issue: Economy

Simplify, Simplify, Simplify: The First Principle of Tax Reform

Posted on by The Progressive Policy Institute

Overhauling the federal tax system is one of the most important steps U.S. political leaders can take to promote economic growth and fairness. It is also that rarest of issues in today’s Washington—one that commands broad support on both sides of the political aisle. For these reasons, the Progressive Policy Institute urges the White House and Congress to give top priority to fixing our broken tax system over the next 12 months.

Everyone knows our tax code is too complicated, too inefficient and too riddled with preferences for special interests. Americans deserve better. PPI believes we need a federal tax system that is simpler and more progressive; that steers investment into productive, job-creating activity; that enables U.S. workers and companies to compete on an even footing in world markets; and, that serves the most basic purpose of any tax system—raising enough revenue to finance the government while ensuring fairness to taxpayers.

Comprehensive tax reform obviously poses daunting political obstacles. Nevertheless, it’s a goal Democrats and Republicans share. The Senate Finance Committee has published 10 papers on various options while the House Ways and Means Committee has organized 11 subgroups to consider different areas of the tax law. Over 1000 comments have been filed. With Sen. Max Baucus retiring this year, and Rep. Dave Camp term-limited as chair of the House Ways and Means Committee, the two most important players on tax policy are strongly motivated to get something done.

This paper will not offer a sweeping blueprint for reform. Instead it focuses on one crucial aspect of reform: Simplification. PPI has long argued that our tax system is too complex and ill-fitted to the needs of middle-class families and small entrepreneurs. They benefit little from the existing array of incentives and loopholes, which are mainly targeted on special interests or people with a level of income and wealth they can only dream about. The code’s byzantine complexity also costs business and individuals hundreds of billions in compliance. In a recently released annual report to Congress, the IRS’s National Taxpayer Advocate, Nina Olson, estimated that individual and business taxpayers spent 6.1 billion hours to complete filings. The bloated federal code contains almost four million words and on average has more than one new provision added to it daily.

The code is so complex that nearly 60 percent of taxpayers hire paid preparers and another 30 percent rely on commercial software to prepare their returns.

In fact, according to PricewaterhouseCoopers, only four nations have more pages of “primary tax legislation” than does the United States. And the World Bank’s www.doingbusiness.org ranks 61 nations as having tax systems friendlier to business than does the United States, while the World Economic Forum puts the U.S. tax system in 107th place in a ranking of the efficiency of 117 national tax regimes.

Congress perennially fiddles with the code, and it takes a full-time army of lobbyists to keep track of all the changes: the Treasury Department reports that there have been more than 14,400 revisions since 1986. It is imperative, then, that any comprehensive overhaul of the federal tax system not make the code even bigger and more complicated. Tax reform without dramatic simplification should not be considered genuine reform.

Download the policy brief.

Telecom/Broadcasting Industry Leads in Investment Spending

Posted on by The Progressive Policy Institute

While I was waiting for my plane at Heathrow on Sunday, I spent a bit of time looking through BEA statistics on investment spending by industry. (That activity may sound remarkably dull and boring, but remember I read stuff like this so you don’t). I put this together this little table showing which industries invested the most in equipment and software in the years 2007-2011

News flash: The top industry for investment in equipment and software from 2007 to 2011 was broadcasting and telecommunications. In many ways, that’s not surprising, given the data-driven economy, but it’s good to see in black and white.

Healthcare would be number one by a small amount if we combined hospitals and ambulatory care services.

‘Mysterious Divergence’ Between Investment and Profits: A Side Effect of Globalization

Posted on by The Progressive Policy Institute

Last week the FT did a long article on the broad divergence between U.S. corporate profits and investment. https://www.ft.com/intl/cms/s/0/8177af34-eb21-11e2-bfdb-00144feabdc0.html#axzz2aKVhUHNE  The author, expressing surprise at the strength of profits compared to the weakness of corporate investment, ran through a long list of potential reasons, included the financial crisis, the information revolution,  short-sighted managers, mismeasurement of intangible investment,  and monopoly power.

Notably missing from the article, though, is any mention of globalization. In fact, the author apologizes in the comments, noting that “Globalisation is another possible factor that I couldn’t manage to fit in.”

