Ed Gerwin, PPI Senior Fellow for Trade and Global Opportunity, talks with NBC4’s Conan Nolan about recent trade votes in the House of Representatives and the future of trade agreements.
issue: Economy
LeBron James and the Do-Something Democrats: Support for Democrats In the Arena on Trade
In this year’s NBA Finals, LeBron James cemented his reputation as one of the greatest basketball players of all time—becoming the first player in Finals history to lead both teams in points, rebounds, and assists in every game, and averaging an astounding 35.8 points, 13.3 rebounds, and 8.8 assists for the six-game series.
In addition to his basketball prowess, Lebron is also a student of oratory and leadership. When faced with criticism and second-guessing, he’s frequently cited Theodore Roosevelt’s 1910 address on “Citizenship in a Republic,” popularly known as the “Man in the Arena” speech. Like Roosevelt, LeBron believes that:
“The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, and comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds. . . . “
In Washington’s ongoing trade battles, there’s a group of Democratic House Members and Senators who are displaying the type of grit and determination that both TR and LBJ would almost certainly admire. These are the 28 House Democrats and 14 Democratic Senators who’ve voted to advance Trade Promotion Authority (TPA) legislation, often in the face of intense criticism from anti-trade forces.
These Democrats support a forward-looking trade agenda that includes critical priorities for progressives, including strong and enforceable labor and environmental standards, and new rules to protect innovation, to assure open digital commerce, and to “democratize” trade for small business and consumers. As pro-growth Democrats, they understand that increased trade can tap a burgeoning global middle class and help power more inclusive economic growth for middle class Americans.
These Democrats are also realists—and doers. They understand that writing modern rules for liberal trade is a messy and often-thankless task that requires hard work and perseverance. They appreciate that trade is always a negotiation and recognize the need for principled compromise among Congressional colleagues, the Administration, foreign governments, and the many and varied interests that make up America’s economic and social fabric.
While these Democrats know that they won’t achieve everything they seek, they also believe that it is vital to stand with the long line of Democrats—from FDR and Truman to JFK and Bill Clinton—who have progressively built an increasingly effective rules-based trading system that has fostered global peace and prosperity, lifted millions worldwide out of poverty, and continues to deliver substantial benefits to all Americans.
Many Democrats who have opposed TPA say that they support increased trade and stronger trade rules, and that they want to achieve the best deal for America. These TPA critics may be sincere, but they often offer only nebulous ideas on how to achieve these important ends.
Pragmatic, do-something Democrats, on the other hand, recognize the Trade Promotion Authority offers the only realistic, near-term means of achieving the outcomes that so many Democrats claim to want. They know that our negotiating partners will never table their best and final offers to open markets or raise standards without TPA. And they understand that the United States will never achieve anything meaningful in trade if our trading partners must effectively negotiate with 535 members of Congress. This is especially so after last’s week’s spectacle in which labor and anti-trade groups prevailed on House Democrats to kill worker adjustment assistance—a six-decade Democratic priority—in a cynical bid to scuttle TPA and the overall trade agenda.
Pro-trade Democratic Members understand that key portions of the progressive coalition, including Democrats (58%), millennials (69%), Hispanics (71%), and mayors, believe that trade deals are good for the United States. But they’re not asking Americans to sign a blank check for new agreements. Under the leadership of Senator Ron Wyden, Congressman Ron Kind, and others, they’ve worked hard to assure that TPA includes unprecedented new transparency provisions, including the requirement that the text of any new trade deal be posted on the Internet for months before it is ever brought to a vote.
In a news conference before the NBA Finals, LeBron offered a pithy addendum to his favorite Roosevelt quote. When asked to guarantee a championship, LeBron said that he could only guarantee that “we will play our asses off.”
It’s time for Democrats who say they support expanded trade and progressive rules to get off of the sidelines—and to join the do-something Democrats who are “in the arena” sweating and striving towards those vital goals.
