economic opportunity. You can follow him on Twitter at @jtrothwell.

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Article source: https://www.nytimes.com/2017/11/17/upshot/income-inequality-united-states.html?partner=rss&emc=rss

Myths of the 1 Percent: What’s Putting People at the Top

Advertisement

Supported by

Dispelling misconceptions about what’s driving income inequality in the U.S.

By

Nov. 17, 2017

Income inequality inspires fierce debate around the world, and no shortage of proposed solutions. As global billionaires bid up the price of a da Vinci painting on Wednesday, to $450.3 million, Congress debated tax reforms that many analysts said would give the largest benefits to the richest 1 percent of taxpayers.

In the United States, the richest 1 percent have seen their share of national income roughly double since 1980, to 20 percent in 2014 from 10 percent. This trend, combined with slow productivity growth, has resulted in stagnant living standards for most Americans.

No other nation in the 35-member Organization for Economic Cooperation and Development is as unequal, and none have experienced such a sharp rise in inequality.

In Denmark, the share of income going to the top 1 percent rose to 6 percent from just 5 percent. In the Netherlands, there was essentially no increase from 6 percent levels. Britain (6 percent to 14 percent) and Canada (9 percent to 14 percent) had notable increases in top-income earnings, but not as large as those in the United States.

Before looking into some of what’s behind this, let’s address common misconceptions.

No, It’s Not Trade

A rise in international trade — as a share of G.D.P., measured as either imports or exports using data from the Penn World Tables — is associated with equality, not inequality. The United States imports only a small fraction of the value of its total economy, whereas Denmark and the Netherlands are highly dependent on imports.

Or the Rise of Information Technology

Countries with higher rates of invention — as measured by patent applications filed under the Patent Cooperation Treaty, an indicator of patent quality — exhibit lower inequality than those with less inventive activity. As it happens, tech industries in the United States have contributed just a tiny bit to the rise of the 1 percent, and the salaries of engineers and software developers rarely reach the 1 percent threshold of an annual income of $390,000.

What About Unions?

Unions are thought to redistribute income from owners to workers, but there is no correlation across countries between the change in labor’s share of G.D.P. since 1980 and an increase in the income share of the top 1 percent. Britain saw an increase in the labor share of G.D.P. but also one of the sharpest increases in inequality. The Netherlands saw a large fall in labor’s share but no rise in inequality.

Image
A woman holds up a paddle with an image of Leonardo da Vinci’s “Salvator Mundi” as she arrives at Christie’s before bidding on the painting Wednesday night in New York. The work sold for a record $450.3 million.CreditTimothy A. Clary/Agence France-Presse — Getty Images

Scandinavian countries are heavily unionized and egalitarian, but Denmark experienced a large decrease in the share of workers represented by unions from 1980 to 2015, according to O.E.C.D. data, and very little change in inequality. Unionization rates dropped precipitously in the Netherlands and especially New Zealand over the period, but inequality rose as much if not more in Spain, where unionization rates rose.

Not Immigration, Either

Nationalists attribute rising inequality to mass immigration and the supposedly low skills of immigrants.

There is no correlation between changing immigration shares since 1990 and rising top-income shares. In fact, the countries that have absorbed the most immigrants — on a per-capita basis — have seen overall income inequality (measured by the Gini coefficient) fall.

An assumption implicit in this argument is that immigrants drag down earnings at the bottom of the distribution, making inequality worse. If this were an important factor, rising inequality should coincide with large gaps in income between foreign-born and native-born adults. It doesn’t.

My analysis of data from the Gallup World Poll from 2009 to 2016 shows that foreign-born adults earn 37 percent less than native-born adults in the Netherlands, after adjusting for age and gender. This is the largest gap among O.E.C.D. countries, and yet, the country saw no change in top-income inequality. Canada (minus 8 percent) and Britain (minus 7 percent) have small gaps but high and rising inequality.

In the U.S., Managers Are a Minority of Top Earners

Most top earners in the United States are neither executives nor even managers. People in those occupations make up just over one-third of all top earners in the United States. This share has been falling — particularly for corporate executives — and is lower than in many other advanced countries. In Denmark, Canada and Finland, close to half of top earners are in managerial occupations, according to my analysis of data from the Luxembourg Income Study.

So What’s Going On?

Almost all of the growth in top American earners has come from just three economic sectors: professional services, finance and insurance, and health care, groups that tend to benefit from regulatory barriers that shelter them from competition.

The groups that have contributed the most people to the 1 percent since 1980 are: physicians; executives, managers, sales supervisors, and analysts working in the financial sectors; and professional and legal service industry executives, managers, lawyers, consultants and sales representatives.

Without changes in these largely domestic services industries — finance, health care, the law — the United States would look like Canada or Germany in terms of its top income shares.

