November 22, 2024

Economix Blog: Bruce Bartlett: Misrepresentations, Regulations and Jobs

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

Republicans have a problem. People are increasingly concerned about unemployment, but Republicans have nothing to offer them. The G.O.P. opposes additional government spending for jobs programs and, in fact, favors big cuts in spending that would be likely to lead to further layoffs at all levels of government.

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Republicans favor tax cuts for the wealthy and corporations, but these had no stimulative effect during the George W. Bush administration and there is no reason to believe that more of them will have any today. And the Republicans’ oft-stated concern for the deficit makes tax cuts a hard sell.

These constraints have led Republicans to embrace the idea that government regulation is the principal factor holding back employment. They assert that Barack Obama has unleashed a tidal wave of new regulations, which has created uncertainty among businesses and prevents them from investing and hiring.

No hard evidence is offered for this claim; it is simply asserted as self-evident and repeated endlessly throughout the conservative echo chamber.

On Aug. 29, the House majority leader, Eric Cantor of Virginia, sent a memorandum to members of the House Republican Conference, telling them to make the repeal of job-destroying regulations the key point in the Republican jobs agenda.

“By pursuing a steady repeal of job-destroying regulations, we can help lift the cloud of uncertainty hanging over small and large employers alike, empowering them to hire more workers,” Mr. Cantor said.

Evidence supporting Mr. Cantor’s contention that deregulation would increase unemployment is very weak. For some years, the Bureau of Labor Statistics has had a program that tracks mass layoffs. In 2007, the program was expanded, and businesses were asked their reasons for laying off workers. Among the reasons offered was “government regulations/intervention.” There is only partial data for 2007, but we have data since then through the second quarter of this year.

The table below presents the bureau’s data. As one can see, the number of layoffs nationwide caused by government regulation is minuscule and shows no evidence of getting worse during the Obama administration. Lack of demand for business products and services is vastly more important.

Bureau of Labor Statistics

These results are supported by surveys. During June and July, Small Business Majority asked 1,257 small-business owners to name the two biggest problems they face. Only 13 percent listed government regulation as one of them. Almost half said their biggest problem was uncertainty about the future course of the economy — another way of saying a lack of customers and sales.

The Wall Street Journal’s July survey of business economists found, “The main reason U.S. companies are reluctant to step up hiring is scant demand, rather than uncertainty over government policies, according to a majority of economists.”

In August, McClatchy Newspapers canvassed small businesses, asking them if regulation was a big problem. It could find no evidence that this was the case.

“None of the business owners complained about regulation in their particular industries, and most seemed to welcome it,” McClatchy reported. “Some pointed to the lack of regulation in mortgage lending as a principal cause of the financial crisis that brought about the Great Recession of 2007-9 and its grim aftermath.”

The latest monthly survey of its members by the National Federation of Independent Business shows that poor sales are far and away their biggest problem. While concerns about regulation have risen during the Obama administration, they are about the same now as they were during Ronald Reagan’s administration, according to an analysis of the federation’s data by the Economic Policy Institute.

Academic research has also failed to find evidence that regulation is a significant factor in unemployment. In a blog post on Sept. 5, Jay Livingston, a sociologist at Montclair State University, hypothesized that if regulation were a major problem it would show up in the unemployment rates of industries where regulation has been increasing: the financial sector, medical care and mining/fuel extraction. He found that unemployment rates in these sectors were actually well below the national average. Unemployment is much higher in those industries that one would expect to suffer most from a lack of aggregate demand: construction, leisure and hospitality, business services, wholesale and retail trade, and durable goods.

Gary Burtless, an economist at the Brookings Institution, asserts that if businesses were really concerned about rising regulations, they would be investing now to avoid them. But there is no indication that this is the case. “The real reason for anemic investment and hiring is that businesses are not confident there will be enough potential customers to justify expansion or even routine capital replacement right now,” he says.

In my opinion, regulatory uncertainty is a canard invented by Republicans that allows them to use current economic problems to pursue an agenda supported by the business community year in and year out. In other words, it is a simple case of political opportunism, not a serious effort to deal with high unemployment.

Article source: http://feeds.nytimes.com/click.phdo?i=9541cc27e34e2b4e2512fd236a389b38

Economix Blog: Bruce Bartlett: Should Democrats Play by Republican Rules?