The Washington Post: Three of Obama’s biggest fights are about to be decided
PPI Chief Economic Strategist Michael Mandel was quoted in The Washington Post regarding the impact of the OECD’s BEPS rules on U.S. jobs and tax revenue:
An international tax agreement could draw companies out of the United States, writes the Progressive Policy Institute’s chief economic strategist, Michael Mandel. “You probably haven’t heard of the BEPS project — but you soon will. Short for Base Erosion and Profit Shifting, the BEPS Project… changes the international tax rules by forcing companies to pay corporate taxes according to the location of the economic activity and value creation generating their profits. … Remember that most European countries already have substantially lower corporate tax rates than the United States does. … Under the proposed BEPS rules, though, the only way for American companies to take advantage of these lower rates in a European country would be to prove to tax authorities that they are engaged in value creation in that country. And the simplest way to show the location of value creation is to move jobs to that country.” The New York Times.
Read the piece in its entirety at The Washington Post.
NEWSMAX: Mandel: Obama’s Support of Global Tax Reform Is Big Loser for US
PPI Chief Economic Strategist Michael Mandel was quoted in NEWSMAX regarding the impact of the OECD’s BEPS rules on U.S. jobs and tax revenue:
The Obama administration backs the project to ensure that more corporate tax payments enter the government’s coffers. “But as the project heads for its end-of-year deadline … nobody in Washington is paying attention to a simple fact: the United States lost, and lost big,” Mandel writes in the New York Times.
“BEPS rules will likely not generate more tax revenues for the United States. Instead, they will encourage American companies to quickly move high-paying jobs, such as those of research scientists and software developers, to Europe to take advantage of lower tax rates.”
Without quick corporate tax reform by Congress, BEPS could “turn into an enormous job-and-revenue grab by Europe, and an enormous loss of jobs and revenues by the United States,” Mandel argues.
Read the piece in its entirety at NEWSMAX.
Mandel: Eliminating an Obsolete Regulation at the FCC (Updated)
Update (6/11/15): PPI applauds the FCC’s adoption of the “effective competition” order on June 2 (explained below). This order acknowledges the reality that on most cable systems, the video channels subject to “effective competition” from other providers, both satellite and landline. The FCC order says in part: “As a result, each franchising authority will be prohibited from regulating basic cable rates. unless it successfully demonstrates that the cable system is not subject to Competing Provider Effective Competition.”
This is not the FCC making new law…rather, this is the FCC enforcing the provisions of existing law, which clearly states the conditions under which basic cable service rates can be freed from local regulation. Given the importance of eliminating or rewriting outmoded regulations wherever possible, the FCC has done the right thing.
5/13/15
PPI favors the elimination or rewriting of outmoded regulations wherever possible. We believe that clearing the deadwood of obsolete rules is a win-win for consumers, workers, and businesses, allowing regulators to focus limited resources on more important issues while freeing companies to innovate faster.
That’s why we strongly favor FCC Chairman Tom Wheeler’s proposal to streamline the “effective competition” rule for cable video providers. Cable television has long been one of the most regulated industries in the economy, including regulation of their rates by local authorities. The justification for such price controls—not acceptable for most industries—was the lack of meaningful competition from other video providers.
But the world has changed. Today many if not most cable video systems face a wide range of competitors from satellite providers such as DISH and telecom companies such as AT&T and Verizon, not to mention new internet-based video services such as Netflix and Amazon.
The legislation governing cable operators allows them to be relieved of some regulatory burdens—including rate regulation by local authorities–if the FCC rules that they face “effective competition.” The legislation includes several possible tests for effective competition, including a satellite video provider or other competitor having 15% of the pay video market, or if a phone company is offering video service in the area.
These hurdles are not hard to reach, given the prevalence of satellite and other video competitors. As a result, the FCC has ruled in favor of effective competition on almost all the hearings on this subject since 2013.
Nevertheless, up to now, cable video companies have had to go through a long and burdensome process to get regulatory relief. That is why Wheeler is proposing to simplify the process by adapting it to market realities. Challengers would have to demonstrate that effective competition did not exist in a particular location. The net result is that a larger number of cable video providers would have greater freedom to compete and innovate.
