Thursday, October 16, 2014

Kansas Cuts Taxes and Expands the Economy: Earnings Growth Soars Past U.S. and Neighbors Since Passage

In 2012, Kansas Governor Brownback pushed the Legislature to whack individual tax rates by 25%, to repeal the tax on sole proprietorships, and to increase the standard deduction. In 2013, the Legislature cut taxes again. Since passage in 2012, how has the Kansas economy responded to these dramatic tax cuts?

Post Tax-Cut Earnings: Since QIV, 2012, Kansas grew its personal income by 2.92%, which was higher than the U.S. gain of 2.85%, and was greater than the growth experienced by each state bordering Kansas, except Colorado. Additionally, in terms of average weekly earnings, Kansas experienced an increase of 4.82%, which was almost four times that of the U.S., more than four times that of Missouri, approximately seven times that of Nebraska, and nearly four times that of Oklahoma. Of Kansas' neighbors, only Colorado with 4.82% average weekly wage growth outperformed Kansas.

Post Tax-Cut Job Performance: Between the last quarter of 2012 and August 2014, the U.S. and each of Kansas' neighbors, except Nebraska, experienced higher job growth than Kansas. However, much of Kansas' lower job growth can be explained by the fact that during this period, Kansas reduced state and local government jobs by 1.4% while all of Kansas' neighbors and the combined 50 U.S. states increased state and local government employment. In terms of unemployment, Kansas' August 2014 joblessness rate was 4.9% compared to rates of 6.1% for the U.S., 5.1% for Colorado, 6.3% for Missouri, 3.6% for Nebraska, and 4.7% for Oklahoma.

Kansas job and income data since the tax cut show that, except for Colorado, the state economy has outperformed, by a wide margin, that of each of its neighbors and the U.S. To remain competitive, expect Kansas' neighbors to reduce state and local taxes in the years ahead.
Ernie Goss

Thursday, September 25, 2014

Raising Minimum Wage Impact: Employee Hours Worked Will Be Reduced

The current popular rant among many non-economists is that opposition to raising the minimum wage is equivalent to opposition to worker rights. Those who are more intellectually curious will find there is no theoretical basis for this conclusion and empirical studies have come down on both sides of the argument--i.e. increasing the minimum wage is beneficial to workers, or boosting the minimum wage is harmful to workers.

Total wages in a state are the product of the number of hours worked and the hourly wage rate. Raising the minimum wage may diminish the number of hours worked to the point that total state wages shrink instead of expanding.

There are currently 24 U.S. states and DC that have a minimum wage above the federal level, and 27 states with a minimum wage that is at or below the federal minimum hourly wage of $7.25. Since the beginning of the economic recovery in 2009 extending through 2013, the states with minimum wages above the federal level, compared to states with minimum wages at or below the federal minimum, experienced, on average: 3.1% lower gross domestic product growth (GDP), 0.3% lower job growth, and 0.2% higher welfare payments.

On the other hand, these same high minimum wage states experienced a 0.4% lower increase in the median poverty rate than states with minimum wages at or below $7.25. Furthermore, Washington, the state with the highest minimum wage in the nation at $9.32, underperformed the 27 low minimum wage states in GDP and job growth during the recovery period, but did experience a slower growth in its poverty rate.

This analysis is certainly not definitive and does not control for other important factors influencing a state's economy. But it does at least question the popular notion, or "accepted science" that raising the minimum wage is necessarily a winner for the state economy.
Ernie Goss

Wednesday, August 20, 2014

Lew Says "Be a Patriot, Pay More Taxes" Support Government, Not Shareholders

Last month, Jack Lew, sounding more like a Sunday school teacher than the U.S. Secretary of Treasury, called on U.S. corporations to be patriotic, and reject the corporate, legal tactic labeled "inversion."

Using this device, U.S.-based, multinational companies slice their tax bills by merging with a foreign company and reorganizing in a country with a lower tax rate. For example, many U.S. corporations can reorganize in Great Britain and cut their income tax burdens in half.

Instead of pleading for corporations to financially support the government at the expense of shareholders, U.S. policymakers should undertake two steps.

First, allow U.S. corporations to repatriate foreign earnings at a competitive tax rate. A recent analysis by the Wall Street Journal concluded 60 large corporations are parking over $160 billion of income overseas to avoid paying U.S. corporate taxes. Thus, shrinking the U.S. corporate tax rate to 20% on repatriated earnings could potentially raise $32 billion in taxes.

Second, the U.S. should decrease the tax rate on domestic earnings to 25% and chop deductions/subsidies to favored businesses. In 2013 for example, Walmart experienced a combined state and local income tax rate of 40% and Exxon-Mobil paid a combined tax rate of 42.7%. On the other hand, General Electric and U.S. Geothermal, taking advantage of various federal energy subsidies, braved income tax rates of 5.1% and 0.0%, respectively.

