Here’s How a President Really Pushes Tax Reform

 

By all accounts, passing tax reform/cuts is the top Republican legislative priority right now. But even though GOPers almost unanimously agree that something needs to be done about the labyrinthine, anti-growth, anti-investment tax code, hashing out the details of that “something” is complicated. For instance: Politico yesterday ran a piece that ostensibly showed the Trump administration-GOP congress “Big Six” negotiators making progress on a bill. From the story:

There is broad consensus, according to five sources familiar with the behind-the-scenes talks, on some of the best ways to pay for cutting both the individual and corporate tax rates. The options include capping the mortgage interest deduction for homeowners; scrapping people’s ability to deduct state and local taxes; and eliminating businesses’ ability to deduct interest, while also phasing in so-called full expensing for small businesses that allows them to immediately deduct investments like new equipment or facilities. . . . One idea quietly being discussed would be taxing the money that workers place into their 401(k) savings plans up front: an idea that would raise billions of dollars in the short-term and is pulled from the Camp plan. This policy idea is widely disliked by budget hawks, who consider it a gimmick; the financial services industry that handles retirement savings; and nonprofits that try to encourage Americans to save.

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Taxes Matter, But Not in the Way Most People Think

 

Republicans want and probably need to do something on taxes. But that’s politics. What does the US economy need when it comes to economic growth? The answer should greatly determine what changes are made to the US tax code.

When you consider that a) the expansion is in its 98th month, b) real GDP since 2009 has averaged just 2.1% annually, c) the six-year productivity growth rate is just 0.6%, and d) the Fed is in tightening mode, tax changes that boost long-run growth potential rather than provide quick stimulus would seem better policy.

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Trump’s Flawed Protectionism

 

In the midst of the din over Charlottesville, let’s not overlook the Trump administration’s controversial stance on free trade. This smoldering problem has risen to the surface in the delicate negotiations that the United States now is undertaking with China over the status of American intellectual property rights, and with Mexico and Canada over the North American Free Trade Agreement. Before looking at the particulars of these two disputes, it is instructive to set out the intellectual case for free trade, which Trump has consistently misunderstood.

The basic insight here is that ordinary contracts between private parties are not neutral; they produce gains for each party. If I swap my horse for your cow, it is tempting, but wrong, to say that no value has been added for the parties because we have the same horse and cow after the transaction that we had before it. So why worry, the argument goes, if the trade does not take place? This facile argument ignores that these transactions are costly to complete. Why would two parties waste money to organize a trade from which neither side has gained? Even this simple trade is a positive-sum game that produces for each side a net advantage that exceeds the costs of putting the deal together. I could desperately need a cow for milk or breeding, and you might need the horse to pull a plow. The trade allows both of us to get greater value by the more efficient deployment of existing resources. That short-term advantage has long-term effects, by letting me breed horses while you breed cows.

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The Political Assault on Big Tech Is Now in Full Swing

 

Axios goes big on the mounting political woes for America’s tech giants: “Tech behemoths Google, Facebook and Amazon are feeling the heat from the far-left and the far-right, and even the center is starting to fold.”

I mean, like I have been saying — see here, here, and here — for the past year. This issue really came to my attention when Elizabeth Warren attacked Apple and Google for using their size to “snuff out” competition.

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In this AEI Events Podcast, AEI’s Peter J. Wallison welcomes Sanjai Bhagat of the University of Colorado Leeds School of Business to discuss Dr. Bhagat’s new book, Financial Crisis, Corporate Governance, and Bank Capital (Cambridge University Press, March 2017).

Dr. Bhagat emphasizes the Dodd-Frank Act’s costs to the US economy and highlights that, despite its stated intentions to eliminate “too big to fail,” investors and economic policymakers still believe that banks are still too big to fail. To address systemic risk and prevent a future financial crisis, bank executive compensation needs to be addressed. To this end, Dr. Bhagat emphasizes the importance of aligning management incentive with sound financial practices, and he suggests restructuring bank executive and director incentive program to include only restricted stock and restricted stock options with long vesting periods. He also underlines the importance of financing banks with considerably more equity. He clarifies that the 2007–08 financial crisis was not exacerbated by misalignment of corporate management incentive, but that this misalignment exacerbated the financial crisis.

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Contra Caplan on Physical Illness, Too

 

In 2006, insouciant economic imperialist Bryan Caplan published a paper outlining a consumer-choice model of mental illness designed to rehabilitate the anti-psychiatry of Thomas Szasz. Caplan claimed this model shows that mental illness should not to be understood as a “real illness” (and therefore as a matter for medical rather than moral treatment) at all, but that mental illness should be understood as a weird preference rational actors persist in despite their preference being a poor match for functioning in society.

