Must Reads: The Economist has a special report looking at the balancing act between "companies and the state" and the growing antagonism in the relationship. Josh Ishimatsu over at the Shelterforce blog has a thought-provoking post on how the debate over the war on poverty is really "a proxy argument for a larger conflict about the role of government" and other cultural and philosophical fights. And in the New Yorker, James Surowiecki argues social mobility in the United States is a myth and that public policy should focus on "raising [the majority's] standard of living, instead of raising their chances of getting rich."
“We found in these cross-border comparisons that employment did not decline on the higher wage side of the border,’’ said Michael Reich, one of three authors. The research found that employers in places in the U.S. where the minimum wage was higher, as in eastern Washington, had an easier time recruiting and retaining workers, said Reich, who directs Berkeley's Institute for Research on Labor and Employment. “As a result, they saved on hiring and turnover costs, as well as the costs of not being able to fill all their vacancies," he said. "Increased labor supply, together with small price increases in restaurants, could explain why we did not find employment moving to lower wage areas, such as in western Idaho.’’
Meanwhile in Barrons, Gene Epstein contends there are better ways to help poor people than "micromanaging the labor market":
Jobs that provide even little or no wage—like unpaid internships—sometimes offer the best on-the-job training. A Wall Street Journal story early last year pointed out that Democratic politicians like Minnesota Sen. Al Franken "advocate...a higher wage floor," except in their congressional offices, where all the internships are unpaid. Franken is quoted as pointing out that "interns will receive unique career development opportunities"—wise words, although honored in the breach when it comes to Franken's support of wage floors for others. Critics will respond that abolition of wage minimums will cause rampant exploitation. All-powerful employers will set the wages of the low-skilled at subsistence, while the prices they charge customers will be as high as ever. However, the critics might be surprised to learn that the share of hourly workers earning the federal minimum wage or less has fallen significantly over the long term. While the inflation-adjusted federal minimum in 1980 was about the same as in 2010, Bureau of Labor Statistics data show that the share of workers at the federal minimum or less has plummeted, from 15.1% in 1980 to 6% by 2010, and to 4.7% by 2012—a trend that tends to belie the idea of employer omnipotence.
The University of Georgia's Jeffrey Dorfman over at Real Clear Markets says raising the minimum wage is an expensive way to help the poor:
If this is a problem that needs addressing, the more logical approach is to increase the Earned Income Tax Credit. Raising the minimum wage forces business owners and their customers to bear the cost of an income redistribution scheme when neither the customers nor business owners are guaranteed to be richer than the workers getting the raise (especially given that 22 percent of the redistribution will be to families making over $75,000 per year). Further, as much as 90 percent of all the benefits will go to households already above the poverty line. The Earned Income Tax Credit was specifically designed to provide targeted income support to working families who were not earning enough to reach an adequate standard of living. Increasing the EITC would ensure that the extra income redistribution would go only to those truly in need (especially if the IRS cracked down on the fraud in the program). Using the EITC would also mean that the bill would go to all taxpayers, which would mean that poor families that go out to eat at fast food restaurants would pay very little of an increase in the EITC compared to their burden if the minimum wage is increased and business owners subsequently raise their prices.
Check out this cartoon also from Khalil Bendib over at OtherWords:
Wall Street’s private equity barons would also be hit hard by a proposal to end the controversial ‘carried interest’ rule which lets them avoid income tax by paying themselves through profits treated as capital gains and taxed under lower rates than those to which income is typically subject. Together with new taxes on insurers, [David] Camp [the bill's sponsor] said the increased revenue from Wall Street would help pay for a cut in US corporate tax rates, from 35% to 25%, and would ensure that the overall package of personal and business taxes he announced was revenue neutral.
You might be interested in this Politico article on how some firms want the bank tax to die and are "telling key Republican players in D.C. that commitments for big-dollar fundraising have been 'canceled for the foreseeable future.'" Over at the Curious Capitalist blog, Rana Foroohar had this to say about what she likes and doesn't like about the proposal:
[Likes] An across the board cut in the corporate tax rate from 35 to 25 % — but only if many loopholes are closed, too. It’s true that U.S. taxes are high on an international basis – and you can make an argument that if they were lower, it would encourage more investment here at home. But it’s an argument that only holds if the companies end up paying the 25 % (currently, many corporates pay under 20 % even though the official rate is 35 %, thanks to the many corporate loopholes created by industry lobbying)... [Doesn't like] The “tougher” tax regime for private equity and hedge funds isn’t tough enough. Capital gains and dividend taxes would increase from 23.8 % to 24.8 %. Under the Camp plan, capital gains and dividends would be taxed at the ordinary rate, but with a 40 % exclusion (which takes you to 21 %, to which you add the 3.8 % Affordable Care Act surtax). While I am glad that a Republican is finally putting the idea of higher taxes on investment income up for grabs, I still have to ask – why does making money from money require a special deduction? If anything, investment income should be taxed at a higher rate than income earned by labor. This does not get us to where we need to be to bridge the gap between Warren Buffett and his secretary.