Commenting on inversion, President Obama, the former constitutional lawyer turned legal vigilante declared that, "I don't care if its legal, it's wrong." The President should lower the rhetoric, cut the corporate tax rate, and reduce deductions/subsidies. These actions would encourage corporations to do what is legal, ethical, and consistent with U.S. economic interests.
Ernie Goss

Monday, August 18, 2014

Enron, An Omaha Community Playhouse Production

Hello readers.  After a hiatus from posting, I'm back with a theater review.  On Friday evening I attended the Omaha Community Playhouse production of Enron.  Kimberly Faith Hickman directed this play by Lucy Preeble, which is loosely based on the events that led to Enron’s bankruptcy and the public downfall of its leadership. 

I went into this play expecting dull, well-worn rants against capitalism.  In some respects, I was not surprised.  But the cast and staging was phenomenal, injecting levity and creativity into what otherwise could have been a monotonous story.  (How does one turn financial accounting decisions into a gripping drama?)  

As for the cast, Paul Schneider was a very credible Ken Lay.  Connie Lee (who happens to be Schneider’s wife) was simply fabulous as Claudia Roe, the hard-driving rival to Jeffrey Skilling.   Chris Shonka and Matthew Pyle also turned in creditable performances as Andy Fastow and Jeff Skilling, respectively.

The costumes were wonderful, blending technology, light, and whimsy which added to the story.  (The three blind mice who appeared as Enron directors, the geek and ventriloquist dummy that appeared for Arthur Andersen, and the Raptors that appeared frequently throughout the latter part of the play, were especially wonderful. Not to mention two Lehman Brothers joined as Siamese twins.)  In short, it was a pleasantly engaging production that reflected genuine artistry by the director, all of the performers, and the costume designers and stage managers. 

But Lucy Preeble, the writer, could have given them more, which would have made it a better play.  She would have done well to resist the clichés and seemingly obligatory disrespect offered toward George W. Bush.  Those listing toward the Left simply can’t avoid casting aspersions on Bush as the cause of all which vexes them.  As Skilling and the Enron team longed for deregulation of electricity markets, the Bush v. Gore contest was portrayed as a turning point in the company’s future.  Preeble has Skilling tell us that Enron got along fine with Clinton, but Gore scares him.  Is she suggesting that a Gore victory would somehow have stopped the Enron debacle?

Al Gore has gone on to become a venture capitalist and investor.  His twenty-percent stake in Current TV, which has been sold to Al Jazeera, is in the news today because of disputes over payment of nearly $500 million.  He may talk a good game about environmental issues (while at the same time jetting about and creating a massive carbon footprint), but he is no enemy of capitalist greed. 

Deregulation began in the deep Blue state of California, governed by the RINO Terminator, not with the federal government.  Bad experiences in California are no fault of Bush.  Preeble apparently cannot fathom government run by democrats as being inept at governing.  Instead, she paints them as the friends of the little people, who are clearly the losers after Enron implodes. 

But politics aside, Preeble’s development of Skilling particularly shows her need to cast aspersion on a belief in free markets as the basis for human progress.  In fact, markets ultimately worked very well in exposing Enron’s failures – it just took time for the information to come out.  Markets require information, which was not being provided.  And markets involve humans and all their foibles.  Many people were cajoled by their own vanity into going along when they could not admit they did not understand how Enron was making money (when in fact, it was not).  Pride and vanity are not restricted to capitalist pigs – plenty of socialists have these problems, too.  Preeble apparently finds no irony in a U.S. Senator telling Skilling that the U.S. Government will not tolerate their bad behavior.

The play is still a lot of fun, which was well staged and acted.  But the writer left the most important issues unfocused and, of course, unresolved, while she tilted the dialogue in favor of invectives about corporate greed and self-aggrandizement.  We can all agree that dishonesty and deception give rise to harms that extend far beyond the executive suite and into the lives of many average folks who are just trying to earn a living.  But many executives do not do these things, and instead confer countless benefits on their communities through the capitalist model.  Those executives get adulation when the going is good, but when the populist sentiment turns against them, look out for the mob. 
What is the real solution for the problems presented by dishonesty?  Is a vastly empowered regulatory state really the answer?  Do we really trust government actors to behave competently and honestly with extensive powers, particularly when it is quite clear that they are often co-opted as participants in the nefarious deeds of the greedy capitalists?  Or should we opt for a more limited government role, with greater personal vigilance and diversification to protect ourselves, recognizing that some bad apples will succeed despite the best efforts of government?  Wouldn’t we be better off in a world where government did not have so much power over the success or failure of private ventures?  After all, regulatory costs can harm the working folks, too, when they cannot get jobs.

It seems that Ms. Preeble, like others on the Progressive Left, pines for a world in which all wrongs are righted and all losses are compensated through the intervention of a big and benevolent government.   Unfortunately, that world does not exist, and if we think that empowering government to protect us from all of the downside risks in this life will make life better, we had better wake up and smell the coffee.  Those government actors are just as prone to be deeply flawed as the capitalists they seek to regulate.  Ultimately, we need to ensure we do not lose sight on the importance of character development.  Those lessons our clergy and our mothers and fathers have been teaching us may turn out to be more important than we think.

