Friday, December 28, 2018

Persistence of gender wage gap



By Vijay K. Mathur

“#Me Too” movement has drawn attention to the mistreatment, harassment, and sexual assault of women in general and in the workplace. However, it has also rekindled the controversy of wage earnings discrimination against women in the workplace, even though the gap has narrowed since 1955.
In the U.S. for full-time work (35 hours or more), women annually earned 60 percent in 1955, 79 percent in 2010 and 83 percent in 2014 as compared to men, according to Francine Blau and Lawrence Kahn, J of Economic Literature, in September 2017. This gap has remained almost unchanged in 2018. It is narrower between black women and black men as opposed to white women and white men. In Utah the gap is worse (ranking 49th in the nation). What explains the persistence of wage earnings gap and its slow down since the 1980s?
Wage earnings gap will arise if women have skills associated with low-wage occupations. For example, a Utah Women and Leadership Project study from December 2016 finds that more than 40 percent of Utah women work in two occupational groups with income gaps ranging from 14 percent to 59 percent from the average for all professions in the state ($31,446). Women in Utah have lower participation rates in higher paid occupations, such as construction and extractive industry, installation, maintenance and repair, and architecture and engineering.
As compared to other countries, the U.S. has a higher wage gap between lower and higher skills. Thus it creates a greater wage gap in the U.S. since women are concentrated in lower-skilled occupations. The paradox is that in Utah men and women have almost the same levels of education, at the associate and the bachelor’s degree levels, but still have one of the worst earnings gap. Studies show that even though women have made much progress in entering higher paid occupations, they still lag behind men in occupations requiring skills in math, science, engineering and finance.
What about the earnings gap within the same occupations, with the same education and experience? It could be due to attributes, such as experience, turnover, absenteeism and part-time work. As the study by Blau and Kahn shows, even though experience in general has narrowed nationally between men and women, the above characteristics could lead to less specific training and experience in particular occupations, lower productivity and hence lower wages. Such factors matter more for women who face the problem of balancing work and family (more so in Utah due to large family size).
The report, Workplace Gender Gap in the Oct. 23, 2018 Wall Street Journal, finds that aside from experiencing harassment in technical and senior management positions, the share of women decreases at every step of the management ladder. Their share in industries, such as health care systems, retail, banking and consumer finance, tech and software, and engineering, declines at each level of senior positions as compared to their share at the entry level.
“#Me Too” movement has made business executives aware of the discrimination against women in the workplace. This movement has also made women realize their self-worth and made them more assertive in demanding equal treatment in the workplace. However, as WSJ reports, women CEO-founders of companies with less than $15 million of investor financing pay themselves less compensation than men, mainly due to the shortage of financial support by venture capitalists.
Evidence cannot discount discrimination against women in hiring, pay, promotion, and lack of mentoring and other support structure in the labor market. According to McKinsey study for US News and World Report, 2018, Utah ranks second from the top in the economy’s performance and third from the top in education, but ranks 35th from the top in opportunity. Hopefully, senior executives in businesses and institutions will realize the loss of economic wealth to the nation if women’s potential is not fully recognized and utilized.
According to philosopher John Rawls’ concept of justice, in the meritocratic system of the free market, the distribution of income and wealth is just, “only if everyone has the same opportunity to develop his or her own talents. Only if everyone begins at the same starting line … the winners of the race deserve their rewards.”

Mathur is former chairman and professor of economics, emeritus, Department of Economics, Cleveland State University, Cleveland, OH.

