CBO Evaluates Amended Health Care Bill

May 25, 2017

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In an earlier post, I summarized the Congressional Budget Office’s “scoring” of the American Health Care Act proposed by House Republicans. After that analysis revealed how many people would lose their insurance under the House plan, House Republicans amended the bill and quickly passed it, without waiting for the CBO to evaluate the new version. Yesterday, the CBO released its revised report, which for the most part reinforces the objections that made the bill so unpopular in the first place.

The amended bill differs from the original mainly in allowing the states to obtain waivers releasing them from certain provisions of the law. According to the CBO,

One type of waiver would allow states to modify the requirements governing essential health benefits (EHBs), which set minimum standards for the benefits that insurance in the nongroup and small-group markets must cover. A second type of waiver would allow insurers to set premiums on the basis of an individual’s health status if the person had no demonstrated continuous coverage.

In other words, people would still be entitled to health insurance, but it might not provide the benefits previously regarded as essential. In particular, “out-of-pocket spending on maternity care and mental health and substance abuse services could increase by thousands of dollars in a given year….” In addition, even insurers who did provide such benefits would now be allowed to put a lifetime cap on how much they would pay out for them. The second type of waiver would allow insurers to charge much higher premiums for people with preexisting conditions, unless they were already covered for them and never experienced a break in coverage.

Effects on insurance coverage

The previous CBO estimate was that the number of uninsured Americans would rise by 24 million over ten years if the House bill became law. For the amended version, the estimate is now 23 million. Some of the uninsured would be healthy people who voluntarily gave up health insurance because the law eliminated the penalties for not carrying it. Others would be forced out of the market because they found insurance less affordable. That could be because policies became too expensive for people with a certain health condition or need, or because they lost more in Obamacare subsidies than they gained from the new law’s tax credits.

The biggest reason the law would insure fewer people is because it dramatically cuts spending on Medicaid. That accounts for 14 billion of the 23 billion who would no longer be covered. Cutting Medicaid or Medicare is something that candidate Trump promised not to do, but he has enthusiastically embraced the House bill anyway.

Effects on premiums

The effects of the legislation on insurance premiums is now harder to project, since it depends on whether states seek and are granted the waivers described above. For states that do not, the effects would remain essentially as the CBO described them before. Premiums would be expected to rise for older people and fall for younger people, since the law allows insurers to use a 5-to-1 rather than a 3-to-1 ratio between the two. Average premiums would probably rise for the first few years, since the elimination of the individual mandate would allow younger, healthier people to drop out of the market, forcing insurers to raise premiums on the older, less healthy people who remained. In later years, insurers might lower premiums, as older people who cannot afford the high cost are the ones to drop out. Average premiums could also fall because policies are no longer required to cover 60% or more of health care costs. Advocates of the bill like to talk about how premiums could fall, but not how out-of-pocket expenses could rise.

In states that take the waivers, opting out of the mandatory coverage for preexisting conditions and/or the essential health benefits, the effects would be more dramatic. Average premiums could fall more, since the policies cover less. But premiums and benefits would vary widely, since people with particular health needs could face much higher premiums and/or out-of-pocket costs. If large numbers of people with health problems were priced out of the market, insurers could lower premiums for the healthy who remained. But low premiums would be achieved at the cost of excluding from health insurance the people who need it most.

Giving states the “flexibility” to go their own way really means letting them return to something like the situation before Obamacare, when good health insurance was much less affordable for the poor and the sick.

Effects on the federal budget

The CBO’s previous estimate was that the American Health Care Act would cut health care spending by $1.2 trillion dollars, but that would be offset by $883 billion in lost revenue, due to elimination of Obamacare taxes and penalties. The result was a $337 billion reduction in federal deficits over the next ten years. The Republicans wanted that reduction not just because they would like to move toward a balanced budget, but because they would like to justify additional tax cuts later.

The CBO’s new estimate is that the legislation would cut spending by $1.1 trillion dollars, and revenue by $992 billion, resulting in only a $119 billion saving.

In either case, the Republican repeal and replacement of Obamacare represents a big gain for the rich and a big loss for the poor. The Obamacare taxes fell heavily on the wealthy, but the Republican cuts in health care spending will fall heavily on the poor, since they are the ones who depend on Obamacare to make insurance affordable. So the bill as amended remains consistent with the Republican agenda of reducing taxes on the wealthy while reducing benefits for the needy.


