Tag: City Journal

Why Not Push Back Retirement?

Mary Pat Campbell

Link:https://www.city-journal.org/article/review-of-work-retire-repeat-by-teresa-ghilarducci

Excerpt:

Before she exited the Republican primary race, Nikki Haley advocated gradually increasing the retirement age to match the growth in life expectancy. Her political rivals swiftly criticized her proposal, but it enjoys widespread support among those looking to rein in soaring entitlement costs. A new book by economist Teresa Ghilarducci, Work, Retire, Repeat, offers reasons to seek an alternative path to reform.

Pay-as-you-go retirement systems such as Social Security or Medicare use taxes on current workers to pay benefits to retirees. Even if individuals on average fully pay for what they later get, such an arrangement will not be sustainable if declining birth rates and rising life expectancy reduce the ratio of workers to retirees. In 1960, there were five workers for each retiree. By 2000, the ratio had fallen to three-to-one. By 2040, there will be only two workers for each retiree. Raising the retirement age would both reduce the cost of benefits and increase payroll tax revenues to pay for them.

But Ghilarducci’s book argues against pushing back retirement. She suggests that, whereas policymaking elites view retirement as boring, low-paid workers typically can’t wait for relief from “heavy lifting, crushing work schedules, arbitrary changes in work duties, and the fear of being laid off.”

Ghilarducci acknowledges that employment can be a valuable source of meaning, personal identity, achievement, social interaction, and structure in people’s lives. But she disputes the claim that the correlation of retirement with declining mental health proves that it is bad for people.

….

By allowing younger workers to opt for a lower payroll tax rate for the remainder of their careers, in return for a uniform safety-net benefit when they reach retirement, Social Security could be made more effective at preventing poverty while also being less of a burden on the young. Such a benefit structure would likely also motivate higher-earning workers to retire later than the poor—the arrangement for which Ghilarducci provides her strongest arguments.

Author(s): Chris Pope

Publication Date: 14 Mar 2020

Publication Site: City Journal

D.C. to Silicon Valley: Drop Dead

Mary Pat Campbell

Link: https://www.city-journal.org/article/d-c-to-silicon-valley-drop-dead

Graphic:

Excerpt:

For venture capitalists and startup entrepreneurs, 2023 was a year dedicated to the destructive phase of Joseph Schumpeter’s notion of creative destruction. Silicon Valley Bank collapsed in the second-largest bank failure in American history, 400,000 tech jobs were eliminated in what Wired dubbed “The Great Tech Layoffs,” and dozens of high-potential startups transformed from unicorns into “zombies.”

…..

It’s no surprise that the startup industry needed to retrench—that’s been clear to observers for some time. What is surprising, however, is the reaction of policymakers in Washington, D.C., who apparently see this moment of tech-industry weakness as an opportune time to hobble the innovation economy. Take the mess that’s become of Section 174 of the Internal Revenue Code. For decades, this section has allowed companies to expense their research and development costs for software in the current year, which means that salaries paid to software engineers are entirely deductible upfront. That’s a critical calculation for early-stage tech startups, since development costs are high and revenues are low at inception.

But as negotiators were finalizing the 2017 tax reform, they ran into a quandary: they needed to find an accounting gimmick that would add revenue to the bill so that it would be budget-neutral in the ensuing decade and pass muster with Congress’s arcane budget reconciliation process. Among other components, negotiators settled on a poison pill: five years on, starting in 2023, Section 174 accounting benefits would radically shrink, suddenly choking off the cash flow for America’s most innovative companies.

No one considered that the punishing provision would arrive just when startup innovation is shriveling in the face of higher Fed interest rates after the inflation-stoking over-exuberance of the Covid-19 economy. Industry publications and commentators have warned about the impending doom for more than a year. This week, a bipartisan group of legislators offered a path forward, coupling an antidote to the R&D poison pill with an expansion of child tax credits. But with days to go before companies must start calculating their taxes, the prospects are dim that Congress will pass the fix.

Author(s): Danny Crichton

Publication Date: 18 Jan 2024

Publication Site: City Journal

Can States and Cities Dig Themselves Out?

Mary Pat Campbell

Link: https://www.city-journal.org/multimedia/can-states-and-cities-dig-themselves-out

Excerpt:

David Schleicher: Yeah, absolutely. There’s an old joke that says, “The federal government is an insurance company with an army.” But anything you actually touch, can physically touch, any infrastructure of any sort, or services you consume and need to care about in one way or another are almost all directly provided by the state and local governments. They’re often funded sometimes with money from the federal government, but they are directly private and partially funded by state and local governments. The fiscal health of state and local governments is extremely important to, say, the question of state capacity in America.