Standard Examiner, November 15, 2018, Ogden, Utah

Sunday, October 7, 2018

Gasoline tax vs. Carbon tax in Utah: An evaluation

Vijay K. Mathur
In 2011 an attempt was made in the Utah senate to increase the gasoline tax, but it was voted down. Ballotpedia reports that in 2018 state tax on gasoline is 29.41 cents and federal tax is 18.4 cents, for a total tax of 47.81 cents per gallon. Since this tax started in 1923, it has grown at the rate of 3 percent per year. The Utah Legislature passed a law in 2015 that will automatically increase the tax yearly if average fuel price has risen (not to exceed 40 cents, based on “certain factors”).
The gasoline tax issue has been resurrected again in Utah. “Schools Now”, pushing for a ballot measure for school funding in the November elections, agreed to a compromise with the legislature. The legislative resolution passed in 2018 puts the proposition of a 10 cents per gallon increase in the state gasoline taxes to finance roads and indirectly education on the November ballot; it is well established that consumers will bear the total burden of the tax increase. If passed, it is only advisory.
The proposed increase in tax revenue will not be enough to meet the original aspirations of “Schools Now” to fund education. Using U.S. Department of Energy (DOE) data on gasoline consumption in 2016, my estimates show that 10 cents per gallon tax will increase additional tax revenue by $124.69 million in 2018, $127.18 million in 2019 and $129.73 million in 2020, assuming 2 percent growth in gasoline consumption based upon the population growth rate in Utah.
Public education requires a large infusion of resources. Logically, road and education financing sources should be separated. Selective highway tolls is a more logical way to finance roads and highways, with the additional benefit of reduced congestion and pollution. The net effect of the price increase due to the gasoline tax of 10 cents per gallon, the growth in income and fuel-efficient motor transportation may result in smaller additional tax revenue to meet the needs for roads and education.
The best tax, given the heavy carbon dioxide (CO2) air pollution in Utah, is the carbon tax. Since it is a broad-based tax, its burden is distributed among all activities, including vehicle transportation, that emit CO2. Therefore, it has a great potential to raise substantial amount of tax revenues and reduce CO2 at the same time.
Clean air is a common property resource. Therefore, if any activity uses it as a waste repository it should pay the price for the resource. Air pollution due to CO2 emissions results in costly damages to industries and human beings. CO2 tax-price is the market-based solution. An emitter of CO2 will use the least cost strategy to control its emission, and at the same time it has a great potential raise revenues to finance publicly-supported activities such as education.
Professor William Nordhaus of Yale reported, Economist Voice, September 2010, an optimum tax in 2015 prices between $12 and $25 per ton of CO2. It could be increased more if some of the revenue is used to decrease other market distortionary taxes, such as income tax that discourages work or a tax on savings that distorts capital accumulation. It could be adjusted by the inflation rate per year. In Utah annual CO2 emissions from automobiles alone are close to 5.38 million tons, according to the DOE, in 2018, assuming 2 percent growth in vehicles’ ownership since 2016. If appropriately implemented, the carbon tax would stimulate economic growth in Utah due to a cleaner environment.
The carbon tax rate may require some flexibility for changes if CO2 were to be reduced by some targeted amount. Flexibility would reduce uncertainty in markets and hence mitigate some adverse affect of uncertainty on economic activity.
In summary, the gas tax is narrowly focused and only indirectly addresses the issues of CO2 reductions, congestion on highways, and raises meager tax revenues. Besides other features outlined above, the CO2 tax distributes the burden of the tax, lessens the burden if accompanied by reduction of other distortionary taxes, improves efficiency in markets and raises substantial amount of revenues, even if it is only levied on fossil fuels that contribute more than 90 percent of CO2 emissions.

Vijay Mathur is former chairman and professor of economics, emeritus, Department of Economics, Cleveland State University, Cleveland, Ohio. He resides in Ogden, Utah.

Tuesday, August 28, 2018

Intergenerational Poverty creates a Lasting Underclass



Vijay K. Mathur

 “If the misery of the poor be caused not by the laws of nature, but by our institutions, great is our sin.”
Charles Darwin, The Voyage of the Beagle

The Johnson Administration’s efforts in the 60’s to eradicate poverty did not bear much fruitNationally, the poverty rate for all people as well as all families dropped significantly from 1960 to mid 70’s, but since then it has increased. The Utah Legislature enacted the Intergenerational Poverty Mitigation Act in 2012 with a broad outline of a plan of action for Utah. Weber County is also making a concerted effort to mitigate intergenerational poverty in the county.  

First, some concepts and facts related to poverty.  The official poverty threshold money income is 3 times the inflation-adjusted cost of minimum food diet in 1963.  Any family below the threshold income, adjusted for family size, composition and age of householder(s), is considered poor and eligible for public safety net programs’ benefits. 

