Democrats, including presidential candidates Senators Warren, Harris, and Booker, have endorsed the Green New Deal (GND), a federal spending program to address income inequality, and climate change with an estimated cost between $2 trillion and $5.7 trillion. New York Democrat Representative Alexandria Ocasio-Cortez (AOC) seeks to include basic income programs, and universal health care programs into GND, thus pushing the cost of the program to the higher limits.
Rep. AOC also advocates a 70% tax on high income earners to pay for this diverse program. She argues, incorrectly, that this would return tax brackets to the pre-Reagan tax cuts. According to the Tax Foundation, the latest income tax data show that:
the top 50% of income earners paid 97.3% of income taxes with the bottom half of income earners paying only 2.7% of income tax collections.
Furthermore, the top 1% of income earners paid an individual income tax rate of 27.1%, which was more than seven times higher than that of the bottom 50% of earners that had an average individual income tax rate of 3.5%.
Thus, a tax to support the GND that differentially supports low, and middle-income taxpayers would further distort a tax system that already punishes educational achievement, innovation, and entrepreneurship which lead to income growth.
The GND list includes goals like “eliminating greenhouse gas emissions from the manufacturing, agricultural and other industries” and “meeting 100% of national power demand through renewable sources by 2030.” Contrary to its advocates’ rhetoric, an increase in income tax rates on high incomes will increase, not reduce income inequality. In 1980, the top 10% of income earners paid 49.3% of total individual income tax collections, while the bottom 50% paid 7.1% of collections. More than three decades later, the share of income taxes paid by the top 10% soared to 70.9%, as the bottom half’s share sank to 2.8%. What happened to income inequality during that time span? As measured by the Gini coefficient, income inequality climbed by 12%.
Thus, empirical economic data indicate that the proposed GND will increase taxes, discourage educational attainment, and increase income inequality.
Ernie Goss
Thursday, February 21, 2019
Sunday, January 27, 2019
Do International Migrants Reduce Wage Growth? Legal Immigration is a Plus
Politicians and pundits have battered Americans with claims and counter-claims regarding the impact of immigration on American wages. Wage data from the U.S. Census Bureau and Bureau of Labor Statistics for 381 metropolitan areas between 2013 and 2017 show a clear positive relationship between legal immigration and wage growth.
In terms of the percentage of legal international migration, the top one-fifth of metros in terms of immigration gains experienced wage increases of 10.4% ($4,329) for all workers, 13.4% ($11,763) for management, and 15.6% ($3,284) for food service workers. The one-fifth of metros experiencing the lowest immigration gains experienced wage gains of 7.4% ($2,870) for all workers, 4.1% ($2,425) for managers, and 10.0% ($1,987) for food service workers.
Legal immigration was supportive of higher wage growth between 2013 and 2017 (see Data in Table 1).
Statistically speaking, correlation coefficients show a positive relationship between percent of population growth from immigration and wage expansion for all occupational categories examined.
Contrary to expectations, the strongest positive relationship between immigration and wages was for low wage occupations. Unfortunately, today's debates regarding illegal immigration on the U.S./Mexico border undermine legal immigration and economic growth, other factors unchanged.
In terms of the percentage of legal international migration, the top one-fifth of metros in terms of immigration gains experienced wage increases of 10.4% ($4,329) for all workers, 13.4% ($11,763) for management, and 15.6% ($3,284) for food service workers. The one-fifth of metros experiencing the lowest immigration gains experienced wage gains of 7.4% ($2,870) for all workers, 4.1% ($2,425) for managers, and 10.0% ($1,987) for food service workers.
Legal immigration was supportive of higher wage growth between 2013 and 2017 (see Data in Table 1).
Statistically speaking, correlation coefficients show a positive relationship between percent of population growth from immigration and wage expansion for all occupational categories examined.
Contrary to expectations, the strongest positive relationship between immigration and wages was for low wage occupations. Unfortunately, today's debates regarding illegal immigration on the U.S./Mexico border undermine legal immigration and economic growth, other factors unchanged.
Thursday, December 20, 2018
French Reject Climate Change Solutions: Citizens Want Someone Else to Pay
French President Macron last week scrapped his carbon fuel tax, which was designed to reduce carbon emissions and slow climate change. One million French environmentalists and others rioted against the tax. In environmentally friendly Washington State, voters twice rejected a carbon tax suggesting that even environmentalists want a less transparent solution to climate change: specifically, one that hides the costs and taxes someone else.
French and Americans prefer energy taxes to be hidden by subsidies, and managed by government enterprises. The latest U.S. Department of Energy data from 2016 show that electricity producers in the U.S. received $15 billion in subsidies with approximately $6.7 billion going to renewable energy. Thus, despite accounting for only 17% of electricity production, renewable electricity producers received almost 45% of subsidies.
Even with the subsidies, renewable electricity costs per megawatt hour (MWH) of production, including plant and equipment costs, greatly exceeds that of more conventional methods of generation. For example, relative to nuclear electricity production, costs per MWH for wind was five times that of nuclear, and solar was six times that of nuclear. But instead of producing more electricity with carbon free and cheaper nuclear, the U.S. has embarked on closing nuclear facilities, and expanding wind and solar.
The higher cost of electricity due, in part, to the contraction of cheaper conventional and opening of more expensive renewable has been differentially borne by low income Americans.
In 2016, U.S. income earners in the lowest 20% paid 34.2% of their income for utilities and fuel, while the top 20% of U.S. income earners spent only 2.8% of their income on utilities and fuel. Similarly, between 2013 and 2016, the share of income spent on utilities declined for high income Americans, but expanded rapidly for the lowest 20%.
In terms of efficiency and transparency, federal, state and local governments should implement a carbon tax that allows consumers and business, not government, to decide how to allocate scarce resources. Rebates could then be issued to families with lower incomes that are disproportionately harmed by the carbon tax.
French President Macron was finally on the right side of an issue, but the French public, like the American public, wish to ignore a market-based, transparent solution.