The United States also stands out in terms of how much money its elite professionals earn relative to the median worker. Workers at the 90th percentile of the income distribution for professionals make 3.5 times the earnings of the typical (median) worker in all occupations in the United States. Only Mexico and Israel, which have very high inequality, compensate professionals so disproportionately. In Switzerland, the Netherlands, Finland and Denmark, the ratio is about 2 to 1.

This ratio, the elite professions premium, is very highly correlated with income inequality across countries.

Others are noticing these trends. A new book, “The Captured Economy” by Brink Lindsey and Steven Teles, argues that regressive regulations — laws that benefit the rich — are a primary cause of the extraordinary income gains among elite professionals and financial managers in the United States and of a reduction in growth.

This year, the Brookings Institution’s Richard Reeves wrote a book about how people in the upper middle class have shaped both legal and cultural norms to their advantage. From different perspectives, Joseph Stiglitz, Robert Reich and Luigi Zingales have also written extensively about how the political power of elites has undermined markets.

Problems cited by these analysts include subsidies for the financial sector’s risk-taking; overprotection of software and pharmaceutical patents; the escalation of land-use controls that drive up rents in desirable metropolitan areas; favoritism toward market incumbents via state occupational licensing regulations (for example, associations representing lawyers, doctors and dentists that block efforts allowing paraprofessionals to provide routine services at a lower price without their supervision).

These are just some of the causes contributing to the 1 percent’s high and rising income share. Reforming relevant laws can make markets more efficient and egalitarian, and in contrast with trade, immigration and technology, the political causes of the 1 percent’s rise are directly under the control of citizens.


Jonathan Rothwell is the Senior Economist at Gallup. He is writing a book on political equality and its relationship to economic opportunity. You can follow him on Twitter at @jtrothwell.

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Article source: https://www.nytimes.com/2017/11/17/upshot/income-inequality-united-states.html?partner=rss&emc=rss

Middle-Class Families Confront Soaring Health Insurance Costs

And even though he does not need an assistant for his work as a developer of mobile apps, Ian Dixon, 38, said he might hire an employee just so he could buy health insurance as a small business, at a cost far below what he and his family would have to pay on their own.

“If one word captures all this, it’s ‘helpless,”’ Mr. Dixon said. “There’s rage and anger and all that stuff in there, too. Any reasonable person would agree that this should not be happening. And there’s no one to go talk to about it. There’s no hope that this is going to get fixed.”

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Sara Stovall said she might try to reduce her hours and income, so her family could qualify for subsidies on offer to poorer families to help pay for premiums. Credit Matt Eich for The New York Times

The situation here in Charlottesville is an extreme example of a pattern that can be seen in other places around the country. The Affordable Care Act is working fairly well for people who receive subsidies in the form of tax credits, said Doug Gray, the executive director of the Virginia Association of Health Plans, which represents insurers. But for many others, especially many middle-class families, he said, “the premium is outrageous, and it’s unaffordable.”

Congress’s repeated efforts to repeal President Barack Obama’s signature health law have rattled insurance markets. Actions by President Trump and his administration have added still more uncertainty. Now, Senate Republicans have attached a provision to their $1.5 trillion tax cut that would repeal the health law’s mandate that most Americans have health insurance or pay a penalty.

All of those actions — along with flaws in the law itself — are having real-world impact.

“We share their pain,” Michael M. Dudley, the president and chief executive of Optima Health, said of his Virginia customers now shopping for policies on the health law’s online exchange. “The rate increases are very high. We can’t minimize that because it’s a fact.”

The Dixon family, which includes two girls ages 1 and 3, has been paying $988 a month this year for insurance provided by Anthem Blue Cross and Blue Shield. But Anthem plans will not be available in Charlottesville next year. The company told customers that uncertainty in the insurance market “does not provide the clarity and confidence we need to offer affordable coverage to our members.”

The online federal marketplace, HealthCare.gov, recommended another plan for Mr. Dixon in 2018. The new plan, offered by Optima Health, has premiums of $3,158 a month — about $37,900 a year — and an annual deductible of $9,200.

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Alternatively, Mr. Dixon could pick a lower-cost plan offered by Optima with premiums of about $2,500 a month, or $30,000 a year. But the deductible would be much higher. The Dixons would need to spend $14,400 a year for certain health care services before Optima would begin to pay.

The Stovalls are facing similar mathematics.

“Our premiums will triple to $3,000 a month, with a $12,000 deductible, and that is far, far out of reach for us,” Ms. Stovall said after researching the options for her family of four on HealthCare.gov. “We are not asking for free health insurance. All we want is a reasonable chance to buy it.”

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Mr. Dixon credited the Affordable Care Act with encouraging him to work for himself as a mobile app developer. Credit Matt Eich for The New York Times

Subsidies are available to help low- and moderate-income people pay premiums, but no financial assistance is available to a family of four with annual income over $98,400.