This official poverty measure is imperfect, because it gives more weight only to food expenditure and lumps together other increasingly significant expenditures, such as housing, transportation, utilities and health care.  The official measure also excludes non-cash benefits of many public safety-net programs.  However, it is the one most used and reported in the US Census. The supplemental measure adjusted for other expenditures and benefits is used for policies to deal with other complex poverty-related issues.  

Utah has close to 2.2 children per family on the average. In 2016, according to the US Census, national poverty threshold income for a family of 4 with 2 children was $24,339, and for a family of 5 with 3 children it was $28,643. Using the official measure, Weber Country had 13.5% poverty rate for all families and 39% rate for families headed by single mothers with related children below18 years of age.   

According to the Utah Department of Workforce Services, intergenerational poverty is when families continue to be in the poverty status for two or more generations.   The poverty situation, related to intergenerational income mobility, has not improved over decades. Stanford University professor Raj Chetty finds in his studies that upward income mobility is lowest in the US, as opposed to other developed countries, and it varies significantly across regions of the US.   Even though the odds of upward income mobility in Utah are better than in most states, the recognition for improvement in intergenerational poverty in Utah and in Weber County is on the right track.  

To break the cycle of poverty public policy solutions require close cooperation of family and external institutions, such as schools, churches, and other non-profit institutions, with accountability at the public level and of others involved in implementing and carrying out policies.  In a study in Economic Inquiry, July 2008, Nobel Laureate economist James Heckman reports that, aside from many factors in human development, wages in adult life depend both on cognitive abilities (ability to reason and conduct analysis) and non-cognitive abilities (perseverance, motivation, self control, self-esteem and preference for risk aversion) learned in childhood.  Emphasis on tests in schools that enhance cognitive skills are not enough for future economic success and reduction in social pathologies, such as crime, drug abuse, teenage pregnancies and smoking. Family environment with adequate income and early childhood intervention is a significant predictor of these abilities and future success. 

Public and private institutions must provide resources to poor families for early childhood education, parental education for raising children, and marketable technical and behavioral job-skills to non-working poor for employment to reduce the dependency on public assistance. Then, the working poor would qualify for EITC (Earned Income Tax Credit).  ETIC is the most successful program to boost incomes of low-income working families and reduce poverty rates.  

Studies show the school performance of disadvantaged children improved the most due to EITC. To incentivize work, the state should also have income-based programs for child care for working families.  A mentoring program for children would fill parental gaps in adult supervision, support and guidance.  

Policy focus should be on the family and early intervention for disadvantaged children.  Professor Heckman states, “ The family plays a powerful role in shaping adult outcomes that is not fully appreciated by current American policies.”

Mathur is former chair and professor of economics and now professor emeritus, Department of Economics, Cleveland State University, Cleveland, OH. He resides in Ogden, UT. 

Published in The Salt Lake Tribune, Opinion, July 22, 2018, www.SLTRIB.Com

Wednesday, June 20, 2018

Preventing Youth Suicide Requires Active Parental Involvement

Vijay K. Mathur

“Everything depends upon upbringing”.
Leo Tolstoy

Young adults in Utah and throughout the US are increasingly suffering from social pathologies such as drug abuse, depression, suicide and/or suicidal thoughts.  The Salt Lake Tribune, April 5, 2018, reported on a CDC study, finding that during 2011- 2015 the Utah suicide rate doubled, “growing four times faster annually than the national average.”  News reports show that suicides among teens at Harriman High School have reached crisis level.  

Henry J. Kaiser Family Foundation reports that opioid use deaths in Utah from the age of 0-24 years increased from 2014 to 2016.  Utah Department of Health reports that suicide rate among Utah youth aged 10 to 17 exceed US rate since 1999, is the leading cause of death and has been increasing since 2007.

School authorities, teachers, health and psychological experts are in a quandary about how to get a handle on these pathologies. Since a large percentage of suicides are committed with the use of firearms, CDC blames easy access to firearms.  But access to firearms does not address preventive causes of suicide. 

I recognize that there are various causes of stress and depression among young adults and the resultant tendency to commit suicide.  However, the most important factor that is lost in the discussion, that gets only cursory attention from experts and policy makers, is the role parents play in the lives of their children. 

