The Progressive Ensign – Page 9 – insights and analytics to build an economy that works for all

IRS Takes Care of Wealthy in Pass-Through Tax Policy

On August 8, 2018

In Corporate Power, Debt, Democracy, Tax Bill, The Elite

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab.)

Photo: calwatchdog.com

The IRS was tasked after passage of the Tax Bill last winter with defining which businesses and owners would qualify for a special 20 % deduction on pass through income. Interpretations of the pass through 20 % deductions where announced yesterday. As maybe expected the law favors the rich, and even gives the Trump Organization new benefits which the president can take advantage of as he still holds title to his businesses and properties while in office.

Half of all U.S. businesses use pass-through income structures with 70 % of the income flowing through to the top 1 % in wealth.

Sources: Joint Committee on Taxation, Center on Budget and Policy Priorities – 5/10/18

The tax bill provision for pass through deductions builds on a tax law that is already biased toward the wealthy who own businesses structured to maximize tax benefits. The Center on Budget and Policy Priorities (CBPC) notes due to a byzantine design opportunities for gaming are rampant, “ it could wind up being even more expensive and delivering larger tax cuts to high-income filers than current estimates show because it creates a significant gaming opportunity: high-income individuals may now be able to secure very large tax savings by converting their labor income into pass-through income to take advantage of the new deduction.”

The CBPC estimates that over $50 billion will be lost in tax revenue each year for the nine years the law is in effect for a total of $450 billion of the $1.5 trillion deficit from the bill. When the law was written arbitrary winners and losers were chosen for example excluding architects and engineers. New York University law professor David Kamin observed in recent congressional testimony, “This pass-through deduction represents the very worst kind of tax policy, picking winners and losers haphazardly in a complex tax provision, and then generating significant incentives for people to rearrange their businesses to try to get on the right side of the line.”

Next Steps

We have consistently noted that the Tax Bill of 2017 favoring the rich with 80 % of the tax benefits will torch taxpayers to the tune of $1.5 trillion deficit to be financed by bonds. This abusive blatant giveaway to the rich is a disaster both in terms of income equality and economics. Our generation and many generations to come will be paying off bond interest instead of investing funds in education, infrastructure projects, job training, Heartland initiatives, medical care and apprenticeship programs. The bill needs to be repealed, applying taxes to corporations and the wealthy to invest in programs that benefit the 80 % not the top 1 % in income.

US Steel and Nucor Use Tariffs To Monopolize Markets

By Patrick Hill

On August 7, 2018

In Corporate Nation State, Corporate Power, Democracy, Protectionism, Tariffs, The Elite

Image: vice.com

Two major steel companies, US Steel and Nucor, last March lobbied the Trump Administration to post tariffs on imported steel at 25 %. They are now pressuring the Administration to deny any requests for waivers from the tariffs. Over 1,600 applications have been filed for exclusion from the tariff provisions which blanketed the world including the European Union, Mexico, Canada, Japan and China. The two steel giants are in fact creating a monopoly for their steel products in the U.S.

In order to protect about 33,000 steel worker jobs, several million jobs in steel using industries are jeopardized by the tariffs:

Sources: U.S. Bureau of Labor Statistics, Bloomberg – 3/2/18

Nucor paid for a film by presidential advisor Peter Navarro, when he was a professor at UC Irvine on the threat of China imported steel being dumped onto U.S. markets. Certainly, there are issues related to China trade practices but is using 25 % tariffs on all imported steel even from allies going to force China to change their export practices?

Next Steps:

Companies that use steel in their products are reeling from soaring price increases in steel and sourcing issues because U.S. steel producers do not make the products they need. Elite corporate CEOs are running their companies via the U.S. government to pick winners (themselves) and losers over 1,600 companies being denied exemptions to run their businesses successfully and keep jobs here in the U.S. Now, many firms are planning on moving operations to countries closer to their customers to avoid the tariffs all together – thus moving jobs out of the U.S. It seems already the tariff plan has backfired, moving jobs out of the U.S. and jeopardizing millions of jobs. We should not be tolerating this state of oligarchy, where two major companies setup tariffs to their exclusive benefit in while damaging thousands of other companies businesses and threatening millions of U.S. jobs. It is the job of our federal government to not pick winners and losers but to establish fair markets for innovation and entrepreneurship to triumph. The tariffs need to be lifted and an intelligent trade strategy in collaboriation with our allies to end China steel dumping practices be implemented.