Ernie Goss
French and Americans prefer energy taxes to be hidden by subsidies, and managed by government enterprises. The latest U.S. Department of Energy data from 2016 show that electricity producers in the U.S. received $15 billion in subsidies with approximately $6.7 billion going to renewable energy. Thus, despite accounting for only 17% of electricity production, renewable electricity producers received almost 45% of subsidies.
Even with the subsidies, renewable electricity costs per megawatt hour (MWH) of production, including plant and equipment costs, greatly exceeds that of more conventional methods of generation. For example, relative to nuclear electricity production, costs per MWH for wind was five times that of nuclear, and solar was six times that of nuclear. But instead of producing more electricity with carbon free and cheaper nuclear, the U.S. has embarked on closing nuclear facilities, and expanding wind and solar.
The higher cost of electricity due, in part, to the contraction of cheaper conventional and opening of more expensive renewable has been differentially borne by low income Americans.
In 2016, U.S. income earners in the lowest 20% paid 34.2% of their income for utilities and fuel, while the top 20% of U.S. income earners spent only 2.8% of their income on utilities and fuel. Similarly, between 2013 and 2016, the share of income spent on utilities declined for high income Americans, but expanded rapidly for the lowest 20%.
In terms of efficiency and transparency, federal, state and local governments should implement a carbon tax that allows consumers and business, not government, to decide how to allocate scarce resources. Rebates could then be issued to families with lower incomes that are disproportionately harmed by the carbon tax.
French President Macron was finally on the right side of an issue, but the French public, like the American public, wish to ignore a market-based, transparent solution.
Ernie Goss
Wednesday, November 21, 2018
Recreational Marijuana's Impact on the Mile High Economy: More Jobs, Government, Crime, and Taxes
As of October 2018, 31 states and D.C. have legalized marijuana in some form. Alaska, California, Colorado, D.C., Maine, Massachusetts, Nevada, Oregon, Vermont, and Washington have adopted the most liberal laws for recreational use of marijuana.
To gauge economic impacts, Colorado, the first state to legalize recreational use, represents the best case for analysis. Since 2013, when marijuana was legalized in the state, how has the Colorado economy performed relative to the nation?
Jobs and GDP . Between 2013 and 2018, Colorado experienced a 19.7% boost to inflation-adjusted GDP compared to a much lower 12.1% for the rest of the U.S. On a per capita basis, Colorado expanded inflation-adjusted GDP by 10.8% versus a lower 7.5% for the nation. In terms of job gains for the same period of time, Colorado grew its jobs by 14.7% compared to a much lower 10.0% for the U.S.
The Size of Government . Per 1,000 in population between 2013 and 2018, Colorado added 6.1 state and local government workers, while all other states kept state and local government as a share of the population flat. Had Colorado expanded state and local government at the same pace as the nation, the state would have had 34,204 fewer government employees in 2018.
Crime Rates. Between 2015 and 2016 per 100,000 inhabitants, Colorado reported an increase in violent crimes of 24.2 compared to the nation's 12.5. During this same time period per 100,000 inhabitants, Colorado's robberies climbed by 2.9, while the U.S rate rose by a lower 1.1.
Tax Revenue. Colorado's growth in tax revenues from the pot trade rose from $67.6 million, for the year after legalization, to $247.4 million in 2017. This rapid tax revenue growth has motivated other states to legalize or consider the legalization of the recreational use of marijuana.
This narrow examination of economic data from Colorado suggests a mixed picture of the economic impact of such an expansion.
Ernie Goss
To gauge economic impacts, Colorado, the first state to legalize recreational use, represents the best case for analysis. Since 2013, when marijuana was legalized in the state, how has the Colorado economy performed relative to the nation?
Jobs and GDP . Between 2013 and 2018, Colorado experienced a 19.7% boost to inflation-adjusted GDP compared to a much lower 12.1% for the rest of the U.S. On a per capita basis, Colorado expanded inflation-adjusted GDP by 10.8% versus a lower 7.5% for the nation. In terms of job gains for the same period of time, Colorado grew its jobs by 14.7% compared to a much lower 10.0% for the U.S.
The Size of Government . Per 1,000 in population between 2013 and 2018, Colorado added 6.1 state and local government workers, while all other states kept state and local government as a share of the population flat. Had Colorado expanded state and local government at the same pace as the nation, the state would have had 34,204 fewer government employees in 2018.
Crime Rates. Between 2015 and 2016 per 100,000 inhabitants, Colorado reported an increase in violent crimes of 24.2 compared to the nation's 12.5. During this same time period per 100,000 inhabitants, Colorado's robberies climbed by 2.9, while the U.S rate rose by a lower 1.1.
Tax Revenue. Colorado's growth in tax revenues from the pot trade rose from $67.6 million, for the year after legalization, to $247.4 million in 2017. This rapid tax revenue growth has motivated other states to legalize or consider the legalization of the recreational use of marijuana.
This narrow examination of economic data from Colorado suggests a mixed picture of the economic impact of such an expansion.
Ernie Goss
Wednesday, October 24, 2018
Retiring Baby Boomers and Rising Interest Rates Explode Federal Debt.
There is at least one thing that Democrats and Republicans agree on: higher and higher federal spending. Since President Trump took office in the first quarter of 2017, federal spending has expanded by a compound annual growth rate (CAGR) of 3.9%, while tax collections have advanced by a more modest 0.9% CAGR.
As a result, the federal debt exploded by a CAGR of 4.6% to an estimated $21.6 trillion in the third quarter of 2018, representing 104.8% of the nation's annual output, and the highest since the last quarter of the Obama Administration.
Both Democrats and Republicans signed on to this spending growth with Democrats resisting tax cuts, but embracing spending increases. The federal debt will only get worse. With more than 10,000 boomers retiring each day, social security payments are soaring at a CAGR of 4.6%, and Medicare benefits are exploding at a CAGR of 5.0%.
Furthermore, ultra-low interest rates allowed the federal government to borrow needed funds at historically low rates. Since December 2016 to the present, the yield (interest rate) on U.S. Treasury bonds has risen by three-quarters of one percentage point. As a result of rising interest rates and a larger federal debt, interest payments have climbed by a CAGR of 5.0%. Should rates on U.S. Treasury debt rise to the 1990-2007 average, annual federal interest payments would grow by $160 billion to $200 billion, annually.