Rise of the Robots (part 3)

May 24, 2017

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Because Ford’s book is focused on the loss of human jobs to robots, he has next to nothing to say about job creation. If, however, a higher level of intelligence enables human beings to do things that machines cannot, as Ford himself admits, maybe we can do more of those things as we turn over the narrower thinking tasks to the machines.

The personalized service frontier

If there is any new frontier in job creation that can escape the rise of the robots, I think it would be in the realm of personalized services, the least routine and predictable things we do. In fact, when a service professional is helping a client, the problem of predictability is compounded.  If you’re a legal professional, artificial intelligence systems that process information about laws, cases and legal documents will be a great help. But lawyers still have to apply the law to the unique circumstances of the client’s case, and that is a more creative task.

Similarly, thousands of students can listen to the same lecture online, but they need a creative teacher to engage with their particular thought processes as they struggle to reconcile new ideas with what they already think. That’s why many educators are talking about “flipping the classroom”–letting students gather more information online while changing the classroom from a lecture hall into a setting for more creative collaboration. If all that students know how to do is take in lectures and cough up the material for the test, they will be at risk of being replaced by a machine. We can give in to the machines, or accept the invitation to take education to a new level that requires smaller classes and more teachers.

In so many areas, people need more personalized services than they are getting. In addition to teachers and financial planners, they need mental health services, legal services, job training, drug treatment programs, child care, and of course affordable health care. The question is whether these services will remain scarce and expensive, or whether we can expand the market for them in the information economy.

Making services more economical

We can be fairly sure that many menial service jobs will eventually be more economically performed by robots than by humans. The days of supermarket checkout clerks are numbered. The problem for aspiring professors, counselors, financial planners, and so forth is a little different. It is not so much that robots will replace them, but that too few people will be able to afford their services, or that they themselves will not be able to afford the price of admission to their desired profession.

I can think of several ways that the information revolution could help. As automation lowers the cost of producing goods and routine services, people can spend a larger portion of their income on personalized services. And information technology should also save labor in the personalized services themselves, bringing costs down there as well. A lawyer assisted by artificial intelligence shouldn’t have to spend as long preparing a case. I know that as a financial planner assisted by sophisticated software, I was able to prepare a financial plan in a very reasonable amount of time and at a very modest cost. My plans always had a human element, with personalized commentary as well as machine-generated tables and charts, but the human-machine collaboration made the service more affordable for my clients.

The technology was also very affordable for me. I did have to rely on a financial software company that no doubt made more money than I did. Ford emphasizes the centralization of information capital, a situation in which a few companies controlling software and Big Data can dominate markets while employing very few workers. But there is another side to that. Information can be duplicated at a very low marginal cost. Software development may be costly, but as the cost is spread over more and more copies, the unit cost keeps shrinking. An aspiring financial planner or other service provider can subscribe to software support for a very modest annual fee. Such easy access to information capital should make it easier to create personalized service jobs.

A big price of admission to many service professions is the cost of education. Education is such a public good that its cost should be widely spread throughout society. Making students go heavily into debt in order to learn what they need in order to be contributing members of society is not a very sensible policy. Ford agrees, and he hopes that new technologies can reduce the cost of instruction. He seems less interested in expanding higher education, since he expects people at all levels of education to have trouble finding jobs. I am more interested in such expansion, because I believe that the jobs we can create will usually require more education than the jobs we destroy.

The role of the public sector

If we agree that education is a public good whose cost should be widely spread throughout society, that suggests a major role for the public sphere in making it more accessible and affordable. The same logic could be extended to other services. Services that contribute to the general health, education and welfare of the population constitute public goods that are worthy of some public funding. Not only do such services create jobs in themselves, but they can help people build their human capital and meet the demands of the advanced economy, keeping them one step ahead of the robots.