Seniors Feeling Financial Crunch – Increased Bankruptcies and Pension Overpayment Collections

By Patrick Hill

On August 6, 2018

In Consumer Squeeze, Medicare, Public Interest, Retirement, Social Responsibility, Social Security, Wages

Image: debt.org

Researchers tracking the financial blight of seniors report that seniors over age 65 are 3 times more likely to file for bankruptcy. Seniors are caught by reduced pensions, co pays on their children’s student loans, spiraling medical costs and lost wealth from the Great Recession.

Sources: Consumer Bankruptcy Project, The New York Times – 8/3/18

The post – Baby Boomer generation is feeling squeezed too as their bankruptcy filings are up over 66 % for the 55 to 64 year old group. Many Baby Boomers just beginning their retirement or in the their last years of savings were hit hard by the Great Recession, wiping out 401k investments in stocks and losing home equity wealth too. In all households lost $14 trillion in wealth, most of the income and asset recovery of the past 10 years has gone to the top 10 % in income.

The Consumer Bankruptcy Project is an ongoing effort led by Professor Thorne, University of Idaho; Professor Lawless; Pamela Foohey, a law professor at Indiana University; and Katherine Porter, a law professor at the University of California, Irvine. Their universities fund the project as they review court documents and send out questionnaires to retirees.

Social Security has not been able to fill the gap. Nor was Social Security designed to be the sole source of income for seniors – it was setup to supplement pensions and savings. Over the past 30 years corporations have shifted from defined benefit (pension direct payment) plans to defined contribution plans like 401k where the worker makes the majority for the contributions and the employer is off the hook to make direct fixed payments. Yet, today for 33 % of retirees receiving Social Security it provides 90 % of their income. Medicare and drug costs cut into their Social Security checks:

Sources: The Kaiser Family Foundation, The New York Times – 8/3/18

Health care spending for the average retiree is increasing every year beyond Social Security income and drugs become more expensive, some with standard prices of $70 per dose gauged up in price to $1700 per dose.

Adding insult to injury firms like AT & T are contracting with collection agencies to claw back overpayments to pensioners. The firms make up the calculation tables and send out the checks now they blame the pensioner, who has already spent the money. It is important if the retiree receives a statement of planned disbursements to send back incorrect checks, however in most cases the checks were sent over some years until the error was found and the retiree had no idea that there was an overpayment.

Next Steps:

The perfect financial storm for retirees comes down to the basic fact that corporations shifted their responsibility for pensions onto workers helping the financial services industry sell more financial products to an naïve and financial challenged workers. Professional financial managers were replaced by amateur workers doing their best to invest their 401k plans and save for the future. For the bottom 80 % income the last 30 years their wages have been stagnant with increasing educational costs for their children and increasing medical costs for themselves. The federal government has been of little help, not indexing Social Security payments to the actual costs seniors incur for increasing medical and health services costs.

Pension Claw backs – this makes no moral sense, many retirees have spent 20 or 30 years of their lives for the business, the business made the mistake they need to take care of it. In AT & T’s case they spend billions on stock buy backs to make their executives and shareholders rich, they could take a fraction those funds and take care of their seniors and fund their pension liabilities appropriately.
Retirement Income – in previous posts we have recommended that instead of an incredible mess of 401k accounts, financial houses and amateur investment management by workers, a guaranteed retirement program be implemented starting at the time a person begins work and receives his Social Security card. Worker savings toward retirement would be transferred into this one account for a lifetime, with Social Security contributions by the federal government, and savings by the worker. A portion would be guaranteed by the federal government and professionally managed as a defined benefit plan. Workers could opt for professional management of all their funds as well.
Medical Costs – as we have recommended health insurance should be run by one entity the present Medicare operation for all Americans from the time of birth. Medicare already has a formulary for drugs, and should be authorized to negotiate drug costs for all patients. Standard compensation for procedures and quality of care implemented for Obamacare should be extended. Drug companies will no longer be able to buy back their stock, but instead will be required to spend those funds to bring drug costs down, or reduce costs in other ways. Direct prescription drug advertising should be outlawed to save the over $1 billion spent a year in wasted advertising and spend the funds on price reductions.