Without spending restraints, Gen-Xers and Millennials will face higher taxes, elevated interest rates, rising inflation, or all three of these "evils." Former Colorado governor Richard Lamm summed it up quite well saying, "Deficits are when adults tell the government what they want, and the kids pay for it." Ernie Goss
As a result, the federal debt exploded by a CAGR of 4.6% to an estimated $21.6 trillion in the third quarter of 2018, representing 104.8% of the nation's annual output, and the highest since the last quarter of the Obama Administration.
Both Democrats and Republicans signed on to this spending growth with Democrats resisting tax cuts, but embracing spending increases. The federal debt will only get worse. With more than 10,000 boomers retiring each day, social security payments are soaring at a CAGR of 4.6%, and Medicare benefits are exploding at a CAGR of 5.0%.
Furthermore, ultra-low interest rates allowed the federal government to borrow needed funds at historically low rates. Since December 2016 to the present, the yield (interest rate) on U.S. Treasury bonds has risen by three-quarters of one percentage point. As a result of rising interest rates and a larger federal debt, interest payments have climbed by a CAGR of 5.0%. Should rates on U.S. Treasury debt rise to the 1990-2007 average, annual federal interest payments would grow by $160 billion to $200 billion, annually.
Without spending restraints, Gen-Xers and Millennials will face higher taxes, elevated interest rates, rising inflation, or all three of these "evils." Former Colorado governor Richard Lamm summed it up quite well saying, "Deficits are when adults tell the government what they want, and the kids pay for it." Ernie Goss
Wednesday, August 22, 2018
Trump’s Economic Progress Exceeded Obama’s: Less Regulation and Tax Cuts Play Important Roles
By the end of July 2018, President Trump had presided over the U.S. economy for approximately 1.5 years. Compared to President Obama’s last 1.5 years, how has the Trump economy stacked up?
Overall economic growth. For the first 1.5 years of the Trump administration, the U.S. economy expanded by 4.1%, but for the last 1.5 years of the Obama Administration, the U.S. economy advanced by a much smaller 2.2%. Not only was growth significantly stronger in the Trump era, growth in the Obama Administration was trending downward in his last 1.5 years. Conversely, growth in the Trump Administration is trending upward.
Table 1 compares the Trump Administration’s first 1.5 years to the last 1.5 years of the Obama Administration’s across several critical economic performance measures.
As listed, the economic performance of the Trump Administration surpassed that of the Obama Administration across all metrics except the growth in jobs, corporate profits, and the expansion in the federal deficit.
The president’s influence on the overall economy is limited with other factors such as global growth and Federal Reserve policy playing significant roles. Nonetheless, there is evidence that Trump’s economic policies of less regulation and lower taxes are pushing most economic metrics in a more favor-able direction than experienced during the 1.5 years before Trump took office.
Overall economic growth. For the first 1.5 years of the Trump administration, the U.S. economy expanded by 4.1%, but for the last 1.5 years of the Obama Administration, the U.S. economy advanced by a much smaller 2.2%. Not only was growth significantly stronger in the Trump era, growth in the Obama Administration was trending downward in his last 1.5 years. Conversely, growth in the Trump Administration is trending upward.
Table 1 compares the Trump Administration’s first 1.5 years to the last 1.5 years of the Obama Administration’s across several critical economic performance measures.
As listed, the economic performance of the Trump Administration surpassed that of the Obama Administration across all metrics except the growth in jobs, corporate profits, and the expansion in the federal deficit.
The president’s influence on the overall economy is limited with other factors such as global growth and Federal Reserve policy playing significant roles. Nonetheless, there is evidence that Trump’s economic policies of less regulation and lower taxes are pushing most economic metrics in a more favor-able direction than experienced during the 1.5 years before Trump took office.
Tuesday, July 24, 2018
Rural versus Urban Economies: Trade and Fed Policy Divide the Two
Just as the drunk with one hand in the fireplace and the other in the refrigerator is, on average, doing well, the agricultural and energy dependent states have been, on average, doing (performing) well. Currently however, state averages blend healthy growth in urban areas in each state with economic fatigue in the rural areas of the same states.
Between 2009 and 2013, Creighton's Rural Mainstreet survey typically indicated very healthy growth in rural areas that are dependent on agriculture and energy. During this time period, driven by the Federal Reserve's easy money policies that stimulated agriculture and energy exports, our surveys and government data tracked rural areas growing at brisk rates. During the Fed's expansion policies from 2009 to 2013, average yearly export growth in agriculture, food and oil products soared by 12.6%.
In 2014, the Fed ended Quantitative Easing, one of its major stimulus programs, which lowered long-term interest rates, and in 2015 began raising short-term interest rates. The end of the Fed interest rate stimulation programs, or easy money policies, raised the value of the U.S. dollar and restrained exports, particularly of agriculture and energy commodities. Thus, urban areas of the region, more dependent on manufacturing and housing, continued to expand while rural areas relying on agriculture and energy moved into negative territory.
During the Fed's less accommodative money polices, 2014-17, the average yearly export sales of agriculture, food, and oil products plummeted by 6.3%. As a result, employment in urban areas of the region over the past three years expanded by 4.1%, while employment in rural areas of the same states contracted by 0.3%.
The current trade skirmish/war has the potential to widen the economic performance gap between rural and urban areas. China's retaliatory tariffs on $34 billion worth of U.S. goods are directly aimed at rural regions of the nation that produce soybeans, cotton, rice, sorghum, beef, pork, dairy, nuts and produce. Not surprisingly, soybean prices have tumbled by $2 per bushel over the past week. Other ag commodity prices are under downward pressures.
Historically, the first casualty of a trade war is agriculture, and agriculturally dependent areas of the nation.
Ernie Goss
Between 2009 and 2013, Creighton's Rural Mainstreet survey typically indicated very healthy growth in rural areas that are dependent on agriculture and energy. During this time period, driven by the Federal Reserve's easy money policies that stimulated agriculture and energy exports, our surveys and government data tracked rural areas growing at brisk rates. During the Fed's expansion policies from 2009 to 2013, average yearly export growth in agriculture, food and oil products soared by 12.6%.