Given the amount of competition to cable, it is unlikely that cable video rates would suddenly jump. After all, with the prevalence of alternatives, and subscriber growth having topped out, why should cable companies drive away customers?
We have had disagreements with Chairman Wheeler, particularly around the Open Internet issue. But on this issue, his approach to cleaning up the regulatory process makes excellent sense for both consumers and companies.
PRESS RELEASE: A Moment of Truth for Pro-Growth Progressives on Trade
WASHINGTON–Ed Gerwin, Senior Fellow for Trade and Opportunity at the Progressive Policy Institute, today released the following statement prior to a vote on Trade Promotion Authority in the House of Representatives:
“Opening overseas markets to U.S. exports is integral to putting America back on a high-growth trajectory. PPI therefore urges pro-growth progressives to support President Obama’s major trade initiatives. To conclude trade agreements that advance U.S. interests, this President, like any president, needs Trade Promotion Authority (TPA). What’s more, TPA enables Congress to identify its key objectives for U.S. trade policy.
“As PPI has detailed in recent reports on the Obama Administration’s trade agenda and open digital trade, new U.S. trade agreements can make vital progress on issues that are important to Democrats and progressives. They can, for example, tap a growing global middle class to fuel more inclusive American economic growth, strengthen and expand the reach of rules on labor rights and environment protection, and ‘democratize’ trade by empowering entrepreneurs, small businesses, and consumers to more directly participate in and benefit from global commerce.
“TPA would provide a fairer and considerably more open process for considering new trade agreements, and would obligate future administrations—both Democrat and Republican—to pursue other progressive priorities in future trade agreements, as well. Without TPA and the important new trade initiatives that it would enable, other countries—particularly China—would have much greater influence in setting global trade norms that fail to reflect high standards or progressive goals.
“Key Democratic and progressive constituencies support TPA and new trade agreements. In endorsing TPA, the U.S. Conference of Mayors has emphasized that expanding trade is critical for good jobs in America’s metro areas, which depend on exports for fully one-third of their economic growth. And, according to recent opinion surveys, Democrats (58 percent), millennials (69 percent), and Hispanics (71 percent) all believe that free trade agreements are, on balance, good for the United States.
“PPI applauds those House Democrats who have stood up forthrightly for liberal trade and TPA. As the House takes up TPA tomorrow, we hope others also will reject the spurious arguments and bullying of anti-trade activists who yearn for the industrial landscape of the 1970s and imagine that Americans can prosper in isolation from the rest of the world.”
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The BEPS Effect: New International Tax Rules Could Kill US Jobs
Tax avoidance by multinationals, and the creative use of loopholes, has long been part of the international tax system. Governments have usually responded with targeted measures to close those loopholes. But after the Great Recession, many national governments faced extraordinarily tight budgets and huge debt burdens. It was therefore especially galling for politicians in the United States and Europe to see large profitable multinationals such as Google, Apple, and Starbucks apparently paying less than their “fair” share of taxes.
In response, in 2013 the finance ministers of the world’s largest countries—the group known as the G20—and the OECD initiated a sweeping reassessment of the global tax system known as the “Base Erosion and Profit Shifting” (BEPS) Project. The OECD tax experts at the BEPS Project, based in Paris, were told to develop a set of principles to “ensure that profits are taxed where economic activities generating the profits are performed and where value is created.”What’s more, they were also told to finish their work on an accelerated schedule, by the end of 2015.
It is now the middle of 2015, and the broad outlines of the new BEPS principles are becoming clear. This paper examines these new principles, as laid out by the BEPS project, and analyzes their likely impact on tax revenues and jobs. We find that unless Congress and the Obama Administration act quickly to reform the U.S. corporate tax system, the BEPS principles give multinationals a very strong incentive to move high-paying creative and research jobs from the United States to Europe.
Download “2015.06-Mandel_The-BEPS-Effect_New-International-Tax-Rules-Could-Kill-US-Jobs”
The Daily Beast: California Democrats Should Heed Obama on Trade, Not Labor
If any state ought to be pro-trade, it’s California. America’s second-largest exporter, after Texas, the Golden State boasts 840 miles of coastline rimming the burgeoning Asia-Pacific economy, as well as the nation’s busiest port, Los Angeles. Trade supports the jobs of more than 1 in 5 Californians.
