DESERT OF THE REAL SEPTEMBER 2017 NEWSLETTER

This Newsletter will come at a basic economic problem from a couple of different angles.  The Author Rob hits this topic often and there is a relationship, albeit tenuous. Here is the paradox in question form:

            How does the nation (and this region) attract and retain skilled labor and professionals while planning for a future that will need far less labor?

The Author Rob has addressed this topic several times, such as https://desertoftherealeconomicsanalysis.blogspot.com/2017/07/danger-will-robinson.html, https://desertoftherealeconomicsanalysis.blogspot.com/2017/06/has-god-really-been-good-to-indian.html

The nature of work, and the lack of it, will be significant issues in the coming decades. AI and the Robot Revolution will displace many workers. AI is displacing professional workers, such as lawyers and investment analysts. Robots on the factory floor displace labor. And the fast food and the healthcare industry are the next targets for AI and robotics. 

There are those that rightly point out that fears of automation wiping out all work have been overblown. And it has been demonstrated that automation opens up new jobs as it displaces old ones. But past automation displacement has been machinery taking away manual labor jobs. Changing the nature of work from below the neck to above the neck. This displacement is different, however, AI is taking the place of the above the neck workers. AI is smarter, faster and better than wet ware. 

But the topic is as much as matching up the skills required for the future with the higher paying jobs that will exist. On the one hand (as two-handed economists are given to saying), robotics requires trained technicians and engineers. But one the other hand, the work force in great supply are untrained young people, many which cannot even pass drug tests. Here in Northern Indiana, nearly every factory has a help-wanted sign. Restaurants and convenience stores are begging for help.  Some places have to close early because of a lack of help.

HOW CAN WE BE PROACTIVE?

A recent commentary in the Indiana Economic Digest presents the issues well. In an article entitled “These projects can keep Wells County in 'the game' - if it wants,” written by Mark Miller, the issue is both raising the quality of life in Northeast Indiana and providing the skilled work force. Miller describes some community improvements the cities of Bluffton and Decatur are making to their downtown areas.  Along with these improvements will come other efforts at attracting new people into the area? Miller states that the 11-county Northeast Indiana currently has 800,000 people and the goal is to grow to one million by 2031. And not to be snarky, but will the people coming in be the “right people.”

The region needs skilled workers that want to live in Northeast Indiana. And it wants the newcomers to enjoy living in Northeast Indiana because of the area’s quality of life. A tough task. A very tough task.

Northeast Indiana is not the Mississippi Delta or the Ozarks, but it is not Santa Clara County or Seattle. Miller presents the issue as “quality of place.”

Miller states that many younger workers, and mid-career workers are relocating to the place they wish to live. You move where you want to live and the work will appear. And with more work moving online, co-location is very possible.

The Author Rob cannot but see this draw of “Quality of Place” as almost impossible or Northeast Indiana. Fort Wayne is a generally nice small city, but it is not Austin Texas. Northeast Indiana has a good number of small lakes, but it is not Cape Cod.

Sure, we sometimes here that Fort Wayne “is a good place to raise a family.” The Author Rob’s primary care doctor said that when he was moving from the high quality of life Minneapolis suburb Eden Prairie to Fargo, North Dakota. Translated, “a good place to raise a family” means a place with cheap housing.  Fort Wayne has that in great abundance.

These high identity projects such as the one in Bluffton and Decatur generate activity and civic pride, but can these one-offs bring in a meaningful number of skilled technicians, professionals and other high tech workers? The Author Rob doubts it.

Many communities and Ivy Tech recognize the need for training workers for the existing and promised jobs. The apprentice model, very common in Europe, but almost abandoned in America, trains people in skilled trades. Employers contribute much of the funding in these apprentice models.

But in recent years, the training has been commoditized and taught at community colleges and the proprietary colleges.  This shifts the cost to the students in the form of student loans, and ultimately some of it to the taxpayers when students with worthless degrees from unscrupulous college default.

In an ideal world, workers would be happily employed in meaningful work. The Star Trek utopia. But perhaps were are only setting ourselves up for the Blade Runner Dystopia.