Optima, a division of Sentara Healthcare, invited customers to share their personal stories on its Facebook page, and they obliged, with a fusillade of plaintive and sardonic comments.

Bill Stanford, who works for a floor-covering business in Virginia Beach, said, “Optima Health Care just raised my premium from an absurd $1,767 a month to an obscene $2820.09 per month,” which is more than the mortgage payments on his home for a family of four.

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“At an average of $60 per visit,” Mr. Stanford said, “I could visit the doctor’s office 45 times a month for the premium that I’m paying. I think we will probably drop our insurance and get a gap policy.” Such short-term insurance is meant to fill temporary gaps, but typically does not cover maternity care or treatment for pre-existing medical conditions.

Mr. Dudley said in an interview that Optima, a Virginia company, felt an obligation to continue serving Virginians when larger national insurers were pulling back. But, he said, Optima is affected by the same factors destabilizing insurance markets elsewhere. These include President Trump’s decision to terminate certain federal subsidies paid to insurers and doubts about the future of the requirement for most Americans to have insurance — the individual mandate, which would be eliminated by the Senate Republicans’ tax bill.

And in the Charlottesville area, Mr. Dudley said, costs are high because many people receive care from an expensive academic medical center at the University of Virginia.

Carolyn L. Engelhard, director of the health policy program at the university’s School of Medicine, acknowledged that teaching hospitals often charged more. But another factor, she said, is that Virginia has not regulated insurance rates as aggressively as some other states.

Did You Sign up For Insurance Under the Affordable Care Act? Share Your Experience.

The Times would like to hear from Americans who are signing up for insurance under the Affordable Care Act.

Consumers are feeling the effects.

“Obamacare helped me,” Ms. Griffith said. “I had a pre-existing condition, could not get insurance and had to pay cash, nearly $30,000, for the birth of my first baby in 2010. For my second pregnancy in 2015, I was covered by Obamacare, and that was a huge financial relief.”

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But the costs for next year, she said, are mind-boggling.

She and her husband, both self-employed, expect to pay premiums of $32,000 a year for the cheapest Optima plan available to their family in 2018. That is two and a half times what they now pay Anthem. And the annual deductible, $14,400, will be four times as high.

“I have no choice,” Ms. Griffith said. “I agree that we need to make changes in the Affordable Care Act, but we don’t have time to start over from scratch. We are suffering now.”

Jill A. Hanken, a health lawyer at the Virginia Poverty Law Center, said, “People who qualify for premium tax credits are finding very affordable plans with low premiums, and those consumers are quite pleased.” But she added: “For people who don’t qualify for tax credits, the cost of plans has truly skyrocketed. They can’t afford or don’t want to pay the high premiums.”

When the Affordable Care Act was adopted in 2010, Democrats like Nancy Pelosi, who was then the House speaker, said the law would make it easier for people to switch jobs or start their own businesses because they would not have to worry about losing health insurance.

“We see it as an entrepreneurial bill,” Ms. Pelosi said, “a bill that says to someone, if you want to be creative and be a musician or whatever, you can leave your work, focus on your talent, your skill, your passion, your aspirations because you will have health care.”

And for a few years, Mr. Dixon said, that idea was appealing. “I would not be an entrepreneur if it were not for Obamacare,” he said.

With soaring premiums, that option is less attractive.

“When I saw the insurance prices for 2018, my initial instinct was to try and go back to my previous employer,” Mr. Dixon said. “But that would just smell of desperation.”

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Article source: https://www.nytimes.com/2017/11/16/us/politics/obamacare-premiums-middle-class.html?partner=rss&emc=rss

Who’d Gain From an Estate Tax Rollback: The 0.2 Percenters

(An analysis by the left-leaning Center for American Progress Action Fund concluded that the estate tax repeal could save Mr. Trump’s estate more than $1 billion, and those of his cabinet members $3.5 billion.)

Mr. Trump has stated, incorrectly, that the tax is crushing “millions of small businesses and the American farmer.” In reality, only about 80 small businesses and farms would fall under the estate-tax tent this year, according to the nonpartisan Tax Policy Center.

Republicans want to shrink the numbers further. In the Senate’s proposed tax bill, exempted income would temporarily double to $11 million per person — $22 million for a couple — during the next decade.

If those rules had been imposed last year, the number of estates owing money under the tax would have been no more than 2,204 — fewer than 0.1 percent of the total.

The House bill approved Thursday goes a step further, doubling the exemption for 10 years but then eliminating the tax. The result is that other taxpayers would have to make up the $151 billion cost over the next decade.

Opponents of the tax say fairness is at stake. No one — including billionaires — should have their assets taxed twice, once in life and once in death, the argument goes. But the issue is less about double taxation than no taxation.

