David Llewellyn-Smith sums up Australian Treasurer Scott Morrison’s Budget with one chart:
According to Treasury, Australia’s terms of trade are going to settle at a gentlemanly plateau far higher than they have even been in history outside of the China boom.
Source: Welcome to the Banana Republic Budget – MacroBusiness
By Leith van Onselen. Reproduced with kind permission from Macrobusiness.
The Australian’s Adam Creighton has written a ripper post explaining why, in the wake of tax avoidance scandals (e.g. multinational and the Panama Papers), a broad-based land tax is needed more than ever, but will never see the light of day due to vested interests and weak politicians:
Windfall gains to private land owners stemming from developments outside their control are a far better object for taxation than income and consumption, which prop up vast avoidance industries…
Taxes on land are unique economically because they can’t be avoided and they don’t distort supply…
In fact, over time land tax (which should apply only to the unimproved part) could even reduce rents by encouraging development, including more apartments, on undeveloped land…
Land taxes may well be fairer, too. Just as the owners of land adjacent to new railway stations have done nothing to generate their windfall, land owners don’t lift a finger to generate increases in unimproved land values…
A comprehensive national, flat rate tax on unimproved land taxes was part of Labor’s platform from 1891 to 1905. The party should consider resurrecting this policy and using the proceeds entirely to slash personal income and/or company tax to unleash a productivity, investment and spending boom. This would help affordability; property prices would automatically fall…
A 1 per cent annual land tax without any exemptions could raise around $44bn based on the ABS’s estimates…
The economic ignorance and self-interest of land owners will, however, prevent any shift towards land tax, however beneficial it might be in the long run for almost everyone.
Vested interests would launch a hysterical defence of existing arrangements, wrongly claiming poor renters would be harmed.
Others would argue even stupid policies can’t be changed because some people have arranged their affairs around them.
Creighton has nailed it.
Land taxes are one of the most efficient sources of tax available, actually creating positive welfare gains to the domestic population of $0.10 for each dollar raised, since non-resident home owners are also taxed (see below Treasury chart).
Even just switching inefficient stamp duties (which cost the economy $0.70 per dollar raised) to a broad-based land tax would produce an estimated 1.5% increase in GDP, or $24 billion, without changing the amount of tax raised.
Unfortunately, while the arguments for shifting the tax base towards land taxes are impeccable, there are several key factors holding politicians back.
Consider the proposal to merely junk stamp duties in favour of a broad-based land tax levied on all land holders.
As shown by the RBA, only around 6% of the housing stock is transacted on average in a given year:
This means that in a given year, only a small minority of households pay stamp duty (albeit tens-of-thousands of dollars of dollars). And once they pay it, they automatically become a roadblock to reform (“why should I pay tax twice”, is the common retort).
While having such a small group of taxpayers supporting services for the whole community is ridiculous, rather than governments sharing the tax burden by levying each household a much smaller amount on a regular basis, it is far easier politically to tax a small group than everyone.
The other major roadblock with land taxes is that they would be levied on retirees that are asset (house) rich but cash poor. They would, therefore, squeal like stuffed pigs if they were required to pay tax.
The obvious solutions to these roadblocks are:
However, even with such arrangements in place, politicians would still face the option of maintaining the status quo and taxing only a small number of people each year (easy) versus reforming and taxing almost everyone (hard).
Add in a fierce scare campaign from the property lobby – especially if land taxes were extended beyond just stamp duties to replace income taxes – and the likelihood of achieving meaningful reform is slim, especially with the current useless crop of politicians.
From Unconventional Economist at Macrobusiness:
…..George is back, this time with The Australian Panic in a new Quarterly Essay:
In this urgent essay, George Megalogenis argues that Australia risks becoming globalisation’s next and most unnecessary victim. The next shock, whenever it comes, will find us with our economic guard down, and a political system that has shredded its authority. Megalogenis outlines the challenge for Malcolm Turnbull and his government. Our tax system is unfair and we have failed to invest in infrastructure and education. Both sides of politics are clinging defensively to an old model because it tells them a reassuring story of Australian success. But that model has been exhausted by capitalism’s extended crisis and the end of the mining boom. Trusting to the market has left us with gridlocked cities, growing inequality and a corporate sector that feels no obligation to pay tax. It is time to redraw the line between market and state.