In 2014, the Fed ended Quantitative Easing, one of its major stimulus programs, which lowered long-term interest rates, and in 2015 began raising short-term interest rates. The end of the Fed interest rate stimulation programs, or easy money policies, raised the value of the U.S. dollar and restrained exports, particularly of agriculture and energy commodities. Thus, urban areas of the region, more dependent on manufacturing and housing, continued to expand while rural areas relying on agriculture and energy moved into negative territory.
During the Fed's less accommodative money polices, 2014-17, the average yearly export sales of agriculture, food, and oil products plummeted by 6.3%. As a result, employment in urban areas of the region over the past three years expanded by 4.1%, while employment in rural areas of the same states contracted by 0.3%.
The current trade skirmish/war has the potential to widen the economic performance gap between rural and urban areas. China's retaliatory tariffs on $34 billion worth of U.S. goods are directly aimed at rural regions of the nation that produce soybeans, cotton, rice, sorghum, beef, pork, dairy, nuts and produce. Not surprisingly, soybean prices have tumbled by $2 per bushel over the past week. Other ag commodity prices are under downward pressures.
Historically, the first casualty of a trade war is agriculture, and agriculturally dependent areas of the nation.
Ernie Goss
Thursday, June 14, 2018
Bitcoin: A Poker Chip or Money? Only 1 of 700 U.S. Businesses Accept Bitcoin
In 1999, prophetic economist Milton Friedman, winner of the 1976 Nobel prize in economics, said, "I think the internet is going to be one of the major forces for reducing the role of government. The one thing that's missing, but that will soon be developed, is a reliable e-cash."
Bitcoin, and other cryptocurrencies are attempting to fill Friedman's void. But can Bitcoin be regarded as money? Since its introduction in January 2009, the currency has expanded by 1,624,036% measured against the U.S. dollar rising from $0.04 to $7,638.62 on June 2, 2018.
During this same period of time, the price of gold (in U.S. dollars) climbed by 6.4%, and the value of the U.S. dollar against the Eurozone currency, the Euro, actually declined by 9.7%.
To serve as money, whether dollar, gold or Bitcoin, it must first be a medium of exchange, and second a store of value. How has each served these two functions?
Medium of exchange (acceptance): According to Coinmap.org, 11,291 businesses accepted Bitcoin for payment of products and services at the end of 2017. Despite acceptance rates growing by 38% per year, less than one in 700 U.S. businesses accepted Bitcoin as a unit of payment at the end of 2017. Data on the acceptance of gold to purchase goods and services were not available, but 100% of U.S. businesses are legally required to accept the U.S. dollar for payment for goods and services.
Store of value: In 2017 against the Euro, the Bitcoin varied by 71.3% from its average, the U.S. dollar varied by 7.3% from its average, and gold deviated by only 0.1% from its average. Since the beginning of this year against the Euro, Bitcoin plummeted by 50.2%, the U.S. dollar sank by 3.2%, and gold rose by 2.6%. Clearly, Bitcoin from 2009 to 2018, was not a reliable store-of-value.
Verdict: Bitcoin, at this point-in-time, is more of a poker chip than money. However, the rapid acceptance of Bitcoin for payment will support its wide-spread use as money in the years ahead--just not likely in 2018, 2019 or 2020.
Ernie Goss
Bitcoin, and other cryptocurrencies are attempting to fill Friedman's void. But can Bitcoin be regarded as money? Since its introduction in January 2009, the currency has expanded by 1,624,036% measured against the U.S. dollar rising from $0.04 to $7,638.62 on June 2, 2018.
During this same period of time, the price of gold (in U.S. dollars) climbed by 6.4%, and the value of the U.S. dollar against the Eurozone currency, the Euro, actually declined by 9.7%.
To serve as money, whether dollar, gold or Bitcoin, it must first be a medium of exchange, and second a store of value. How has each served these two functions?
Medium of exchange (acceptance): According to Coinmap.org, 11,291 businesses accepted Bitcoin for payment of products and services at the end of 2017. Despite acceptance rates growing by 38% per year, less than one in 700 U.S. businesses accepted Bitcoin as a unit of payment at the end of 2017. Data on the acceptance of gold to purchase goods and services were not available, but 100% of U.S. businesses are legally required to accept the U.S. dollar for payment for goods and services.
Store of value: In 2017 against the Euro, the Bitcoin varied by 71.3% from its average, the U.S. dollar varied by 7.3% from its average, and gold deviated by only 0.1% from its average. Since the beginning of this year against the Euro, Bitcoin plummeted by 50.2%, the U.S. dollar sank by 3.2%, and gold rose by 2.6%. Clearly, Bitcoin from 2009 to 2018, was not a reliable store-of-value.
Verdict: Bitcoin, at this point-in-time, is more of a poker chip than money. However, the rapid acceptance of Bitcoin for payment will support its wide-spread use as money in the years ahead--just not likely in 2018, 2019 or 2020.
Ernie Goss
Thursday, May 17, 2018
California Solar Mandate Hurts Poor, Benefits Tesla: Requirement Boosts Housing and Electricity Prices
On May 9, 2018, the California Energy Commission (CEC) unanimously voted to require that builders install solar energy generation in all newly constructed homes in the state. The CEC estimated that the mandate would add approximately $10,000 to the price of a new home, and importantly, reduce the state's dependence on fossil fuels.
But how will displacing fossil fuel energy generation with solar affect electricity prices in the state? Currently, Californians pay the seventh highest electricity prices among the 50 states at $44.74 per million BTUs.
The latest U.S. Department of Energy data show that California obtains 52.3% of its electricity from natural gas, and 8.6% from solar. Replacing half of the state's natural gas electricity generation with solar energy would increase the state's electricity prices by approximately 26.7% to $56.48 per million BTUs. This would effectively boost the state's electricity prices to the second highest in the nation, other factors unchanged.