But globalization gives the simplest explanation of the “mysterious” divergence. Because of the way that the national statistics are constructed, increased investment in China can produce higher domestic profits in the United States.

How does this work?  Suppose that a large retailer is sourcing a product from an American supplier.  Then a Chinese manufacturer invests $100 million in a Chinese factory to make the same product for half the price(aided by all of the Chinese infrastructure spending ).

When the retailer shifts from the American supplier to the Chinese supplier at the lower price,  the retailer makes some gain in profits, and passes some on to the consumer.  All of those extra profits are booked by economic statisticians as domestic profits.

Ta da! An increase in investment overseas shows up as domestic profits. Imagine the same story multiplied a hundred fold, and that goes a long way to explaining why the divergence is happening in the US.

The larger story, though, is that we have to start thinking globally rather than domestically. I don’t know whether global profits diverge from global investments, but we have to figure in China and other developing countries as well. Second, if we are talking about a fall in the labor share of income, we have to add in rising wages in China as well.

National income accounting is just that—national. And that may give misleading answers in an era of globalization.

 

 

The Data Economy Is Much, Much Bigger Than You (and the Government) Think

Posted on by The Progressive Policy Institute

It’s become conventional wisdom among pundits that the tech and data boom is generating lots of wealth, but not much in the way of jobs or economic growth. The skeptics point to lack of job gains in the “information” sector, as defined by the Bureau of Labor Statistics, and to the country’s sub-2 percent GDP growth figures.

But as the U.S. shifts to a data-driven economy, the benefits of fixed and mobile broadband are showing up in ways that are not counted by traditional statistics. For just one example, take the number of jobs generated by the development and deployment of mobile apps. According to a new calculation by the Progressive Policy Institute, employment in the App Economy now comes to 752,000 jobs, up roughly 40% over the past year. This is a conservative estimate, based on tracking online help-wanted ads.

Auto companies are hiring software developers and testers to turn their vehicles into highly connected data platforms. Drugstores are going online to let their customers know when prescriptions are ready. Hospitals are ramping up their employment of clinical data managers to help handle the shift to electronic health records. Bed and breakfasts have shifted their entire booking operations online, driven by digital ads.

More broadly, demand for tech workers in the New York City region outstrips every other metro area, including San Francisco and San Jose, according to figures from The Conference Board. That reflects demand in finance, advertising, and media.

Read the full article here.

Who Says Tech Innovation Moves Too Slowly?

Posted on by The Progressive Policy Institute

In his article for the July/August issue of the Washington Monthly, Barry Lynn correctly notes that the slow pace of technological progress in many fields could help explain many of the ills of today’s economy. That’s an absolutely key point. Faster, broader innovation could help create more jobs at higher pay, and help the United States escape the slow-growth trap.

But having identified the right field of battle, Lynn points his rhetorical guns at the wrong target. What’s worse, they are loaded with the wrong policy ammunition.

Lynn argues that technological stagnation is due to “a concentration of economic control that enables a few corporate bosses to manipulate technological advance entirely outside of any open and competitive marketplace.” Looking back to Franklin Delano Roosevelt and the New Deal, Lynn’s solution seems to be “stepped up antitrust enforcement with the forced licensing of key patents held by monopolistic enterprises.”

In the current day, Lynn’s prime examples of innovation-sapping monopolies are drawn from the tech industry. He spends some time on Monsanto and Pfizer, but he primarily focuses on tech companies such as Microsoft, Intel, Oracle and Google. Drawing the analogy with the 1911 antitrust case against Standard Oil, he notes that “it’s not hard to identify which corporations could be renamed Standard Operating System, Standard Semiconductor, Standard Enterprise Software, Standard Storage, and Standard Search.”

Unfortunately for Lynn’s analysis, the tech sector is the one part of the economy where innovation is proceeding at a breakneck pace. In particular, the introduction of the iPhone by Apple in 2007, followed by the release of the Android mobile operating system by Google, rapidly transformed the way that people in the U.S. and around the world do business and live their lives. Continue reading “Who Says Tech Innovation Moves Too Slowly?” →

How to Build a New Detroit

Posted on by The Progressive Policy Institute

Following a half-century of economic decay and depopulation, there was a tragic inevitability to Detroit’s decision last week to declare bankruptcy. Motown must now restructure $18 billion in debt owed to 100,000 creditors and bondholders, deciding who gets paid, how much and when.