Balancing Act is a passionate look at the politics of change and renewal, and a bold call for active government. It took World War II to provide the energy and focus for the reconstruction that laid the foundation for modern Australia. Will it take another crisis to prompt a new reconstruction?
I think George has it right this time.
Source: Megalogenis: From Australian Moment to Australian Panic! – MacroBusiness
Thanks to Ody for posting this on IC forum. I feel it is worth repeating here because of the current debate around negative gearing.
Axe negative gearing for a healthier property market
Apr 25, 2011: Saul EslakeThe property market would look a lot healthier without it, writes Saul Eslake.
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For almost a quarter of a century, successive Australian governments have, with varying degrees of enthusiasm, sought to promote higher levels of participation in employment, and higher levels of personal saving.These are both worthy objectives, ones which public policy should seek to promote. It’s therefore surprising that successive governments have not merely been content to maintain a tax system that taxes income from working and saving at higher rates than those at which it taxes income from borrowing and speculating, but have either increased the extent to which income from borrowing and speculating is treated more favourably by the tax system, or explicitly rejected sensible proposals to balance incentives between the two as Wayne Swan did in May last year when ruling out recommendations made by the Henry Review.
Under the taxation system, income from working – that is, wages and salaries – is taxed at higher marginal rates than any other kind of income: 31.5 per cent for most Australians with full-time jobs (earning between $37,000 and $80,000 a year), 38.5 per cent for those earning over $80,000 a year and 46.5 per cent for those earning over $180,000 a year.
Income from deposits in banks, building societies and credit unions is taxed at the same marginal rates.
For those contemplating entering, or re-entering, paid employment (say, after a period of caring for children or aged parents) the impact of tax on income from work can result in effective marginal tax rates of close to, or even over, 60 per cent, on what are quite modest levels of income. The Henry Review concluded that ”some people [are] likely to reduce their level of work as a result” of these very high effective marginal tax rates. This may be one reason why the workforce participation rates of women with children, and older people, are lower here than in other OECD countries.
By contrast, income from most forms of investment, other than interest-bearing deposits, is typically taxed at lower rates than similar amounts of income derived from working. Income from saving through superannuation funds, and from ”geared” investments (that is, the purchase of assets funded by borrowing) is especially lightly taxed.
The review calculated that, for a top-rate taxpayer, the real effective marginal tax rates (after taking account of inflation assumed to average 2.5 per cent per annum, and the time at which tax is payable) on income earned from superannuation savings or highly-geared property investments are actually negative, while the real effective marginal tax rate on interest income from deposits can be as high as 80 per cent.
Very few other ”advanced” economies are as generous in their tax treatment of geared investments as Australia is. In the United States, investors can only deduct interest incurred on borrowings undertaken to purchase property or shares up to the amount of income (dividends or rent) earned in any given financial year; any excess of interest expense over income (as in a ”negatively geared” investment) must be ”carried forward” as a deduction against the capital gains tax payable when the asset is eventually sold.
In Australia, by contrast, that excess can be deducted against a taxpayer’s other income (such as wages and salaries) thereby reducing the amount of tax otherwise payable on that other income.
The Howard government’s decision in 1999 to tax capital gains at half the rate applicable to wage and salary income, converted negative gearing from a vehicle allowing taxpayers to defer tax on their wage and salary income (until they sold the property or shares which they had purchased with borrowed money), into one allowing taxpayers to reduce their tax obligations (by, in effect, converting wage and salary income into capital gains taxed at half the normal rate) as well as deferring them.
As a result, ”negative gearing” has become much more widespread over the past decade, and much more costly in terms of the revenue thereby foregone. In 1998-99, when capital gains were last taxed at the same rate as other types of income (less an allowance for inflation), Australia had 1.3 million tax-paying landlords who in total made a taxable profit of almost $700 million.
By 2008-09, the latest year for which statistics are available, the number of landlords had risen to just under 1.7 million: but they collectively lost $6.5 billion, largely because the amount they paid out in interest rose almost fourfold (from just over $5 billion to almost $20 billion over this period), while the amount they collected in rent only slightly more than doubled (from $11 billion to $26 billion), as did other (non-interest) expenses. If all of the 1.1 million landlords who in total reported net losses in 2008-09 were in the 38 per cent income tax bracket, their ability to offset those losses against their other taxable income would have cost over $4.3 billion in revenue foregone; if, say, one fifth of them had been in the top tax bracket then the cost to revenue would have been over $4.6 billion.
