Tag Archives: Worker

News

New Ernst and Young report: proposed tax increases will cost 710,000 jobs

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Here’s the news from The Hill:

Allowing tax rates for the country’s highest earners to rise, an idea endorsed by top Democrats, would have a dire effect on the economic recovery, according to a new report prepared for business groups that was released Tuesday.

The study from Ernst & Young found that letting tax rates for the wealthiest Americans lapse would sap $200 billion and some 700,000 jobs out of the economy, reduce wages by 1.8 percent and lead to a decrease in investment.

“These results may suggest to policy makers that allowing the top tax rates to increase comes with economic consequences,” Ernst & Young’s Robert Caroll and Gerald Prante wrote in the report for the Independent Community Bankers of America, the National Federation of Independent Business, the S Corporation Association and the U.S. Chamber of Commerce.

“Long-run output can be expected to fall, and, depending on the use of the revenues, living standards, as reflected by workers‟ real after-tax wages, may also be lower.”

Top Republicans, including House GOP leaders and committee chairmen, jumped on the Tuesday report, as they continue to battle with President Obama and Democrats over how to proceed on tax issues and the broader fiscal cliff.

Obama reiterated last week his plan to only extend the Bush-era rates for annual family incomes up to $250,000 for another year, a proposal many congressional Democrats have coalesced behind. Republicans on the Hill want to extend all current rates for a year.

The key findings are here on the House Ways and Means Committee‘s web site:

Lower wages, fewer jobs and less investment

  • Output in the long-run would fall by 1.3 percent, or $200 billion in today’s economy.
  • Employment in the long-run would fall by 0.5 percent, meaning roughly 710,000 fewer jobs in today’s economy.
  • Capital stock and investment in the long-run would fall by 1.4 percent and 2.4 percent, respectively.
  • Real after-tax wages would fall by 1.8 percent, reflecting a decline in workers’ living standards relative to what would have occurred otherwise.

Every state in the U.S. feels the impact of tax hikes

  • The report, which offers a state-by-state look at the impact on economic output and employment, finds that every state is affected negatively by the tax increases contemplated by the Obama Administration.

Ernst & Young is one of the top financial firms in the world. The report is entitled “Long-run macroeconomic impact of increasing tax rates on high-income taxpayers in 2013”.

Even though Obama has increased our debt by nearly 6 trillion in less than four years, that money hasn’t created any jobs because government is not efficient at creating jobs that last. When you take money away from people who create jobs, you lose the jobs.  Wasting money on green energy firms that go bankrupt is a great plan to pay back your campaign fundraisers, but it’s not a good plan to create jobs. Bailing out labor unions with billions of taxpayer dollars so that they can create electric cars that catch fire is not the right way to create jobs, either. That’s what the stimulus was – $800 billion dollars taken out of the hands of businesses and sent directly to Obama’s allies. We need to get the government out of our business if we want job creation.

Polemics

Why is it so hard for a working man to provide for a family these days?

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Here’s my argument which answers the question:

  1. Feminism was behind no-fault divorce.
  2. Making it easier to divorce means that more divorces will occur.
  3. Marital instability causes women to vote for bigger government.
  4. In the latest election (2008), exit polls showed that UNMARRIED women voted 3-1 for Obama.

*Please note that I am talking about unmarried women throughout this post.

Here’s the evidence for each point.

1. Feminism was behind no-fault divorce, according to this feminist, pro-no-fault-divorce writer.

Excerpt:

Households of 2010 don’t look quite like they did in 1969, when no-fault divorce actually was a controversial topic and these counter-arguments held some weight. The working dad/stay-at-home mom model of the middle class has been replaced by two-parent earner households and a growing number of working mom/stay-at-home dad arrangements. In working poor and impoverished families, the one-parent provider model was never the norm. No-fault divorce seemed scary when it had never before existed, but the truth is that its introduction was long overdue. Feminist groups at the time supported no-fault divorce, as it provided women an escape hatch from desperately unhappy marriages in a society where they were already disadvantaged on almost every level, regardless of their marital status. Imagine an abusive marriage in 1968, when the court-savvy abuser could actually force the victim to stay in the relationship forever. Imagine that now, and you know why domestic violence attorneys are in full support of introducing no-fault divorce to New York. And the judges aren’t the only problem.