Above and beyond the anticipated positive impacts on the environment, the new policy will add billions to the coffers of corporations (i.e. crony capitalism).
In 2016, Tesla Corp. purchased SolarCity for $2.6 billion with the solar firm accounting for $1.1 billion of Tesla's 2017 revenues. Despite losing money for 59 of 60 quarters since incorporation in 2003 with accumulated losses of $5.0 billion, Tesla stock is currently selling for approximately $300 per share. It is clear that Tesla shareholders are expecting energy mandates, such as California's, to enrich them in the years ahead.
Ernie Goss
But how will displacing fossil fuel energy generation with solar affect electricity prices in the state? Currently, Californians pay the seventh highest electricity prices among the 50 states at $44.74 per million BTUs.
The latest U.S. Department of Energy data show that California obtains 52.3% of its electricity from natural gas, and 8.6% from solar. Replacing half of the state's natural gas electricity generation with solar energy would increase the state's electricity prices by approximately 26.7% to $56.48 per million BTUs. This would effectively boost the state's electricity prices to the second highest in the nation, other factors unchanged.
Above and beyond the anticipated positive impacts on the environment, the new policy will add billions to the coffers of corporations (i.e. crony capitalism).
In 2016, Tesla Corp. purchased SolarCity for $2.6 billion with the solar firm accounting for $1.1 billion of Tesla's 2017 revenues. Despite losing money for 59 of 60 quarters since incorporation in 2003 with accumulated losses of $5.0 billion, Tesla stock is currently selling for approximately $300 per share. It is clear that Tesla shareholders are expecting energy mandates, such as California's, to enrich them in the years ahead.
Ernie Goss
Friday, April 20, 2018
Federal Government Has Spending Problem: Taxes Expand, but Spending Soars
Since 1930, the federal government has spent approximately $90.2 trillion and collected $69.7 trillion in taxes, thus adding $20.5 trillion to the national debt, or approximately 104% of total 2017 U.S. output. Adding to the debt problem, the Congressional Budget Office (CBO) recently estimated that the federal deficit will rise by more than $1 trillion yearly by 2020. Big Congressional spenders blame the shortfall on the 2017 tax reform package. But the CBO estimates that tax collections will grow by 10.2% over the next two years, while spending will soar by 13.1%. Thus, the true fiscal culprit is a spending explosion, not a lack of tax collections.
Central to the rising spending problem is the growth in programs such as food stamps (SNAP), Medicare and Medicaid. These three programs will skyrocket by 16.4% by 2020, or two and one-half times the expansion in the overall U.S. economy, to almost $1.4 trillion in 2020. Interest on the accumulated debt for these three programs will amount to almost $50 billion in 2020 alone.
Despite a robust and rapidly growing U.S. economy beginning in 2009 with unemployment rates dropping from 9.3% to 4.1%, the nation's food stamp program has expanded from 33,000,000 recipients in 2009 to 42,600,000 in 2017. This means that more than one of every seven Americans received food stamps in 2017 at a cost of $1,663 per household or $70.1 billion.
In an effort to slow the expansion in these three programs, President Trump last week issued an executive order calling for enforcement of existing work requirements and also reviewing current waivers and exemptions to working. However, since most households receiving food stamps contain a working adult, a work requirement will do little to reduce SNAP, or food stamp, expenditures. A better approach is to lower the income threshold beyond which households lose all, or portion of food stamps. Policymakers that advocate raising taxes to solve the debt problem are shooting at the wrong target.
Ernie Goss
Central to the rising spending problem is the growth in programs such as food stamps (SNAP), Medicare and Medicaid. These three programs will skyrocket by 16.4% by 2020, or two and one-half times the expansion in the overall U.S. economy, to almost $1.4 trillion in 2020. Interest on the accumulated debt for these three programs will amount to almost $50 billion in 2020 alone.
Despite a robust and rapidly growing U.S. economy beginning in 2009 with unemployment rates dropping from 9.3% to 4.1%, the nation's food stamp program has expanded from 33,000,000 recipients in 2009 to 42,600,000 in 2017. This means that more than one of every seven Americans received food stamps in 2017 at a cost of $1,663 per household or $70.1 billion.
In an effort to slow the expansion in these three programs, President Trump last week issued an executive order calling for enforcement of existing work requirements and also reviewing current waivers and exemptions to working. However, since most households receiving food stamps contain a working adult, a work requirement will do little to reduce SNAP, or food stamp, expenditures. A better approach is to lower the income threshold beyond which households lose all, or portion of food stamps. Policymakers that advocate raising taxes to solve the debt problem are shooting at the wrong target.
Ernie Goss
Friday, March 23, 2018
Is the U.S. the Next Greece? Boomers Punish Millennials with Soaring U.S. Debt
Over the past 200 years, Greece has reneged seven times on the repayment of its national debt. And in 2017, Greece once again teetered on default but, by agreeing to austerity measures, was bailed out by the European Central Bank (ECB) and the International Monetary Fund (IMF). In most cases, Greek government spending beyond its means - i.e. deficit spending - produced these nasty outcomes. Will the U.S. government face the same problem in the years ahead?
With the U.S. debt, both public and private, now exceeding $20 trillion, or 104% of Gross Domestic Product (GDP), lenders and taxpayers are questioning the federal government's ability to pay interest and principal on that debt. The debt as a percent of GDP has exploded from 39.6% in 1966 to 103.7% in 2017 producing this concern. During this time period, U.S. presidents ranged in their contribution to the problem. As a percent of GDP, during Obama's term, the debt increased by 4.7 percentage points per year. At the other end of the spectrum, the ratio declined by 1.1 percentage points annually under Johnson. Others include: Bush Sr. a yearly gain of 3.1 points; Reagan an increase of 2.2 points annually; Bush Jr. an upturn of 1.5 points per year; Ford an expansion of 0.4 points yearly; Carter a reduction of 0.5 points per year; Nixon a decrease of 0.6 points yearly; and Clinton an annual drop of 0.8 points.
Adding to the potential crisis, the CBO projects that debt held by the public will advance by another 12% in the next decade. U.S. taxpayers and investors ask, is the U.S. the next Greece? The quick, short and accurate answer is NO! But why not?