LET THE ROBOTS TAKE THE HINDMOST IN THE DESERT OF THE REAL

DESERT OF THE REAL SEPTEMBER 2017 NEWSLETTER

This Newsletter will come at a basic economic problem from a couple of different angles.  The Author Rob hits this topic often and there is a relationship, albeit tenuous. Here is the paradox in question form:

            How does the nation (and this region) attract and retain skilled labor and professionals while planning for a future that will need far less labor?

The Author Rob has addressed this topic several times, such as https://desertoftherealeconomicsanalysis.blogspot.com/2017/07/danger-will-robinson.html, https://desertoftherealeconomicsanalysis.blogspot.com/2017/06/has-god-really-been-good-to-indian.html

The nature of work, and the lack of it, will be significant issues in the coming decades. AI and the Robot Revolution will displace many workers. AI is displacing professional workers, such as lawyers and investment analysts. Robots on the factory floor displace labor. And the fast food and the healthcare industry are the next targets for AI and robotics.

But the topic is as much as matching up the skills required for the future with the higher paying jobs that will exist. On the one hand (as two-handed economists are given to saying), robotics requires trained technicians and engineers. But one the other hand, the work force in great supply are untrained young people, many which cannot even pass drug tests. Here in Northern Indiana, nearly every factory has a help-wanted sign. Restaurants and convenience stores are begging for help.  Some places have to close early because of a lack of help.

HOW CAN WE BE PROACTIVE?

A recent commentary in the Indiana Economic Digest presents the issues well. In an article entitled “These projects can keep Wells County in 'the game' - if it wants,” written by Mark Miller, the issue is both raising the quality of life in Northeast Indiana and providing the skilled work force. Miller describes some community improvements the cities of Bluffton and Decatur are making to their downtown areas.  Along with these improvements will come other efforts at attracting new people into the area? Miller states that the 11-county Northeast Indiana currently has 800,000 people and the goal is to grow to one million by 2031. And not to be snarky, but will the people coming in be the “right people.”

The region needs skilled workers that want to live in Northeast Indiana. And it wants the newcomers to enjoy living in Northeast Indiana because of the area’s quality of life. A tough task. A very tough task.

Northeast Indiana is not the Mississippi Delta or the Ozarks, but it is not Santa Clara County, California. Miller presents the issue as “quality of place.”

Miller states that many younger workers, and mid-career workers are relocating to the place they wish to live. You move where you want to live and the work will appear. And with more work moving online, co-location is very possible.

The Author Rob cannot but see this draw of “Quality of Place” as almost impossible. Fort Wayne is a generally nice small city, but it is not Austin Texas. Northeast Indiana has a good number of small lakes, but it is not Cape Cod.

These high identity projects such as the one in Bluffton and Decatur generate activity and civic pride, but can these one-offs bring in a meaningful number of skilled technicians, professionals and other high tech workers? The Author Rob doubts it.

Many communities and Ivy Tech recognize the need for training workers for the existing and promised jobs. The apprentice model, very common in Europe, but almost abandoned in America, trains people in skilled trades. Employers contribute much of the funding in these apprentice models.

But in recent years, the training has been commoditized and taught at community colleges and the proprietary colleges.  This shifts the cost to the students in the form of student loans, and ultimately some of it to the taxpayers when students with worthless degrees from unscrupulous college default.

In an ideal world, workers would be happily employed in meaningful work. The Star Trek utopia. Perhaps were are only setting ourselves up for the Blade Runner Dystopia.

LET THE ROBOTS TAKE THE HINDMOST IN THE DESERT OF THE REAL!

TAXES AND THE TROIKA OF TERRIBLE IDEAS

We are a long way from income tax season. But it is never far from many peoples’ minds.  Quarterlies for the self-employed earn disdain. But it means that you are making money. The alternative to paying tax is worse. No income.

Another driver of the discussion is the trillion dollars of debt that mount up because of the structural tax underfunding. Unless and until the nation decides to match up government spending with government revenue, the debt will pose substantial risk to the nation and the world.