That’s the plan to deal with Detroit’s past. But what about a plan for the city’s future?

Like Pittsburgh, Baltimore and other former industrial hubs, Detroit must now reinvent itself. At this stage, no one knows what a New Detroit might look like. So before they start courting businesses and looking for investments that generate new jobs and tax receipts, city leaders should focus on the fundamental preconditions for an economic revival.

That means making Detroit safe and livable for its citizens, and “right-sizing” a city that once was home to 2 million people but now has only 700,000 residents. How do you do that? One answer lies in the 78,000 abandoned homes that litter Detroit proper.

In 2010, Mayor Dave Bing launched a pilot program called “Project 14.” The city took 200 foreclosed homes and offered them to police officers for $1,000. They then used federal stimulus funds to offer up to $150,000 to owners to re-hab the homes into good condition. That’s a start, but with a murder rate at a 40-year high, 5,000 fires a year and an ailing public school system, Detroiters still have plenty of good reasons to flee for the suburbs.

To help staunch the bleeding, the city should engage in wholesale “urban homesteading”: Take those 78,000 abandoned homes and offer them for free – that’s right, for free – to new police officers, firefighters, EMS and public school teachers.  This would create a new infusion of human capital into Detroit, and help it emulate the success of other big cities in bringing down crime rates and replacing “dropout factories” with new and better schools. It would implant the backbone of a new middle class.

Continue reading at U.S. News & World Report

New York Tech Strength

Posted on by The Progressive Policy Institute

Recently I wrote about how the job gains from Internet/tech growth were spreading from San Francisco and Silicon Valley to other parts of California (The Rebalancing of the California Economy, May 2013).

Now let’s look at another striking phenomenon: The strength of the New York metro area as a tech hub. I looked at employer demand for computer and mathematical occupations, as reflected in the number of want ads for software developers, web developers, data analysts and the like. What I found was quite surprising.

1. The New York metro region is #1 in the country in demand for computer and mathematical occupations.* The Washington DC metro area is second, though demand has sharply fallen since a year ago.

2. The New York metro region is #1 in the country in demand for web developers, by a wide margin.  Washington is second, and the Los Angeles metro area is third.

3. The New York metro region is #1 in the country in demand for app economy workers, slightly ahead of  San Francisco, San Jose, and Seattle.

4. The. New York metro region is #2 in the country in demand for information security analysts, behind Washington DC.

5. The New York metro region is #4 in the country in demand for software developers, behind Seattle, San Francisco, and San Jose.

In some ways, New York’s strength reflects the sheer size of the region. Still, it’s remarkable that New York competes so well agains the tech powerhouses on the West Coast.

*Demand reflect the number of help-wanted ads in a metro region. These results are preliminary, pending additional validation.  Computer and mathematical occupations, as defined by the Bureau of Labor Statistics, include occupations such as software developers, web developers, and statisticians, but not electronics engineers.  All results based on number of help-wanted ads in June 2013, as reported by  The Conference Board HWOL database.  App economy jobs were defined in The Geography of the App Economy from South Mountain Economics LLC.

(Computer and mathemeatical occupations include software developers and web developers, but not electrical engineers. )

(based on June 2013 data from The Conference Board HWOL database).

 

 

 

A Grand Bargain on Student Debt?

Posted on by The Progressive Policy Institute

Yesterday a coalition of eight Senators finally announced a deal on federal student loan interest rates. The compromise, which takes cues from previous proposals from the White House and House Republicans, will peg interest rates on all new federal student loans to the rate on 10-year Treasuries plus a margin. The deal, several months in the works, will retroactively replace the doubling of interest rates that took effect July 1.

Senate Democrats, who had wanted more generous terms for students, are calling the deal more of a grand rip-off than a grand bargain for students pursuing college. Although the deal calls for capping interest rates, they argue that even with the caps borrowers will still pay higher rates than before, especially as the economy improves and interest rates rise. Moreover, according to CBO estimates, the deal will increase federal student loan profits by additional $700 million over the next decade – all on the backs of innocent parents and students.