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Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

It’s the nature of complex phenomena to have multiple causes and origins. It’s simplistic to say that a war, revolution or economic collapse can be explained by a single factor. It’s the job of analysts to sift among potential sources, assign weights to particular ones and thus try to understand the nature of such phenomena.

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For momentous developments like the fall of Rome or the Industrial Revolution, the analysis may literally go on forever, with our understanding continually reshaped by subsequent history and perspective.

However, in real time, we don’t have the luxury of waiting until a consensus or even a dominant view has developed. In fact, we often don’t have time to do anything except rely on gut instincts derived from experience, theory, conjecture, ideology and a wide variety of other influences.

For those who lack the time, knowledge or education to think deeply about events as they happen, political parties and movements provide predigested ideas, perspectives and remedies.

Unfortunately, people are sometimes led astray by those they trust for insights, information and solutions to problems. This may result from corruption or mendacity, rigidity of thought, simple error or ignorance. And it’s human nature for people and organizations to be reluctant to acknowledge mistakes and to have an almost unlimited capacity to rationalize and force facts and theories to conform to their self-interest.

In the case of the Great Recession or mini-depression that we have been experiencing for almost four years, the best economists in the country are still divided on its cause and cure. It’s not an exaggeration to say that they are deeply polarized, with virtually no overlap among the competing camps in terms of analysis or remedies.

At the risk of oversimplification, one side sees government as the cause of all that has gone wrong in the economy and therefore believes that scaling back government intervention is necessary to improve the situation. That means reducing taxes, deregulation and spending cuts.

The other side thinks that the complex causes for the crisis are not necessarily related to the required response, which can be determined by examining the facts of the situation — high unemployment, nonexistent inflation and extraordinarily low interest rates, among other things.

This camp believes that the problems created by the crisis can be addressed by monetary and fiscal policy — much the way a doctor may save an ill patient by aggressively treating his symptoms even without knowing the precise cause of the ailment.

In broad terms, these dueling perspectives happen to conform to the basic philosophies of the two major parties. Republicans are predisposed to blame government for every problem regardless of the circumstances, and Democrats tend to view government as necessary to deal with economic and social problems.

One reason people join political parties is to save themselves the time and work of researching and thinking about issues. They are too busy with their jobs, their families and all the other things that occupy the time and attention of average people.

And even in the Internet age, it is hard to find the information and analysis necessary to make informed decisions about public policy. It’s vastly easier to just accept one party’s perspective and assume it is correct.

What parties and movements do when an issue comes along that requires them to take a position or presents opportunities to advance their agenda is to sort the possible causes and prospective cures put forward into those that are sympathetic to their program and philosophy and those that are not. Those that are sympathetic are deemed to be correct; those in conflict are deemed incorrect.

Obviously, there are serious problems with this approach, which members of both parties follow. Mistakes are easily made and incorrect positions established that may make matters worse rather than better. These positions may be held so dogmatically that their supporters feel that coercion is justified in forcing people to accept their point of view or that violence is an appropriate response to resist policies whose validity they question.

Thankfully, elections and democracy offer peaceful methods for resolving political conflict. And historically a sufficiently large number of Americans have been willing to withhold judgment until the facts are determined with some degree of certainty, and to be persuaded by logic and evidence, rather than immediately aligning themselves with a particular ideological or partisan political approach.

But without correct information and good leadership, it may not be possible for the rational, reality-based community to exercise influence, and control will necessarily default to one of the extremes.

Right now, it is clear that the right side of the political spectrum is dominant. Virtually all policy debate these days is based on the premise that the conservative position is at least valid. For example, we have heard for months from Republicans that government regulation is a major, if not the primary, factor holding back economic expansion and employment growth.

Just last week, the House majority leader, Eric Cantor of Virginia, posted a memo to House Republicans detailing specific regulations whose repeal would create jobs.

Mr. Cantor offered no analysis or evidence that abolishing these regulations would do anything to raise real growth of the gross domestic product or to reduce unemployment. The Republicans to whom the memo was addressed don’t need any evidence, because they are predisposed to believe that government regulation always holds back economic growth and job creation. That’s why they became Republicans in the first place.

So overwhelming is the Republican view that on Friday President Obama withdrew an Environmental Protection Agency regulation, widely supported by scientists as essential to air quality, because its economic burden is deemed to be unaffordable at this time.