Allison Schrager: It seems like we don’t talk about it until you’re Illinois or if you’re a municipality, Detroit, but it seems like we’ve been talking about this big shoe to drop on state municipal bankruptcies for a while and it doesn’t come, but that doesn’t mean we should be complacent.

David Schleicher: Yeah, absolutely. Two things. One is that it definitely would’ve come in the last couple of years had the federal government not dropped a ton of money on state and local governments. The pandemic created huge fiscal problems for a number of jurisdictions. The federal government responded by providing a huge amount of aid. The effect of that is that has had benefits and costs, which I’m sure we’ll talk about, but you can’t just look through the defaults or absence of defaults, to ask the question of “Are states and cities in fiscal trouble?” State and fiscal budgets are very procyclical. We end up cutting really important things during recessions and spending too much during non-recessions. Then we have the question of federal bailouts.

Allison Schrager: Yeah, it’s a very complicated issue, so what to do about this. But you have a very sort of organized, clean way to think about it. You describe it as this trilemma.

David Schleicher: Yeah. When a state or city faces a fiscal problem, fiscal crisis, take New York City in the 1970s or Detroit, or Puerto Rico or whatever it is. We’ve had, over the course of American history from Hamilton’s assumption of state debts, we’ve had a series of state and local fiscal crises. We have a lot of governments and some of them are going to have crises. The question is, what should the federal government do? Well, the federal government has three things it would like to achieve, which are, it doesn’t want to have too severe cuts during recessions, because that creates even bigger recessions. It doesn’t want to encourage state and local governments to think that the federal government will always stand behind them, a problem we call moral hazard. It wants federal state and local governments to be able to continue to borrow because state and local governments need to borrow to build infrastructure.

Author(s): David N. Schleicher, Allison Schrager

Publication Date: 2 Jun 2023

Publication Site: City Journal

Can France Escape Its Pension Overhang?

Mary Pat Campbell

Link: https://www.city-journal.org/can-france-escape-its-pension-overhang

Excerpt:

In 2021, government spending accounted for 59 percent of GDP in France, compared with 45 percent in the United States. Spending on public pensions accounts for much of that gap: it’s 15 percent of GDP in France, but only 7 percent in the U.S. This greatly inflates associated payroll taxes, which alone took 28 percent of workers’ incomes in France, compared with just 11 percent in the U.S.

President Macron argues that the cost of financing pensions is dragging down the whole economy, and that reform is necessary to make France an attractive venue for investment and employment. Whereas workers’ incomes in 1975 were 46 percent higher than those of retirees, by 2016 they were 2 percent lower. Many economists see it as senseless to redistribute so much from the young to the elderly, who seldom have childrearing expenses and whose mortgages are often paid off.

Pension reform is seen as necessary by 61 percent of French voters, but only 32 percent support raising the retirement age. Macron argues that the only alternatives to his reforms would involve cutting benefit levels, hiking taxes, or cutting public spending on other items such as education, health care, or defense. France already has close to the highest taxes in the developed world.

Median incomes for French residents aged 65 and over ($20,116) are little different than those for Americans ($19,704). The main effects of France’s extra pension spending are to crowd out private savings for retirement (which amount to 12 percent of GDP versus 170 percent in the U.S), and to cause French citizens to retire much earlier (at an average age of 60.4, vs 64.9 in the states).

Author(s): Chris Pope

Publication Date: 28 Mar 2023

Publication Site: City Journal

An Update on America’s Homicide Surge

Mary Pat Campbell

Link: https://www.city-journal.org/update-on-americas-homicide-surge

Graphic:

Excerpt:

Last year, Christos Makridis and I used homicide data from the Centers for Disease Control to break down the 2020 homicide spike by geography and demographics. With another year’s worth of numbers now finalized—plus “provisional” numbers stretching into 2022—it’s time for a brief update. The CDC’s data, compiled from death certificates, are especially crucial in a year when the FBI completely failed to collect murder data from many of the nation’s police departments.

The good news is that, after spiking in 2020 and rising a little further in 2021, homicides seem to be falling again. The bad news is that this has been an extremely slow process, with recent numbers still well above pre-2020 levels, even if violence remains far from the sky-high levels of the early 1990s.