Ford isn’t very supportive of this kind of public funding. Here’s what he has to say about elder-care:

The main problem with elder-care robots as they exist today is that they really don’t do a whole lot….The realization of an affordable, multitasking elder-care robot that can autonomously assist people who are almost completely dependent on others probably remains far in the future….It might seem reasonable to expect that the looming shortage of nursing home workers and home health aids will, to a significant extent, offset any technology-driven job losses that occur in other sectors of the economy….[But] by the time the majority of older people reach the point where they need personal, daily assistance, relatively few are likely to have the private means to hire home health aids, even if the wages for these jobs continue to be very low. As a result, these will probably be quasi-government jobs funded by programs like Medicare or Medicaid and will therefore be viewed as more of a problem than a solution.

So here we have a valuable service that isn’t being provided either by robots or enough human workers, and yet Ford rejects the expenditure of more public money to fund it. Once again, that reveals his narrow focus on his recommended basic income guarantee to support consumption. In effect, he would rather have government pay people not to work than to work. We can find more work for robots, but not create more jobs for humans.

Public funding requires some form of taxation. Conservatives often oppose higher taxes, especially on the wealthy, on the grounds that they will interfere with investments by the “job creators” in economic growth. If capital should become as self-serving as Ford expects, with businesses increasing profits by destroying jobs rather than creating them, that argument should become less convincing. One wonders how high unemployment will have to go before people turn to the public sector for job creation, as they did in the 1930s.

A broader moral argument

Ford is concerned about growing inequality, and he does make the argument that as taxpayers who have supported basic technological research, people have a legitimate claim on technology’s benefits. I agree, but I would also ground popular rights in a more basic principle, the dignity of human labor. Let the machines do the work they can do better than people can. But respect people as more than just purchasers of what the machines provide. Help people be as creative as they can be as producers–paid and unpaid–as well as consumers.


Rise of the Robots (part 2)

May 23, 2017

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In Rise of the Robots, Martin Ford describes how smart machines are starting to replace human workers in more and more kinds of work, raising the threat of a “jobless future.” He sees no alternative but a government-guaranteed basic income to support the millions of people who will have trouble finding jobs.

Although I have described Ford’s outlook as bleak, I am not opposed to letting machines do the work they can do better and more efficiently than humans. Nor am I opposed to strengthening the social safety net to assist workers who are most hurt by this transformation. What I do want to suggest is that Ford’s focus on job destruction alone may miss some of the more positive possibilities of the information economy.

Where does displaced labor go?

In the late nineteenth and early twentieth centuries, the United States experienced a dramatic decline in farm jobs, as we transitioned from a predominantly agricultural society to an urban industrial society. That was a hardship for many former farmworkers, who had to move to the city and compete with other displaced workers for whatever wages they could get. The “Great Migration” of African Americans from the rural South and waves of mostly Southern and Eastern European immigrants heightened the competition and provoked racial and ethnic conflict.

Nevertheless, the situation did not result in protracted high unemployment. The expansion of manufacturing and service industries absorbed most of the displaced workers. In addition, a lot of human activity was shifted away from employment by shortening the work week, phasing out child labor, and encouraging retirement. The Fair Labor Standards Act of 1938 reduced the standard work week to 40 hours and established minimum wages and overtime pay for many workers. These measures distributed the available work more widely, while keeping incomes up. The expansion of leisure also helped create job opportunities in leisure industries such as travel.

Ford would say that the ways we have avoided high unemployment in the past are no longer relevant, since we now face worker displacement on a much larger scale. As an artificial intelligence expert, he is focused more on how machines will work than on how humans can create and distribute work for themselves. He is very imaginative when it comes to what robots might do, but less imaginative when it comes to how humans might adapt. He seems to be making a couple of simplifying assumptions: first, that there’s only a fixed amount of work to be done; and second, that whatever work remains for humans after the robots move in must be hogged by the few rather than shared by the many. If these assumptions are wrong, then the job outlook isn’t as bleak as he makes it out to be.

Will humans still work?

IBM used to have a slogan: “Machines should work; humans should think.” Now that the machines are getting smarter, that distinction is harder to defend. Martin Ford’s slogan might be: “Machines should work and think, and a lot of humans should just consume.”

That’s a little unfair however, since Ford himself acknowledges that computers think only in a very limited and specialized sense. “Even IBM’s Watson, perhaps the most impressive demonstration of machine intelligence to date, doesn’t come close to anything that might reasonably be compared to general, human-like intelligence. Indeed, outside the realm of science fiction, all functional artificial intelligence technology is, in fact, narrow AI.” Ford is also more reluctant than other computer scientists to assume that general machine intelligence is inevitable or even possible, or to speculate that robots will soon have the ability to rebel against their creators.

