Responsible Tax Reform Requires Reasonable Forecasting

Responsible Tax Reform Requires Reasonable Forecasting

Finally, Congress has decided to target US law which both sides agree needs changing. Far from agreeing on a broad set of those changes, there is ample room for compromise and hope. This will be the first and likely only 1 of 2 areas where if an agreement can’t be reached, there will be no agreement across party lines for the rest of this administration. I’m talking about tax reform and here is the highest of high-level frameworks for changing the US tax code. Keep in mind, the public debt of the US on September 26, 2017, was $14,632,474,734,832.72 ($14.6 Trillion) and a total debt of over $20 trillion.

The tax reform plan outlined today includes these proposals:

Consolidating and reducing individual income tax rates to 12, 25, and 35 percent (suggestions there may be one bracket higher than 35%)
Eliminating the Alternative Minimum Tax (AMT) for both corporations and individuals
Nearly doubling the standard deduction to $12,000 for individual and $24,000 for families
Establishing a $500 non-child dependent credit and larger child credit
Repealing the personal and dependent exemptions, and deductions for the blind and elderly in light of the larger standard deduction and credits.
Repealing most itemized deductions, leaving those for mortgage interest and charitable giving
Repealing the estate tax
Reducing the corporate tax rate to 20 percent
Establishing a maximum “pass-through” rate of 25 percent with unspecified protections against gaming
Enacting full expensing for at least five years
Moving to a territorial system for overseas earnings and imposing a one-time tax on past earnings held by U.S. businesses
Indexing tax brackets to a more accurate measure of inflation, likely the Chained CPI
Limiting the amount of business interest that can be deducted by C-corporations
Repealing the deduction for domestic manufacturing (Section 199)

While no detailed cost can be determined without a lot more detail, the Committee for a Responsible Federal Budget estimates the increase to the federal debt will increase by $2.2 trillion over the next ten years and it will likely be higher as some of the cuts are set for only 5 years (as a gimmick to lower the projected impact), but would likely be extended.

There are a number of good things included in this plan and both parties have suggested they are important for American businesses and employees. Some of these include cutting the corporate tax rate and corporate tax expenditures. Providing a mechanism for repatriation of offshore profits and moving to a territorial system for overseas earnings. Simplifying the tax code is also a good thing.

Cutting the tax rate on pass-through organizations will benefit small mom and pop companies, but most of this benefit will be to the wealthy Americans and not likely to boost capital investment. Real estate and other professional firms are likely the biggest winners. Similarly, the removal of the AMT will likely help those with large investment income, but the total impact can’t be known until the income levels and rates associated with them are known. There is no mention of carried interest, so it appears the campaign promised to change how carried interest is taxed was left on the tax reform cutting room floor.

It’s Time to Help Workers, Not Subsidize Unproductive Jobs

Politicians love to talk about creating jobs and bringing jobs back to areas with high unemployment. They love to point fingers at previous politicians and claim the policies of the past caused jobs to leave and once corrected these jobs will return quickly.

Most recently the discussions have focused on coal mining and manufacturing where history does not line up with the promises.

Coal mining jobs from 1985 to 2016 fell from over 178,000 to 50,000 primarily due to improved mining productivity, not increased regulations.

Manufacturing productivity changes have delivered a similar change across many more jobs than mining.

Manufacturing output increases since 2010 far exceeded job creation.

Government officials must stop ignoring basic economics and glossing over the simple fact that many more jobs are eliminated due to productivity increases through automation, process improvement and higher skilled workers than ever move from town to town or country to country. And even when jobs do go to low wage countries only to find those wages move toward parity with onshore production, the changes are in lower labor costs regardless of where the production resides.

It’s time to start talking about how best to support workers and stop funding corporations to create jobs in industries that no longer need workers in the numbers they once did. This cycle of job replacing automation is only going to happen faster and faster, leaving fewer and fewer high paying jobs for low-skilled labor while high-skilled, high paying jobs go unfilled.

Governments and corporations are working together to balance this equation, but not enough effort is going into retraining available labor in areas where the skills no longer match the available work.  Just in time skill development through targeted apprenticeship programs is one of several tools available to help workers prepare for the jobs that companies are looking to fill.

 

Flying stinks because there’s not enough competition

Flying stinks because there’s not enough competition

DECADES ago travelling by air in America was a glamorous affair. Today it signals delays, discomfort, extra charges and the threat of violence. Air fares are higher per seat mile in America than in Europe. When costs fall, consumers in America fail to enjoy the benefits. Airlines in North America posted a profit of $22.40 per passenger last year; in Europe the figure was $7.84. Standards of service are also worse. Only one operator based in America can be found in the world’s 30 best carriers, as rated by Skytrax, an aviation website, compared with nine from Europe.