The Economic Policy Institute's Thomas Hungerford discusses how to get corporate profits invested in the United States and not sitting in offshore accounts:
The principal problem with the current corporate tax system is the erosion of corporate income tax base. Multinational corporations have used aggressive tax planning techniques to shift profits from the U.S. (and other high-tax countries) to tax havens, which has led to a dramatic build-up of earnings in tax havens over the past 10 to 15 years. Consequently, many large corporations pay low or even no federal income taxes. And, despite rising corporate profits, corporate tax receipts have been falling as a proportion of total federal revenue. Money sitting in tax havens is money that is not invested productively in the United States (or anywhere else for that matter). But the solution is fairly simple—eliminate the largest corporate tax expenditure, which is deferral. As long as multinational corporations can defer paying U.S. income tax on foreign-source income, they have an incentive to shift profits and “invest” overseas. Eliminating deferral eliminates this incentive and could increase corporate income tax revenues by $50 billion per year. Firms would no longer base investment decisions on the tax implications of those decisions. Of course, not all of the overseas income of U.S. multinational corporations would be invested in the U.S., but more would be invested in the U.S. than is the case now.
And Brooking's Robert Pozen in the Wall Street Journal had this to say about how to tackle taxes and repatriating funds:
Politicians disagree about how to remedy this problem. Some Democrats want to end deferral and tax all foreign corporate profits at 25% or 30%. That would put U.S. corporations at a tremendous disadvantage compared with non-U.S. firms. Some Republicans want a pure territorial system: Foreign profits would be taxed only in the country where they are earned. Under that system, more facilities would be relocated to foreign countries with minimal corporate tax rates. As a compromise, I propose a global competitiveness tax of roughly 17% on all foreign profits of U.S. corporations. The tax could not be deferred. However, if a U.S. corporation had already paid taxes of 17% or more to a foreign country, it would not be taxed again if these foreign profits were repatriated to the U.S.
In Reuters, Allison Schrager looks at what she says are troubling signals in the labor market for men. Richard Florida over at Atlantic Cities uses a series of maps to look at where jobs are going in the next decade, check out this chart:
The trend could not be clearer. Working class jobs, which include those in factory production, construction and transportation, have declined from half the workforce to about 20 percent. High-paying, knowledge-based creative class jobs in science and technology, business and management, the professions, arts, media, and entertainment have increased from just 15 percent of jobs to more than a third. Lower-paying service jobs in fields like retail sales, food prep, and personal care have increased from 30 percent to nearly half of all jobs.
The Urban Institute's Austen Nichols says the reductions in labor force participation is the result of both long-term and short-term trends, check out this chart:
The labor market is undoubtedly still struggling, with high unemployment, very high long-term unemployment, and projections of future job growth concentrated in low-wage, low-skill industries. But the current labor force participation rate decline is largely due to long-term demographic trends, along with short-term malaise likely to reverse itself. Perhaps the real worry inherent in the current decline is that it reflects a naturally shrinking working-age population that must support a growing retired population in coming decades.
Prepping for a job interview? Fair warning says MarketWatch because "some hiring managers have started asking job candidates to break out into song, play a game, or worse." You also might be interested in this book, "What Works for Workers," a collection of essays targeting the policy challenges of low-wage work. And at Forbes Jacquelyn Smith looks at the relationship between the recession and self-employed rates.
Over at Good Morning America's site, Capstone Investment's Ted Schwartz takes a crack at explaining how impact investing can provide financial returns and "peace of mind":
Today, impact investing is no longer a financial sacrifice that investors must make for moral reasons. There are abundant indications that ESG investing is no less potentially profitable than regular investing, all other things being equal and assuming a well-diversified portfolio.
Studies including a landmark investigation in 2012 have found no real difference between the results of ESG and those generated by standard portfolios in either bull or bear markets.
Some large institutional investors have found that the parts of their portfolios that have done the best have amounted to impact investments. Regardless of whether they may have been disciplined to be impact investors prior to reaping these returns, some of these investors have become de facto impact investors because it can be profitable.
Pacific Community Ventures' Ben Thornley over at the Huffington Post discusses the need for impact investing and policy symbiosis:
This is what our research shows: that successful impact investing depends on enabling environments that include active government involvement, together with financial intermediaries that understand and contribute to the development of regulations that support the delivery of both social and financial returns. In Impact Investing 2.0 we called out five categories of policy symbiosis: public private partnership at the point of creation, co-investment by government, regulatory influence, field and market-level policy advocacy and opportunistic efforts to collaboratively bolster the prospects of success for the enterprises that receive and make use of capital.
This Politico article from last month looks at how Bill Gates has moved from a shaky relationship with Washington to one where "his priorities swiftly become state and federal priorities."