Many people incorrectly conceive the problem.  Deficits are nearly always at “record levels” in nominal terms. The nation’s economy grows nearly every year so the actual debt figure will be higher than the year before, even if the national debt as a percentage of GDP falls. The “real” rate is what matters, not the “nominal” rate.

Debt as a percentage of GDP is a better way to look at deficits.  The highest national debt for the nation as a percentage of GDP was at the end of World War II. Financing the war was a mammoth moral and financial undertaking. Debt to GDP was about 160% after the War. It fell to under 50% in 1980, then ramped back up in 1981. It fell again to 70% in 2000, but skyrocketed during the Great Recession of 2008.  Further tax cuts will further increase it.

NATIONAL SALES TAX TO REPLACE INCOME TAX

Every few years there are “tax simplification” ideas floated. Some of the most troubling proposals are the so-called “Fair Tax,” a national sales tax of around 15%.  It sounds simple, because people are already accustomed to state and local sales tax. The [Un]fair Tax is usually pitched as being a tax that is under everyone one’s control.  Don’t spend much money and you don’t pay much tax.  But this ignores reality.  Most Americans live paycheck to paycheck, even many middle class people. Even if food is exempted from the tax, they will pay close to 15% of their income in federal tax. A person who earns one million dollars per year will spend perhaps 40% of their earnings. The rest will be saved and invested.

There is another thing to consider. Sales tax is usually imposed only on goods, not services. This makes the [Un] fair tax even unfair, as lower income people take on DYI projects out of necessity. Richer people pay others for services[i].  Lets take a look.

Johnny Paycheck, Mama Paycheck and the little Paychecks  $50,000.

The average American family pays $550 per month on food.  $550 * 12= $6,600.

$50,000 - $6,600=$43,400.  90% is spent on taxable goods.  $43,400 *.9= $39,060.

$39,060 * 15% = $5,589.

This is an effective tax rate of 12%.

Fletcher Grift, Muffy Grift, and the little Grifts.  $1,000,000.

The Grifts pay 900 per month on Food. $900 * 12 = $11,800.

$1,000,000 - $11,800 = $988, 120.

The Grift kids go to a private school. They pay for lawn care, pool care, cleaning services, repair of their Lexus SUV and Porsche Carrera.  School costs $80,000 per year. They save  $250,000 per year.  All told, they pay $211,000 for goods in a year.

$211111* 15% = 31,665 in tax paid.

This is an effective tax rate of 3.1%.

Who’s cheatin’ who[m].

TAX “SIMPLIFICATION.” NOTHING, EXCEPT FOR THE HIGH EARNERS’ INCOME TAX BILL, IS “SIMPLIFIED

Income tax “simplification” comes in many flavors. There is no doubt that the IRS code is long and many of the provisions are difficult for anyone except a tax accountant or a tax lawyer to understand. [ii]  One variety of “simplification” is compressing the number of tax codes from the current seven to three. Below is the current tax rate schedule.   

2017 tax brackets (for taxes due in April 17, 2018)
Tax rate	Single	Head of household
10%	Up to $9,325	Up to $13,350
15%	$9,326 to $37,950	$13,351 to $50,800
25%	$37,951 to $91,900	$50,801 to $131,200
28%	$91,901 to $191,650	$131,201 to $212,500
33%	$191,651 to $416,700	$212,501 to $416,700
35%	$416,701 to $418,400	$416,701 to $444,550
39.6%	$418,401 or more	$444,551 or more
Tax rate	Married filing jointly or qualifying widow	Married filing separately
10%	Up to $18,650	Up to $9,325
15%	$18,651 to $75,900	$9,326 to $37,950
25%	$75,901 to $153,100	$37,951 to $76,550
28%	$153,101 to $233,350	$76,551 to $116,675
33%	$233,351 to $416,700	$116,676 to $208,350
35%	$416,701 to $470,700	$208,351 to $235,350
39.6%	$470,701 or more

Trump has released rather simplified versions of his tax plan. Meaningful detail is difficult to come by.  He proposes three rates: 10%, 20% and 25%. It raises the tax on capital gains from 15% to 20%. Trump also proposes a maximum of 15% income tax earned from “pass-through entities” such as LLCs and S-Corporations.  Most all small to medium businesses are owned in this manner[iii]. This means that the owner of a local manufacturing company could pay a lower effective tax rate than the plant manager or the plant engineer.   