The CDC puts the national homicide rate at 7.8 per 100,000 for 2021, versus 7.5 for 2020 and 5.8 for 2019. Here are the month-by-month totals since 2018, including provisional data for the first half of 2022:

Author(s): Robert VerBruggen

Publication Date: 25 Jan 2023

Publication Site: City Journal

The Fed Goes Underwater

Mary Pat Campbell

Link: https://www.city-journal.org/fed-goes-underwater

Excerpt:

Before new trillion-dollar federal spending bonanzas became a regular occurrence, the Federal Reserve’s announcement that it lost over $700 billion might have garnered a few headlines. Yet the loss met with silence. Few Americans have noticed the huge increase in both the scale and the scope of the central bank or the dangers that it poses to the American economy. As Fed-driven inflation becomes the Number One political issue in America, that will change.

The Fed’s losses owe to a shift in the way it does business. Before the 2008 financial meltdown, the central bank tried to control interest rates by buying and selling U.S. bonds. A few billion in purchases or sales could move the whole economy, and this meant that the Fed, which operates much like a normal bank, could keep a relatively small balance sheet of under $1 trillion.

Since the financial crisis, the Federal Reserve, like other developed-world central banks, has used a different playbook. It provides enough funds to satiate the entire banking world, and it seeks to adjust the economy by paying banks more or less interest to hold those funds. These payments keep private-sector interest rates from dropping too low. When it first undertook this “floor” experiment, the Fed’s balance sheet exploded to more than $4 trillion. After the Covid pandemic, it approached $9 trillion.

A larger balance sheet means greater risks. And the Fed has added to that risk by purchasing longer-duration assets. Pre–financial crisis, the Fed bought mainly short-term federal debt. Only about 10 percent of all the U.S. bonds owned by the central bank lasted longer than ten years. Now, that figure has risen to 25 percent.

Author(s): Judge Glock

Publication Date: Winter 2023

Publication Site: City Journal

The Biden Bucks Blowout

Mary Pat Campbell

Link: https://www.city-journal.org/the-biden-bucks-blowout

Excerpt:

Not to worry: the Biden administration is coming to the rescue. The town of Palm Beach Gardens is using $2 million in federal money from President Biden’s $1.9 trillion American Rescue Plan Act (ARPA) to build a $16 million public course, with a two-story clubhouse and driving range that should help at least partially slake the new thirst for golf. The city’s project, one of several golf-course investments that the Biden legislation is funding, is entirely within the spirit of the “rescue” act, which devotes only about 9 percent of its money to public-health causes that fight the virus but allocates hundreds of billions of dollars to local governments and schools for the vague task of providing “support for a recovery” and funding “investments in infrastructure.” As one wag at a South Florida newspaper observed, “If this keeps up much longer, Palm Beach Gardens may get an equestrian center from it.”

Showering local governments with unprecedented federal dollars, ARPA is the last of several emergency packages, totaling more than $5 trillion, to come from Washington in response to the pandemic. Though termed a “rescue bill” to enhance its appeal, the Biden legislation was more of a stimulus, designed to stoke spending by the country’s tens of thousands of local governments to boost economic activity. Signed by the president in March 2021, even as the economy was recovering and tax revenues were rebounding far faster than most analysts had predicted, ARPA allows for wide discretion in how to spend “Biden Bucks.”

The federal money has turned pols into the proverbial kids in the candy shop. They’re using it to restart parades, fund street performers, upgrade high school weight rooms and sports fields, and build bike paths, golf courses, pickleball courts, and other “essential” infrastructure. Billions of dollars are going to illegal aliens. Cities are testing efforts to give low-income residents guaranteed money that supporters say will end poverty. Municipalities are moving to construct their own broadband networks, in competition with the private sector. It’s all part of a program whipped up so quickly that it included billions of dollars for municipal governments that don’t even exist.

To many local officials, ARPA’s allocations seem like free money. But it comes at a cost to the United States. The act’s funds haven’t been generated by taxes or other federal revenues. Instead, they’re financed by “printing” new money (something done mostly via electronic keystrokes these days)—massively expanding the dollars in circulation and thus intensifying our current inflation, the highest in decades. Aside from the pain that the upward spiral of costs is causing ordinary Americans, inflation is also raising the price that governments pay for essential services like police and fire protection, even as politicians rush to spend their one-time Biden Bucks on ephemeral projects and untested programs. With a Federal Reserve–induced recession, sparked by high interest rates to curb inflation, now a distinct possibility, Biden Bucks may soon be remembered as the spending blowout that preceded a local government budget bust-up.