Some brilliant philosophers and scientists have questioned whether a dead machine could ever have the capabilities of any living organism, let alone a human one. (See, for example, Robert Rosen’s Life Itself.) Arguments for continuing to distinguish ourselves from machines are not confined to religious traditionalists or Cartesian dualists who look for an immaterial soul within an otherwise mechanical system. They are made by scientists like Stuart Kauffman, who have a less reductionist and mechanistic conception of nature itself.  Many thinkers reject the idea that the universe in general and human thought in particular is reducible to algorithm (computational procedure). Philosophers in the Whitehead tradition argue that each human experience is a unique creation that synthesizes a multitude of past experiences. We should be careful about extrapolating from what we know well–our own machines–to aspects of the natural world that remain deeply mysterious to us.

Granted that computers can simulate human work by detecting patterns in what humans have already done. That includes existing works of art. A computer has “already produced millions of unique compositions in the modernist classical style.” But humans invented that style by experiencing and expressing modernity. The human creative work is a synthesis and expression of lived experience. The machine simulation is a meaningless exercise because the dead machine has no lived experience to express.

Ford says that narrow intelligence is all that the machines need in order to do most human work, since “the tasks that occupy the majority of the workforce are, on some level, largely routine and predictable.” But maybe the reason why so many jobs have been routine and predictable is precisely because we haven’t had anyone besides humans to do the boring work until now. Now that we can automate more of what we’ve been doing, how do we know there isn’t some new frontier of creative activity for humans to explore?

The distribution of human work

Suppose Ford is correct that half of the existing work could be done by machines. We can still imagine the future economy in more than one way. At one extreme, half of the human workers keep their existing jobs, while the other half become unemployed. At the other extreme, the human work is distributed among the same number of human workers so that each works half as much as before. The benefits of the new technology are taken the same way they were in the twentieth century–in the form of higher productivity and more leisure.

Because Ford is focused on replacement of the human worker, he plays down the possibility of productive collaboration between human and machine. The machines are out to get your job, and if you work with them you will be helping them learn to do so. “If you find yourself working with, or under the direction of, a smart software system, it’s probably a pretty good bet that–whether you’re aware of it or not–you are also training the software to ultimately replace you.” But that is true only to the extent that the work is predictable, general intelligence is irrelevant, and the human touch is dispensable. Ford seems to vacillate between admitting that machines cannot do everything and talking as if they can.

A recent article in the New York Times was titled, “Meet the People Who Train the Robots (to Do Their Own Jobs).” It reported that some companies are asking their employees to train artificial intelligence systems to act more like humans. However, the workers who told their stories did not see their human role as very endangered. A travel agent who used A.I. to book hotels said, “It made me feel competitive, that I need to keep up and stay ahead of the A.I.”  Using the system “frees me up to do something creative.” A customer service rep who was training a system to answer customer questions said that “she doesn’t foresee a future where she’s out of a job. Too many questions still require a level of human intuition to know the appropriate answer. There are also times when rules need to be broken, like when customers ask for an extension on their account because of some circumstances beyond their control.” The executive who developed a system for searching and analyzing legal documents said that he “doesn’t think A.I. will put lawyers out of business, but it may change how they work and make money. The less time they need to spend reviewing contracts, the more time they can spend on, say, advisory work or litigation.” As for myself, I have been using technology all my professional life to become more creative and productive, and I have trouble imagining any occupation where such collaboration couldn’t occur.

If most occupations allow for both human and technological input, the benefits of that collaboration could appear in some combination of higher output and reduced work hours. As with the twentieth-century technological advances, many workers could produce more while working less, and that would spread the available work to more people. How exactly this would be accomplished in our time I don’t know. It probably would not be as simple as legislating a new standard work week. But if the alternative is mass unemployment and paying people not to work, I think society will find a way.