Photo
President Trump with members of his family, who could benefit from a repeal of the estate tax, at the opening ceremony for Trump International Hotel in Washington last year. Credit Stephen Crowley/The New York Times

Many of the assets held by the ultrawealthy are investments that are not taxed until they are sold. Pass along these investments after you die, and your family can pretty much avoid ever paying capital gains tax on them. That’s where the estate tax comes in.

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“It was a kind of imperfect substitute or surrogate for the capital-gains tax,” Wojciech Kopczuk, an economist at Columbia University, explained. “It’s a roundabout way of getting some revenue that escapes some other type of a tax.”

In the past, a reduction in the estate tax was always coupled with a plan to end the protective shell that encases inherited capital gains and keeps them from being taxed.

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“What’s unusual about the current bill is that when there’s been previous efforts to cut back or repeal the estate tax, there was also an effort to change the tax on capital gains,” said Michael J. Graetz, a Treasury official in the elder President George Bush’s administration and a co-author of a book on the estate tax.

The Republicans’ repeated success in whittling away at the number of people subject to the tax is both a marvel of marketing — with its relabeling as a “death tax” — and a testament to the outsize influence of wealthy donors on policy.

The modern version has been around for more than 90 years. One of its primary advocates was not a soapbox socialist but a Republican. Theodore Roosevelt, the first 20th-century president to endorse a tax on luxe inheritances, was the son of a wealthy socialite and an industrial baron. He warned that passing vast fortunes from one generation to the next not only undermines the recipients but “is of great and genuine detriment to the community at large.”

Over the past couple of decades, Republican efforts to shield more prosperous Americans from the estate tax have been increasingly successful. In 2001, estates worth more than $675,000 (nearly $1 million in today’s dollars) could be taxed at a top rate of 55 percent.

Now, the top tax rate is 40 percent of the amount exceeding $5.49 million. The effective average rate turns out to be much lower, — less than 17 percent, according to the Tax Policy Center — because of that multimillion-dollar exemption up front.

(Fourteen states and the District of Columbia have their own estate taxes, while six others have an inheritance tax, which falls on the beneficiary rather than the estate. Maryland and New Jersey have both, though New Jersey’s estate tax is scheduled for repeal on Jan. 1.)

Opponents of the tax have put a lot of money into fighting it over the years, without encountering much pushback, Mr. Graetz said, even from sectors that could be hurt by the change, like charitable organizations (since tax-deductible contributions are rendered less beneficial to rich donors) and insurance companies (whose policies become less essential to provide heirs with immediate liquidity or cash).

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The repeal effort is aided by the aspirations of dreamers and strivers who imagine that they, too, might reach the estate tax threshold by the time they die.

There is still hardly any organized opposition, even though the Republican proposal “basically allows you to escape not only estate taxes but also income taxes,” Mr. Graetz said.

For the handful affected, the stakes are enormous, he said, but for everybody else, “it’s just another increase in the deficit, which doesn’t seem to rally the public.”

Correction: November 16, 2017

An earlier version of this article misstated the top federal estate-tax rate under current law. It is 40 percent, not 39.6 percent, of the amount above $5.49 million.

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Article source: https://www.nytimes.com/2017/11/16/business/economy/estate-tax.html?partner=rss&emc=rss

The House and Senate Still Have Very Different Tax Bills. Here’s How They Compare.


Tax cut timing

The House bill cuts the corporate tax rate to 20 percent from 35 percent immediately and makes the cut permanent. Individual income tax cuts are also made permanent in the House bill.

The Senate plan delays implementation of the corporate tax cut until 2019 and most of the tax cuts for individuals would expire in 2025.

To Affordable Care Act or not to Affordable Care Act

One of the biggest differences between the House and Senate plans is that Senate Republicans decided to repeal the health law’s requirement that most people purchase health insurance. This saves more than $300 billion and allows Republicans to claim success in their longstanding goal of dismantling part of the Affordable Care Act. The House bill contains no such provision, but the inclusion is not expected to cause much of a kerfuffle among the majority of House Republicans.

State and local tax deduction

The House bill eliminates the popular deduction for state and local income and sales taxes paid and only allows a deduction for property taxes, which are capped at $10,000. The provision prompted the defection of 13 House Republicans from New York New Jersey, California and North Carolina, who voted against the tax bill over concerns it would raise taxes for their constituents.

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The Senate plan eliminates the so-called SALT deduction entirely.

Mortgage interest deduction

The House bill caps the deduction for mortgage interest debt at $500,000, down from the current cap of $1 million.

Senate Republicans have decided to leave the deduction alone. If that holds, it would be a big victory for real estate lobbyists, who have been vocal in their opposition to changing the deduction, but that could make the House bill even more expensive.