Weaving Together a New Social Fabric for the Common Good

By Patrick Hill

On August 3, 2018

In Common Good, Democracy, Education, Public Interest, Social Responsibility

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab.)

Image: meritsolutions.com.au

One of the major problems we face in our society is isolation quite often brought on by inequality and poverty. It is hard to be ‘in the social mainstream’ when you are out of the economic mainstream.

As we have noted we need common experiences, social connections and collaboration toward shared goals to overcome isolation. Often for a person not moving up the economic ladder there is a lack of feeling connected to the community or a network that can assist them during a rough patch in life.

Education is a key to moving up the economic ladder. For young students in poor neighborhoods, without school resources, overworked teachers and rundown school facilities getting a good education is especially challenging. An group that is meeting the challenge of isolation head on is Thread, a social fabric weaving organization in Baltimore. Thread connects students with up to five volunteers who do things that a family member might do. The volunteers are coached by an experienced volunteer called the Head of the Family. The Head of the Family is coached by a Grandparent, and Grandparents are supported by Community Managers. Community Managers are paid Thread staffers. Offering complimentary help are Collaborators who provide special assistance when needed for example in: legal help, SAT tutoring, mental health counseling etc. Thread replicates the family connections and support networks, while providing key links to volunteers who can help with connections to colleges and universities or other resources.

Thread works with 415 high school students, more than 850 volunteers and over 300 collaborators. The results are impressive:

87 % of students who have been in the program for 6 years have graduated from high school
84 % of students in the program for 5 years have been accepted to college
83 % of student alumni have completed a 4 or 2 year college degree or certificate program

The Thread example is one for policy makers to review, and examine in detail for the elements of what makes a social fabric weaving organization work.

Education is the Fifth Estate, an essentially building block of our democracy providing opportunities for all to move up in life. Programs like Thread, provide insight into how to create the underlying support village for those that are isolated or have limited family support to change their life and shift into a productive path leading toward self-respect and self-esteem. Our society benefits from adding productive citizens to our economy, while building safer and more democratic communities. Certainly, forming organizations to rebuild the lives or our isolated young people in both cities and rural areas is critical to strenthening the Common Good.

EDF Announces Satellite To Monitor Climate Change

By Patrick Hill

On August 2, 2018

In Climate Change, Environment, EPA, Oil, Pollution, Renewable Energy

Image: EDF

One of the major problems facing environmental government and non-government groups is monitoring emissions from locations all over the planet. Many locations maybe quite remote while others are easily identifiable using land based monitoring systems. So, having a satellite to monitor emissions world wide is a way to accurately monitor emissions.

Methane emissions are a major component of climate change gases.Here are EPA projections for all climate change gases:

Chart: EPA – 2016

Environment Defense Fund President, Fred Krugg recently announced in a TedTalk, in Vancover, British Columbia that EDF was developing a fourth wave environmental monitoring system. The first wave was the conservation movement led by President Teddy Roosevelt, second came the anti-pollution laws of the 1960s and 1970s. Third, was the use of market based solutions and corporate partnerships in the 1990s.

The MethaneSAT is a Fourth Wave environmental monitoring system, using satellite technology to identify methane sources planet wide. Readings would be sent to government and non-government groups to identify sources, work out solutions and weigh alternative measures. Methane is a potent gas responsible for 25 % of all global warming. Targeting methane gas emissions is the fastest, cheapest way to attack global warming while other programs continue to focus on carbon dioxide emissions as well, according to EDF.

The launch target for MethaneSAT is 2021, with a focus on specific monitoring areas including 80 % of all oil and gas fields across the planet. Feedlots, agriculture and other methane sources will be monitored as well. EDF has set a high goal of 45 % reduction in oil and gas methane emissions by 2025. Achievement of this goal would deliver the same 20 year climate benefit as closing one third of all coal fired power plants worldwide.