Productivity and income reconsidered

The potential for human-machine collaboration calls into question Ford’s most basic contention, that artificial intelligence is a worker replacement and not a tool for raising worker productivity. In the “golden age” of the American economy, “As the machines used in production improved, the productivity of the workers operating those machines likewise increased, making them more valuable and allowing them to demand higher wages.” But those days are gone, along with a big chunk of the labor force. Are they really, or is it that we have not yet seen the social changes that would translate new technological capacities into worker benefits? Perhaps we are living in a period like the 1920s, just after the introduction of the assembly line but before the New Deal regulated wages and hours and recognized labor’s right to organize.

I return to a fundamental economic problem I raised in the last post. If technology can make us richer in output, then why should people settle for being poorer in consumption? In Ford’s imagined world of massive unemployment, government taxes the winners to provide a basic income to the losers. In an alternative vision, workers are typically technologically assisted, highly productive, and employed fewer hours so that many can work. They can become better off in two ways: winning a fair share of the benefits of their own productivity, and consuming goods and services that have become less expensive. Recall that assembly-line technology led to both higher wages and less expensive cars, a win-win for ordinary people. As in the past people will have to fight for such gains, and they will have to use the tools of democracy to get government on their side.

Another possibility explored by some futurists, such as Jeremy Rifkin, is that people who spend less of their time in paid employment will use new technologies to create goods and services to share for free. (If you find that idea absurd, you can start paying me for my posts right now!) The abundance of goods and services produced in the “collaborative commons” could reduce people’s need for money, softening the economic impact from reducing paid work hours.

In my final post on this book, I’ll explore possibilities for creating new jobs that robots are unlikely to do.

Continued


Rise of the Robots

May 22, 2017

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Martin Ford. Rise of the Robots: Technology and the Threat of a Jobless Future. Philadelphia: Basic Books, 2015.

Here is a book whose title sums it up pretty well. The robots are coming to a workplace near you, and by the time they take over, a large portion of the workers will be out of a job. That may soon invalidate one of the cardinal assumptions of industrial capitalism, that people make a living through employment. How then will they live, and how will they continue to participate in economic consumption? In Ford’s view, millions will have to rely on a basic income guaranteed by the government. They will get “enough to get by, but not enough to be especially comfortable.”

I will say at the outset that I find this to be a pretty bleak vision of the future, although that in itself does not make it wrong. I will explore some doubts I have about Ford’s vision later. But first I’ll take a closer look at his argument.

The decline of the “golden age”

Once upon a time, back in the twentieth century, “the American economy was characterized by a seemingly perfect symbiosis between rapid technological progress and the welfare of the American workforce.” New technologies like the assembly line raised worker productivity, allowing for higher wages, higher spending, and higher demand for mass-produced goods and services. That kept the system going in a “virtuous feedback loop.” Ford makes the connection sound a little too technologically-determined and automatic for my taste, overlooking how hard workers had to fight to obtain a decent share of their rising output. Nevertheless, the country did finally achieve a positive connection between industrial technology and mass prosperity.

Ford believes that information technology breaks that connection. The new machines are not just tools that make workers more productive; they are potential replacements for the workers themselves. Robots empower capital (their owners), not labor. Ford sees evidence of this in a number of recent economic trends: Wages have been stagnating; labor’s share of national income has been declining; labor force participation has been falling; job creation has slowed to a crawl; income inequality has soared; and even college graduates are increasingly underemployed.

Other factors have aggravated the situation: offshoring of manufacturing jobs, growth of the financial sector and consumer debt, and political policies that favor capital over labor. But the development of information technology is the trend with the biggest potential to shape the future, because of its continuing exponential growth.

Automation and job destruction

Ford cites research to support the claim that “nearly 50 percent of jobs will ultimately be susceptible to full machine automation.”  Manufacturing jobs are prime candidates, but the transformation will hardly end there. In the more developed economies, automation will also overhaul the service sector, where most workers now work. Retail workers will be replaced by online sellers, intelligent vending machines, and robotic sales staffs. Robots will be preparing and serving fast food.

As the machines become smarter, they will threaten jobs up and down the job ladder. Ford does not expect that the workers displaced at the bottom will find expanding opportunities at some higher level, which was often the case in the last century. Instead he emphasizes the potential of smart machines to take over the more predictable tasks at many levels, including tasks that have required mental skills and a fair amount of education. Computers are now using vast amounts of data to make decisions, solve problems, and even to modify their own procedures through trial and error learning. They are helping to diagnose diseases, dispense pharmaceutical products, provide customer service, prepare financial plans, and serve as personal assistants to managers. That puts many white-collar jobs at risk.