Criticism aside, I encourage you to enjoy this play for yourselves.  Some may find a few scenes of frank sexual dialogue to be off-putting, and there is ample profanity.  But real actors playing their hearts out convey a dimension of humanity that cannot be duplicated on the screen.  Kudos to all of them for their fine efforts.     



Wednesday, July 23, 2014

Piketty's Taxing the Rich More Heavily Doesn't Help Poor: Education Does

Thomas Piketty's New York Times best-selling book, Capital in the Twenty-First Century has created quite a stir among armchair economists, sociologists and politicians. Among Piketty's most embraced, rebuked and naïve recommendations for reducing income inequality is to raise income taxes on high income earners.

U.S. tax collection data since 1996 crush the soundness of this proposal. In 1996, taxpayers earning more than $200,000 paid an average tax rate three times that of workers making less than $50,000, and two times that of taxpayers earning between $50,000 and $200,000. By 2011, those making more than $200,000 paid almost seven times the average tax rate of taxpayers earning less than $50,000, and 2.5 times that of workers earning between $50,000 and $200,000.

Furthermore between 1996 and 2011, the bottom half of income earners' portion of total federal income tax collections dropped from approximately 10% to 2.5%. During this time period, the degree of income inequality rose as measured by the Gini Coefficient. The expansion in the U.S. Gini Coefficient from 39.3 in 1996 to 47.7 in 2011 indicates greater inequality.

If taxing the rich more heavily does not reduce income inequality, what does? Education!

In 2011, the ten states with the greatest degree of income equality had a high school graduation rate of 90.7% and the ten states with the greatest degree of inequality, had a much lower high school graduation rate of 59.1%. Furthermore, the latest U.S. employment data shows high school dropouts have an unemployment rate almost three times that of college graduates, and average annual earnings roughly 42.6% that of college graduates. Reduce income inequality, don't drop out!

Saturday, June 21, 2014

Cutting Coal Electricity Generation: More Costly for Red States

This month under provisions of the Clean Air Act, signed by Richard Nixon in 1970, President Obama proposed new carbon limits on electricity generation. The goal of his initiative is a 30 percent reduction of carbon emissions from electricity plants by 2030, three-fourths which come from coal usage.

The latest data from the Energy Information Agency show that residential electricity customers in the 25 states generating electricity from coal pay 20 percent less per kilowatt hour than customers in the 26 states and DC that use no coal in the production of electricity.

Furthermore, 11 of the 12 highest electricity cost states use no coal in the making of electricity. Data indicate that reducing coal's share of electricity production (from a national average of 28.3 percent to 20.0 percent) by expanding the share produced by renewable energy will increase the cost of electricity by approximately 19 percent. However, this increase in cost will not be shared evenly.

Blue states, those that placed their electoral votes for the Democrat presidential candidate in each of the last four elections, paid electricity prices 43.2 percent higher than states that voted Republican in the same four elections. Not surprisingly, 16 of the nation's 19 Blue states used no coal for electricity creation, while only 5 of 22 Red states used no coal for electricity production.

Purple states, those that split their electoral votes between Democrat and Republican presidential candidates, paid 23.3 percent more for electricity production than Red states, and 5 of the 10 Purple states use no coal in the generation of electricity.

Thus in addition to environmental and health concerns, the new policy interjects potential political issues into the President's announced policy.

High electricity price state with high coal usage (not were your want to be): Alabama, Alaska, Arizona, Colorado, Pennsylvania, Maryland, New Mexico.

Low electricity price state with low coal usage (this is were you want to be): Georgia, Idaho, Iowa, Nebraska, North Carolina, Oregon, South Dakota, Washington.

High electricity price with low coal usage: California, Connecticut,DC, Delaware, Hawaii, Maine, Michigan, Minnesota, Nevada, New Hampshire, New Jersey, Rhode Island, South Carolina, Vermont, Wisconsin.

Low electricity price with high coal usage: Arkansas, Kansas, Kentucky, Illinois, Indiana, Louisiana, Ohio, Oklahoma, Mississippi, Missouri, Montana, North Dakota, Tennessee, Texas, Utah, Virginia, West Virginia,

Ernie Goss

Sunday, June 15, 2014

Boeing and Cantor Lose for Same Reason

Last week Eric Cantor lost an election and Boeing Company stock lost almost 5% in value. What do they have in common?

This is from my June newsletter (Goss Eggs section). "Once again Congressional Democrats and Republicans are bonding to advance bailouts for some of the nation’s biggest corporations (especially Boeing). This time it is funding for the Depression era relic, the Export-Import bank.

The bank hands out loans, capital and credit insurance to support U.S. firm’s sales abroad. Last year, the bank’s authorizations exceeded $27 billion. Why should the U.S. taxpayers guarantee loans that private lenders reject?" Ernie Goss