We are pleased to see EDF take a proactive approach to monitoring methane worldwide, we hope that the U.S. and other countries will work hard to support this effort. The U.S. should not be waiting for an NGO to take the lead, the EPA needs to take the lead and focus on how to gather accurate data to effectively manage climate change initiatives as well as water.

Banks Squeeze Consumers on Savings, Credit Card Rates

By Patrick Hill

On August 1, 2018

In Big Five Banks, Consumer Squeeze, Corporate Power, Economy

Image: thinkinnovation

The biggest banks are enjoying high profit margins at the expense of consumers. Today, the rates on savings accounts are the lowest as a percentage of the Federal Funds rate and credit card rates are the highest in proportion to the respective Federal Funds rate. The Federal Funds rate is the rate the Federal Reserve charges banks to borrow money.

Sources: Federal Reserve St. Louis, The Wall Street Journal, The Daily Shot – 8/1/18

Sources: Federal Reserve St. Louis, The Wall Street Journal, The Daily Shot – 7/31/18

The divergence on both charts shows how the consumer is squeezed on both sides of the financial ledger – receiving less for their savings than they should historically and getting charged much more on credit cards than is fair.

Today, the top five banks control 50 % of all banking system assets in our $15.3 trillion dollar system. In 1990 the five largest banks held just 10 % of all bank assets. The assets that Wells Fargo holds by itself equal all the assets of the top five banks in 1990. As a result of the consolidation during the Great Recession our banking system is highly concentrated in just a few banks.

Next Steps:

The lack of competition is clearly hurting consumers in both financial directions, paying higher interest rates than are fair and not receiving the interest income they should. The key point is that present regulators are not doing their job requiring banks to pay higher interest and keep credit card interest charges in check. Next, from our post on bank concentration we recommended a break-up of the big five banks:

“Experts like Neil Kashkari who led the Bush Administration’s $700 billion bank bailout effort the Troubled Asset Relief Program, thinks these mega banks should be broken up. Now Kashkari is the Federal Reserve Governor for Minneapolis and has called for reducing the size of the big banks and distributing their power and control to provide a better shock absorber in the event of another banking crisis. He even calls for a 25 % capital reserve requirement many times the present capital reserve requirements the Federal Reserve has maintained in its stress test program. We have seen with the failure of Wells to protect its customers from 3.5 million fake checking accounts created by its sales staff how poorly bank management performs. Now, the bank is being investigated for improper referrals and transferring of funds in the wealth management division.

Enough is enough, our present financial system is too concentrated to effectively manage; distributing wealth, power and control back into regions is one way to ensure reasonable oversight and management can prevail. In addition, we support calls for a modern day Glass-Steagall Act to separate investment banking (were sub–prime derivatives of the Great Recession were created) and commercial banking for retail customers. We need to protect our citizens financial assets from the financial engineering and schemes of Wall Street. It is not a coincidence that today 90 % of all wealth is held by the fewest number of people since 1929.”

Do We Need A $100 billion Tax Cut for the 1 % ? No.

By Patrick Hill

On July 31, 2018

In Corporate Power, Debt, Tax Bill, The Elite

Image: post.gazette.com

That’s right, the GOP Administration is working on jamming through before the next Congress is seated in January a capital gains tax cut of which almost 90 % of the benefits would go to the top 1 % in income. Remember it is this same 1 % who received 80 % of the benefits in the Tax Cut bill Congress passed last winter. We now have a deficit over the next 10 years added by that Tax Cut bill of $1.5 trillion. The federal government faces the largest deficit since the 2008 Great Recession and will be issuing nearly $800 billion in bond financing to make up the difference in the 2^nd half of this year.

