Thursday, August 17, 2017

Marijuana Legalization's Impact on the Mile High State: Munchie Industry Soars, Others Not So Much

Since 2013, when marijuana was legalized in the state, Coloradans have toked up, tuned in, and chowed down. Between 2013 and 2017, Colorado has increased employment by 9.2%, well above the nation's 6.4%. On the other hand, since 2013 Colorado wages expanded at approximately three percentage points less than that of the U.S.

Two factors contribute to Colorado's stronger job growth, but weaker wage growth. First, Colorado added jobs in lower wage industries. Second, Coloradans cut their average work week. For the two years following legalization, per capita spending in the low wage food and beverage industry expanded by 3.4% for the U.S., but almost double that for Colorado at 6.7%. Additionally between 2013 and 2017, the average hourly work week fell by 3.9% for Colorado, but climbed by 1.5% for the U.S.

To support greater spending on food and beverages with fewer work hours and lower wage growth after the state legalized marijuana, per capita welfare benefits in Colorado climbed by almost 10% versus 7.8% for the U.S.

But Colorado's growth in tax revenues from the pot trade from $52.6 million the year after legalization, to $85.3 million in 2015, to $120 million in 2016 is likely to encourage even more states, beyond the current eight, to make recreational use of cannabis lawful even with potentially mixed economic impacts.
Ernie Goss

Wednesday, July 26, 2017

U.S. Economy Rebounds, Wages & Salaries Do Not: 10 of 23 Occupations Lost Ground

In Nebraska, a state with a 3.0% unemployment rate, Bryan Health, a Lincoln non-profit hospital, recently posted 200 job openings for cafeteria workers to respiratory therapists. On the same day the U.S. Bureau of Labor Statistics announced that the nation's unemployment rate sank below 5.1% for the 22nd straight month. Surprisingly, this "white hot" labor market, has yet to push wage growth above a snail's pace.

The U.S. economy exited the 2007-09 recession in July 2009. Since then, U.S. workers, on average, have only increased their inflation-adjusted salaries by $1,000, slightly less than 2%. Notably, wages and salaries of American workers, adjusted for inflation, have actually declined for 10 of 23 occupations.

Who were the big losers?
Between 2009 and 2016 annual inflation adjusted pay fell for:
**Architects and engineers by$6,074 or 7.4%.
**Lawyers by $8,578 or 5.9%.
**Social workers by $2,976 or 5.9%.
Who were the big winners?
**Between 2009 and 2016 yearly inflation adjusted pay climbed for:
**Computer programmers by $10,483 or 14.0%
**Welders by $5,824 or 16.0%.
**Registered nurses by $5,636 or 8.4%.

More Vocational Skills Needed
Between 2001 and 2009, compounded annually, worker productivity, or output per hour, expanded yearly by 2.6% and wages climbed by 3.1%. From 2009 to 2016, productivity growth dropped to an annual compound rate of 0.9% and wage growth fell to an annual compound rate of 1.9%.

In order to expand wages at an acceptable pace, workers and industry need an increase in vocational skill levels. Whether it is truck driving, welding or plumbing, a higher percentage of American workers and industry need to upgrade their skill levels obtainable with on-the-job training or community college classes.
Ernie Goss

Tuesday, June 20, 2017

Student Debt and Defaults Soar as Colleges and Students Saddle the Taxpayer

Over the last 10 years, U.S. student debt has ballooned by 164%, or almost five times the growth of the overall economy. These "loans," which now amount to $1.4 trillion, or $33,000 for each of the 44 million student borrowers, have enabled colleges to raise tuition at a rate almost three times that of overall consumer prices over the same 10-year period.

But, shed no tears for the student borrower for ultimately there are three avenues for the student to foist these loans on to U.S. taxpayer's shoulders:

First, students are increasingly defaulting on these loans. Over the past 10 years, the number of student loan defaults has skyrocketed 400% to 4.7 million and the number of loans more than 90 days delinquent has soared by 250%. Furthermore, nearly one in three borrowers who exited defaults through rehabilitation defaulted for a second time within 24 months, and more than 40% of borrowers defaulted again within three years.