Note that the author of this piece thinks that it is not women’s fault that they choose men who they then want to divorce. It’s not the woman’s fault that she is unhappy with the man she courted with and then chose and then made vows to – women need a no-fault escape hatch, and children do fine without fathers.

2. Easier divorces means more divorces.

Abstract:

This paper analyzes a panel of 18 European countries spanning from 1950 to 2003 to examine the extent to which the legal reforms leading to “easier divorce” that took place during the second half of the 20th century have contributed to the increase in divorce rates across Europe. We use a quasi-experimental set-up and exploit the different timing of the reforms in divorce laws across countries. We account for unobserved country-specific factors by introducing country fixed effects, and we include country-specific trends to control for timevarying factors at the country level that may be correlated with divorce rates and divorce laws, such as changing social norms or slow moving demographic trends. We find that the different reforms that “made divorce easier” were followed by significant increases in divorce rates. The effect of no-fault legislation was strong and permanent, while unilateral reforms only had a temporary effect on divorce rates. Overall, we estimate that the legal reforms account for about 20 percent of the increase in divorce rates in Europe between 1960 and 2002.

It seems obvious, but more evidence never hurts.

3. Marital instability causes women to vote for bigger government for security.

Excerpt:

Giving women the right to vote significantly changed American politics from the very beginning. Despite claims to the contrary, the gender gap is not something that has arisen since the 1970s. Suffrage coincided with immediate increases in state government expenditures and revenue, and these effects continued growing as more women took advantage of the franchise. Similar changes occurred at the federal level as female suffrage led to more liberal voting records for the state’s U.S. House and Senate delegations. In the Senate, suffrage changed voting behavior by an amount equal to almost 20 percent of the difference between Republican and Democratic senators. Suffrage also coincided with changes in the probability that prohibition would be enacted and changes in divorce laws.

[…]More work remains to be done on why women vote so differently, but our initial work provides scant evidence that it is due to self-interest arising from their employment by government. The only evidence that we found indicated that the gender gap in part arises from women’s fear that they are being left to raise children on their own (Lott and Kenny 1997). If this result is true, the continued breakdown of the family and higher divorce rates imply growing political conflicts between the sexes. 19

Bigger government must be paid for by higher taxes, of course, which makes it harder for one working man’s income to provide for a family. In fact, feminists wanted men to be displaced as sole-providers. They would prefer that women are “equal” to men, and that means making women get out and work like men. Feminists had every reason to want bigger government and higher taxes to make traditional single-earner families unfeasible financially. They did it for equality.

4. Women are in fact observed to vote for bigger government. (Original story was here, now pulled)

Excerpt:

On Tuesday, the nation made history. It made history in electing the first African American president; it made history in building a bigger margin for the first female Speaker of the House; it made history in delivering the biggest Democratic margin since 1964; it made history in sending a record number of people to the polls and the highest percentage turnout since the 1960 election. Analysts will spend the next few months sifting through the data, trying to figure out what happened and why. Historians will likely spend the next several years and decades studying this election, as well. But one thing is immediately clear. Unmarried women played a pivotal role in making this history and in changing this nation. They delivered a stunning 70 to 29 percent margin to Barack Obama and delivered similarly strong margins in races for Congress and the U.S. Senate. Although unmarried women have voted Democratic consistently since marital status has been was tracked, this election represents the highest margin recorded and a 16-point net gain at the Presidential level from 2004.

And since the Democrats took the House and Senate in 2006, and then the Presidency in 2008, the national debt has doubled from 8 trillion to 16 trillion.

Voting for Democrats means voting for bigger government which means voting for higher taxes to pay for it all. Higher taxes means that a married man can no longer retain enough of his earnings to support a family. And that means his wife has to work, and that means that his children will learn what the government schools decide they should learn – so that all the children will be equal and think the same (pro-government) thoughts. This should not be controversial, because it is what it is. Very often, women complain about the very problems that they themselves have caused with their own voting, and their own embrace of feminism and rejection of the traditional roles of men as protectors, providers, and moral/spiritual leaders.