The following analysis by the Wharton School of Business shows that indexing capital gains to inflation would provide a windfall to the top 1 %:

Sources: Wharton School of Business, The Washington Post – 7/31/18

The Administration knows that it will be difficult to pass another tax cut for the rich through the Senate where 60 votes are needed. So, Treasury Secretary Mnuchin noted at a Latin American conference last week, “we are studying that (inflation indexing capital gains) internally, and we are also studying the economic costs and the impact on growth.” Many experts on tax law find going around Congress to be illegal. The Bush administration in 1992 reviewed the legality of the Treasury department unilaterally making the inflation indexing change and found the department was not authorized to make such a major change in tax law.

Next Steps

We have the lowest level of corporate tax receipts in 75 years, and the tax level on the top 1 % is the lowest in history. We don’t need to be giving the wealthy another tax cut, we know that trickle-down economics never worked.

Sources: World Inequality Database, The Washington Post – 7/31/18

What has really happened since the Reagan years is that tax policy, deductions, asset inflation, executive stock compensation deductions and other financial gimmicks has amounted to a ‘tsunami up’ phenomenon. Actually, our country has the highest level of concentration of wealth in the top 1 % since 1929. Remember from your history books, what happened after 1929 and the Smoot – Hawley trade wars? The Great Depression.

The real priority for our federal government is to Make America a Democracy Again (our post on the political power of the 1%), focusing on how to create basic economic opportunities for all; access to high quality healthcare, reducing student debt, investing in higher education and apprenticeship programs, welcoming immigrants to build our labor force, and investing in our Heartland to bring rural regions of the country into the economic mainstream.

Trump Trade War Claims More Farmers – Now Almonds

By Patrick Hill

On July 30, 2018

In Tariffs, Trade, Trump Trade War

Photo: ndtv.com

Almond farmers in central California have seen the price for almonds drop 10 %, along with a steep drop in shipments the past several months. The steep price drop is largely due to falling shipments to China and Hong Kong, along with a bumper almond crop.

Source: Almond Board of California, The Wall Street Journal – 7/28/18

China has imposed a 50 % tariff charge on all U.S. imported almonds, and has closed a transshipment loophole that allowed U.S. almond shippers to avoid any China tariff by transferring the crop to carriers overland. Farmers have only pre sold 156 million pounds of almonds for shipment in the year beginning August 1^st, half the 300 million pounds shipped in a similar 12 month period last year.

Last month, India slapped a 20 % tariff on U.S. almonds beginning August 4th. India purchased over half the U.S. almond crop in 2017. The tariffs and markets being closed to U.S. farmers continues to cascade against American suppliers.

Now, we can add almond farmers to the growing list of farmers hurt by needless Trump Trade War tariffs including: soybean, corn, sorghum and ranchers reeling from pork tariffs.

Next Steps:

We warned against the trade tariff approach months ago in previous posts, last week we were alarmed at the announcement of cash compensation to farmers of $12 billion to make up for losses:

“There is an even more ominous aspect to these subsidies is the idea of ‘hunkering down’ for the long term. With no plan for ending the trade war except vague goals of ‘fair deals’ the Trump Trade War can easily get out of hand. The following analysis by Oxford Economics shows how a full-fledged trade war with China could cost the U.S. billions of dollars to the US economy and shave off 1 % cumulative GDP growth by 2020. Needless to say, a trade war of this magnitude will trigger a recession which will be deep and difficult to turnaround. By creating angst with our allies and customers, it will be difficult to win back their trust and their business.”

The trade war needs to stop now, the pause with the EU announced last week was a good start, more needs to be done with China.

“Reverse all the ill-advised, poorly throughout and threatening oriented tariffs. Work through the WTO, which the U.S. helped to create, use other means to get more fair trade deals, work with our allies to focus on specific markets and opportunities without using myopic goals missing important data – like total trade deficit in goods and services not just goods. It is not too late, the armistice announced today with the EU on any new tariffs is a good start. Will the Administration come to an armistice with China? Considering how this Administration works, we are not holding our breath – just hoping for the best but preparing for the worst.”