The conventional wisdom that people can find jobs as long as they get a good education may no longer be true:

We are running up against a fundamental limit both in terms of the capabilities of the people being herded into colleges and the number of high-skill jobs that will be available for them if they manage to graduate. The problem is that the skills ladder is not really a ladder at all: it is a pyramid, and there is only so much room at the top….And because artificial intelligence applications are poised to increasingly encroach on more skilled occupations, even the safe area at the top of the pyramid is likely to contract over time.

Economic polarization

Economists have observed a process of “job market polarization” in which middle-class jobs are destroyed and replaced with “a combination of low-wage service jobs and high-skill, professional jobs that are generally unattainable for most of the workforce.” The automation of a middle-class job can save the employer more in wages than automation of a low-wage job. Eventually, automation will become cheap enough so that even workers who are willing to work for little may have trouble competing with the robots.

Ford expects the information economy to be largely a “winner-take-all” economy. Those who own and manage the robots will have a great advantage over workers who are competing for a dwindling supply of jobs. The winners will also include the companies that control the centralized computing hubs that provide data and software to the machines, as well as the principal producers of digital content for mass audiences. A few star performers can stream most of the music people want to listen to, and a few renowned scholars can stream online courses to masses of college students. The biggest losers will be those who can neither compete with nor find employment with the centralized providers of information.

As a software developer and expert on artificial intelligence, Ford is in the awkward position of both advancing the new technology and warning of its disruptive potential. His concerns about increasing economic polarization are both moral and practical. Since citizens as taxpayers have supported much of the basic research in information technology, they may have a legitimate claim on its benefits. And as a practical economic matter, a productive and innovative economy requires consumers with the purchasing power to buy the goods and services being produced. If automation breaks the link between production and consumption (robots produce, but people have to consume), how will the economy function to deliver products to consumers and buyers to sellers? “Continued progress depends on a vibrant market for future innovations–and that, in turn, requires a reasonable distribution of purchasing power.”

Ford suggests a thought experiment in which millions of workers are displaced, unemployment rises, wages fall, mass purchasing power declines, and mass-production industries fail. He also imagines, with the help of some science fiction writers, a “techno-feudal” scenario in which the economy is increasingly geared toward producing luxuries for the super-rich, who maintain a “robot-enforced tyranny” to keep the unemployed masses from overthrowing the system. It’s not a pretty picture.

A basic income guarantee

Ford’s main proposal for preventing such scenarios is a basic income guaranteed by the government. It would appeal to liberals on humanitarian and social justice grounds, and it would appeal to conservatives as a minimal intrusion by government into the market economy. It could be funded partly by eliminating other social programs, like food stamps and housing assistance. It could also pay for itself to a degree by promoting economic growth and tax revenue. It would be kept deliberately low, so that people unable to find work could meet their essential needs, while people able to work would still have an incentive to do so.

As Ford notes, proposals such as his have been around for a long time and have received support from liberals and conservatives alike, although never enough to be adopted in the United States. If high unemployment becomes as chronic as Ford expects, a strengthening of the social safety net along these lines might be necessary. But having said that, I am not sure that it is enough to relieve what is essentially a bleak view of our future. The economy he describes would still be polarized between winners and losers, with masses of the losers deprived of rewarding work.  The middle class would still be hollowed out, which many social analysts regard as bad news for democracy.

I also have questions about whether his proposal would even work to stabilize a highly automated economy. One thing that bothers me about Ford’s economic vision is that he never clearly says whether his future society will be richer or poorer in per-capita production and consumption. One would certainly hope that putting millions of smart machines to work would add to a country’s productive capacity. Why then should millions of people tolerate being reduced to a minimal income, especially if many of them are former middle-class workers who lost their jobs to machines? Even with Ford’s guaranteed income in the equation, falling incomes could fail to balance rising production, forcing society to give up much of the potential benefit of the technological revolution. There is also the political problem of how to contain the social dissatisfaction resulting from the gap between rising expectations and disappointing results, which brings us back to techno-feudalism and social repression.

With these concerns in mind, I will go on to ask whether the robotic revolution has some more positive possibilities that Ford may be overlooking.