Numerous studies find a very significant role of parents in the emotional well being of their children.   T. Holms and R. Rahe reported in their study in the Journal of Psychosomatic Research(1967), that out of 10 stressors on a psychological stress test for young people, 8 are parent related.  Parental attention for the emotional well being of children requires parental time.  When both parents are working or a single mother has to work and raise the family, it becomes all the more important to allocate scarce time efficiently to address stress and other emotional issues confronting their children.

A large scale study by F. Van Wel, H. Linssen and R. Abm in the Journal of Youth Adolescence(2000) found that parental bonding improves psychological well being, as measured by stress and suicidal thoughts, in a sample of 1688 Dutch adolescents /young adults from 12 to 24 years of age. 

I am sure parents love their children. However, bonding and parenting time must compliment love.  Children should feel open and comfortable to unload their emotional stress on their parents as well as share their joyous moments, relationships with friends and other concerns.

The macro study by myself and Donald Freeman, Health Economics(2002), examined the role of income and parenting time in predicting adolescent suicide rates, using a sample of 48 states of the continental US from 1970-1997.  This study used per capita wage income in the statistical analysis to explain adolescent suicide rates, after controlling for other contributing factors such as alcohol use, divorce rates, large family size and unemployment.  

Wage income affects youth suicide through two components.  Increase in wage income of parents decreases suicide rates as it relieves some of the familial emotional stress associated with lack of income, but it also increases incentive to increase work time, hence decreasing parenting time.  Lack of parenting time increases suicide rates.  However, the good news is that the effect of income dominates the effect of parenting time on suicide; higher wage income and parenting time have positive social value.

Professor James Heckman argues in Economic Inquiry(2008), that parental attention to their children is necessary to develop cognitive (analytical) skills and non-cognitive skills such as self-esteem, motivation and self-control.  Studies also show that more educated working mothers, as opposed to less educated, devote more time to childcare to develop cognitive and non-cognitive skills.  

Thus income security with living wage to less educated and low-income parents matters for healthy family lifestyle.  However, serious consideration must also be given to provide parenting skills to such families so that they are able to raise children with cognitive and non-cognitive skills.  Churches, schools and other non-profit organizations could help.  

Mathur is former chair and professor of economics, now professor emeritus, Department of Economics, Cleveland State University, Cleveland, Ohio.  He resides in Ogden, Utah.

Sunday, April 22, 2018

Rent Seeking Plutocrats Undermine Capitalism and Democracy

Vijay K. Mathur

Doubts are often raised about capitalism and its corollary free enterprise system.  Karl Marx recognized that capitalism is one of the stages of development of a society.  But he argued that capitalism would eventually end up with a class structure of bourgeoisie (capitalists) and proletariat (wage earners). Conflict of economic interest between these classes would breed the destruction of capitalism.

According to Martin Spechler inPerspectives In Economic Thought(1990) Marx theorized that, in the class conflict, the most important organization that supports the bourgeoisie is the state.  Capitalists primarily accumulate capital by suppressing wages of the proletariat class.  Reform and laws enacted by the state often popularized to benefit workers are mainly aimed at keeping capitalists’ control of the economic system.  

These arguments of Marx are prophetic. Any impartial observer of the US economy today would notice economic hardships of the middle and low income working class and enrichment of wealthy, many of whom are rent seeking plutocrats.  Even though the concept of rent as surplus in the value of a factor of production in fixed supply was fully developed by English economist David Ricardo in 18thcentury England, it has now been generally applied to other activities, including political favors to lobbyists and their clients with deep pockets. Mercantilists in 18thcentury Europe used royal favors to gain economic benefits at the cost of the rest of the citizens.  Following Mercantilist footsteps, rent seeking behavior in the current political context arises when any entity earns income or rewards from the political system without undertaking any productive effort.  

Ideally in a democracy, all citizens are supposed to have the same political influence in the enactment of rules, regulations, and tax and expenditure policies.  However, political inequality complemented by income inequality breeds a class of political elitists and rich plutocrats who have undue influence on the political system to gain more economic favors. These favors are called rents.  Professor Joseph Stiglitz states that rents could also arise when businesses charge above market prices for products sold to government, monopolies charge prices higher than competitive market prices, and financial advisors and/or banks extract higher prices and commissions from those less informed about financial matters.  