This happy combination of low fares and reasonable service has a simple explanation: competition. American policymakers have presided over a wave of mergers in the past few years, while in Europe, where the top four carriers have around 45% of the market, policymakers have got three things right.

First, European regulators have tried harder to preserve competition between existing carriers.

Second, Europe has made it easier for foreigners to boost competition by entering new markets.

Third, Europe has also encouraged competition between different airports and their main operators. Breaking up the ownership of London’s biggest three airports has saved passengers £420m ($628m) in fares since 2009, according to ICF International, a consultancy.

America, it’s time for a change.

Click here to view original web page at www.economist.com

So Why is Flying Still a Pain?

The Wall Street Journal released its annual U.S. Airline performance study results showing significant improvement in many areas, such as on-time arrivals, improved luggage handling, and fewer complaints. Here’s what they had to say.

Airline service is improving. Really. Our annual scorecard of U.S. airline performance, which ranks carriers on seven different measures important to travelers, shows 7% fewer flights arrived late in 2016, fewer bags were lost per passenger and fewer complaints were registered with the Transportation Department. The number of canceled flights plunged 21% even with major system failures at Delta and Southwest last summer. Alaska topped the scorecard as the best overall performer for the fourth straight year, edging out Delta. American’s numbers improved, but the biggest airline in the world remained the worst in the scorecard for the second year in a row with the highest rates of canceled flights and lost luggage. The gap between best and worst narrowed, but the differences remain substantial.

So, why does flying still suck?

The Baumol Cost Disease, or the Baumol Effect, is hard at work in the personal interaction portion of the industry. (See sidebar for more information on Baumol and his work.)

Try as they might, airline executives will not fix the perception of poor customer service until they realize the automation advances in luggage movement and online ticketing have not yet extended to solving customer issues. By moving too quickly to remove check-in and other support staff, they significantly increase the customer’s cost of handling exceptions. They have also over-burdened a staff regularly in stressful “fire-fighting” modes. These lead to painful encounters that only a few saints would be able to effectively handle on an hourly basis.

Self-service is great at reducing costs. It scales much more effectively than personalize human encounters and works great for the vast majority of interactions. As in many businesses, the exceptions are difficult and unless your customer service department is filled with the right number of well-trained and well-meaning people, unsatisfactory encounters will increase.

Baumol’s cost disease, or the Baumol effect as defined at Wikipedia

is a phenomenon described by William J. Baumol and William G. Bowen in the 1960s.[1] It involves a rise of salaries in jobs that have experienced no increase of labor productivity, in response to rising salaries in other jobs that have experienced the labor productivity growth. This pattern seemingly goes against the theory in classical economics for which real wage growth is closely tied to labor productivity changes.

The rise of wages in jobs without productivity gains is from the requirement to compete for employees with jobs that have experienced gains and so can naturally pay higher salaries, just as classical economics predicts. For instance, if the retail sector pays its managers 19th-century-style salaries, the managers may decide to quit to get a job at an automobile factory, where salaries are higher because of high labor productivity. Thus, managers’ salaries are increased not by labor productivity increases in the retail sector but by productivity and corresponding wage increases in other industries.

Airline service is improving. Really. Our annual scorecard of U.S. airline performance, which ranks carriers on seven different measures important to travelers, shows 7% fewer flights arrived late in 2016, fewer bags were lost per passenger and fewer complaints were registered with the Transportation Department. The number of canceled flights plunged 21% even with major system failures at Delta and Southwest last summer. Alaska topped the scorecard as the best overall performer for the fourth straight year, edging out Delta. American’s numbers improved, but the biggest airline in the world remained the worst in the scorecard for the second year in a row with the highest rates of canceled flights and lost luggage. The gap between best and worst narrowed, but the differences remain substantial.

Cybersecurity training targets Colorado Springs’ Veterans

Cybersecurity training targets Colorado Springs’ Veterans

SecureSet Academy is taking it CORE Technical Bootcamp on the road to Colorado Springs targeting local veterans and other technology professionals who want to move into the fast-growing industry. The 36-week class that begins Jan. 30 is designed to prepare workers to get jobs that according to SecurSet Academy president and CEO, Brett Fund, pay annual salaries between $60,000 and $85,000 in an industry that is expected to have up to 1.5 million unfilled jobs within two years.Bret Fund, founder, president and CEO of SecureSet Academy.

FILE – In this Feb. 27, 2013, file photo illustration, hands type on a computer keyboard in Los Angeles. (AP Photo/Damian Dovarganes, File) A Denver-based cybersecurity training program is expanding to Colorado Springs with a 36-week class that begins Jan. 30 and is targeted at local veterans and other […]

If Earth had 100 People

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