Second, programs of loan forgiveness and income-driven payment plans have proliferated. In 2007, President Bush signed a bill that subsidized student loan borrowers who took jobs in the public or non-profit sectors upon graduation. Student loan debt left over after 10 years of payments would be forgiven. Beginning in 2014, President Obama capped borrowers' monthly payments at 10% of their income, extended the repayment period from 10 to as long as 25 years, and offered to forgive any remaining balances when that time is up. The Government Accountability Office calculated that the government will lose $21 for every $100 in student loans issued to someone who takes advantage of an income-driven repayment plan.

Third, a federal student loan can be discharged in the event that the federal loan was used toward the cost of enrollment at an institution that closed due to loss of accreditation, loss of a majority of academic programs, or because the school violated state or federal law.

With U.S. worker wages growing less than 3% annually, workers can ill-afford the $10,000 per worker burden of student debt which has underpinned college overspending and student wastefulness. Ernie Goss

Wednesday, May 17, 2017

U.S. Incentives for Not Working Expand 3 Times That of Incentives to Work

Despite earning $5,000 per month, Chris Jones, a single father of two children under 10 years of age, living and working in Santa Fe, New Mexico, quit his tech support job at IT Solutions on September 1, 2016. It was a good financial move.

By quitting early Jones qualified for the earned income tax credit (EITC) and a host of other government support payments unavailable to him if he had worked the full year and earned $60,000.

By leaving the labor market, he now qualified for 2016 benefits of food stamps or SNAP of $2,044, EITC of $974, and New Mexico rental assistance of $1,636. Additionally had Jones continued to work, he would have paid an additional $3,120 in federal income taxes, $980 in state income taxes, $1,200 in social security taxes, after-school day care of $3,852, and family health insurance of $1,200.

In total, assuming a 40-hour work week, Jones would have earned a paltry net $9.60 per hour for the remaining four months of 2016 compared to his $31.25 per hour for the first 8 months of 2016.

Given the myriad of economic incentives for not working, it is not surprising that in 2016, the percentage of the population over age 15 in the labor force dropped to its lowest level since 1976.

As in the case of Jones, one of the chief reasons is that the financial incentives for not working, furnished by federal, state and local governments has soared. Meanwhile the economic inducements for working provided by business enterprises has expanded at a more modest pace.

Between 1990 and 2015, U.S. wages and salaries per worker advanced by 126.6%. Whereas, government transfer payments, including SNAP, Medicaid, EITC, and rent assistance provided to non-workers, or workers with a soft linkage to the labor market, more than tripled at 358.6% per capita. One of the goals of any 2016 tax reform coming from Washington should be closing this gap between the growth in wages and that of transfer payments.
Ernie Goss.

Thursday, April 13, 2017

Corporate Tax Reform: An Easy Win-Win One-Time Tax Cut on Repatriated Earnings

Last month in a pessimistic tone, House Speaker Paul Ryan announced that tax reform would take longer than repealing and replacing Obamacare. But with Republicans and Democrats holding enough votes to thwart most efforts, comprehensive tax reform represents a fool's errand.

Instead, Congress should pass tax reform in digestible portions. For example, cutting tax rates on earnings of U.S. corporations held abroad is a win-win that would find acceptance by even the most hardened DC taxer/spender.

The United States has the third highest corporate income tax rate in the world, at 39.1% when state taxes are included. It is exceeded only by Chad and the United Arab Emirates.

Due to U.S. high corporate tax rates, many U.S. corporations squirrel the profits in off-shore accounts or invest the cash in plant, equipment and technology among America's competing nations, rather than bringing profits home from abroad. Worse still, some U.S. companies engage in inversions, whereby a U.S. company moves its headquarters to low tax nations, such as Ireland with its 12.5% tax rate.