This deal should be seen as a reasonable compromise.  As I’ve written before, interest rates are only a small part of the actual problem facing student debt. Whether interest rates are 6.8 percent or 8.25 percent (the deal’s new cap for unsubsidized Stafford loans, which most undergraduates get) makes little difference in an economy where half of recent college graduates are underemployed or unemployed, and where real earnings for young college graduates are falling. It does little to address what’s really bloating the amount students owe – ever-rising principal from higher tuition – and it does nothing to address the existing $1.2 trillion mountain of outstanding student loans.

Moreover, it’s not clear pegging long-term student debt to short-term debt borrowing costs, like the federal funds rate or 1-month Treasuries, is the best approach. Such term mismatching – borrowing on short-terms and lending on longer-terms – can be risky, especially for student loans, which are uncollateralized and dependent on future earnings.

If Senate Democrats are unhappy with the deal, they should take the rising burden student debt seriously when they review federal student loan programs for the reauthorization of the Higher Education Act (HEA) later this year. That will be a great opportunity to address one of the biggest issues of our time: helping young people succeed in today’s economy.

Five Key Objectives for a Progressive Broadband Policy

Posted on by The Progressive Policy Institute

For many progressives, “getting the Internet right” means addressing what they see as undue market power in the provision of broadband and, even more so, the potential for the abuse of that market power, as the Internet is seen as a landmark tool for social and political empowerment. Crafting a progressive broadband agenda that protects consumers and allows for innovation is key to the future of broadband in America.

In my latest report, Shaping the Digital Age: A Progressive Broadband Agenda, I outlined a progressive broadband policy agenda that consists of five key objectives:

  1. We must close the “digital divide” by leveraging all platforms. Given the dispersed populations across the country we should integrate a cloud-based, wireless framework or a mixed system in which signal is taken over wirelines to hubs that serve wireless customers. But the idea that “it must be wired” has been dispelled by the rapid advance of wireless broadband.
  2. We must bring more spectrum—the “airwaves” that “fuel” wireless—to the market to alleviate the spectrum crunch. Greater use of auctions, encouraging spectrum sharing, and looking to the government to give up its unused spectrum are all possibilities.
  3. We must explore “informating” key sectors of the economy. Broadband has the power to transform non-market sectors of the economy such as health, education and the environment. These entities will be driven by more than just market signals, and for that reason, we should look at positive programs to improve their performance.
  4. We must protect personal privacy. Movement within the broadband space invariably creates a trail of data. Progressives must honor rights of privacy in the digital age that and look at the role of transparency and choice in protecting consumers.
  5. We should examine the role of the Federal Communications Commission. The FCC labors under outdated law. While many of its missions—such as public safety—are legitimate, we should realistically evaluate limitations on its ability to deal with the real challenges of the digital age.

The fact that the Internet has become a driving force in shaping daily life doesn’t mean that it can’t be governed primarily by market forces. In fact, those forces have already delivered a competitive, innovative, and rapidly disseminating broadband network. There is a more appropriate policy agenda for progressives that would achieve important progressive goals in a way that “neutrality” and other regulatory forays cannot and will not.

To read the report, please visit https://www.progressivepolicy.org/2013/07/shaping-the-digital-age-a-progressive-broadband-agenda/

Killing Immigration Reform Hurts the Housing Recovery

Posted on by The Progressive Policy Institute

It is looking more likely that the comprehensive immigration bill the Senate passed last month will end up stalling in the GOP-controlled House. Although Republican partisans probably don’t realize it, killing immigration reform could do serious collateral damage to the housing recovery.

Most economists believe that bringing 11 million undocumented immigrants out of the shadows would be a boon to the economy, and boost tax revenues in the bargain. It could also put as many as three million legalized immigrants in the market for a home, according to the National Association of Hispanic Real Estate Professionals.

The housing market has seen such a sharp and furious rebound in the last year that many experts are now wondering if we are repeating the crazy go–go days of 2007. That’s not likely with rates still at historic lows thanks to the Federal Reserve. We could see some corrections, but nothing like the sickening 30 to 40 percent plunge housing prices took when the bubble burst last time.