So, you have women voting to defund actual providers so that they are free to make babies with good-looking non-committing, non-providers – like in the UK Daily Mail story that I recently blogged about. Feminists often don’t want to share parenting duties with a man – they prefer government social programs instead of a man. And liberal feminist politicians also oppose encouraging traditional marriage with tax breaks. In the feminist UK, IVF is free – paid for by the British taxpayer (including male sole-providers!) making single motherhood by choice much more common. Here’s the result of that: single mother of 10 receives 30,000 British pounds per year in benefits. A recent study showed that the cost of family breakdown to the American taxpayer is $112 billion per year and a recent UK study showed that the UK taxpayer pays 9 billion pounds per year for “problem families”. This money is in addition to the growth of government caused by liberal voting patterns, documented above.

And that’s why “a man working full time [cannot] actually support a family and buy a house, as the sole income earner”, as one philosopher recently asked.

Commentary

New paper on income inequality: Does taxing the rich hurt the middle class?

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Aparna Mathur (right)
Aparna Mathur (right)

Here’s an article by Indian economist Aparna Mathur.

She writes (in part):

In a recent paper that I co-authored with Kevin Hassett, we explored the effect of high corporate taxes on worker wages. The motivation for the paper came from the international tax literature (summarized by Roger Gordon and Jim Hines in a 2002 paper1) that suggested that mobile capital flows from high tax to low tax jurisdictions. In other words, in any set of competing countries, investment flows are determined by relative rates of taxation. The current U.S. headline rate of corporate tax is 35 percent. The combined federal and state statutory rate of 39 percent is second only to Japan in the OECD. With Japan set to lower its statutory rate later this year, the U.S. rate will soon be the highest in the OECD and one of the highest in the world. What effect do these high rates have on worker wages?

When capital flows out of a high tax country, such as the United States, it leads to lower domestic investment, as firms decide against adding a new machine or building a factory. The lower levels of investment affect the productivity of the American worker, because they may not have the best machines or enough machines to work with. This leads to lower wages, as there is a tight link between workers’ productivity and their pay. It could also lead to less demand for workers, since the firms have decided to carry out investment activities elsewhere.

Our paper was one of the first to explore the adverse effect of corporate taxes on worker wages. Using data on more than 100 countries, we found that higher corporate taxes lead to lower wages. In fact, workers shoulder a much larger share of the corporate tax burden (more than 100 percent) than had previously been assumed. The reason the incidence can be higher than 100 percent is neatly explained in a 2006 paper by the famous economist Arnold Harberger.2 Simply put, when taxes are imposed on a corporation, wages are lowered not only for the workers in that firm, but for all workers in the economy since otherwise competition would drive workers away from the low-wage firms. As a result, a $1 corporate income tax on a firm could lead to a $1 loss in wages for workers in that firm, but could also lead to more than a $1 loss overall when we look at the lower wages across all workers.

Following our paper, several academic economists substantiated our results, using different data sets and applying varied econometric modeling and techniques. Some examples of these studies include a 2007 paper by Mihir A. Desai and C. Fritz Foley of Harvard Business School and James Hines Jr. of Michigan University Law School, a 2007 paper by R. Alison Felix of the Federal Reserve Bank of Kansas City, a 2009 paper by Robert Carroll of The Tax Foundation, and a 2010 paper by Wiji Arulampalam of the University of Warwick and Michael Devereux and Giorgia Maffini of Oxford.3 A recent Tax Notes article that I co-authored summarizes these various studies and also the lessons from the theoretical literature on the topic. The general consensus from theory and empirical work is that while we may argue academically about the size of the effect, there is no disagreement among economists that a sizeable burden of the corporate income tax is disproportionately felt by working Americans. On average, a $1 increase in corporate tax revenues could lead to a dollar or more decline in the wage bill.

Conservatives and liberals have the same goal. We both want to help the poor. Liberals think that taking money from the rich and giving it to the poor helps, but all it does it cause the rich to move their capital and jobs elsewhere, leaving the poor poorer. Conservatives let the rich keep their money and encourage them to risk it trying to make more money by engaging in enterprises that create wealth – creating products and services from less valuable raw materials. In a socialist system, the rich get poorer, but so do the poor. In a capitalist system, the rich get very rich, but the poor also gain more wealth. That’s what happens when corporations like Apple make IPads out of junky raw materials. That’s how wealth is created – by letting people who want to make things keep more of what they earn. We all benefit from encouraging people to make new things and provide value for their neighbors.

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