Congress and the Trump Administration should take action that would increase tax collections, reduce tax inversion deals and boost U.S. corporate investment. Currently, it is estimated that U.S. firms hold as much as $3 trillion abroad.

Assuming a one-time corporate tax rate of 10% on repatriated earnings of $2 trillion, 2017 tax collections would climb by $200 billion. The remaining $1.8 trillion of repatriated earnings could be used for (desirable to less desirable):
1) investment in plant, equipment and technology;
2) dividends to investors;
3) stock repurchases; and
4) salaries to employees.

Both Democrats and Republicans can and would sign on to this winning tax reform in a speedy fashion.

Ernie Goss

Sunday, March 19, 2017

Property Taxes Expand as Farm Income Plummets

The U.S. Department of Agriculture estimates that 2017 net farm income will fall 8.7% from 2016 levels, thus marking the fourth straight year of sinking agriculture income. As a result, states that depend heavily on farming have experienced significant shortfalls in tax collections producing economic stress, particularly for rural areas of agriculturally dependent states.

Even with sharply lower agriculture income, local taxing bodies have continued to raise property taxes on farmland. For example, between 2013 and 2014, assessed values of farmland for the 10-state Rural Mainstreet region actually expanded by an incredible 11.4% as farm earnings fell by 18.0%. Over that same period, local governments across the 10-state region increased elementary-secondary school spending per student by a median 3.3%. Not surprisingly, the percent change in property taxes for 2013-14 for the ten states were: NE 7.3%, SD 6.7%, CO 3.1%, KS 2.6%, IA 2.0%, ND 0.9%, IL 0.7%, MO -0.1%, WY -3.6% and MN at -5.6%.

While more recent data are not available, anecdotal evidence indicates this same pattern has continued with lower farm income, higher K-12 education spending, and ballooning property tax burdens on farmland with significantly lower, and even negative net farm income.

In order to avoid strangling the economic viability of farmers in the region, several solutions should be advanced, evaluated and potentially adopted:
1. Slow the growth in K-12 education spending;
2. Base property taxes on the income of the farmer rather than estimated or historical farmland values;
3. Change the state aid to education formulas to be more transparent and less detrimental to rural residents; and
4. Allow counties to collect local option sales taxes to support local spending.

Shifting the property tax burden to state sales and income taxes via state aid to local units has not and will not work. Historical evidence shows that cutting property taxes lasts for only two or three years and that it is followed by excessive property tax growth plus higher income and/or state sales taxes.

Ernie Goss.

Wednesday, February 15, 2017

Paying for Trump's Federal Income Tax Cut: Eliminate State & Local Income Tax Deductibility

Newly elected President Trump has called for collapsing the current federal income tax brackets from seven to three: 12%, 25% and 33%. According to the Tax Foundation, this change would cost the U.S. Treasury $1.1 trillion to $2.5 trillion in tax collections over 10 years.

Congressional representatives argue that adding this to the current federal debt of almost $20 trillion is irresponsible and instead must be "paid for" by eliminating deductions. One of those deductions is state and local income taxes.
According to my calculations, jettisoning this deduction would add almost $60 billion to U.S. Treasury coffers yearly. Of course, high income tax states would bear the brunt of the cost.

Taxpayers suffering the biggest burden of the change would be Californian's paying $14.1 billion, New Yorkers losing $9.8 billion, and New Jersey residents forking over an additional $3.2 billion--all three states' electoral votes captured by Clinton. In fact, the median individual income tax rate for states won by Clinton was almost 20% higher than that for states secured by Trump. In terms of shifting individual tax burdens, this change would cost taxpayers with incomes over $200,000 an average of approximately $7,000, but an average of only $100 for taxpayers making less than $200,000.

From the Trump standpoint, abolishing this deduction would produce greater tax transparency, reduce the incentives for state and local governments to raise taxes, tend to benefit states that Trump carried in the election and cost states that Clinton captured.

Ernie Goss