The cut in the corporate tax rate from 35 percent to 21 percent is the centerpiece of the Tax Cut Package that took effect this year. This put the United States in line with the rest of the developed world, which has a 24.1 percent average corporate tax rate.
President Trump’s so-called “trade war” has gotten a lot of media attention. Tariffs raise prices for consumers, as illustrated by the recent price increase for washing machines, a good that recently received tariff protection. Tariffs on raw materials raise costs for U.S. manufacturers, which cuts into their profits and reduces their competitiveness. Second quarter 2018 earnings for General Motors decreased by three percent due in part to higher aluminum and steel prices resulting from tariffs. The auto maker recently said that proposed tariffs on auto parts might result in layoffs and reduced investment. Tariffs also close markets to domestic producers if foreign countries retaliate. Recently, the European Union retaliated with tariffs on U.S. agriculture products and the U.S. government has pledged $12 billion of taxpayer money to farmers to partially offset the loss of overseas markets after China.
It has been a decade since the Great Recession, and Michigan’s economic recovery is a mixed bag. The state got hit harder than the rest of the nation. Our economy declined by an average of 6.5 percent in 2008 and 2009, while the nationwide economy declined by an average of 1.9 percent. Michigan’s unemployment rate peaked at 14.5 percent, compared to ten percent nationwide.
Michiganders remember when anyone could get a high paying factory job straight-out of high school and then retire in 30 years with a pension. Those days are gone. Why?
With regard to international trade, misconceptions often cloud our judgement. One such misconception is that the U.S. manufacturing base has been decimated due to trade. Actually, the opposite is the case. The U.S. currently produces over $2 trillion worth of manufactured goods, which is nearly double the value produced in the 1980s. The U.S. is also the world’s second largest exporter, exporting $1.5 trillion worth of goods in 2017.
President Trump recently announced tariffs on aluminum and steel. Economists almost uniformly agree that tariffs are an ineffective way to create jobs.
Detroit was one of the cities competing to attract Amazon.com’s second headquarters (H2Q) but did not make the final cut. The two reasons given for why Detroit was not chosen are: a lack of workplace talent in Detroit, and an absence of regional transit. Both reasons are extremely dubious. I suspect the real reason is that Amazon simply got offered more taxpayer subsidies (or “incentives”) from the cities that made the cut.
Although the national economy was strong in 2017, this prosperity was not evenly distributed. According to the United States Bureau of Economic Analysis, average personal income was approximately $50,000. However, in 86 percent of American counties, average personal income is less than this. There is just a small percentage of counties with above average personal income, which pulls the national average up. Average personal income is between $50,000 and $65,000 in ten percent of counties while an ultra-prosperous three percent have average personal income between $65,000 and $195,000. These ultra-prosperous counties are concentrated in urban areas such as New York City, Boston, Los Angeles, Miami, Washington, D.C. and places with oil, such as the Texas panhandle and North Dakota.
The U.S. economy improved in 2017. After growing at a sluggish 1.2 percent in the first quarter, the economy grew at a solid 3.1 percent in the second quarter, and 3.3 percent in the third. Third quarter growth was surprisingly strong, given the hurricanes. The New York Federal Reserve estimates fourth quarter growth at 3.2 percent – this means that the economy grew by 2.7 percent in 2017, compared to 1.95 percent in 2016.
With an average premium of $2,394 per year, Michigan has the most expensive auto insurance in the nation. The next most expensive state, Louisiana, has an average premium of $1,921 per year. Detroit is, by far, the most expensive city to purchase auto insurance with an average yearly premium of $7,415 – 60 percent higher than the second most expensive city (Brooklyn, NY).
A tax system should satisfy three criteria: it should raise sufficient revenue for the government to conduct its operations; it should minimize the economic distortions associated with taxation; and, it should minimize the costs taxpayers pay simply to comply with the tax code.