From the perspective of Caplan’s model, mental-health treatment is a form of rent-seeking designed to paper over the interpersonal conflicts that arise when somebody won’t relinquish a preference grievously at odds with society, rent-seeking that, on the one hand, provides the “mentally ill” with official-sounding excuses for their weird preferences while, on the other hand, providing the families of the “mentally ill” with medical justification for treating sufficiently “ill” family members against their will. In October 2015, the blogger Scott Alexander, himself a psychiatrist, published “Contra Caplan on Mental Illness”, an essay pointing out why, from his perspective, it seems so strange to call mental illness merely a weird preference. Given Caplan’s framework, I would like to point out how strange it is to call physical illness not a “weird preference”, albeit a weird preference most of us take pity on out of belief that it arises from physical derangement that we don’t expect sufferers to be able to compensate for completely.

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David French of National Review and Greg Corombos of Radio America applaud Republican National Committee Chairman Ronna Romney McDaniel for simply stating there is no room in the Republican Party for white supremacists and that the GOP does not want their votes. They’re also surprised by Steve Bannon’s on-the-record interview with a liberal publication, in which he dismisses the military option on North Korea, outlines his push for a trade war with China and more. And they take a deep sigh as Ohio Gov. John Kasich gets closer to convincing himself there is a “moral imperative” for him to run against President Trump in 2020.

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Today on the Daily Standard podcast, Law professor James Cooper talks with Eric Felten about the all together too many jobs that require government permission in the form of occupational licenses.

The Daily Standard podcast is sponsored by TrackR. Find list items in seconds with TrackR technology. Go to TheTrackR.com and enter the promotion code STANDARD for 20% off any order.

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This AEI Events Podcast features Fredrik Erixon and Björn Weigel, coauthors of “The Innovation Illusion: How So Little is Created by So Many Working So Hard,” hosted by AEI’s James Pethokoukis. Erikson argues that the declining pace of innovation in Western economies during the past few decades can be attributed to the increasing dominance of financial institutions over capitalists, corporate bureaucratization, globalization that reduces competition in certain markets, and restrictive, opaque regulations.

Erikson and Weigel are joined by AEI’s James Pethokoukis and George Mason University’s Tyler Cowen in a panel discussion. Dr. Cowen argues that even though economic growth has slowed, there is more invisible innovation in society. The discussion is moderated by AEI’s Stan Veuger.

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New Study Finds that Minimum Wage Hikes Are Great News for Robot Workers

 

Back in 2014, I wrote a post that asked, “Why are minimum wage proponents dismissing automation risk?” I just wasn’t getting a sense from the “Fight for 15” crowd that it had thought much about the possibility that dramatically raising the minimum wage might worsen the competitive position of low-skill humans versus machines.

Or maybe it had, but the politics were so tantalizing that they took precedence over sound policy. My conclusion back then: “Pushing for an unprecedented boost in the minimum wage given both the weak economy and automation risk seems like foolhardy public policy.” That, especially given the low-risk alternative of raising and expanding the Earned Income Tax Credit.

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On Big Tech, Competition, and Startups

 

Just how alarming is this Wall Street Journal story, “The New Copycats: How Facebook Squashes Competition From Startups”? I think I am supposed to be pretty alarmed. It tells the story of “hot video app” Houseparty and its emerging battle with Bonfire, a planned live group-chat app from Facebook. And as they say, Houseparty is not alone:

The deep pockets of giants such as Facebook, Alphabet’s Google, Apple, and Amazon.com Inc. make it increasingly difficult for startups to compete and stay independent. The four firms have a combined market capitalization of almost $2.5 trillion, a rough equivalent to the annual gross domestic product of France. Facebook acquired photo-sharing app Instagram in 2012 for $1 billion and messaging service WhatsApp in 2014 for $22 billion. Google in 2013 bought Waze, a rival to Google Maps. Amazon in 2010 bought Quidsi, the online retailing company behind diapers.com and other sites, after trying to copy it. Lately, the titans also appear to be imitating smaller rivals more aggressively. In July, a week after the initial public offering of Blue Apron Holdings Inc., an Amazon subsidiary filed to trademark a meal-delivery kit with a tagline that echoed Blue Apron’s offering. Both Google and Facebook have taken aim at features on Snap. Inc.’s Snapchat platform.

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Paul Beston joins Steven Malanga to talk about the history of the American high school and making high-quality career training central in today’s high schools. This Ten Blocks episode is the second based on City Journal’s special issue, The Shape of Work to Come.

In 1910, less than 20 percent of America’s 15-to-18-year-olds were enrolled in high school. By 1940, that figure had reached nearly 75 percent. The phenomenon became known as the American high school movement, and the impetus for it came from local communities, not from federal, or even state, government.

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US Home Prices Are Higher Than When the Financial Crisis Started. Here’s Why This Isn’t Worrying.

 

The 10-year anniversary events of the 2007–2009 Global Financial Crisis keep on coming. And this one is a biggie: It was a decade ago tomorrow, August 9, that investment bank BNP Paribas froze two of its funds because it could not value them, blaming “complete evaporation of liquidity” in the subprime mortgage market.