Small-business treatment

Republicans are united in their desire to give small businesses a tax break, but their plans differ in how to provide a tax cut. House lawmakers created a new 25 percent tax for so-called pass-through businesses — sole proprietorships, partnerships and S corporations that currently pay taxes at the individual rate of their owners. However, they erected guardrails to prevent the new rate from becoming a loophole that wealthy individuals can exploit by converting themselves into entities and flowing their income through at the rate of 25 percent.

The Senate takes a different approach, creating a new deduction for pass-through businesses along with other incentives to promote investment. The Senate bill also sets an expiration date on breaks for so-called pass-through businesses, whose owners pay taxes on profits through the tax code for individuals.

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Adoption, education, health

To cut business and individual tax rates and double the standard deduction for individuals and families, Republicans had to do away with many popular tax credits and other prized deductions. The House initially eliminated a tax credit for adoptions but later restored it. It also repeals deductions for medical expenses and counts tuition waivers that are widely used by graduate students as taxable income.

In the Senate, Republicans also preserve the adoption tax credit. Unlike the House, they maintain the deduction for medical expenses and provide “education relief” for graduate students.

To repeal, or not to repeal, the estate tax

Almost all Republicans agree philosophically that the estate tax — or death tax as they call it — is unfair. But repealing it is costly, and the tax tends to only hit the very wealthy (and their heirs). House Republicans decided in their bill to double the amount of inherited wealth that is exempt from the tax to $11 million, from $5.5 million, and phase out the tax after six years. In a late amendment, they moved to delay its full repeal another year, to 2025.

In the Senate, the exemption is also doubled, but the death tax never dies.

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Article source: https://www.nytimes.com/2017/11/16/us/politics/the-house-and-senate-still-have-very-different-tax-bills.html?partner=rss&emc=rss

Tax Bill Thrown Into Uncertainty as First G.O.P. Senator Comes Out Against It

“I’m still working with folks to see if there’s some way to be assured as it relates to the deficit issue that we’re not going to create harm,” Mr. Corker said. “There’s other senators who themselves want to ensure that we’re doing something to strengthen our country relative to the deficits.”

He added, “I’m not a yes, I’m not a no.”

With the House expected to pass its tax legislation, the fate of the overhaul fell into the hands of Republican senators, who grappled with the political prospects of passing a bill that critics said could undermine the health care system and favored companies over the middle class. The Senate has played the spoiler before: The House passed a repeal of the Affordable Care Act in May, only to see it fail in the Senate twice.

Republican and Democratic senators clashed on Wednesday over changes the Republicans had made to their ambitious tax legislation late Tuesday night, including adding a provision to repeal the Affordable Care Act’s requirement that most people have health coverage or pay a penalty. Republicans also made the tax cuts for individuals temporary, to comply with Senate procedural rules requiring that the tax plan not add to the deficit after a decade.

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Obamacare, Reliant on Insurance Requirement, Would Crumble Under Senate Tax Bill

Without the mandate, more people would be uninsured and premiums would rise.

Senate Republicans, eager for a major legislative achievement after the Affordable Care Act debacle, have generally been enthusiastic about the tax overhaul. But given the party’s slim 52-to-48 majority in the Senate, the reluctance of even a handful of Republican senators has left open the possibility that the tax bill will be further changed or face failure.

Beyond Mr. Johnson, the support of several other Republican senators was not assured, including the three who killed the party’s effort to repeal the health law this summer: Ms. Collins, John McCain of Arizona and Lisa Murkowski of Alaska.

“I want to see the whole package before I make a decision,” Mr. McCain said.

On Wednesday, Ms. Collins expressed concern that middle-income consumers could see their tax cut erased by an increase in health insurance premiums caused by the repeal of the requirement that most people have insurance, known as the individual mandate.

Other Republican senators, such as Mr. Corker and Jeff Flake of Arizona, are concerned about the national debt, which topped $20 trillion even before consideration of a tax plan that could add an additional $1.5 trillion over a decade.

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As the Senate Finance Committee continued its formal drafting of the bill, Democrats attacked Republicans for inserting the repeal of the individual mandate and for imposing a 2025 expiration date for individual tax cuts, even as they would make the corporate tax cut permanent.

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“This bill seems to get worse by the hour,” said Senator Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee. “This is not just another garden variety attack on the Affordable Care Act; this is repeal of that law.”

Repealing the health law’s individual mandate would allow Republicans to save more than $300 billion over 10 years, giving them more room to cut taxes. According to the Congressional Budget Office, it would also lead to a reduction of 13 million in the number of people with health coverage, and average health insurance premiums on the individual market would rise by about 10 percent.