Yet most of California’s overwhelmingly Democratic Congressional delegation refuses to support President Obama’s trade agenda.
Only two of the state’s 39 House Democrats – Reps. Ami Bera of Sacramento and Jim Costa of Fresno – have publicly backed Obama’s request for trade negotiating authority (or TPA in Washington speak). The rest are either opposed or undeclared. Has this famously entrepreneurial, outward-looking and future-oriented state suddenly caught the protectionist virus?
Not likely. It’s true that trade has become a tough issue for Democrats in recent decades as California has become more liberal. But the White House did manage to muster double-digit support among House Democrats there for pacts with Korea and Panama. The paucity of support this time may reflect Obama’s declining clout, but it’s also a testament to the success of a ham-fisted campaign of political intimidation spearheaded by organized labor.
In a raw display of financial muscle, the AFL-CIO has frozen all contributions to Democrats until after the TPA vote. Not only that, but labor and anti-trade “progressives” promise to spend lavishly on primary challenges to defeat Democrats, and if that doesn’t work, to spend more against them in the general election – to the benefit of Republicans.
Remember that the next time you hear progressives bemoaning the sinister power of money in American politics. It’s insidious all right, but it’s hardly confined to the Koch brothers and right-wing super PACs.
Continue reading at the Daily Beast.
The Hill: Can this Congress agree to agree?
Political gridlock is a problem, but in a 50-50 country you have to expect some issues will be hard to move forward. In today’s Washington, however, Congress is stuck and immobilized even on issues where most of its members agree. That’s gridlock on steroids, and it’s destructive to our civics.
Consider the recent debate over the Internet protection rules called net neutrality. These rules aren’t controversial – leaders of both parties and probably two thirds or more of the members of Congress agree that all traffic should move freely on the Internet and that Internet providers should not be able to block lawful websites or relegate competitors to second-class “slow lanes” online.
But despite this broad consensus, Congress has refused to act, leaving net neutrality in a litigation limbo that could last 3 years or more.
Some Republicans refuse to pass a net neutrality law because they aren’t willing to give a President they dislike a win, even when they agree with him. Some Democrats won’t budge because they would rather hold on to the more intrusive “utility-style” style regulatory approach employed by the FCC that goes far beyond what is necessary to protect the open Internet.
The result is a too-familiar story of a government that fails to act through normal channels, leaving the rest of the government to scramble for “work-arounds” and half-measure solutions.
The Federal Communications Commission has attempted to fill the gap left by a congressional inaction with its own set of Internet regulations. But due to the politics of the agency and potential gaps in its legal authority, the FCC rules go far beyond consensus net neutrality reforms, putting the entire Internet ecosystem at risk.
Continue reading at The Hill.
The Wall Street Journal: How the FCC Will Wreck the Internet
The Federal Communications Commission injected a considerable amount of uncertainty into the high-tech sector in February when it reclassified Internet service providers (ISPs) as public utilities. If it is upheld by the courts, the Open Internet Order—which inserts the government directly into private dealings between ISPs and firms that generate or aggregate Internet content—will drag down investments in new networks and infrastructure and slow down innovation.
In a new paper for the Progressive Policy Institute, I estimate that ISP capital expenditures will fall between 5% and 12% per year relative to 2014 levels—based on experience in the late 1990s and early 2000s, the last time telecommunications companies were subject to public-utility rules.
This may not sound like much, but ISPs invested nearly $77 billion in 2014. A 5% drop means billions in network upgrades forgone. Thousands of jobs would also be lost—20 jobs for every million dollars of fiber investment, according to a paper I co-wrote with Jeffrey West in 2010. The losses won’t be limited to ISPs. Investment in new networks propels innovation everywhere, thanks to faster connections and greater capabilities.
From the late 1990s to 2005, telecommunications firms were required to offer a component of their DSL Internet service on a common-carrier basis. During that period their broadband investments grew at a significantly slower rate than those of cable competitors who were not subject to the utility regulations.