Let me provide a few examples of rents. The recent Congressional bill meant to lighten the regulatory burden of small banks under Dodd-Frank Act of 2010, after the Great Recession, will also end up increasing profitability of large banks, such as Bank of New York Mellon and State Street  (The Wall Street Journal, March 15, 2018). Other examples are the use of tax breaks for land conservation by syndicated conservation easements (The Wall Street Journal, March, 15, 2018), reduction in the cost of pollution control of coal mining companies by relaxing environmental regulations and reducing the size of Bears Ears and Grand Staircase-Escalante National Monuments by the Trump administration for the benefit of oil, gas and uranium companies.  

The Salt Lake Tribune (SLT), January 22, 2018, reported that in Utah 92 percent of the money raised by legislators in 2017 came from special interest groups. TheSLT, March17, 2018, also reported that UtahRepresentative Mike Noel stands to reap substantial gains in the value of his land and water rights if he succeeds in his efforts in the construction of the taxpayer-funded 140-mile Lake Powell Pipeline, that brings Colorado River water to Southern Utah.  It is also well known that Senator Orrin Hatch is a great benefactor of the pharmaceutical industry, as well as a receiver of large campaign contributions from that industry.  It seems politicians at state and local levels are not immune to this behavior. 
  
Government intervention is required if competition fails to regulate market forces in the provision of goods and services. However, it is problematic for the sustainable functioning of the private enterprise system and democracy when the government implements rules, regulations, tax, and expenditure laws to promote the economic interest of a minority of rent seeking wealthy capitalists. Historian Walter Scheidel cogently argues in The Great Leveler(2017), that historically states, usually monarchies, have always openly bestowed economic favors on the wealthy and even made them an integral part of their rule.   History has repeated itself in the Trump administration.  However, extreme income and wealth inequality with explicit or implicit support of the government, in a private enterprise system, cannot sustain a dynamic and vibrant private enterprise in a democracy in the long run. 

Frustration of middle and lower income Americans with the loss of economic status, wealth, diminished hopes of future well being and lack of influence on the political system is not a recipe for a peaceful and thriving populist democracy. A survey in The Wall Street Journal, December 7, 2017, reveals increasing acceptance of socialism among Millennials.  Hopefully, politicians pay attention to the economic plight of middle and lower income Americans for the preservation of capitalism, private enterprise and democracy.

Mathur is former chair and professor of economics, now professor emeritus, Department of Economics, Cleveland State University, Cleveland, OH.  He resides in Ogden.

Sunday, January 21, 2018

Educational Divide, Emerging White Underclass and Desperation

Vijay K. Mathur


On January 13, 2016, I published a blog in The Huffington Post, where I pointed out that an increasing proportion of families and “their future generations” are ending up in the bottom of the income distribution and hence are trapped in the cycle of poverty.  Poverty rates vary among racial groups.  Blacks and Hispanics face twice the poverty rates of Asians and Whites.  In August 29, 1997, Time magazine’s lead article termed poor Blacks as an Underclass, as they were entrapped in the cycle of psychological and material deprivation even after 20 years of civil rights and anti-poverty programs.

Nobel Laureate Economist Angus Deaton, (http://knowledge.wharton.upenn.edu/article/despair-and-the-white-working-class/, in a conversation at Knowledge@Wharton, April 6, 2017, is raising a similar issue, with a slightly different twist, pertaining to the effect of material deprivation and lack of economic opportunities on working class middle age White undereducated Americans.  Most economists have also been pointing out that, in the emerging technologically sophisticated economy, the role of higher education and skills beyond high school will play a significant role in determining the success of job seekers in the labor market and their economic well-being.   

Professor Deaton argues that the mortality rate among Non-Hispanic Whites in their early 50’s,  “after 100 years of declining had turned the wrong way or at least flattened out.”  (See source above).  This is happening to both men and women, and not to Hispanics and African-Americans, and not in other rich countries.  Most deaths are due to alcohol consumption, drug overdose and suicides.  Deaton has argued in his book, The Great Escape (2013), that well-being is primarily based upon income and health. 