One troubling sign, however, is the dearth of first–time homebuyers. In normal times, first–time homebuyers account for about 40 percent of new home sales. In May, that number fell to just 28 percent, down from 36 percent two years ago. The decline was due to cash–heavy investors, a tepid job recovery and tighter credit. That number won’t sustain growth in housing.

Continue reading the article at U.S. News & World Report.

The Perils and Promise of Payroll Debit Cards

Posted on by The Progressive Policy Institute

Last week, New York Attorney General Eric Schneiderman started looking into the controversial new practice of issuing workers debit cards in lieu of paychecks. The practice first came to light last month when an employee of a McDonald’s franchise in Pennsylvania sued over being forced to accept pay in the form of debit cards. Soon after, the New York AG’s office sent inquiries about debit card payroll practices to several companies, along with a request to see a list of fees associated with the cards.

Some of the companies that were contacted by the AG’s office were high profile brands such as Wendy’s, Costco, Darden Restaurants and Walmart. As the list suggests, these are enormous corporations with lots of hourly workers. Instead of a physical paycheck or direct deposit, workers get debit cards they can use to purchase items or access cash via ATMs.

So far so good. But workers soon discovered that such transactions are often laden with income–reducing fees on common transactions such as balance inquiries and even penalties for periods of inactivity…

Continue reading the article at U.S. News & World Report.

752,000 App Economy jobs on the 5th anniversary of the App Store

Posted on by The Progressive Policy Institute

In honor of the 5th anniversary of Apple’s App Store, I decided to update my estimates of the number of App Economy jobs. Following the same methodology described in my October 2012 study The Geography of the App Economy (with Judy Scherer),  I find that there are currently 752,000 App Economy jobs in the United States, all created since the first iPhone hit the marketplace.

App Economy jobs are growing at a rapid rate–roughly 40% over the past year, showing the very fast penetration of apps into the very mainstream of the U.S. economy (see the definition of ‘App Economy jobs’ below). These jobs are all over the country–for example, Scottrade, a leading online brokerage, is currently advertising for an Android Mobile Developer to work in St. Louis, Missouri. General Motors is advertising for a Detroit position for someone “certifying apps that get submitted by third party developers and internal teams before publishing the apps to the curated app store hosted by GM.”

Indeed, three-quarter of a million App Economy jobs are nothing to sneeze at, at a time when many industries still have not recovered from the financial crisis. All sorts of employers hire employees with App Economy skills–large and small app developers, large media and software companies who develop apps to sell under their own name, finance and retail companies that use apps to reach their customers, large and small non-tech companies that develop apps for their own use, military and other government agencies that need apps, nonprofits, large companies—including Amazon, Apple, Google, Microsoft,and RIM—that develop and maintain mobile app ecosystems/platforms, and so on.

One big issue now is whether government regulation will end up squelching the job growth in the App Economy. This could be a particular problem in Europe, if privacy regulations are tightened enough to make ‘free’ apps uneconomic.

Note: These estimates are based on the HWOL database from The Conference Board.  They are preliminary and could change in the future.By my definition, App Economy jobs are:

–An IT-related job that uses App Economy skills—the ability to develop, maintain, or support mobile applications, whether it’s for iOS, Android, or any other mobile operating system or app ecosystem (our methodology picks up all major app ecosystems)

–A non-IT job (such as human resources or marketing) which supports app developers in the same company.

–A job in the local economy that is supported by app developers (we use conservative estimates for the spillover effect).

 

 

Why We Should Relax and Learn to Love Rising Mortgage Rates

Posted on by The Progressive Policy Institute

Mortgage rates have been scraping the cellar floor in recent years, bottoming out at around 3.5 percent for 30-year loans. Economics 101 says cheap money can’t last forever and, sure enough, goverment backed mortgage giant Freddie Mac reported last week that fixed rates jumped, now up a full percentage point, to 4.5 percent

For the average homebuyer, that’s not trivial. On a $270,000 loan, roughly the national median price of a single family home, it will boost monthly interest payments by around $125 a month. That could be just enough to deter a first-time homebuyer or to eat into the savings of families trying to refinance their homes before rates get any higher.

In housing finance circles, there’s been a lively debate over the recent surge in housing prices: Is the sector’s recovery real – that is, built on market fundamentals? Or are we seeing yet another housing bubble inflated by the Fed’s policy of monetary easing?