Continue reading at The Wall Street Journal.
PPI Applauds Senate Passage of TPA
PPI applauds the Senate for passing Trade Promotion Authority and taking a key step in assuring that America continues to be a global leader in crafting strong, progressive trade rules that will help grow our economy and support good jobs—while also advancing important American values.
As PPI has detailed in recent reports on the Administration’s trade agenda and open digital trade, new U.S. trade agreements can make vital progress on issues that are important to Democrats and progressives. They can, for example, tap a growing global middle class to power more inclusive American economic growth, expand the reach of strong rules on labor rights and environment protection, reform past agreements like NAFTA, and “democratize” trade by empowering entrepreneurs, small businesses, and consumers to more directly participate in and benefit from global commerce.
TPA would provide a fair and more open process for considering new trade agreements, and would obligate future Administrations—both Democrat and Republican—to pursue these and other progressive provisions in future trade agreements, as well.
Finally, today’s vote illustrates the leverage that pro-growth, pro-trade Democrats can exercise in trade debates. As trade legislation moves to the House, PPI urges Democrats to continue to work constructively to build smart, progressive policies that enhance America’s global competitiveness. In addition to support for TPA, these efforts should include a comprehensive program of reform—in education, training, innovation, infrastructure, and more—like that proposed in the New Democrat Coalition’s American Prosperity Agenda. Unlike reflexive opposition to new trade initiatives, this approach will assure that America—and more Americans—can share in the significant benefits of global growth.
Three Ways The FCC’s Open Internet Order Will Harm Innovation
The Federal Communication Commission’s 2015 Open Internet order threatens innovation in three distinct ways. First, by barring paid priority arrangements, the order undermines innovation in the nascent market for real-time applications like telemedicine and HD voice. Second, because sponsored-data plans (including zero-rating plans) may run afoul of its “general conduct” standard, the order could discourage procompetitive offerings that would subsidize Internet access for low income Americans. Third, by reclassifying Internet service providers (“ISPs”) as telecommunications providers under Title II of the 1934 Communications Act, the order will likely slow the flow of investment dollars by ISPs, which will adversely affect innovation.
This Policy Brief examines the potential harm to innovation in qualitative terms, and where possible, in quantitative terms. The major findings are as follows:
- The nascent markets for certain real-time applications, including telemedicine, virtual reality, and HD voice, are expected to develop into billion dollar industries in the coming years. Although no application needs priority to function per se, there is a class of applications that need a certain level of quality of service that is not always consistently available on networks, especially across wireless networks that are subject to congestion. The ban on payments for priority arrangements could undermine certain collaborations among ISPs and websites/application providers (“content providers”), and thereby thwart a non-trivial portion of these applications from taking root, potentially costing the U.S. economy hundreds of millions of dollars annually.
- By discouraging ISPs and content providers from pursuing different ways to subsidize Internet access for consumers—another form of collaboration—the order could deny the poorest Americans hundreds of millions in benefits annually. There are millions of Americans for whom broadband is just out of reach and who would otherwise be eligible for a subsidy in the form of a sponsored-data plan.
- Subjecting telecommunications companies to Title II in the early 2000s caused their capital expenditures to decline by between five and thirteen percent under conservative assumptions. Exposing ISPs to the same regulatory risk could undermine core investment to the same degree. Based on U.S. Telecom’s estimated $76 billion in aggregate capex among U.S. ISPs in 2014, such a reduction would amount to between a $4 and $10 billion decline in investment at the core of the network.
Download “2015.05-Singer_Three-Ways-the-FCCs-Open-Internet-Order-Will-Harm-Innovation”
The Blame Game: Multinational Taxation in an Era of Knowledge
U.S.-based companies such as Google, McDonalds, Starbucks, Apple, and Mi-crosoft are being attacked by European politicians for not paying their fair share of taxes. For example, in March 2014 Google was hit by a French tax assessment of perhaps as much as a billion euros according to press reports at the time. In November 2014, U.K. lawmakers accused Google, Amazon, and Starbucks of us-ing convoluted accounting methods to reduce their tax liabilities.