And in a new report, the firm Capital Economics notes that there are a few similarities between now and then:

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Jim Geraghty of National Review and Greg Corombos of Radio America welcome the news that over a million Americans left the food stamp rolls in the first few months of the Trump administration and discuss new state work requirements and immigration law enforcement as contributing factors to this continuing decrease in government dependence. They’re also exasperated as Google fires an engineer for writing an internal memo criticizing Google for a diversity culture that is not at all diverse and makes people feel as though they’ll get fired if they say anything that doesn’t square with corporate ideology. And they get a kick out of Spike Lee scheduling a “United We Stand for Colin Kaepernick” protest outside of NFL headquarters later this month.

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Labor Lessons from Canton

 

In the end, it was a landslide. The United Auto Workers (UAW) pulled out all the stops to unionize a Nissan Motors automobile assembly plant in Canton, MS. Yet after a bitter campaign, it lost convincingly, by a 62-to-38 percent margin, with 2,244 employees voting against and 1,307 for unionization. Prior to the vote, the UAW had rolled out the heavy artillery, enlisting the support of Senator Bernie Sanders and Democratic National Committee Chairman Tom Perez, as well as a raft of left-leaning Hollywood stars and a large cadre of skilled union organizers. Their expensive and well-orchestrated campaign hammered home this familiar union theme: workers will only receive fair treatment on the job if they join forces to resist management, which seeks to wring every last cent out of its captive workers.

The UAW hoped that success in Canton would give it an entry point in the union-resistant American South, where it might augment its membership rolls, which have plunged from about 1,528,000 workers in 1980 to about 409,000 workers in 2015. And if the UAW could make a comeback, perhaps other unions could rebound as well and reverse the long-term trend: Union membership in all market sectors, public and private, has dropped from about 35 percent of the work force in 1954 to about 11 percent today—all with no major change in the statutory framework governing labor relations.

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In this AEI Events Podcast, AEI’s Joseph Antos hosts health policy experts to discuss Medicare’s fiscal health following the release of the 2017 Medicare Trustees report. Paul Spitalnic, chief actuary at the Centers for Medicare and Medicaid Services, delivers the keynote address, in which he summarizes the report and discusses its implications on the future of Medicare.

In the following panel discussion, topics include the value of lifetime Social Security and Medicare benefits and taxes at different ages, the competition in the Medicare system and the possibility of a more private system than we have seen in the past, and the role of the Congressional Budget Office in the Medicare reform challenge. Panelists are comprised of Keith Fontenot (Hooper, Lundy & Bookman, PC), Maya MacGuineas (Committee for a Responsible Federal Budget), Robert Moffit (Heritage Foundation), and Eugene Steurle (Urban Institute). The conversation is moderated by AEI’s Joseph Antos.

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Instead of Cutting Legal Immigration in Half Over a Decade, Let’s Increase It

 

I want to make sure I understand this. President Trump is supporting an immigration bill from GOP Senators Tom Cotton and David Perdue that would replace, as The New York Times explains, “a system that favors family ties in deciding who can legally move to the United States with one based on skills and employability.”

So more a merit-based system that gives an edge to those who have advanced skill and restricts those who don’t.

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Jim Geraghty of National Review and Greg Corombos of Radio America have good news from Wall Street: stocks are soaring, regardless of the chaos in Washington. Transcripts of President Trump’s January phone calls to the leaders of Mexico and Australia were leaked to the press this week, and Jim and Greg react both to Trump’s comments and the blatant leaking and publishing of classified information. And they have little sympathy for health insurance companies who are forced to bail on the Obamacare exchanges after losing huge amounts of money, but the vanishing coverage is leaving many Americans in a terrible position while Congress accomplishes nothing.

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Here’s How the GOP Can Work with Democrats on Pro-Growth Tax Reform

 

Congressional Democrats say they’ll work with the GOP on tax reform. Well, provided the GOP agrees to a few simple conditions. From the WSJ:

Senate Democrats outlined their conditions for working with the Trump administration and congressional Republicans on tax policy, and their principles didn’t seem to leave much room for common ground. In a letter dated Tuesday, Democrats argued against tax cuts for the top 1% of households, declared it crucial that Republicans not use the fast-track procedures known as reconciliation and said they wouldn’t back deficit-financed tax cuts.

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In this AEI Events Podcast, AEI’s Aparna Mathur hosts Senators Brian Schatz (D-HI) and Sheldon Whitehouse (D-RI), who present their carbon tax proposal. They discuss what their plan would entail and comment on the importance and controversy surrounding their proposal.

Following the senators’ remarks, a panel of experts discusses the possible costs and benefits of a carbon tax proposal. Veronique de Rugy (Mercatus Center) argues that the potential benefits of a carbon tax policy are complicated and minimized by the drawbacks. George Frampton (Partnership for Responsible Growth) believes that the only solution will entail bipartisan compromise. Myron Ebell (Competitive Enterprise Institute) states that a carbon tax is “all pain and no gain” due to the loss of revenue. Adele Morris (Brookings Institution) argued that the proposal is an efficient and comprehensive plan.

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