Author(s): Steve Malanga

Publication Date: Autumn 2022

Publication Site: City Journal

A Woke Panic on Maternal Mortality

Mary Pat Campbell

Link: https://www.city-journal.org/a-woke-panic-on-black-maternal-mortality

Excerpt:

The Centers for Disease Control and Prevention has created the public concern about black maternal mortality. In February, the CDC released data showing that the maternal mortality rate for black women is 2.9 times higher than the rate for white women. It’s a worrisome statistic, yet the CDC’s own data, as well as a study from the CDC Foundation, provide crucial (and generally unreported) context.

To be clear, even a single death of a pregnant woman is one too many. But the overwhelming majority of women survive motherhood: in 2020, according to the CDC, 861 women in the United States died related to pregnancy, out of a total of about 3.6 million births—a rate of 0.02 percent. Just over 350 were white, while just under 300 were black. Scientifically speaking, it’s hard to draw society-wide conclusions from such a small sample. It’s even harder when you recognize that the CDC statistics include deaths that occurred up to a year after delivery, as well as those caused by underlying and preexisting medical conditions that pregnancy may have aggravated. And the CDC admits that the systems for identifying mortality rates are prone to error.

….

The panel found that less than about a third of the preventable deaths, across all races, were attributable to individual providers. It did not cite racial bias as the reason. Yet the academic and media narrative leads to the assumption that black mothers are dying because doctors and nurses are racist. This leads to a corresponding claim that black mothers would die less often if they saw black doctors, which some call “racial concordance.” These are strange assertions, since Hispanic maternal mortality is lower than the rate for whites, which wouldn’t be true if medical professionals were racist. Yet these claims are still being used to justify discriminatory and dangerous policies across health care.

Author(s): Stanley Goldfarb, Benita Cotton-Orr

Publication Date: 18 Nov 2022

Publication Site:

A State Tax War

Mary Pat Campbell

Link: https://www.city-journal.org/remote-work-and-the-state-tax-war

Excerpt:

The Supreme Court’s unwillingness to intervene in a fight among states over taxing income from remote work may spark a jurisdictional revenue war. In August, the Court refused to take up a lawsuit by New Hampshire against Massachusetts’ practice of levying income taxes on Granite State residents employed by Bay State companies but working from home during the Covid lockdowns. Now New Jersey officials, who filed an amicus brief in the case because the state’s telecommuting residents are similarly taxed by New York, have proposed a law that would let the state tax telecommuters, including possibly tens of thousands of Empire State residents now working from home but employed by Garden State companies. The in-your-face legislation also provides incentives for Jersey residents to challenge New York’s law in tax court—one of the only venues left to residents after the Supreme Court decision. Given that several hundred thousand New Yorkers once commuted to other states to work and may now be staying home to telecommute, Albany risks losing revenues. 

Beginning in March 2020, Covid restrictions brought a sharp rise in telecommuting, or working remotely from home. Studies have suggested that, during the pandemic’s initial phases, up to 36 percent of all private-sector employees, or about 43 million people, worked at home at least one day a week, and 15 percent, or about 18 million, telecommuted full-time. Census data before the pandemic found that as many as 6 million workers regularly cross state lines to go to their jobs. So it’s likely that several million current telecommuters have jobs with firms in another state. In New Hampshire, about 15 percent of residents with jobs—some 84,000 workers—commuted to Massachusetts pre-pandemic.

Author(s): Steven Malanga

Publication Date: 26 Sept 2022

Publication Site: City Journal

Crash Curse: In New York City, traffic deaths are up as enforcement is down.

Mary Pat Campbell

Link: https://www.city-journal.org/nyc-traffic-deaths-up-as-enforcement-is-down

Graphic:

Excerpt:

Since the Covid pandemic hit New York City in March 2020, traffic deaths have skyrocketed, just as they have across the country. Locally and nationally, these deaths have paralleled the same double-digit trajectory upward as homicides and drug-overdose deaths. In 2019, 220 New Yorkers died on city streets, near the record low of 206, set the year before. In 2021, 273 people died, a nearly one-quarter increase in two years. In 2022, as of late May, 93 people have died, down slightly from last year, but 12 percent above pre-Covid levels.

….

s in many areas of public safety and public health, New York City started the pandemic with an advantage. In 2019, the city’s 220 traffic deaths—whether people in cars, or pedestrians, or cyclists—represented a per-capita rate of about 2.6 per 100,000 residents, just a small fraction of the 11.1 per 100,000 killed nationwide. Among large, urbanized areas, New York stood out for safety, as well. In Miami-Dade County in 2019, for example, the rate was 11 per 100,000; metro Atlanta’s rate was similar. Even among denser northeastern and mid-Atlantic cities, which have long had lower traffic-death rates than the sprawling south and west, New York performed slightly better than Boston, with its 2.8 traffic deaths per 100,000, and much better than Philadelphia, with its 5.7 deaths per 100,000.