Senator Orrin G. Hatch of Utah, the chairman of the Finance Committee, played down the move to make the individual tax cuts temporary, not mentioning that change in an opening statement during “markup” of the bill on Wednesday in which he defended his party’s right to undo the mandate. He later suggested that Republicans would be unlikely to resist if Democrats wanted to make those cuts permanent.

Every Tax Cut and Tax Increase in the House G.O.P. Bill and What It Would Cost

The dozens of changes in the legislation would add more than $1.4 trillion to the federal debt over 10 years.

Mr. Hatch and Mr. Wyden raised their voices and spoke over each other as they clashed over the injection of health care into the tax debate, with Mr. Hatch at one point demanding that his leadership of the committee be respected.

“Let me be in control of this committee, not you,” Mr. Hatch said.

Another Senate panel, the Energy and Natural Resources Committee, voted on Wednesday to approve legislation that would open the Arctic National Wildlife Refuge in Alaska to oil and gas drilling — an opening long sought by Republicans but ardently opposed by Democrats and environmentalists.

That legislation is to be merged with the tax bill, which Republicans are planning to pass using special procedures that protect against a Democratic filibuster in the Senate. Under that strategy, the drilling measure would share the protection from a filibuster.

Allowing drilling in the wildlife refuge, known as ANWR, is a cherished goal of the energy committee’s chairwoman, Ms. Murkowski. Given her vote this summer against repealing the Affordable Care Act, Ms. Murkowski is once again a closely watched figure as the Senate plunges back into a debate over health care. But this time, with the prospect of opening the wildlife refuge to drilling, Ms. Murkowski has a major reason to vote yes.

“My whole focus this week, you’re going to be shocked to know, has been ANWR,” she told reporters on Wednesday, brushing aside a question about the individual mandate.

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In the House, the biggest threat comes from Republicans in high-tax states like New York and New Jersey, who have fought to preserve the deduction for state and local taxes. The House bill allows the deduction of up to $10,000 in property taxes, but that provision has not been enough to win over a number of House Republicans.

If all House members vote and every Democrat opposes the bill, Republican leaders can afford to lose no more than 22 of their members for it to pass.

At least five Republicans from New York and three from New Jersey have come out against the House bill. Republican leaders could also lose votes from at least a few of their members from California, another high-tax state.

“It’s conceivable they could come up with some last-minute numbers that don’t look so bad,” said Representative Dana Rohrabacher, Republican of California. “But I did not go to my constituents and ask them to vote for me in order to increase their tax load, and the bill dramatically increases the tax load on a big chunk of my constituency.”

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Article source: https://www.nytimes.com/2017/11/15/us/politics/senate-house-tax-cut.html?partner=rss&emc=rss

Senators Clash Over Last-Minute Changes to Tax Bill


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Senator Ron Wyden, Democrat of Oregon, left, clashed with Senator Orrin G. Hatch, Republican of Utah, right, during a hearing of the Senate Finance Committee on Wednesday. Credit Eric Thayer for The New York Times

WASHINGTON — Uncertainty gripped the Senate on Wednesday over efforts to pass a sweeping $1.5 trillion tax cut after a Wisconsin Republican became the first senator in his party to declare that he could not vote for the tax bills as written, and other senators expressed serious misgivings over the cost and impact on the middle class.

The House is set on Thursday to pass its own version of the tax bill, which would cut taxes by more than $1.4 trillion over 10 years and broadly rewrite the business tax code. But as with the health care debate earlier this year, the Senate emerged as the inconstant ally in President Trump’s pursuit of a major legislative accomplishment in his first year.

Senator Ron Johnson, Republican of Wisconsin, came out against both chambers’ tax plans on Wednesday, deploring the hurried process and saying that the bills favored corporations over small businesses and other so-called pass-through entities, whose owners pay taxes on profits through the tax code for individuals.

Every Tax Cut and Tax Increase in the House G.O.P. Bill and What It Would Cost

The dozens of changes in the legislation would add more than $1.4 trillion to the federal debt over 10 years.

“These businesses truly are the engines of innovation and job creation throughout our economy, and they should not be left behind,” he said in a statement. “Unfortunately, neither the House nor Senate bill provide fair treatment, so I do not support either in their current versions.”

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Senators Susan Collins of Maine, Bob Corker of Tennessee and John McCain of Arizona have voiced their own concerns and refused to say whether they would ultimately vote for the tax bill.

“I’m still working with folks to see if there’s some way to be assured as it relates to the deficit issue that we’re not going to create harm,” Mr. Corker said. “There’s other senators who themselves want to ensure that we’re doing something to strengthen our country relative to the deficits.”

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Article source: https://www.nytimes.com/2017/11/15/us/politics/senate-house-tax-cut.html?partner=rss&emc=rss

Japan Extends Economic Growth Streak


What Drove the Growth?

The economic expansion came mostly from abroad.