This is a pretty large subsidy from people who are working and saving to people who are borrowing and speculating. And it’s hard to think of any worthwhile public policy purpose which is served by it. It certainly does nothing to increase the supply of housing, since the vast majority of landlords buy established properties: 92 per cent of all borrowing by residential property investors over the past decade has been for the purchase of established dwellings, as against 82 per cent of all borrowing by owner-occupiers.
For that reason, the availability of negative gearing contributes to upward pressure on the prices of established dwellings, and thus diminishes housing affordability for would-be home buyers.
Supporters of negative gearing argue that its abolition would lead to a ”landlords’ strike”, driving up rents and exacerbating the existing shortage of affordable rental housing. They point to ”what happened” when the Hawke government abolished negative gearing (only for property investment) in 1986, claiming that it led to a surge in rents, which prompted the reintroduction of negative gearing in 1988.
This assertion has attained the status of an urban myth. However it’s actually not true. If the abolition of ”negative gearing” had led to a ”landlords’ strike”, then rents should have risen everywhere (since ”negative gearing” had been available everywhere). In fact, rents (as measured in the consumer price index) actually only rose rapidly (at double-digit rates) in Sydney and Perth. And that was because rental vacancy rates were unusually low (in Sydney’s case, barely above 1 per cent) before negative gearing was abolished. In other state capitals (where vacancy rates were higher), growth in rentals was either unchanged or, in Melbourne, actually slowed.
Notwithstanding this history, suppose that a large number of landlords were to respond to the abolition of negative gearing by selling their properties. That would push down the prices of investment properties, making them more affordable to would-be home buyers, allowing more of them to become home owners, and thereby reducing the demand for rental properties in almost exactly the same proportion as the reduction in the supply of them. It’s actually quite difficult to think of anything that would do more to improve affordability conditions for would-be home buyers than the abolition of ”negative gearing”.
There’s absolutely no evidence to support the assertion made by proponents of the continued existence of ”negative gearing” that it results in more rental housing being available than would be the case were it to be abolished (even though the Henry Review appears to have swallowed this assertion). Most other ”advanced” economies don’t have ”negative gearing”: yet most other countries have higher rental vacancy rates than Australia does.
I’m not advocating that ”negative gearing” be abolished for property investments only, as happened between 1986 and 1988. That would be unfair to property investors. Personally, I think negative gearing should be abolished for all investors, so that interest expenses would only be deductible in any given year up to the amount of investment income earned in that year, with any excess ”carried forward” against the ultimate capital gains tax liability. But I’d settle for the review’s recommendation, which was that only 40 per cent of interest (and other expenses) associated with investments be allowed as a deduction, and that capital gains (and other forms of investment income, including interest on deposits) be taxed at 60 per cent (rather than 50 per cent as at present) of the rates applicable to the same amounts of wage and salary income.
This recommendation would not amount to the abolition of ”negative gearing”; it would just make it less generous. It would be likely, as the review suggested, ”to change investor demand towards housing with higher rental yields and longer investment horizons [and] may result in a more stable housing market, as the current incentive for investors to chase large capital gains in housing would be reduced”.
Sadly, these recommendations were among the 19 that the Treasurer explicitly ruled out when releasing the review last year. That makes it hard to believe that this government (or indeed any alternative government) is serious about increasing the incentives to work and save – or at least, about doing so without risking the votes of those who borrow and speculate, in effect subsidised by those who don’t, or can’t.
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Saul Eslake is a Program Director with the Grattan Institute. The views expressed here are his own.
Saul’s suggestion of carrying forward losses rather than writing them off against other income is a good one. But I would go a lot further with tax reform:
While a comprehensive 10% tax on all income and capital gains would raise a substantial sum, there is bound to be a shortfall compared to the current system. My solution would be a land tax (similar to local council rates), excise taxes (alcohol, petrol and tobacco), and a flat rate of GST on all goods (including basic foods and medicine) to balance the budget.
Some would argue that this would increase the tax burden for the poorest families, but that could easily be addressed through food stamps or “rent stamps” for families on welfare. Land tax is a highly progressive (the opposite of “regressive”) tax that is closely correlated to wealth rather than income. The overall aim would be to encourage GDP growth by removing the burden of a complex income tax system with high marginal rates that serve as a disincentive to create additional income. Simplicity would improve fairness, minimize avoidance and reduce the cost of reporting and administration.