Continued

 

 


Tax Reform in Name Only

April 28, 2017

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In a last-ditch effort to show some legislative progress in his first 100 days in office, President Trump presented a “tax reform plan” this week. I put that in quotes because I do not think it is tax reform in any meaningful sense of the term. I also agree with those who say it isn’t even a plan, just a one-page wish list of things the President would like to see in a plan. At this point, the proposal is too skimpy on details to evaluate in more than a very general way. One thing that seems clear is that it is mainly another tax cut for the wealthy that will add to the federal deficit.

The first section of the proposal lists “goals for tax reform”:

  • Grow the economy and create millions of jobs
  • Simplify our burdensome tax code
  • Provide tax relief to American families–especially middle-income families
  • Lower the business tax rate from one of the highest in the world to one of the lowest

One goal that is not on this list is making sure that all individuals and corporations pay their fair share by closing tax loopholes. That might be awkward for Donald Trump, since he is suspected of paying unreasonably low taxes on his own vast earnings. He feeds that suspicion by refusing to release his tax returns. (Later sections do refer to “eliminating tax breaks,” without mentioning any particular ones.)

Because the proposal emphasizes tax cuts more than anything else, it also does not promise to fulfil Trump’s pledge to reduce the deficit and reverse–or at least control–the growth in the national debt.

Some of the goals that are listed are questionable. For example, according to most analysts, the bulk of the tax relief would go to corporate shareholders, business owners, and other wealthy individuals, not to middle-income families as claimed.

Corporate taxes

The proposal would reduce the corporate tax from “one of the highest in the world”–35%–to “one of the lowest in the world”–15%. The 35% rate is misleading, since most corporations take advantage of various loopholes to pay much less than that, and many pay no taxes at all. Billionaire hedge fund managers pay only 15% now because of a loophole known as the “carried-interest deduction.”

The most obvious beneficiaries of corporate tax cuts would be shareholders, whose stockholdings would increase in value. Indeed, stock prices have already risen, at least partly in anticipation of the cuts. That benefit goes mainly to the wealthy, since the richest 10% of the population owns over 70% of the assets, and that certainly includes stock ownership. (See, for example, Piketty’s Capital in the Twenty-First Century.)

The proposal would also apply the 15% tax rate to unincorporated but owner-operated businesses such as limited partnerships. That would be a big break for business owners whose income currently “passes through” from the business to the individual and is taxed at ordinary income tax rates as high as 39.6%. That has the potential to create a new loophole for people who do not currently structure their work as a business but could find ways of doing so. Even employees might save taxes by starting a business and arranging to sell their services to their former employer.

The proposal calls for a “one-time tax on trillions of dollars held overseas,” in order to encourage companies to bring money back and invest it at home. On the other hand, it calls for a “territorial tax system” that eliminates taxes on future earnings in other countries. Whether on balance, these provisions encourage or discourage domestic job creation is not clear.

Individual taxes

The proposal would simplify taxes by reducing the number of tax brackets from seven (ranging from 10% to 39.6%) to three (10%, 25%, 35%) and eliminating most tax deductions.  Evaluating the financial impact with any precision is impossible, since the proposal does not even provide the income ranges covered by each bracket!  Based on ideas put forth during the campaign and some commonsense analysis, the overall effect would probably be to make the income tax flatter and less progressive.

Obviously taxpayers in the 39.6% bracket (incomes over $415,050 individual or $466,950 married) would have their marginal rate lowered to at least 35%. People who currently fall into the next three brackets (35%, 33% or 28%, with incomes over $91,150 individual or $151,900 married) would have the potential to be moved down to the 25% bracket. These are very nice tax reductions. Lower than that, the savings are more questionable, since the 10% and 25% brackets would remain, although not necessarily with the same income divisions. The 25% bracket contains so many people (incomes from $37,650 to $91,950 for individuals and $75,300 to $151,900 for couples) that moving very many of them all the way down to 10% would probably be too costly. The people in the very lowest brackets pay so little in taxes already that a further cut would not amount to very much. If the numbers turn out to be similar to a proposal Trump endorsed during his campaign, the savings would be much greater at the top of the distribution, and at least half of all the benefits would go to the top 1% of taxpayers.