In this age of rapid technological change, job opportunities open up for those who have acquired human capital that complements physical capital with advanced technologies. The Wall Street Journal, November 30, 2017, reports a study by McKinsey Global Institute that predicts that around the world close to 375 million workers, displaced by new technologies, will have to find new occupations by 2030.  Public policy makers and businesses have to equip workers with new skills and technical training to minimize labor market disruptions of automation.  The US is not alone in facing this challenge.  In fact, even now, manufacturers in the US have been complaining about the problem of finding technologically skilled workers (The Wall Street Journal, December 1, 2017).

Those with less education are facing desperate times in finding job opportunities that will create a sense of income security and economic well-being.  The Trump administration and Republican Congressional members are derelict in providing sufficient support to Americans who need new skills, job training and education to meet challenges of automation in the labor market.  Job uncertainty, income insecurity and inadequate health care of this group of Americans create a sense of anxiety, despair and depression compounded by the lack of family ties, and public and community support.   Unhealthy and depressed workers cannot be productive members of society.

Deaton argues in his book (p. 207) that despite the belief in the American dream, the US is not  “particularly good at actually delivering equal opportunities.” This is supported by high correlation between fathers’ earnings and sons’ earnings in the US, highest among OECD countries of Europe and only lower than China and some Latin American countries.

Deaton states that this problem among Non-Hispanic Whites with low levels of education has arisen due to “...a cumulative disadvantage over life in the labor market, in marriage, in child outcomes and in health triggered by progressively worsening labor opportunities at a time of entry…”(See source above).  A study by John F. Helliwell and Hafang Huang (HH), Economic Enquiry, October 2014, using subjective well-being (SWB) data covering life evaluations and emotional experiences reports, finds that SWB increases with income, education, and marriages, and diminishes with increase in unemployment rates. Unemployment rate increase also affects emotional well-being of employed, since it threatens workplace downsizing --  hence their job security.  HH also find, for those who are employed, that a one percent increase in unemployment rate is equivalent to a 4 percent decline in household income. 

A labor market that creates employment and occupational growth for skilled and highly educated workers and dries up job opportunities, occupational growth and economic well- being of less skilled and educated workers is bound to be disruptive to households and the nation.   It would also lead to increasing levels of income inequality that we experience today in the US as opposed to other advanced nations. And as Deaton would argue, income inequality is harmful to the nation and its economic system when rent seeking (special favors from government by lobbying) rich affect public policy that deprives lower income people of services, such as education and health care to enrich themselves.  In fact that is what the Congressional Republican’s tax law will do.  

I hope that the Trump administration and some Republican Congressmen will be bold enough to realize that just enacting a tax law to make a political point is not an achievement for the well-being of Americans.

Enacting tax and spending laws that benefit all current and future generations of Americans to meet challenges of advanced technologies and competitive forces in the global market would be a laudable legacy.  As Justice Sonia Sotomayor has stated, “Until we get equality in education, we won’t have an equal society.”

Mathur is former chair and professor of economics, now professor emeritus, Department of Economics, Cleveland State University, Cleveland, Ohio.  He resides in Ogden, Utah.

GOP Tax Policies in Shambles

Vijay K. Mathur

A brief history informs us that GOP political identity is defined by their political policy stand for tax cuts, with only lip service to reducing budget deficits and national debt.   The Reagan administration cut taxes that primarily benefitted the rich, but the increasing deficits forced the administration to pass tax increases.

George H.W. Bush stated “read my lips-no new taxes” in the GOP primaries, but gave up on that promise due to the reality of more deficits.   As president he signed the budget deal to raise taxes.  George W. Bush’s administration cut taxes in 2001 and 2003.  However, more spending, low real growth rate, rising unemployment rates, more deficits and debt, and the great recession of 2007-08 did not accomplish what was promised.

The GOP is obsessed with tax cuts as a policy tool to stimulate growth and employment.  And even though the rhetoric of tax cuts is buttressed by high growth and claims of reduced budget deficits, those claims seldom materialize.  In addition, tax cut during times of economic expansion is counter to any economic logic.  It makes it harder to implement any tax stimulant in case of economic downturns. But it seems logic of any kind escapes Republicans in the Congress. 