First, the U.S. dollar is, and will continue to be, the global reserve currency. This means that foreign investors remain willing to lend to the U.S. despite the heavy debt load and current rock bottom interest rates.
Second, the U.S. Federal Reserve stands ready to buy U.S. debt regardless of the size of the debt. This Fed action would boost the money supply, increase inflationary pressures, and reduce the size of the inflation-adjusted debt.
Third, the U.S. Treasury can always open the dollar spigot to pay interest and return principal on maturing notes, again adding to inflationary pressures and diminishing the size of the inflation-adjusted debt load.
Finally, the federal government can raise federal taxes to cover government over-spending.
The outcomes from these actions for a younger generation are likely to be a combination of higher interest rates, greater inflation and expanding taxes.
That is, baby boomers stick it to Millennials!
Ernie Goss
With the U.S. debt, both public and private, now exceeding $20 trillion, or 104% of Gross Domestic Product (GDP), lenders and taxpayers are questioning the federal government's ability to pay interest and principal on that debt. The debt as a percent of GDP has exploded from 39.6% in 1966 to 103.7% in 2017 producing this concern. During this time period, U.S. presidents ranged in their contribution to the problem. As a percent of GDP, during Obama's term, the debt increased by 4.7 percentage points per year. At the other end of the spectrum, the ratio declined by 1.1 percentage points annually under Johnson. Others include: Bush Sr. a yearly gain of 3.1 points; Reagan an increase of 2.2 points annually; Bush Jr. an upturn of 1.5 points per year; Ford an expansion of 0.4 points yearly; Carter a reduction of 0.5 points per year; Nixon a decrease of 0.6 points yearly; and Clinton an annual drop of 0.8 points.
Adding to the potential crisis, the CBO projects that debt held by the public will advance by another 12% in the next decade. U.S. taxpayers and investors ask, is the U.S. the next Greece? The quick, short and accurate answer is NO! But why not?
First, the U.S. dollar is, and will continue to be, the global reserve currency. This means that foreign investors remain willing to lend to the U.S. despite the heavy debt load and current rock bottom interest rates.
Second, the U.S. Federal Reserve stands ready to buy U.S. debt regardless of the size of the debt. This Fed action would boost the money supply, increase inflationary pressures, and reduce the size of the inflation-adjusted debt.
Third, the U.S. Treasury can always open the dollar spigot to pay interest and return principal on maturing notes, again adding to inflationary pressures and diminishing the size of the inflation-adjusted debt load.
Finally, the federal government can raise federal taxes to cover government over-spending.
The outcomes from these actions for a younger generation are likely to be a combination of higher interest rates, greater inflation and expanding taxes.
That is, baby boomers stick it to Millennials!
Ernie Goss
Tuesday, February 20, 2018
Is Economic Growth Hurting the Stock Market? No! The Enemy is Higher Interest Rates, Mr. President
Just last week President Trump tweeted that "In the old days when good news was reported the stock market would go up." He went on to say that today good news pushes the market down. He asserted this is a "big mistake." But is it?
Last week the U.S. Bureau of Labor Statistics reported that year-over-year wages advanced by a solid 2.9% compared to the post-recession growth of 2.2% or less. Good news for the worker and economy, but since that announcement all three major stock indices are down dramatically.
Instead of making a "big mistake," investors are simply assessing the likelihood of higher wages producing higher inflation, and then generating higher interest rates. Higher interest rates encourage investors to move funds from the equity, or stock market, to interest bearing accounts. If investors' fears are borne out and interest rates return to their post-2000 average, how much lower will equity markets likely fall?
Between 2000 and 2009, the ratio of the S&P stock index to corporate profits, as reported by the Bureau of Economic Analysis, was 10.6. However post-2009, the Federal Reserve's unprecedented monetary stimulus helped drive the rate on the 10-year U.S. Treasury to an average 2.44%, and the ratio of the S&P to corporate profits to 11.2.
Even after the recent market decline or correction, the ratio is still a high 11.6 on February 15. Thus, if rising inflation, the reversal of the Fed's post-recession stimuli, and the expanding federal deficit force the yield on the 10-year U.S. Treasury to its 2000-09 average of 4.48%, investors could see a decline in the S&P by 8.9%, other factors unchanged. This estimate assumes a 4.8% increase in corporate profits from Q1 of 2017 to Q1 of 2018.
Higher profit growth, and lower interest rate increases would mean a smaller fall in the S&P. On the other hand, lower profit growth and higher interest rate increases would mean a larger fall in the S&P.
The next key indicator to watch will be the wage growth number coming from the U.S. Bureau of Labor Statistics' jobs report on March 9. A year-over-year growth number above 3.0% will put a dent in the S&P stock index.
Ernie Goss
Last week the U.S. Bureau of Labor Statistics reported that year-over-year wages advanced by a solid 2.9% compared to the post-recession growth of 2.2% or less. Good news for the worker and economy, but since that announcement all three major stock indices are down dramatically.
Instead of making a "big mistake," investors are simply assessing the likelihood of higher wages producing higher inflation, and then generating higher interest rates. Higher interest rates encourage investors to move funds from the equity, or stock market, to interest bearing accounts. If investors' fears are borne out and interest rates return to their post-2000 average, how much lower will equity markets likely fall?
Between 2000 and 2009, the ratio of the S&P stock index to corporate profits, as reported by the Bureau of Economic Analysis, was 10.6. However post-2009, the Federal Reserve's unprecedented monetary stimulus helped drive the rate on the 10-year U.S. Treasury to an average 2.44%, and the ratio of the S&P to corporate profits to 11.2.
Even after the recent market decline or correction, the ratio is still a high 11.6 on February 15. Thus, if rising inflation, the reversal of the Fed's post-recession stimuli, and the expanding federal deficit force the yield on the 10-year U.S. Treasury to its 2000-09 average of 4.48%, investors could see a decline in the S&P by 8.9%, other factors unchanged. This estimate assumes a 4.8% increase in corporate profits from Q1 of 2017 to Q1 of 2018.