Of course, we can’t be sure whether the regulation would have reduced jobs or if its withdrawal will lead to illnesses by people who would have otherwise remained in good health. All we know is that in the cost-benefit calculation, Mr. Obama considered the costs to be decisive.

His supporters will argue that Mr. Obama made the right call based on the facts of the case, but no doubt political factors also weighed on his decision. And those factors have been heavily shaped by the reality that much of the public has been swayed by the oft-repeated Republican charge that government is the enemy of progress.

In a courtroom, justice requires that both sides be equally well represented. If one doesn’t do its job properly, the jury cannot be blamed for a wrong result. If Democrats are going to accept Republican premises, they shouldn’t be surprised if a majority of people eventually conclude that Republicans ought to be in charge of government policy.

Article source: http://feeds.nytimes.com/click.phdo?i=6103952324bcb590a07c5d701d618990

Economix: Who Doesn’t Pay Federal Income Taxes (Legally)

Today's Economist

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

Conservatives are fond of railing against those who are able to legally avoid paying federal income taxes. The Wall Street Journal routinely refers to them as “lucky duckies.”

Senator Orrin Hatch of Utah, the ranking Republican on the Senate Finance Committee, recently asserted that it was appalling that about half of all those who file federal income tax returns pay nothing and said this was proof that income taxes must not be raised to reduce the deficit, because the burden would necessarily fall on just half of households.

But the growth of the non-income-taxpaying population is largely a result of Republican tax policies. The earned-income tax credit is the main reason those with low incomes are largely exempted from federal income taxes. Originated by Gerald Ford, it was expanded by both Ronald Reagan and George H.W. Bush as a better way to help the working poor than raising the minimum wage, which they believed would increase unemployment.

According to the Tax Foundation, in 1974, before the earned-income tax credit was instituted, 19.2 percent of tax filers had no federal income tax liability. This rose to 25.2 percent in 1975 when the credit took effect.

During the 1990s, about 24 percent of filers had no income tax liability, but this number took a big jump during the George W. Bush administration as Republicans added a large child credit to the tax code. The percentage of filers with no income tax liability rose to 36.3 percent in 2008, from 25.2 percent in 2000.

According to new data from the Tax Policy Center, this year 46.4 percent of tax filers will have no federal income tax liability. The following table presents the data.

Tax Policy Center

As one can see, almost all of those in the bottom income quintile — those with incomes below $16,812 — will have no federal income tax liability this year. About three-fifths of those in the second income quintile will also have no liability, 30 percent of those in the middle quintile, and 7.3 percent of those in the fourth quintile. It is not only the poor who are exempt from federal income taxation; substantial numbers of households in the middle class are also exempted.

Surprisingly, a not insignificant number of those who are clearly well off are also among the “lucky duckies.” There are 78,000 tax filers with incomes of $211,000 to $533,000 who will pay no federal income taxes this year. Even more amazingly, there are 24,000 households with incomes of $533,000 to $2.2 million with zero income tax liability, and 3,000 tax filers with incomes above $2.2 million with the same federal income tax liability as most of those with incomes barely above the poverty level.

It is not because of the earned-income tax credit or the child credit that the ultra-wealthy are paying no federal income taxes.

One reason, undoubtedly, is that capital gains are a huge percentage of their income and they may have losses from previous years to offset any realized gains this year. Perhaps some chose to invest all their wealth in tax-free municipal bonds.

And, of course, a large industry of tax lawyers make their living advising the wealthy on how to minimize their tax liability by exploiting existing provisions of the tax law.

These data look only at legal tax avoidance; they do not account for illegal tax evasion, which is quite extensive, especially at the top and the bottom of the income distribution. Those in the middle class who have only wage income are much more limited in their opportunities for evasion.

The phenomenon of large numbers of non-federal income tax payers has long been a subject of debate. Those on the left emphasize that other taxes, such as payroll taxes, are paid by those with no income tax liability, a point I discussed last week. Those on the right often complain that it is fundamentally undemocratic for such a large percentage of the population to pay nothing to offset the federal government’s general operations. After all, everyone benefits from national military spending and other federal programs.

Perhaps the right and left can at least agree that it is unseemly for those in the top 1 percent of income distribution, with incomes at least 10 times the median income, to pay no federal income taxes. It’s not socialism to ask them to pay something.

Article source: http://feeds.nytimes.com/click.phdo?i=673ef831bb5a4515123c44301a0db09b