….Don’t hold your breath.
Interesting view from Antony Ting, Associate Professor at University of Sydney:
Is negative gearing in accordance with well-established tax rules? A fundamental principle in the tax law is that a taxpayer should be able to deduct expenses only if the expenses have been incurred to generate assessable income.
This is why an employee can only deduct expenses that are sufficiently related to work. For example, a funeral director at tropical Queensland would be able to deduct the cost of his black jacket (but not his black trousers) because the ATO believes that no rational person – except a funeral director – would wear a black jacket in such a hot place.
Should mortgage interest on an investment property be deductible? Investment properties generate two kinds of income: rental income and capital gains (if any). As capital gains on investment property can enjoy a 50% tax discount if the property has been held for at least a year, strictly speaking only 50% of the interest expenses related to the capital gain should be deductible.
……Many countries resolve this issue by quarantining losses on investment properties. It means that losses generated from negative gearing cannot be used to offset against other sources of income, for example, salaries or business income. Instead, the losses can be carried forward to future years to offset against income from the investment properties.
Quarantining losses seems fairer than limiting deductibility of losses to the 50% discount normally available on capital gains. But the situation gets more complicated when the property is sold. Can accumulated losses never be deducted against gains on other assets or should they be offset against any capital gain made on disposal of the property? And if the result is a net capital loss should this be allowed to be offset against gains on other properties? We need a system that is fundamentally fair.
Read more at Why negative gearing is not a fair tax policy.
Interesting article by Robin Christie | 16 Jul 2015
Property levies could be the key to fixing state and territory budgets, and could raise as much as $7 billion a year, the Grattan Institute has claimed.
Grattan’s ‘Property Taxes’ report…..explores how imposing a broad-based property levy could help Australia’s state and territory governments to boost their deteriorating budgets.
According to the report, a levy of just two dollars for every $1,000 of unimproved land value would raise $7 billion a year.
…….While it accepts that property taxes can be unpopular because they are highly visible and hard to avoid, it states that they are also both efficient and fair. In addition, it argues that property taxes don’t change incentives to work, save and invest.
“Our proposal is manageable for property landowners, and protects low-income people,” said Daley. “Low-income retirees with high-value houses could defer paying the levy until their house is sold.”
Key points
According to the paper, other key arguments in favour of property taxes include:
Unlike capital, property is immobile – it cannot shift offshore to avoid taxes.
Over the last 25 years, taxes on property and property transactions have been the only significant growth taxes for states, with revenues keeping pace with the economy.
Shifting from stamp duty to a property levy would provide more stable revenues for states, and add up to $9 billion in annual GDP.
“Concerns about the risks of multinational tax avoidance, the increasing mobility of capital around the world, and the increasing value of residential property relative to incomes, should make property taxes a priority in any tax reform,” states the paper.
“Higher property taxes could also be used to fund the reduction and eventual abolition of state stamp duties on property. Stamp duties are among the most inefficient and inequitable taxes available to states, and their revenues are inherently volatile.”
Abolition of stamp duties would remove the temptation for State governments to restrict land release, driving up prices in order to increase stamp duty revenue. But high prices act as a deterrent for young families to purchase their own homes. Land taxes instead would create an incentive for states to release new land for development, widening property ownership and their tax base.
Read more at Could a new property tax save the economy?.
Let us start with Warren Buffet’s favorite market valuation ratio: stock market capitalization to GDP. I have modified this slightly, replacing GDP with GNP, because the former excludes offshore earnings — a significant factor for multinationals.
The ratio of stock market capitalization to GNP now exceeds the highs of 2005/2006, suggesting that stocks are over-valued — approaching the heady days of the Dotcom era.
If we dig a bit deeper, however, while the ratio of market cap to sales is also high, market cap to corporate profits remains low.
Clearly profit margins have widened, with corporate profits increasing at a faster rate than sales. The critical question: is this sustainable?
At some point profit margins must narrow in response to rising costs. Increases in aggregate demand may lift employment and sales, but also drive up labor costs.
The brown line above depicts labor costs as a percentage of net value added, compared to corporate profits (blue) as a percentage of net value added. There is a clear inverse relationship: when labor costs rise, profit margins fall (and vice versa). At first the effect of narrower margins is masked by rising sales, but eventually aggregate profits contract when sales growth slows (gray stripes indicate past recessions).