The proposal doubles the standard deduction while eliminating most itemized deductions, the big exceptions being the mortgage interest deduction and the charitable deduction. Taxpayers who do not itemize deductions would benefit, but those who do would lose. The loss that affects the most people would be the inability to deduct state and local taxes. The Committee for a Responsible Federal Budget estimates that on the average, giving up itemized deductions would cost taxpayers a little more than getting a higher standard deduction.

The proposal would repeal the Alternative Minimum Tax, which was designed to keep wealthy people from avoiding too many taxes. Certain taxpayers have to calculate their tax two different ways and pay the higher of the two. Eliminating most itemized deductions would make some rich people pay more, but repealing the AMT would allow them to pay less, in some cases much less.

One proposal that is a flat-out gift to the wealthy is repeal of the estate tax, which affects only large estates. Currently individuals can shelter the first $5.5 million from estate taxes, and couples can shelter $11 million, so it makes no difference to most people. But for the 0.2% of estates that are larger than that, the tax savings could be substantial.

President Trump would benefit personally from many provisions of his own wish list. The New York Times analyzed his taxes based on the portion of his 2005 return that became public this year. If all of his proposals were to be enacted, he would save $31 million through repeal of the Alternative Minimum Tax, $27 million from reductions in business taxes, $1.5 million from repealing Obamacare taxes, and $0.5 million from reducing individual tax rates.  He would have to pay $3 million to $5 million more because of the elimination of most deductions, but he would still come out at least $55 million ahead. That’s just in one year. Presumably, he could have similar savings every year. Then when he died, he could transfer his property–worth an estimated $3 billion now–to his heirs without paying 40%–currently 1.2 billion–in estate taxes. That’s not reform; that’s just a raid on the Treasury.

The impact on federal debt and job creation

The Committee for a Responsible Federal Budget has produced a rough estimate of how much the proposed tax cuts would cost the federal government in lost revenue. They expect them to add about $5.5 trillion to the national debt over the next ten years ($6.2 trillion with interest). To put that in perspective, the debt is now about $20 trillion and rising. About two-thirds of the added debt would come from the corporate tax cuts and one-third from the individual tax cuts.

This creates a dilemma for Republicans, who generally love tax cuts but claim to hate deficits, at least when a Democrat occupies the White House. One way of dealing with that dilemma is to claim that tax cuts pay for themselves by growing the economy. Part of this claim is the standard “trickle-down economics” argument that tax cuts for corporations and the wealthy free up capital that can be used to create jobs. Take the argument a little further and it becomes “supply-side economics,” the idea that tax cuts can generate enough economic growth and new tax revenue to offset the cost of the tax cuts themselves.

However, few economists would go that far. The more mainstream consensus is that economic growth only offsets a portion of the revenue lost through unfunded tax cuts. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, says that “it seems the administration is using economic growth like magic beans: the cheap solution to all our problems.”

Beyond that, there is the larger argument about how to create jobs. Is the sluggish pace of job creation really due to a lack of capital in the hands of corporations and rich people? With economic inequality in the U.S. already at such a high point, the rich would seem to have plenty of money to invest. And corporations have found ways to make big profits without creating many domestic jobs, especially by offshoring manufacturing and replacing workers with machines.

Maybe our problems of job creation have more to do with the inability of low-wage workers to create growing markets for many goods and services. Maybe the areas in which we could be creating jobs require more public spending, such as on rebuilding infrastructure or making health care and education more affordable. (One thing Obamacare has been doing is creating jobs in healthcare, but another thing the Trump proposal would do is repeal the taxes on higher incomes that mostly pay for it.) The trouble with another tax cut for the wealthy is that it may be worse than economically ineffective; it may deprive government of the fiscal resources it needs to create jobs in a much more direct fashion. Also, the additional borrowing required to offset lost tax revenue could force up interest rates, discouraging such things as borrowing to buy homes.

If the jobs benefits of the tax proposal turn out to be grossly overstated, then it turns out to be what the New York Times called it this morning, “a multitrillion-dollar shift from federal coffers to America’s richest families and their heirs….” This is about the last thing that anyone who claims to be a populist should be doing. If that doesn’t make people wake up and see Donald Trump for what he really is, I don’t know if anything will.