The Truth Will Set Us Free

By Patrick Hill

On July 27, 2018

In Common Good, Democracy, Factions, Public Interest, Truth

Image: Your Little Planet

It seems this Administration has a problem with facts, and the truth. Simply the truth is what will set us all free to become all we can become and continue building this country and world. Yet, as of June 1^st the Washington Post has counted 3,251 misleading or false statements by our POTUS. As the leader of the Executive branch he sets the lead for his staff, they feel comfortable making misleading statements and creating ‘alternate facts’. There are not ‘alternate facts’ when it comes to what is actually happening in our government.

The news media is the Fourth Estate, with special protections inscribed in the First Amendment of the Constitution declaring ‘Congress…shall make no law abridging the freedom of speech or of the press’. We need the press to monitor government officials and ensure they are doing what they say they are doing and telling us the truth. Without knowing how our public officials are discharging their responsibilities to serve the public’s interests and build the common good we cannot make decisions on the correctness of their behavior or who to vote for or against. Madison and Jefferson were distrustful of a powerful federal government that was not under constant surveillance by the press, to ensure a faction or tyrant could not confuse the public and run wild over the people with their power.

The most alarming aspect of this Administration is not that it lies about policy and actions, it is that it lies constantly and changes the focus to undermining the press to new levels of bullying, intimidation and threats. This barrage of constantly calling the mainstream press ‘false news and enemies of the people’, is to delegitimize the press to give the Administration the policy room to do whatever it wants. A guest on the PBS News Hour this past week, Peter Wehner, senior fellow at the Ethics and Public Policy Center in Washington, succulently described this unprecedented dishonesty as ‘pathological lying’ – a disease. A disease that is eating away at the foundations of our democracy.

Every major religion on this planet places a high value on honesty, truthfulness and integrity. The truth is not a new concept – except for this Administration. Madison had great faith that when a well-educated and informed public made decisions they would be able to make the right decisions in the interest of the common good. Let’s rededicate ourselves in all our interactions with each other, our families and in our democratic institutions to be honest, truthful and transparent. Only with consensus around the facts can we move together and solve the problems ahead for our children and future generations.

Apprenticeship Program A Good Step Forward

By Patrick Hill

On July 26, 2018

In Apprenticeship, Corporate Training, Education, Jobs, Solution, Wages

Photo: siemens.com

The Administration has announced a new job training and apprenticeship program focused on many hard to fill positions in manufacturing. The President signed an order to create a Council for the American Worker instructing the secretaries of commerce and labor to coordinate existing federal programs and focus on new apprenticeship programs for job seekers without college degrees and older workers. Labor Secretary, R. Alexander Acosta noted prior to the announcement that in June 2017 the administration had allocated $150 million in funding to strengthen apprenticeship programs.

Officials from various job development interested groups including unions, corporations, and trade association officials signed a ‘Pledge to America’s Workers’ committing to the creation of more career opportunities. Many of the leaders had made previous commitments, though Fed Express announced a new pledge of 512,000 workforce development slots with tuition assistance provided.

While, ‘dual careers’ have been a staple part of German and European education programs in the U.S. the ‘college for all’ mantra has taken its effect discouraging apprentice program candidates. However, many European firms like Zurich Insurance have applied their experience with apprenticeship programs to their U.S. subsidiaries to fill positions and have shared their experience with U.S. based firms like Accenture and Walgreens. Apprenticeships are 4.0% of the workforce in Germany while in the U.S. the total is about 500,000 in skilled trades like plumbing, electrical or metal work, just a small fraction of the U.S. workforce.

Source: The Labor Department, The Wall Street Journal – 2016

American employers are struggling with filling many positions in manufacturing that require special skills but not at the level of a college degree. We expect that as more co-automation jobs are created apprenticeship programs will become the norm to accelerate the number of qualified workers and retrain those workers who lost jobs from automation.

We are pleased to see the GOP Administration move ahead with executing on its pledge to increase the number of apprenticeship training programs and enlist all interested stakeholders in the process. However, this Administration has also announced budget cuts of 40 % to a Department of Labor Workforce Innovation and Opportunity Act, so making the program work and develop momentum seems challenging given the mixed signals. We see apprenticeship programs as crucial to expending jobs opportunities for the working class when they are combined with good salaries, benefits and continued training. Education is a bedrock institution to build a thriving society for all not just the wealthy.