After unusually exuberant spending by Japanese consumers in the April to June period, foreign trade took over as the main engine of growth from July through September. Exports have been central to Japan’s recovery, helped in part by a weak yen.

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The government’s stimulus program, colloquially known as Abenomics after the prime minister, calls for the central bank to inject vast amounts of money into the financial system. That weakens the yen, making Japanese cars, electronics and other products more attractive to foreign buyers.

The domestic side of the economy was weaker. While exports increased 6 percent in annualized terms, household consumption fell 1.9 percent, the data showed. Business investment was more robust, expanding 1 percent — a sign that companies expect Japan’s growth streak to last awhile longer.

Is Deflation Dead?

Consumer prices have been declining in Japan since the 1990s, a debilitating cycle known as deflation that can lead consumers and companies to put off purchases or investments, hitting economic growth and leading to a vicious cycle where prices continue to fall. That has squeezed companies’ revenues, leaving them with less money to pay workers.

Ending deflation is the ultimate goal of Abenomics. After lurching between rises and falls for about five years, consumer prices have been rising steadily, if modestly, this year. Though inflation — now at 0.7 percent by the Bank of Japan’s preferred “core” measure — remains at less than half the target of 2 percent, some analysts say they think the government may soon declare an official end to the two-decade deflationary scourge.

In Monday’s data, the G.D.P. deflator — one of several measures of price trends — turned positive in the third quarter, another sign that deflationary pressure in the economy has eased.

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Article source: https://www.nytimes.com/2017/11/14/business/japan-economy-gdp.html?partner=rss&emc=rss

Senate Plans to End Obamacare Mandate in Revised Tax Proposal

“The people this is going to hit are middle-class people that ostensibly this whole bill was supposed to be about helping,” said Senator Claire McCaskill, Democrat of Missouri and a member of the Finance Committee.

Average health insurance premiums in the individual market would increase by about 10 percent, but insurance markets would remain stable in almost all parts of the country, the budget office found.

President Trump has urged his fellow Republicans to repeal the mandate in their tax bill, and in recent days, the idea has gained steam in the Senate Republican conference as lawmakers try to come up with a plan that can receive at least 50 votes.

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Senator Bob Casey, Democrat of Pennsylvania, on Tuesday during a Senate Finance Committee hearing on the Republican tax plan. Credit Tom Brenner/The New York Times

“We’re optimistic that inserting the individual mandate repeal would be helpful,” said Senator Mitch McConnell, Republican of Kentucky and the majority leader.

But the move risks reigniting the contentious debate over health care that Republicans found themselves mired in for much of the year. Previous efforts to dismantle the Affordable Care Act have failed, leaving Republicans with little legislative success to show for their congressional majority.

“This is turning a tax bill into a health care bill, with our colleagues getting an hour’s worth of notice,” said Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee.

In a letter on Tuesday, groups representing doctors, hospitals and insurers urged congressional leaders to keep the individual mandate in place. The groups, which included the American Medical Association and America’s Health Insurance Plans, wrote that “eliminating the individual mandate by itself likely will result in a significant increase in premiums, which would in turn substantially increase the number of uninsured Americans.”

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On Tuesday, Republicans were laser-focused on speeding ahead with the tax rewrite and showed no desire to slow down that effort.

House Republican leaders plan to hold a vote on their bill on Thursday and expressed confidence that it would pass the House. Senate Republicans, who unveiled their tax proposal last week, are planning to vote on their own version the week after Thanksgiving.

On Tuesday, Goldman Sachs analysts raised their odds of a tax package being signed into law to 80 percent, from 65 percent.

“We feel very good where we are,” said Paul D. Ryan, the House speaker and Republican of Wisconsin.

To be protected from a Democratic filibuster, the tax bill can add no more than $1.5 trillion to federal budget deficits over a decade, and it cannot add to the deficit after a decade. Eliminating the mandate starting in 2019 would reduce federal budget deficits by a total of $338 billion by 2027, the Congressional Budget Office said last week.

Senator John Thune of South Dakota, a member of the Republican leadership who also serves on the Finance Committee, said the savings from repealing the mandate would be “distributed in the form of middle-income tax relief.”

Mr. Thune said he was confident that the tax plan, with the mandate repeal as part of it, could pass the Senate.

But not all senators were as sanguine about its passage and Republicans will need to carefully calibrate votes, given that they hold a narrow 52-seat majority in the Senate.

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“I personally think that it complicates tax reform,” said Senator Susan Collins, Republican of Maine.

In tandem with repealing the individual mandate as part of the tax bill, Mr. Thune said that Republicans were committed to advancing a bipartisan measure to stabilize health insurance markets developed by Senators Lamar Alexander, Republican of Tennessee, and Patty Murray, Democrat of Washington. That measure, whose fate has been uncertain, would include two years of funding for subsidies to insurers — known as cost-sharing reduction payments — that Mr. Trump decided to cut off last month.