Other contributing factors to high corporate profits are interest rates and taxes. Corporate profits (% of GNP) have soared over the last 30 years as bond yields have fallen. The benefit is two-fold, with lower interest rates reducing the cost of corporate debt and lower finance costs boosting sales of consumer durables.
Lower effective corporate tax rates (gray) have also contributed to the surge in profits as a percentage of GNP.
The most enduring of these three factors (labor costs, interest rates, and tax rates) is likely to be taxes. Corporate tax rates have fallen in most jurisdictions and US rates are high by comparison. Even if a long-overdue overhaul of corporate taxation is achieved in the next decade (don’t hold your breath), the overall tax rate is likely to remain low.
The other two factors (labor costs and interest rates) may not be sustainable in the long-term but it will take time for them to normalize.
Treasury yields are rising, with the 10-year at 2.37 percent. Breakout above 3.0 percent still appears some way off, but would confirm the end of the 35-year secular down-trend.
Interest rates are likely to remain low until rising labor costs force the Fed to adopt a restrictive stance.
Labor markets have tightened to some extent, as indicated by the higher trough on the right of the above graph. But this is likely to be slowed by the low participation rate, with potential employees returning to the workforce, and a strong dollar enhancing the attraction of cheap labor in emerging markets.
Hourly earnings growth in the manufacturing sector remains comfortably below the Fed’s 2.0 percent inflation target. Any breakout above this level, however, would be cause for concern. Not only would the Fed be likely to raise interest rates, but profit margins are likely to shrink.
None of the macroeconomic and volatility filters that we monitor indicate elevated market risk. I expect them to rise over the next two to three years as the labor market tightens and interest rates increase, but for the present we maintain full exposure to equities.
Economic Policy Institute President Lawrence Mishel provides the U.S. House Committee on Education and the Workforce with a shopping list of measures he believes are necessary to achieve full employment. Some are right on the mark while others seem to have missed the basic rules of Supply and Demand taught in Econ 101. My comments are in bold.
The goals that economic policy must focus on are, thus, creating jobs and reaching robust full employment, generating broad-based wage growth, and improving the quality of jobs.
Jobs
Policies that help to achieve full employment are the following:
1. The Federal Reserve Board needs to target a full employment with wage growth matching productivity.
The most important economic policy decisions being made about job growth in the next few years are those of the Federal Reserve Board as it determines the scale and pace at which it raises interest rates. Let’s be clear that the decision to raise interest rates is a decision to slow the economy and weaken job and wage growth. There are many false concerns about accelerating wage growth and exploding inflation based on the mistaken sense that we are at or near full employment. Policymakers should not seek to slow the economy until wage growth is comfortably running at the 3.5 to 4.0 percent rate, the wage growth consistent with a 2 percent inflation target (since trend productivity is 1.5 to 2.0 percent, wage growth 2 percent faster than this yields rising unit labor costs, and therefore inflation, of 2 percent). The key danger is slowing the economy too soon rather than too late.
Fed monetary policy should not target one sector of the economy (i.e. wages) but the whole economy (i.e. nominal GDP).
2. Targeted employment programs
Even at 4 percent unemployment, there will be many communities that will still be suffering substantial unemployment, especially low-wage workers and many black and Hispanic workers. To obtain full employment for all, we will need to undertake policies that can direct jobs to areas of high unemployment……
Government programs don’t create jobs, they merely redistribute income from the taxed to the subsidised.
3. Public investment and infrastructure
There is widespread agreement that we face a substantial shortfall of public investment in transportation, broadband, R&D, and education. Undertaking a sustained (for at least a decade) program of public investment can create jobs and raise our productivity and growth…..
Agree. But we must invest in productive assets that generate income that can be used to repay the debt. Else we are left with a pile of debt and no means to repay it.
Policies that do not help us reach full employment include:
1. Corporate tax reform
There are many false claims that corporate tax reform is needed to make us competitive and bring us growth. First off, the evidence is that the corporate tax rates U.S. firms actually pay (their “effective rates”) are not higher than those of other advanced countries. Second, the tax reform that is being discussed is “revenue neutral,” necessarily meaning that tax rates on average are actually not being reduced; for every firm or sector that will see a lower tax rate, another will see a higher tax rate. It is hard to see how such tax reform sparks growth.
Zero-sum thinking. If we want to increase employment, we need to increase investment. Tax rates and allowances should encourage domestic investment rather than offshore expansion.