Indeed, the feeling that U.S. multinationals—especially digital giants—are ‘getting away with something’ has fueled a concerted effort by developed countries to re-write the global tax system. This so-called BEPS project (for Base Erosion and Profit Shifting), organized by the OECD, is in the process of issuing a series of guidelines for how countries can revamp their tax codes to best capture “stateless income.”
However, these accusations of tax avoidance are, in reality, not as clear-cut as they seem. Certainly some companies are taking advantage of legal but blatant loopholes that make no economic sense. Eliminating such loopholes is an im-portant part of the BEPS project that we support.
The Hill: Student loan borrowers need financial literacy, not more regulation
Yesterday’s Consumer Financial Protection Bureau (CFPB) field hearing in Wisconsin was designed to address how student loan servicers could better serve millions of struggling borrowers. But instead of mandating that servicers provide more after-the-fact counseling, the CFPB could better help borrowers through reforms aimed at enhancing their financial literacy on the front end.
The CFPB is right to be concerned about growing burden of student debt both on the borrowers and the broader economy. Total outstanding debt, and the share of loans in default, are at historic highs. And although countless studies show that a college degree is still worth the investment, the majority of loan defaults are wracked up by students who don’t complete college. They therefore don’t enjoy the wage premium that comes with a four-year degree.
But in its quest to hold loan servicers accountable for the student debt problem, the CFPB is overlooking the behavior of borrowers. It should also be thinking about ways to enable the students to make better borrowing choices.
Continue reading at The Hill.
RealClearPolicy: A Bipartisan Approach to Energy
The infrastructure debate in Washington usually centers on planes, trains, and automobiles. However, President Obama recently highlighted America’s other great infrastructure challenge — modernizing the way we move kilowatts to power our homes and businesses — by unveiling the first Quadrennial Energy Review (QER). Developed by the U.S. Department of Energy, the QER is a strategic plan for upgrading the nation’s energy systems — the vast network of storage, distribution, and transmission facilities that power the U.S. economy. Based on similar exercises at the Pentagon and the State Department, the QER provides a new roadmap for policymakers struggling to understand America’s fast-changing energy landscape.
The last comprehensive national energy report was published nearly 14 years ago — well before two key developments that have transformed America’s energy landscape: the shale gas and oil boom and the rapid expansion of wind and solar energy. While the QER is not a comprehensive document, it does examine, and calls for measures to improve, America’s energy backbone.
With the QER, Congress has an opportunity to move beyond the distracting and highly partisan Keystone XL pipeline debate and focus instead on urgently needed improvements to America’s aging energy systems.
Continue reading at RealClearPolicy.
PPI Statement on Senate Trade Vote: Don’t Misread Vote as Repudiation of TPA
It would be a huge mistake to misread today’s Senate trade vote as a repudiation of Trade Promotion Authority and the U.S. trade agenda. The pro-trade Democrats who provided the decisive votes today were not voting against TPA, but were seeking to include other trade measures—including those on trade enforcement and trade with Africa—in the debate. There are various ways to address concerns about these important issues and we hope that trade supporters in the Senate can work together to craft a solution that allows the vital debate on trade to proceed.
As PPI has explained in recent reports on the Obama Administration’s trade agenda and on open digital trade, new U.S. trade agreements have the potential to advance goals that are important to Democrats and progressives. These new initiatives can, for example, tap a growing global middle class to help power American economic growth, expand the reach of strong rules on labor rights and environment protections, update past agreements like NAFTA, and “democratize” trade by empowering entrepreneurs, small businesses and consumers to more directly participate in and benefit from global commerce. TPA would provide a fair and considered process for considering new trade deals, and would obligate future Administrations—both Democrat and Republican—to seek these and other progressive provisions in future trade agreements, as well.
Today’s developments illustrate the leverage that pro-trade Democrats can exercise in trade debates. PPI hopes that more Democrats will engage in constructive efforts to build and support a progressive pro-trade agenda. Simply working to kill TPA legislation, and other reflexive opposition to new trade initiatives, does little to advance important progressive goals.