Taxes and trade (and an unfortunate Trump pick for Labor Sec’y)

December 8th, 2016 at 12:29 pm

Over at the WaPo: Crazy, I know, but let’s not do another big, wasteful, regressive tax cut.

In a similar vein, tax expenditures–credits, exemptions, deductions–are how we spend through the tax code. It’s a pretty hot mess and it’s likely to get hotter in the age of Trump. Over at TAP.

[While you’re over at TAP, check out Justin Miller’s takedown of Trump’s designee for Labor Sec’y, Andy Puzder, though his name should be: Zerep Mot (that’s the opposite of Tom Perez, who’s been nothing short of fantastic in this post).]

Finally, Dean Baker and I hold forth on when and why the trade deficit is a problem. Too many economists/policymakers brush trade deficits off as benign. Here’s why that’s a mistake, over at the Atlantic.

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7 comments in reply to "Taxes and trade (and an unfortunate Trump pick for Labor Sec’y)"

  1. Smith says:

    A critique of EITC in Justin Miller’s takedown of Trump’s designee for Labor Sec’y, Andy Puzder:

    As a solution, Puzder advocates for expanding the Earned Income Tax Credit (EITC), a policy that bolsters income for the working poor with federal dollars, getting employers off the hook for paying poverty-level wages. “It’s a form of corporate welfare. A full-time worker should not need the EITC,” says Judy Conti, federal advocacy coordinator for the worker advocacy group National Employment Law Project. “For private-sector employers who claim to be conservative to say that the answer is a federal subsidy for low-wage work that costs taxpayers’ money [rather than companies paying more] is pretty shocking and pretty transparently hypocritical.”

    The $15/hour minimum being phased in by 2020 and 2021 in California and New York dwarf any current assistance gained from EITC (max benefits are equivalent to just $2.50/hour of the increase).

    It tells you all you need to know about EITC that Trump’s designee supports it.


  2. Smith says:

    Also balancing trade by preventing currency manipulation is possibly necessary and definitely not sufficient.

    To save the 12 million manufacturing jobs left of our peak 18 million, measures must be undertaken to prevent closing profitable factories.

    Direct intervention like UTC is fine until an actual law gets passed which effectively prevent the moving of factories. This may involve various measures for companies to pay for externalities involved in eliminating jobs, thus diminishing or removing financial incentives to move. It could place restrictions on new factories on companies without labor rights, similar to ban on imports from child labor, and prison labor. It could invoke global environmental concerns that impose penalties for looser pollution restrictions (cap and don’t trade). There are many ways to do this without an outright ban that would be labeled socialist. We could insist workers have the right to purchase the factory, the government could help with financing.

    Tariffs are another tool which can be employed (See James Madison 1816 tariff to protect from cheap textiles from India.

    Not protecting workers while complaining about trade deficits, complaining about Trump while letting factories close, ignoring the need to keep factory jobs in the U.S. is what got us into this mess in the first place.

    Have people learning nothing yet from the election? The new agenda of fairer trade and better agreements, and better currency exchange doesn’t cut it. Wage differentials aren’t getting that smaller anytime soon. Ignoring that “fact” is what led to people without hope electing Trump. That’s what happens when Factville’s factories are farfalen.


  3. dwb says:

    I read your Atlantic article and I agree 100%, which as you probably know is somewhat unusual for me ;). I am glad people are finally getting beyond denial and anger to acceptance. Yes, Trump has essentially elevated the trade deficit, and it is a serious issue.

    I would make a couple of points:
    Re: “Large tariffs like the ones Trump has proposed won’t work, nor will preventing offshoring one company at a time, as he did with some of the jobs that the air-conditioning company Carrier was going to shift to Mexico”

    Carrier was symbolic. This is what new CEOs do, the pick something symbolic to set the tone.
    “Large tariffs” reflect Trump’s style of negotiation. Pick something we know will work, even if awful, and let other people come up with alternatives.

    It appears to people unfamiliar with this negotiation style be flip-flopping when he subsequently accepts the alternatives, but it really isn’t. It is more like persuasion: By going extreme he gets people to concede there is a problem. People are now conceding we have a trade deficit problem, see how that works? People are now in “no we cannot do that! lets see what else we can do mode.” This is how Trump drives the agenda, and honestly it works.

    The other point I would make is that my read of the BEA data on foreign direct investment is that 2/3 of it is going to “blue” states that went to Clinton. Midwest and the rust belt is seeing job losses and also not seeing the benefit of investment, double whammy.

    As for deficit spending and govt stimulus: People do not want to be government dependents. They do not under any circumstances want more bigger huger government. They would rather be a little poorer and free than rich government pets. They would rather have a private sector job than a govt check. The sooner economists accept that, the quicker we can fix this.


    • Smith says:

      1) Everyone recognizes Carrier is partly symbolic, it’s Trump’s Air Traffic Controller Moment. But the same people saying Carrier is a one-off are the same who said Trump was a flash-in-the-pan.
      2) The opening negotiating position strategy is a) What Trump himself repeatedly admits is how he conducts business and b) Echos the critique that Krugman repeatedly made of Obama negotiations, why was Obama always using his centrist endpoint as his opening bid and then having to compromise always in the Republican’s favor.
      3) Krugman had a recent blog that dismissed the benefits of investing in the Rust Belt, which weirdly is convincingly disputed by the link he provides. What can’t be disputed is that it should be easier to save profitable factory jobs than to create jobs out of mid-air. Why didn’t Obama and Clinton do the exact same thing to save Carrier jobs? Guess whose job also would have been saved? But I’m guessing Clinton doesn’t worry where her next paycheck or meal is coming from. And Obama wanted TPP.
      4) Liberals and Conservatives should agree small government and no handouts are the goal where the idea is to reduce EITC, TANF, and SNAP to next to nothing by reducing the need. Universal benefits like childcare, living minimum wage, healthcare, Social Security, Medicare, free public schools, fireman, police, sewers are of a different sort.


  4. deplorable says:

    you anc baker get closer to the truth tham most ecomomists.

    but you get quite there. go there once ans see what it looks like.


  5. Pinkybum says:

    It seems a bit churlish to criticize every single Trump appointee. Are there really any good administration officials going to be appointed? Have any yet?


  6. Smith says:

    How would the end of currency manipulation close the trade balance? China and Mexico are plagued by much greater inequality, and China especially is an export dependent economy, and both have large wage differentials not going away anytime soon. If you can’t close a trade gap with Germany and Japan which have developed world wage scales and a viable consumer sector of the economy, what hope do you have with China and Mexico. Couldn’t Chinese oligarchs spend their American dollars buying American factories which sell American goods to Americans? When exactly would the Chinese run out of American dollars they already have and keep getting and have to start using Renminbi? Didn’t Krugman already say they’ve been propping up the Renminbi lately?

    My point is that ending currency manipulation or even balanced trade with China (maybe 15 years from now at earliest if the entire leadership and military and oligarchs were replaced with pod people today), would not save the factory jobs. But they can be saved. Do something before 100% of auto production is moved.


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