2. Cutting taxes
There will surely be many efforts in this Congress to cut corporate taxes and reduce taxes on capital income (e.g., capital gains, dividends) and individual marginal tax rates, especially on those with the highest incomes. It’s easy to see how those strategies will not work….
Same as above. We need to encourage investment by private corporations.
3. Raising interest rates
There are those worried about inflation who are calling on the Federal Reserve Board to raise interest rates soon and steadily thereafter. Their fears are, in my analysis, unfounded. But we should be clear that those seeking higher interest rates are asking our monetary policymakers to slow economic growth and job creation and reflect a far-too-pessimistic assumption of how far we can lower unemployment, seemingly aiming for unemployment at current levels or between 5.0 and 5.5 percent….
Agreed. Raising interest rates too soon is as dangerous as raising too late.
Wage growth
It is a welcome development that policymakers and presidential candidates in both parties have now acknowledged that stagnant wages are a critical economic challenge…… Over the 40 years since 1973, there has been productivity growth of 74 percent, yet the compensation (wages and benefits) of a typical worker grew far less, just 9 percent (again, mostly in the latter 1990s)……
Wage stagnation is conventionally described as being about globalization and technological change, explanations offered in the spirit of saying it is caused by trends we neither can nor want to restrain. In fact, technological change has had very little to do with wage stagnation. Such an explanation is grounded in the notion that workers have insufficient skills so employers are paying them less, while those with higher wages and skills (say, college graduates) are highly demanded so that employers are bidding up their wages…….
Misses the point. Technology has enabled employers in manufacturing, finance and service industries to cut the number of employees to a fraction of their former size.
Globalization has, in fact, served to suppress wage growth for non-college-educated workers (roughly two-thirds of the workforce). However, such trends as import competition from low-wage countries did not naturally develop; they were pushed by trade agreements and the tolerance of misaligned and manipulated exchange rates that undercut U.S. producers.
This small paragraph hits on the key reason for wage stagnation in the US. Workers are not only competing in a global labor market, but against countries who have manipulated their exchange rate to gain a competitive advantage.
There are two sets of policies that have greatly contributed to wage stagnation that receive far too little attention. One set is aggregate factors, which include factors that lead to excessive unemployment and others that have driven the financialization of the economy and excessive executive pay growth (which fueled the doubling of the top 1 percent’s wage and income growth). The other set of factors are the business practices, eroded labor standards, and weakened labor market institutions that have suppressed wage growth. I will examine these in turn.
Aggregate factors
1. Excessive unemployment
Unemployment has remained substantially above full employment for much of the last 40 years, especially relative to the post-war period before then. Since high unemployment depresses wages more for low-wage than middle-wage workers and more for middle-wage than high-wage workers, these slack conditions generate wage inequality. ……
The excessive unemployment in recent decades reflects a monetary policy overly concerned about inflation relative to unemployment and hostile to any signs of wage growth……
2. Unleashing the top 1 percent: finance and executive pay
The major forces behind the extraordinary income growth and the doubling of the top 1 percent’s income share since 1979 were the expansion of the finance sector (and escalating pay in that sector) and the remarkable growth of executive pay …… restraining the growth of such income will not adversely affect the size of our economy. Moreover, the failure to restrain these incomes leaves less income available to the vast majority……
Zero-sum thinking.
Labor standards, labor market institutions, and business practices
There are a variety of policies within the direct purview of this committee that can greatly help to lift wage growth:
1. Raising the minimum wageThe main reason wages at the lowest levels lag those at the middle has been the erosion of the value of the minimum wage, a policy undertaken in the 1980s that has never fully been reversed. The inflation-adjusted minimum wage is now about 25 percent below its 1968 level……
Will reduce demand for domestic labor and increase demand for offshoring jobs.
2. Updating overtime rules
The share of salaried workers eligible for overtime has fallen from 65 percent in 1975 to just 11 percent today……
This will continue for as long as the manufacturing sector is white-anted by offshoring jobs.
3. Strengthening rights to collective bargaining
The single largest factor suppressing wage growth for middle-wage workers over the last few decades has been the erosion of collective bargaining (which can explain one-third of the rise of wage inequality among men, and one-fifth among women)……
How will this improve Supply and Demand?
4. Regularizing undocumented workers
Regularizing undocumented workers will not only lift their wages but will also lift wages of those working in the same fields of work…..