Pre-pandemic, New York’s falling traffic deaths made it a national outlier. Between 2011, when traffic deaths hit a modern low nationwide, and 2019, such fatalities across the country rose by 11.9 percent, to 36,355 annually. In Gotham over this period, by contrast, they fell 12 percent. The difference in pedestrian casualties was especially striking. Nationwide, pedestrian deaths began rising in 2010, after having fallen, reasonably steadily, for at least three decades. By 2019, annual pedestrian deaths had risen from their 2009 low by more than half. But in New York, pedestrian deaths fell by 21.5 percent over the same near-decade.

Author(s): Nicole Gelinas

Publication Date: Summer 2022

Publication Site: City Journal

Inflation: Return of a Plague

Mary Pat Campbell

Link: https://www.city-journal.org/inflation-return-of-a-plague

Excerpt:

Experience has once again verified Friedman’s and Lucas’s theories, reducing to nothing the naïve propositions of Modern Monetary Theory, a recent delusion of the American Left. According to this unscientific, ahistorical theory, legislatures can control the production of money and distribute it in a way that satisfies all needs, with no destructive consequences from expanding the money supply. The question of reimbursing a gigantic public debt is not supposed to arise, because no one can force the government to pay what it owes. But this magical solution, adopted in part by Joe Biden, ignores the fact that public debt produces inflation and that a debt that is not repaid, as in the case of Argentina, eventually ruins the currency. All this was well known, at least by economists, so it is surprising that governments in America and Europe had not taken it into account of late. They have short memories. From the 1980s until recently, inflation had been constrained thanks to public policies inspired by Friedman—but policymakers had forgotten its threatening presence, as if it belonged only to the past. We can liken inflation with pathogens: smallpox has disappeared, but vaccination is what made it disappear; stop vaccinating, and the evil can return. In the 1980s, central banks helmed by Friedman’s disciples, such as Paul Volcker in the United States or Jean-Claude Trichet in Europe, raised interest rates and defeated inflation by reducing the money supply. Today, economic policymakers will need to apply the same remedy as in 1980. Central banks are working on this, but their conversion comes late; they have waited for inflation to establish itself before responding, a delay that will make the remedy more painful.

Author(s): Guy Sorman

Publication Date: 14 Jun 2022

Publication Site: City Journal

The Empire of Fees

Mary Pat Campbell

Link: https://www.city-journal.org/how-charges-and-fines-drive-government-growth

Excerpt:

hen I wake up in the morning at my home in Austin, Texas, I turn on the lights, and thereby provide a few cents to the city government’s electric company. I flush the toilet, owing a few more to Austin’s sewer service. When I pour myself a glass of water, the city water department gets a piece. After I get dressed and step outside, I watch the city take my trash, my recycling, and my compost—each pickup costs a few dollars. Sometimes, I discover a $25 ticket for parking my car in the wrong spot. Then I swallow my anger and drive down the MoPac highway, where I pay a toll to the Central Texas Regional Mobility Authority. I park in a garage downtown owned by the Austin Transportation Department, pay them a few bucks, and walk to my office. If I need to take a trip out of town, I pay $1.25 for a Capital Metro District bus to the city-owned Austin-Bergstrom International Airport, where, along with the price of my plane ticket, I pay a $5.60 fee for the benefit of being patted down by a TSA agent, a Passenger Facility Charge, and a small part in any rents the city charges restaurants and retailers. Only when I’m in the air does the drain to the government stop.

In one typical morning, I handed over money to several government bodies. But I didn’t pay any taxes—only fees, charges, and fines. These are the future of government in the United States.

The idea that government operates just by taxing and spending money is anachronistic. A growing share of its revenue comes from charges that the government imposes in exchange for its services or as a penalty for breaking its rules. In 1950, about 1 percent of Americans’ income went to charges from state and local governments. Today, that number is 4 percent. Include federal fees and charges, themselves the fastest-growing part of federal revenue, and that number rises to over 5.5 percent. Though largely hidden from the public, fees and charges account for most of the growth in government over the past 70 years and have become the top source of revenue for state and local governments.

Author(s): Judge Glock

Publication Date: Spring 2022

Publication Site: City Journal