In the Trump administration there was a clarion call to reduce corporate and other taxes. The GOP marketing campaign to sell their tax plan as a middle class tax cut was a sideshow without much tax benefit to middle class taxpayers.  GOP Congressmen emphasized that corporate tax cuts will boost profits, investment, growth, employment and high wages for the middle class. They are oblivious to the fact that, historically, economic growth is declining over time despite reductions in corporate taxes.  However, the Congress passed the tax cut under the "Tax Cuts and Jobs Act" with a slim majority. 

Thomas L. Hungerford of Economic Policy Institute (EPI), June 4, 2013, finds that during 1950-1960 annual average economic growth was 3.9 percent when the statutory corporate tax rate was above 50 percent.  However, during 2000-2010 statutory corporate tax rate was 35 percent while the annual average growth rate was 1.8 percent.  In fact, from 1948-2010 there is a positive relationship between higher real growth rates and higher statutory corporate tax rates. 

GOP Congressmen are dreaming if they think that cutting statutory marginal tax rate for corporations from 35 percent to 21 percent will create a flood of repatriated profits to the US from tax havens, where tax rates are next to nothing or much below the proposed rate.  As EPI authors Josh Bivens and Hunter Blair state, October 3, 2017, multinational corporations are waiting for another tax holiday, such as in 2004, when they paid 5.25 percent on repatriated profits.

There is an emerging consensus among many experts, including Congress’ Joint Committee on Taxation, that the tax proposal favors the wealthy and rich over middle and low-income Americans.  Even though the tax cut proposal reduces tax brackets from 7 to 4 with generally lower marginal tax rates, it either takes away or limits deductions for state and local taxes, mortgage interest, property taxes and medical expenses. 

Aside from the repeal of the estate tax, rich and very rich Americans, the tax law would benefit only certain businesses such as LLC's, S-corporations and partnerships with "pass through incomes.''  Pass -through incomes of businesses (close 40 million) are taxed at the individual tax rates than at the corporate tax rates. They could get close to 20 percent deductions in earnings. The law has made the tax for small businesses more complicated and confusing than before.  It has also excluded certain business services from tax benefits.  C-corporation do not gain much benefits. But the fact remains that tax cuts worsen income distribution, already skewed toward the rich, and increase national debt. Therefore I propose that if Democrats are in the majority in the Congress they should make some major changes in the tax law that will benefit all Americans.  

I propose the following:

1. To stimulate investment there should be targeted tax breaks for investment and saving in 401(k) type plans for all Americans irrespective of their employment status.  The Economist, July 29, 2017, reports on a study by German Gutierrez and Thomas Philippon, that found reduced investment since 2000 is due to an increase in business market power and decline of competition.  Hence, tax breaks for investment must be complemented by enhanced enforcement of Anti-Trust Laws.
  
In addition, to encourage innovations and entrepreneurship a tax cut for small businesses that employ 100 employees or less should be much more than the tax cut for large corporations.
 
2. Impose a carbon tax, and the revenue should be earmarked for infrastructure investment.

3. Capital gains, dividends and carried interest (akin to capital gains) when received should be treated as regular income for tax purposes.

4.  A progressive tax should be levied on earnings of all Americans to finance Medicare and Social Security programs.  States should be required to make a larger proportionate contribution to the Medicaid program.  Abuses in the disability insurance program must be prevented.

5. Keep the new corporate tax rate and lower tax rates for small businesses but all tax expenditures, loopholes and subsidies for businesses must be taken away.

These are some suggestions that would benefit the country and all Americans and put the budget deficits and national debt on a lower trajectory.  Bob Bryan of Business Insider, November 6, 2017, states that Penn-Wharton model predicts that the tax plan reduces Federal revenue by $1.75 trillion during the first decade.  In addition, over 22 years the plan reduces tax revenue by $4.4 trillion, thus contributing to substantial increase in national debt.  However, such predictions did not matter for the GOP in the Congress.     

I hope that GOP Representatives in the Congress start thinking about the country first rather than about the next election.  I also hope that they do not get the impression that all Americans in the middle class and at lower income levels are ignorant of the real intent of the Republicans in the Congress in passing the current tax law.  The majority of Americans do not favor the new tax law.  Hopefully they would  express their dislike in their votes in the upcoming elections.

Mathur is former chair and professor of economics, now professor emeritus, Department of Economics, Cleveland State University, Cleveland, Ohio.  He resides in Ogden, Utah.