Higher profit growth, and lower interest rate increases would mean a smaller fall in the S&P. On the other hand, lower profit growth and higher interest rate increases would mean a larger fall in the S&P.
The next key indicator to watch will be the wage growth number coming from the U.S. Bureau of Labor Statistics' jobs report on March 9. A year-over-year growth number above 3.0% will put a dent in the S&P stock index.
Ernie Goss
Friday, January 19, 2018
Who Benefits from the 2017 Tax Reform? Workers Gain from Rapidly Expanding Economy
Republicans argue that implementation of the recently passed tax reform bill will stimulate economic growth, which will benefit the middle class, primarily by boosting wages and salaries. Democrats, on the other hand, contend that the benefits of any growth will flow mainly to the "rich" via higher corporate profits.
Does empirical data support the Republican or Democrat position assuming that the package, as advertised, raises GDP growth from 2016's 2.1% to 3.1%, or even 4.1%?
In 2016, the U.S. economy ended the slowest eight years of economic growth since the end of the Truman Administration in 1952. During this period of slow GDP growth, wages and salaries as a share of GDP dropped from 44.5% to 43.5%, but profits as a percentage of GDP climbed from 9.4% to 11.5%. Thus, superficially during this latest time period, slow growth had more of a negative impact on workers via lower wage and salary growth.
The accompanying table lists the GDP, wage & salary, and profit growth from 1947 to 2016. During this period, when GDP growth moved from an average of 2.4% to 4.6%, wage and salary growth advanced from 4.1% to 8.2%, but profit growth fell from 6.4% to 5.1%.
Calculating correlation coefficients for the data indicate a clear positive correlation between growth rates of GDP and wages & salaries (+0.74), but a negative association between GDP growth rates and profits (-0.29).
Theoretically, this empirical finding is consistent with the likelihood that businesses are required to bid up wages during periods of rapid growth with the result of lower profits. To quote British economist David Ricardo, "There can be no rise in the value of labour without a fall of profits."
Does empirical data support the Republican or Democrat position assuming that the package, as advertised, raises GDP growth from 2016's 2.1% to 3.1%, or even 4.1%?
In 2016, the U.S. economy ended the slowest eight years of economic growth since the end of the Truman Administration in 1952. During this period of slow GDP growth, wages and salaries as a share of GDP dropped from 44.5% to 43.5%, but profits as a percentage of GDP climbed from 9.4% to 11.5%. Thus, superficially during this latest time period, slow growth had more of a negative impact on workers via lower wage and salary growth.
The accompanying table lists the GDP, wage & salary, and profit growth from 1947 to 2016. During this period, when GDP growth moved from an average of 2.4% to 4.6%, wage and salary growth advanced from 4.1% to 8.2%, but profit growth fell from 6.4% to 5.1%.
Calculating correlation coefficients for the data indicate a clear positive correlation between growth rates of GDP and wages & salaries (+0.74), but a negative association between GDP growth rates and profits (-0.29).
Theoretically, this empirical finding is consistent with the likelihood that businesses are required to bid up wages during periods of rapid growth with the result of lower profits. To quote British economist David Ricardo, "There can be no rise in the value of labour without a fall of profits."
Thursday, December 28, 2017
Death and (No) Taxes for Super-Rich: Give Gains to Charitable Foundations
Recently George Soros transferred more than $18 billion of his accumulated wealth to a private foundation that he controls. By doing so, he escaped paying taxes on the appreciated value of the assets forever. Here's how it works:
The super-rich who head corporations, such as Soros and Warren Buffett, can take a reduced yearly salary and pay income tax rates equivalent to that of middle-income Americans. However, they continue to have access to corporate private jets and other tax-deductible benefits unavailable to most middle-income Americans.
Meanwhile, the value of their shares of their companies grows. But instead of selling the appreciated shares and incurring capital gains taxes, the super-rich give the shares to private foundations and the income is forever untaxed.
For example, in 2017, Buffett donated 18.63 million Berkshire "B" shares valued at $170.25 per share with a tax basis of roughly $58.71 to the Gates Foundation. As a result, in 2017 alone, Buffett will avoid paying capital gains taxes of $141 million to Nebraska, and $463 million to the federal government. In the end, Mr. Buffett intends to donate more than $50 billion in appreciated stock to private foundations.
Buffett has ridiculed the current tax system, which taxes his secretary at a higher rate that what he pays. To rectify this injustice, he proposed that the capital gains tax be raised to 50%. But elevating the rate would have no tax impact on his accumulated stock wealth.
In the end, the current U.S. tax law allows death with (almost) no taxes for the super-rich. A potential remedy is to limit the amount of appreciated stock that may be gifted without taxes.
As stated by novelist F. Scott Fitzgerald to fellow writer Ernest Hemingway, "You know Ernest, the rich are different from you and me." To which Hemingway responded, "Yes they have more money." To be an even bigger wiseacre, Hemingway might have added "and the ability to die without taxes, Scott."
Ernie Goss
The super-rich who head corporations, such as Soros and Warren Buffett, can take a reduced yearly salary and pay income tax rates equivalent to that of middle-income Americans. However, they continue to have access to corporate private jets and other tax-deductible benefits unavailable to most middle-income Americans.
Meanwhile, the value of their shares of their companies grows. But instead of selling the appreciated shares and incurring capital gains taxes, the super-rich give the shares to private foundations and the income is forever untaxed.
For example, in 2017, Buffett donated 18.63 million Berkshire "B" shares valued at $170.25 per share with a tax basis of roughly $58.71 to the Gates Foundation. As a result, in 2017 alone, Buffett will avoid paying capital gains taxes of $141 million to Nebraska, and $463 million to the federal government. In the end, Mr. Buffett intends to donate more than $50 billion in appreciated stock to private foundations.
Buffett has ridiculed the current tax system, which taxes his secretary at a higher rate that what he pays. To rectify this injustice, he proposed that the capital gains tax be raised to 50%. But elevating the rate would have no tax impact on his accumulated stock wealth.
In the end, the current U.S. tax law allows death with (almost) no taxes for the super-rich. A potential remedy is to limit the amount of appreciated stock that may be gifted without taxes.