Surging interest rates – and all indications are they aren’t going back down – will likely give us the answer by testing the resilience of U.S. housing markets. Here are some key indicators housing experts will be keeping their eyes on:

What happens to credit that many claim is already too tight? The idea that credit is too tight – that capable borrowers can’t get mortgage loans despite low interest rates – is widespread, but is it really true? In fact, the real issue may be bank origination capacity, not credit.

Continue reading at US News and World Report.

Snowden and the pursuit of privacy

Posted on by The Progressive Policy Institute

Should the Snowden revelations about  domestic and foreign electronic spying by the U.S. government change the debate about business collection of consumer data? In a July 26 speech, FTC Commissioner Julie Brill linked the news of NSA spying with concerns about consumer privacy.   “Americans are now more aware than ever of how much their personal data is free-floating in cyberspace, ripe for any data miner – government or otherwise – to collect, use, package, and sell.”

Commissioner Brill went on to say that “ it took Snowden to make concrete” that “firms or governments or individuals, without our knowledge or consent, and often in surprising ways, may amass private information about us to use in a manner we don’t expect or understand and to which we have not explicitly agreed. “

Yet we must point out that despite the effort of Brill and others to link the two, the sort of data collection undertaken by Internet companies is very different than electronic spying by government agencies.  The former is in most cases a market-based exchange, where personal data is voluntarily supplied by consumers in return for free services. Continue reading “Snowden and the pursuit of privacy” →

New Fed Data Highlights the “Great Squeeze”

Posted on by The Progressive Policy Institute

Yesterday’s New York Fed release on recent college graduates concluded that “young college workers have been struggling more in recent years.” The study found that almost half of recent college grads were underemployed in 2012, a figure which has continued to rise since the start of the recession. In fact, last year underemployment of young grads was the highest it’s been since the early 1990’s.

High underemployment for young college grads exactly encompasses what I call the “Great Squeeze.” The continuing disappearance of middle-wage jobs, coupled with a lack of preparedness for today’s high-wage, high-skill jobs, means more educated young people are taking lower skill jobs for less pay. This is squeezing those with less education and experience down and out of the labor force, having a disproportionate effect on the youngest segment of the working population.

To be sure, a college degree is still worth it. In spite of their economic struggles, those with a degree are still more likely to find a job and have higher earnings than those without a college degree.

And not all college graduates are feeling the squeeze. The New York Fed presentation also showed, not surprisingly, that those who studied more technical fields that were in high-growth sectors of the economy are enjoying significantly less underemployment and higher earnings than those in other fields of study.

But that doesn’t negate the clear majority of recent college graduates that are feeling the squeeze. Adding in the share of recent college grads that were unemployed in 2012, and we see a picture where at least half of young college grads were either underemployed or unemployed last year. Student debt, now over $1 trillion and climbing, is exacerbating the problem.

This is not by any means a hopeless scenario, but it does call for action. The slow-growth recovery we are stuck in is not enough to get today’s young graduates back on track to buy a home or save for a secure retirement. Instead we need policies that prioritize investment over consumption, and move us into a high-growth economy. A key part of that is having an educated workforce which is able to realize its full potential.

The Great Disrupters of Silicon Valley

Posted on by The Progressive Policy Institute

Last week, the Pepperdine School of Public Policy gathered an eclectic crew of economists (including your fearless blogger) and high-tech entrepreneurs to discuss tech policy over dinner in Silicon Valley. Among the entrepreneurs were startups like mobile-payment company Ribbon, voice-recognition-software maker Promptu, and mobile-platform provider Appallicious, as well as established players like portable-device maker Lab126 (think Kindle).

These entrepreneurs shared stories about spontaneous collaborations being struck over morning coffee at University Cafe. (Note to joggers: After taking out University Avenue on day one of your trip, make sure to hit the Dish near Stanford on day two.) To succeed here, one needed to tap into this vibe. Unlike the keep-your-head-down mentality of Washingtonians, strangers in the Silicon Valley are inclined to interact based on a common mission to design the next great thing.

After being plied with a local Cabernet (or three), and without any prior warning, the economists were asked a difficult question: What role, if any, does tech policy have in promoting startups like the ones gathered around the table? Continue reading “The Great Disrupters of Silicon Valley” →