There is another think to notice. Top rates are eliminated. Every rate above 25% is eliminated. Cutting and lowering the number of tax rates simplify nothing.[iv] They may sound good to the most simple-minded, like the many millions of southerners, Appalachians and high plains hillbillies that live off of government largesse like Medicaid, SNAP benefits and Social Security Disability. These folk cling to the elegiac[v] life that they have lived since the early 1980s, a life in states that are net takers from the federal government. And anything would be simple for people that have not paid income taxes for two generations.

 The Trump tax plan simply cuts revenue without replacing it with other revenue increases or commensurate cuts in government spending. Medicaid, SNAP and SSDI elimination in Red states might be a good first cut.

PAUL RYAN AND THE “POST CARD” TAX RETURN

A quixotic quest is always ongoing to make filing taxes simpler. The 1040EZ form is a good cut at simplification for many taxpayers. But it can only address wage income and does not support itemized deductions. But even this quick fix is more than many people will tackle. Many people of all levels of income and sophistication run to preparation firms to do what a sixth-grader could do.

House Speaker Paul Ryan is peddling a proposal for a “post card” return. But there’s just one problem. Unless you are filing a 1040 EZ, you cannot merely fill out a postcard.[vi]

Filling out the “post card” is easy. But calculating the figures to put in the postcard would require the same number of schedules and forms that support a 1040. Remember, though, simplicity sells well to simple minds.

FILING TAXES COULD BE SIMPLIFIED AND STREAMLINED. BUT IT WON’T

There are two groups vehemently opposed to filing simplicity. First is online and shopping mall tax preparers like Intuit, H.R. Block, Liberty Tax Services and the thousands of mom and pop tax preparers. One can understand their opposition. But there is another large group of filing simplification.  Anti-tax conservatives.

These anti-tax zealots believe that complicated rules and burdensome filing requirements will keep many Americans frustrated and angered by the IRS. 

Simplifying filing can be done relatively easy. [vii]  Japan, the UK and other countries have a system that is called “precision withholding.” The taxing authorities take out the correct amount of tax from wages. If they need adjusted for charitable contributions or other tax events, this is often done automatically with the data the taxing authorities possess. Such proposals have been proposed in the US but have gone nowhere.

WE ARE ALWAYS GOING SOMEWHERE IN THE DESERT OF THE REAL!

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[i] Some states, such as New Mexico, charge sales tax on services. This takes a lot of the regressivity out of the sales tax.

[ii] Many people have the idea that the law should be simple and understandable. A laudable goal. But is it expected that the average person should be able to pick up a schematic for a computer chip or the blue prints for the Lucas Oil Stadium and be understandable to a lay person. Another reason the IRS code is complex is because rich people and large companies have legions of lawyers looking at loopholes to dodge paying their taxes.

[iii] And it is not just small medium companies that are LLCs. Here is a list of the largest privately owned companies in 2017 in the US. ihttps://www.forbes.com/sites/andreamurphy/2017/08/09/americas-largest-private-companies-2/#3bf84b2f247c   This list contains companies such as Koch Industries, Albertson’s store chain and the Mars candy company.

[iv] Three tax rates or thirty can be easily calculated on a $.99 dollar store calculator. Also, see https://www.vox.com/policy-and-politics/2017/8/30/16219906/paul-ryans-postcard-tax-return

[v] A book entitled “Hillbilly Elegy” offers solutions to the problems of the rural white people. Some are good solutions. They should try them. And be less quick to cast others as underserving moochers while selling SNAP benefits for heroin, booze and tobacco. https://newrepublic.com/article/138717/jd-vance-false-prophet-blue-america

[vi] http://www.businessinsider.com/republican-trump-post-card-individual-tax-return-plan-2017-4

[vii] https://www.vox.com/policy-and-politics/2017/8/30/16219906/paul-ryans-postcard-tax-return