But Ms. Murray rejected any suggestion that the mandate repeal could be paired with her legislation.

“That is the exact opposite of what we should be doing,” she said. “Americans have stood up and spoken loudly for the last year saying they do not want the markets destabilized, and their provision in the tax bill that they are talking about will really destabilize the marketplaces.”

Mr. Trump had urged lawmakers to end the individual mandate, including in a Twitter post on Monday. Several conservative senators, like Tom Cotton, Republican of Arkansas, and Rand Paul, Republican of Kentucky, had also called for its repeal as part of the tax overhaul.

Lobbyists seeking changes to the bill were mostly preparing to shift their efforts to the Senate.

The National Association of Realtors flew in 60 of its members from around the country to raise concerns with House members over several provisions in the House bill that the group says will hurt home buyers and erode incentives for homeownership.

The mood they found in their meetings, said Jamie Gregory, the group’s deputy chief lobbyist, was “resignation that this bill is going to pass the House.” But, he added: “there’s a long way to go. There’s still the Senate, there’s still a conference committee, there’s still a chance to make this better.”

Alan Rappeport contributed reporting.

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Article source: https://www.nytimes.com/2017/11/14/us/politics/tax-plan-senate-obamacare-individual-mandate-trump.html?partner=rss&emc=rss

Lower Corporate Taxes, Higher Wages? Voters Are Skeptical

“There’s this widespread disbelief among Republicans, as there is among Democrats and independents, that tax cuts for employers will redound to their pockets books,” said Jon Cohen, vice president of survey research for SurveyMonkey.

Americans’ views of the tax plan in general are more divided. The Times survey, which was conducted in early November, found that 52 percent of respondents said they disapproved of the plan, compared with 44 percent who said they supported it. (The survey did not distinguish between the House and Senate versions of the plan.) That is generally in line with other polls, although some have put support for the plan significantly lower.

In general, opinions of the Republican plan split predictably along partisan lines. More than 80 percent of Republicans said they supported the plan, and more than 80 percent of Democrats said they opposed it. Most Republicans likewise said they believed that they would benefit personally from the plan, while few Democrats believed the same.

The strong overall support for the bill among Republicans masks significant disagreement beneath the surface, however. The survey showed that support for the plan was much stronger among Republicans who considered themselves “very conservative” than those who considered themselves conservative or moderate. And many moderate Republicans and independents said they were less interested in cutting taxes than in reducing the federal budget deficit, a potential trouble spot for a bill that most analyses suggest could add $1 trillion or more to the deficit.

Republicans still have time to win over skeptics. Only about a quarter of respondents to the Times survey said they were paying close attention to the tax plan. But in a potential sign of trouble for the bill, people who said they were watching the process closely were more likely to oppose it — and to oppose it strongly — than those paying less attention.

“A lot of voters still have only weak views, but the people who have formed strong opinions already are quite negative,” said Guy Molyneux, a partner at Hart Research, a Democratic polling firm.

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Mr. Molyneux said there were elements of the plan, such as doubling the standard deduction and increasing the child tax credit, that generally polled well with voters in various surveys. But other elements of the plan could face more opposition. Various analyses have found that both the House and Senate bills would raise taxes on millions of middle-class families, and the House plan, in particular, would eliminate many popular deductions and credits.

Cutting corporate taxes could be a particularly tough sell for many voters. Polls have repeatedly found that Americans think corporations, and especially big corporations, already pay too little in taxes. Douglas Holtz-Eakin, a prominent conservative economist who supports overhauling the corporate tax system, said it is easy to convince voters that they should support tax cuts for middle-class families. The case for cutting corporate tax rates is harder to explain.

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“If you have a complicated argument like that, you have to lay the groundwork months, years in advance,” Mr. Holtz-Eakin said. That work hasn’t been done in this case, he added.

The complexity of the argument for corporate taxes may help explain why backers of the Republican plan have leaned into a simple formulation of their argument case: Lower business taxes mean higher wages. But Vanessa Williamson, a researcher at the Brookings Institution who has studied public opinion on taxation, said voters were likely to be skeptical of that argument.

In general, Ms. Williamson said, voters tend to fall back on their partisan positions when forming opinions on complex subjects such as taxation. But they might depart from those partisan views when they directly contradict their own experience. Experience, Ms. Williamson said, might lead Americans to doubt that their employers will respond to lower taxes by raising pay.

“Once you get to people’s actual paychecks, you’re confronting them with a question where they actually have personal information,” Ms. Williamson said.

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Article source: https://www.nytimes.com/2017/11/14/business/economy/taxes-polls.html?partner=rss&emc=rss