As stated by novelist F. Scott Fitzgerald to fellow writer Ernest Hemingway, "You know Ernest, the rich are different from you and me." To which Hemingway responded, "Yes they have more money." To be an even bigger wiseacre, Hemingway might have added "and the ability to die without taxes, Scott."
Ernie Goss
Tuesday, October 17, 2017
Is Trump's Tax Reform for the Rich? Top 1% Pay Seven Times the Rate of Bottom 50%
In September, President Trump unveiled his tax reform plan to a chorus of boos from the big government tax and spend devotees.
For example, New York Democrat Senator Schumer, Grand Poobah of the big spenders, tweeted, ""GOP #TaxReform plan & what @SpeakerRyan says about it are 2 diff things. Says plan is for middle class but 80% is for wealthy-Get real Paul."
According to the Tax Foundation, the latest income tax data show that the top 50% of income earners paid 97.3% of income taxes, with the bottom half of income earners paying only 2.7%.
Furthermore, the top 1% of income earners paid an individual income tax rate of 27.1%, which was more than seven times higher than that of the bottom 50% who paid an income tax rate of only 3.5%. Thus, a tax reform package that differentially supports low and middle income taxpayers would further distort a tax system that already punishes educational achievement, innovation, and entrepreneurship, all of which lead to income growth.
On top of this, the element of the President's tax reform package garnering the most criticism from supposed defenders of low and middle income taxpayers is the elimination of the deduction for state and local income taxes. Currently the benefits of this deduction go largely to high income earners, and it encourages state and local taxing units to raise taxes. Eliminating this deduction would cost taxpayers with incomes over $200,000 an average of $7,000, but an average of only $100 for taxpayers making less than $200,000.
To bolster passage of his plan, Trump might channel Nobel prize winning economist Milton Friedman who said, "I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible."
Ernie Goss
For example, New York Democrat Senator Schumer, Grand Poobah of the big spenders, tweeted, ""GOP #TaxReform plan & what @SpeakerRyan says about it are 2 diff things. Says plan is for middle class but 80% is for wealthy-Get real Paul."
According to the Tax Foundation, the latest income tax data show that the top 50% of income earners paid 97.3% of income taxes, with the bottom half of income earners paying only 2.7%.
Furthermore, the top 1% of income earners paid an individual income tax rate of 27.1%, which was more than seven times higher than that of the bottom 50% who paid an income tax rate of only 3.5%. Thus, a tax reform package that differentially supports low and middle income taxpayers would further distort a tax system that already punishes educational achievement, innovation, and entrepreneurship, all of which lead to income growth.
On top of this, the element of the President's tax reform package garnering the most criticism from supposed defenders of low and middle income taxpayers is the elimination of the deduction for state and local income taxes. Currently the benefits of this deduction go largely to high income earners, and it encourages state and local taxing units to raise taxes. Eliminating this deduction would cost taxpayers with incomes over $200,000 an average of $7,000, but an average of only $100 for taxpayers making less than $200,000.
To bolster passage of his plan, Trump might channel Nobel prize winning economist Milton Friedman who said, "I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible."
Ernie Goss
Thursday, September 21, 2017
Could A Stock Market Swoon Damage Your Retirement Plans? Baby Boomers At Risk
Nine years of record low interest rates, an improving economy, and few high yielding investment alternatives, have propelled the U.S. stock market to record highs. For example, the current price-earnings (P/E) ratio of the Standard & Poor's 500 (S&P) stocks collectively is 24.5. This indicates that stock investors are paying $24.50 for each dollar of earnings, which is well above the average P/E ratio since 1950 of 17.85. If the S&P were to decline to its 1950-2017average P/E, S&P stock prices would plummet by 27.2%.
However for long-term investors, it is almost a certainty that the S&P would rebound to its old high. But how long will it take? Should the S&P P/E ratio drop to its 1950-2017 average, retired baby boomers who will be age 70.5 and older in 2018, and other retirees in need of funds for living, would be required to withdraw funds from their non-Roth retirement accounts at these low stock prices. The question then becomes, how long will it take for the S&P to return to its 2017 record high level?
In August 2000 with the S&P at 1517.7, the stock index plummeted 31.4% over the next 13 months. It then took the S&P 81 months to climb back to its August 2000 level. And six months later in November 2007, the S&P once again began falling ultimately slumping to 735.1 by February 2009. Thus, between August 2000 and February 2009, or 102 months, the S&P fell by 51.6%. During this bear or down market, individuals that made mandatory or voluntary withdrawals from their retirement accounts dominated by stocks likely suffered significant financial hits.
With U.S. stock prices at current record highs, recent empirical evidence indicates those required to make significant withdrawals from their retirement accounts over a short-time horizon should evaluate re-balancing their investment portfolio to be less dependent on stock prices. As investment guru Ben Graham advised, "Diversify, Diversify!"
Ernie Goss
However for long-term investors, it is almost a certainty that the S&P would rebound to its old high. But how long will it take? Should the S&P P/E ratio drop to its 1950-2017 average, retired baby boomers who will be age 70.5 and older in 2018, and other retirees in need of funds for living, would be required to withdraw funds from their non-Roth retirement accounts at these low stock prices. The question then becomes, how long will it take for the S&P to return to its 2017 record high level?
In August 2000 with the S&P at 1517.7, the stock index plummeted 31.4% over the next 13 months. It then took the S&P 81 months to climb back to its August 2000 level. And six months later in November 2007, the S&P once again began falling ultimately slumping to 735.1 by February 2009. Thus, between August 2000 and February 2009, or 102 months, the S&P fell by 51.6%. During this bear or down market, individuals that made mandatory or voluntary withdrawals from their retirement accounts dominated by stocks likely suffered significant financial hits.
With U.S. stock prices at current record highs, recent empirical evidence indicates those required to make significant withdrawals from their retirement accounts over a short-time horizon should evaluate re-balancing their investment portfolio to be less dependent on stock prices. As investment guru Ben Graham advised, "Diversify, Diversify!"
Ernie Goss
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
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
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
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.
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.
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