How will this improve Supply and Demand?
5. Ending forced arbitration
One way for employees to challenge discriminatory or unfair personnel practices and wages is to go to court or a government agency that oversees such discrimination. However, a majority of large firms force their workers to give up their access to court and government agency remedies and agree to settle such disputes over wages and discrimination only in arbitration systems set up and overseen by the employers themselves…..
How will this improve Supply and Demand?
6. Modernizing labor standards: sick leave, paid family leave
We have not only seen the erosion of protections in the labor standards set up in the New Deal, we have also seen the United States fail to adopt new labor standards that respond to emerging needs……
No issue with this. But how will it improve Supply and Demand?
7. Closing race and gender inequities
Generating broader-based wage growth must also include efforts to close race and gender inequities that have been ever present in our labor markets…….
No issue with this. But how will it improve Supply and Demand?
8. Fair contracting
These new contracting rules can help reduce wage theft, obtain greater racial and gender equity and generally support wage growth……No issue with this. But how will it improve Supply and Demand?
9. Tackling misclassification, wage theft, prevailing wages
There are a variety of other policies that can support wage growth. Too many workers are deemed independent contractors by their employers when they are really employees……
No issue with this. But how will it improve Supply and Demand?
Policies that will not facilitate broad-based wage growth
1. Tax cuts: individual or corporate
The failure of wages to grow cannot be cured through tax cuts. Such policies are sometimes offered as propelling long-run job gains and economic growth (though they are not aimed at securing a stronger recovery from a recession, as the conservatives who offer tax cuts do not believe in counter-cyclical fiscal policy). These policies are not effective tools to promote growth, but even if they did create growth, it is clear that growth by itself will not lift wages of the typical worker…….
Zero-sum thinking. Compare economic growth in high-tax countries to growth in low tax countries and you will find this a highly effective policy tool.
2. Increasing college or community college completion
……advancing education completion is not an effective overall policy to generate higher wages……. What is needed are policies that lift wages of high school graduates, community college graduates, and college graduates, not simply a policy that changes the number of workers in each category.
Better available skills-base leads to increased competitiveness in global labor market and more investment opportunities in the domestic market.
3. Deregulation
There is no solid basis for believing that deregulation will lead to greater productivity growth or that doing so will lead to wage growth. Deregulation of finance certainly was a major factor in the financial crisis and relaxing Dodd–Frank rules will only make our economy more susceptible to crisis.
What we need is (simple) well-regulated markets rather than (complex) over-regulation.
4. Policies to promote long-term growth
Policies that can substantially help reduce unemployment in the next two years are welcomed and can serve to raise wage growth. Policies aimed at raising longer-term growth prospects may be beneficial but will not help wages soon or necessarily lead to wage growth in future years. This can be seen in the decoupling of wage growth from productivity over the last 40 years. Simply increasing investments and productivity will not necessarily improve the wages of a typical worker. What is missing are mechanisms that relink productivity and wage growth. Without such policies, an agenda of “growth” is playing “pretend” when it comes to wages.
Long-term investment is the only way forward. To dismiss this in favor of short-term band-aid solutions is nuts!
My proposal is a lot simpler, consisting of only five steps:
Glenn Hubbard, former Chairman of the Council of Economic Advisers under President George W. Bush, and Dean of Columbia Business School proposes:
….two policies are particularly promising for such a “Pact for America”: federal infrastructure spending and corporate-tax reform. Enactment of these reforms would generate a win for each side – and for both.
But such a bipartisan consensus requires removing both the left and the right’s ideological blinders, at least temporarily. On the left, a preoccupation with Keynesian stimulus reflects a misunderstanding of both the availability of measures shovel-ready projects and their desirability whether they will meaningfully change the expectations of households and businesses. Indeed, to counteract the mindset forged in the recent financial crisis, spending measures will need to be longer-lasting if they are to raise expectations of future growth and thus stimulate current investment and hiring.
The right, for its part, must rethink its obsession with temporary tax cuts for households or businesses. The impact of such cuts on aggregate demand is almost always modest, and they are poorly suited for shifting expectations for recovery and growth in the post-financial-crisis downturn….
Read more at A Growth Pact for America by Glenn Hubbard – Project Syndicate.
Abbott’s federation reform push is sound | | MacroBusiness http://t.co/S8pMt7U7vm
— Colin Twiggs (@Colin_Twiggs) October 27, 2014
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